When you think about retirement, what is the first thing that comes to mind? Money, right? You don’t want to depend on anyone for finances even when your working income stops. Can you arrive at a number at which you can confidently say now I can retire worry-free? When you crunch some numbers, no retirement pool seems big enough to let you retire peacefully. So how would you determine when to retire?
How much money do you need to retire worry-free?
If you have 15 to 20 years of your current income saved up, you could consider retiring comfortably. If you earn $110,000 annually, you should have at least $2.2 million to maintain your current lifestyle during retirement.
If you retire in 2024 and withdraw $110,000, your retirement pool is reduced to $2.09 million. This amount will stay invested and earn some returns. Here, we will make a few assumptions:
- Your investment portfolio gives you at least 6% of the average annual return.
- Your withdrawals increase by 5% annually, adjusting for inflation, one-off expenses or economic crises.
Here is what your retirement pool might look like.
| Year | Annual Withdrawal (Increasing by 5%) | Retirement Pool | Earning 6% Annual Return |
| 2024 | $110,000 | $2,200,000 | $0 |
| 2025 | $115,500 | $2,090,000 | $2,215,400 |
| 2026 | $121,275 | $2,099,900 | $2,225,894 |
| 2027 | $127,339 | $2,104,619 | $2,230,896 |
| 2028 | $133,706 | $2,103,557 | $2,229,771 |
| 2029 | $140,391 | $2,096,065 | $2,221,829 |
| 2030 | $147,411 | $2,081,438 | $2,206,324 |
| 2031 | $154,781 | $2,058,914 | $2,182,449 |
| 2032 | $162,520 | $2,027,668 | $2,149,328 |
| 2033 | $170,646 | $1,986,808 | $2,106,016 |
| 2034 | $179,178 | $1,935,370 | $2,051,492 |
| 2035 | $188,137 | $1,872,314 | $1,984,653 |
| 2036 | $197,544 | $1,796,515 | $1,904,306 |
| 2037 | $207,421 | $1,706,762 | $1,809,168 |
| 2038 | $217,792 | $1,601,746 | $1,697,851 |
| 2039 | $228,682 | $1,480,059 | $1,568,862 |
| 2040 | $240,116 | $1,340,180 | $1,420,591 |
| 2041 | $252,122 | $1,180,475 | $1,251,303 |
| 2042 | $264,728 | $999,181 | $1,059,132 |
| 2043 | $277,965 | $794,404 | $842,068 |
| 2044 | $291,863 | $564,103 | $597,950 |
You receive a 6% return on $2.09 million, which increases your retirement pool to $2.215 million. In 2025, you withdraw $115,500 (5% more than last year) from $2.215 million, reducing your retirement pool to $2.099 million. However, a 6% return on this amount grows your pool to $2.23 billion.
As your withdrawals grow, so does your retirement pool, slowing the process of depleting your savings. While you started with 20 years of expenses, your retirement pool can continue to fund your retirement for several years.
How do you build a $2.2 million retirement pool?
To build such a retirement pool, you should invest regularly in equities, no matter how risk-averse you are. The stock market has resilient growth stocks like Nvidia and Constellation Software (TSX: CSU) that could grow your investment 10 times in 10 to 15 years. Constellation uses the power of compounding to grow its value. It functions like a private equity firm, acquiring niche vertical-specific software (VSS) companies with stable cash flows and reinvesting these cash flows to acquire another company.
The acquired companies operate without any interference from Constellation in their operations. A significant portion of its revenue growth comes from these acquisitions and 2 to 3% organically. Constellation stock surged 1,300% in the last 10 years (April 2014–April 2024). If you had invested $20,000 in 2014, you would now have $277,500.
Making regular investments in growth and high-yield stocks, and staying invested for at least 15 years can help you retire a millionaire.
How to earn a 6% average return to retire comfortably
If you are retiring or closer to retirement, consider switching a higher portion of your retirement savings into fixed-income securities or dividend aristocrats. Build multiple passive income sources so that a dividend cut in one stock does not affect your retirement plan. You could consider investing a sizeable amount in Enbridge (7.48% dividend yield), Telus Corporation (6.97%), and Royal Bank of Canada (4.04%).
All three have a history of growing dividends for 20 years and above. They could give you a 6% average return and even grow it as per inflation, increasing the life of your retirement pool.
