How Much Cash Do You Need to Retire? Here Are 2 Simple Rules to Follow

Are you nearing retirement? Here are two simple ways you can calculate how much you need, then you can invest in BCE stock to hit that number.

| More on:

If you’re part of the 9.8 million baby boomer Canadians who are nearing retirement, you are probably asking yourself, how much money do I need to retire?

There’s no one-size-fits-all approach that will work, since everyone’s situation is different. But here are a couple of rules of thumbs to keep in mind, that could give you a rough idea of how much money you will need to retire.

Multiply your income needs by 25

The multiply by 25 rule is simple. If you have calculated you’ll need a certain amount of income per year to retire, you have to multiply that amount by 25, and that is the number you will need to retire.

For example, if you calculate you will need only $20,000 of income per year on top of your CPP and OAS when you retire, then you will need approximately $20,000 multiplied by 25, which is $500,000.

This is a fairly conservative estimate, and it equals a 4% withdrawal rate of your investments every year. Withdrawing this low rate almost assures you that your money will last for the rest of your life.

Use 70% of your last-year income

Another measure you can use is to take between 70% and 100% of your previous year’s income to figure out how much income you will need in retirement. If you had an $80,000 yearly salary the year before retiring, you might need 70% of $80,000 per year during retirement, which is $56,000 per year.

It’s commonly stated that you will need less income in retirement, but depending on what your plans are after you retire, you might need more or closer to 100% of your last year’s salary.

Invest early

As an example, if you calculate that the number you need is $1,000,000, what are the best ways to reach your retirement number? One proven way to hit your number is to start investing early and to invest in income-generating companies.

For example, take a great company such as BCE (TSX:BCE)(NYSE:BCE), better known as Bell.

BCE doesn’t demand intensive research. Canada is one of the world’s most protected telecom sectors. Telecom giants in Canada can maintain high operating margins. The industry is part of an oligarchy where the major carriers, including BCE, face little competition.

As a consumer of telecom products in Canada, you might complain about the high costs, so why not become an investor and cheer those costs instead?

If you were a 45-year-old investor 20 years ago, and you’d invested $10,000 in Bell at that time, and now you’re ready to retire at 65, your initial investment with dividends reinvested would be worth $55,994. This amount is almost six times your initial investment.

This calculation doesn’t take into account taxes, but if you invest in BCE in your TFSA, it would be worth that full amount if returns are maintained in the future.

Conclusion

BCE is one example of an excellent stock you can purchase to hit your retirement goal. Make sure to diversify your stock holdings properly, and calculate your retirement needs carefully to enjoy your golden years without any stress.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Canadian National Railway Stock is on Sale: Why Now is the Time to Invest

CNR stock has long been a top stock, with a solid position in a railway duopoly. But right now is…

Read more »

ETF stands for Exchange Traded Fund
Dividend Stocks

This 7.9% Dividend Stock Pays Cash Every Month

We all want dividends, and having them come out monthly is ideal! But this might be a strong choice for…

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

Is Northland Power Stock a Buy for its 6% Dividend Yield

Northland Power stock is cheap and ready to move higher as major projects near completion. In the meantime, we have…

Read more »

space ship model takes off
Dividend Stocks

3 Top Canadian Stocks That Just Increased Their Dividends (Again)!

These three top Canadian stocks just increased their dividend. No surprise since they have a great record of growing earnings…

Read more »

Canadian flag
Dividend Stocks

This Canadian Dividend Stock Pays at 11.2%

A high dividend yield is awesome, sure, but is this dividend stock still a great buy with that 11.2% yield,…

Read more »

Hand Protecting Senior Couple
Dividend Stocks

3 Blue-Chip Stocks So Safe Canadians Can Hold Them Until They Die

Canadian National Railway (TSX:CNR) is a stock worth owning for life.

Read more »

stock research, analyze data
Dividend Stocks

14.7% Dividend Yield? Buy Up This Passive-Income Stock in Bulk!

That dividend yield is high, but it still comes with some strong reasons to consider the stock outside of a…

Read more »

Canadian Dollars bills
Dividend Stocks

1 Dividend Stock That Could Create $5,000 in Tax-Free Passive Income in 10 Years

Here's why Fortis (TSX:FTS) certainly looks like a top dividend stock with outsized total return upside worth buying right now.

Read more »