How much money do I need to retire (for financial freedom)

Whenever I feel financially insecure I do some calculations based on my monthly expenses and see how much money do I need for my financial freedom, in other word, retirement.

I know it is too early for me to think about retirement, but I do think what will happen if I quit my job today, a month from now, a year from now or three years from now.

Please note that your financial situation will be different than mine. But, I could give you some ideas so you can do your own calculation to estimate your financial situation.

Also, I have included some resources at the end of this post, and they may help you to achieve your financial goals much earlier than you think.

Let’s see my financial situations – income, expenses, investments, debts, etc.

I am a married guy and father of a 2 months old baby. I graduated from a Canadian university in 2011 with over $50 000 student loans, and am working in Toronto for little above $50 00 per year salary. Yearly after tax salary is around $40 000.

How much money do I need to retire

To get to my work, I drive few kilometers from home, park my car and take bus (five days a week).

My wife worked before, but now in maternity leave and may not return to work for next few years.

Yes, we are one of the low-middle class families in the expensive Toronto area, but we manage to live within our income.

I bought a small townhouse in the Oshawa area last year, and paying around $965 per month mortgage.

Last few months, I did budget my expenses and figured out that our monthly expenses are around $3000 with mortgage and student loan payments.

Here are details in number:

Fixed expenses
Mortgage $965
Utilities (gas, electric, and water) $200
Bus pass $140
Insurance (car, home, life) $175
Telephones, cell phones & internet $150
Property tax
estimated
$225
Student loan $295
Total $2150

Variable Expenses
Groceries
(food, household items, diapers, etc)
$400
Other expenses
(miscellaneous, work related expenses, unexpected expenses)
$250
Gas $200
Total $850

All numbers above are the average estimate from my last 6 month budgets.

So, I need $3000 per month or $36000 per year income to manage my expenses.

O.K, now let’s see how much money I need for financial freedom (retire) with the following assumptions:

  • Mortgage, student loan and other debts are paid off
  • So, I could subtract $1260 from my expenses ($965 mortgage + $295 student loan)
  • If I don’t need to go for work, then I don’t bus pass
  • Subtract $140 from bus pass expenses
  • I don’t to do park and ride (less gas expensive)
  • Subtract $50 per month
  • No more work related expenses (average $50 per month)
  • Another $50 per month less
  • I will receive child tax credit as I become a low income family ($500 per month 😀 ) for 18 years.
  • Yes, low income families will receive more than $500 per month as child tax credits in Canada.

Now let’s put them into number:

Total estimated per month $3000
subtract mortgage expenses -$965
subtract student loan payment -$295
subtract bus pass expenses -$140
less gas expenses -$50
less work related expenses -$50
money needed for a month $1500

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With child tax benefits of $500 per month, I just need $1000 per month to achieve financial freedom with paid off house and no other debts.

We are in Ontario, and covered by Ontario health care plan and Ontario Trillium benefits for prescription drugs.

Yes, the child tax benefits will end in 18 years, and I didn’t take inflation into this calculation for simplicity purpose. However, if I build an investment portfolio with high quality dividend paying stocks, then capital gains and dividend growth will take care these things pretty easily in long-run.

You could clearly see that I just need around $1000 per month with paid off house and no debts. As of May 2015, my estimated dividend income is $5110 per year, almost $425 per month. Thus, I just need additional $575 per month to live the lifestyle I that I have now.

So, in order to achieve my financial freedom, I just need to pay down my debts and build investments assets that should generate around $1000 per month. That’s it.

Even without the child tax benefits, I just $1500 per month to cover our expenses which is less than 36 percentage of my current income.

Some financial advisors and experts suggest that you will need to replace 80% of your pre-retirement income to have a similar life style, and they will keep you at work until 65 or more. Why do you need 80% of your income if you don’t have mortgage or debts payments? Think about it.

Again, your financial situation is different than mine.

If you do your own calculation, you would see that you just need much less than your pre-retirement income as low tax, no mortgage/debt payment, and no need to save for retirement as you will be retired by the time.

Here are some resources you can use to make the accurate calculation, and take advantage of the promotion offer right now!

Hey, Life is short make it sweet!

Great Retirement Books

How Much Money Do I Need to Retire? (60 Minute Financial Solutions Book 5)

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This books shows you step-by-step how to accurately calculate the money you need to retire-the very first time and 7 creative ways to spend less while also improving lifestyle.

No retirement is secure without it.

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Great Retirement Books

You Can Retire Sooner Than You Think

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Disclosure: This post contains affiliate links. I will earn a commission if you decide to make a purchase (at no additional cost to you).

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