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Retirement PlanningHow Much Is Enough For Retirement?


This article was reviewed by Chris Singer, CFP®.

The Big Question

One of the most common questions a financial advisor is asked is how much money a client needs to be able to retire.  There are many factors at play when determining this number and it will vary from person to person. Someone who is making $60,000 a year pre-retirement may be able to live very comfortably on $50,000 a year in retirement, but someone who is used to making $200,000 a year may not find that realistic.

Luckily, there is a simple way to find out how much your family will need come retirement; it’s called the Financial Independence Number.

The Financial Independence Number

You only need two pieces of information to determine your financial independence number:

  1. Your Basic Cost of Living
  2. Draw Down rate

Your basic cost is the total of your non-discretionary expenses annually.  Things like rent, phone bills, taxes, internet, health insurance, life insurance…to name a few. 

Your draw down rate is the percentage of your assets you can draw on every year without reducing your capital.  It is generally agreed upon that 4% is a reasonable and realistic draw down rate for retirees. 

Everyone will have a different financial independence number based on their standard of living and income. 


John wants to know the amount of wealth he needs to accumulate in order to retire comfortably at age 65.  John and his wife Jane have determined that their annual expenses will be $60,000.  They are comfortable with a 4% draw down rate. 

John’s financial independence number will be as follows:

            Annual Expenses ÷ Draw Down Rate

            $60,000 ÷ .04

            = $1,500,000

John and Jane’s financial independence number is $1,500,000. They now know this is the amount they need to strive to save before retirement. Their financial advisor can help them put together a plan to ensure they are able to meet their goal.

Sooner the Better

The sooner in your life you determine your financial independence number, the sooner you will be able to take the steps necessary to reach your goal. A financial planner can you help you budget and invest in a way that makes your goal attainable. It is also important to remember that pensions and government benefits are not included in a financial independence calculation. This calculation gives you more of a ballpark estimation to start with.

Additional Readings: Retirement Planning in Canada: A Complete Guide