Recently I started getting curious about how close we are to having saved “enough” for retirement. I took a peek at various retirement calculators and realized with a sigh that finding out that answer depended on answering some other questions first. To make a decent attempt at planning our retirement, I would need to know how much we will spend per year once retired and that meant I needed to know how much we really spend now.
The whole issue is kind of like getting out the bicycles from the crawlspace for the spring. First the summer tires are in the way and rather than moving them
it makes more sense to get them back on the cars—which means booking an appointment and getting the car there, walking home, walking back and driving the car home, but NOT unloading the winter tires to put back in the crawlspace until after the bikes are out.
Of course, it’s not just the snow tires. It also means moving the snow blower to the quiet corner of the garage and getting out the lawnmower that’s currently sleeping there so there’s room for the bikes. But that means pumping the gasoline out of the blower (or putting stabilizer in it) and draining its oil. And what if it snows again? Spring snow is usually that wet heavy stuff that our neighbours appreciate a hand with.
And you wonder why I haven’t been posting much recently? (Ok, maybe the tundra-swan-and-snow-goose-migration watching also was a factor, but that was an essential health-related activity because it prevents our family from catching Nature Deficit Disorder.)
I Used to Know Exactly How I Spent Every Cent
When I was in university inflation was out of control and jobs were hard to find. Like many of my classmates, I enrolled in a program not based on my “passion” but based on the likelihood of getting a decent job when I graduated. I was hired while finishing fourth year and headed west upon graduation. (Yes, even then you had to move to where the jobs were. Twenty-five years before my Dad had had to move West, too, but to Ontario.)
I’d only been working for about two weeks when the layoffs began.
Through a variety of fortunate circumstances and by showing major initiative, I managed to hang on to my job in a modified format. I didn’t expect it to last, though, as the industry was collapsing all around me. So out came the notebook and down went every cent I spent, from a postage stamp (Get this: There was NO EMAIL!!!) to a new sofa bed.
Recent years have been kind to us financially. While we still half-expect a layoff at any time we no longer record every cent spent. We know we are saving steadily and we still spend carefully. We’ve kept close watch on all of our beyond-our-control costs but we didn’t really know exactly what our discretionary spending was.
Back-calculating our Total Annual Spending
Thus began a rather disorganized attempt to calculate our total annual spending. The first time I tried it, I started from our T4s and other sources of income. That became a huge mess because I never did figure out what to subtract from our gross income to get down to what gets deposited in our chequing account. And I’d have to keep shaking myself out of the train-wreck-shocked stupor I’d get into from comparing our gross to our net on those T4s. (Frankly I don’t think they should ever show you your gross.)
Why was the whole thing so messy? Because most of the money we take home goes into one form of savings or another: RRSPs, TFSAs, RESPs, non-registered investments. And we have weird sources of money, too: Anyone else have about 18 shares of Telus (real paper shares in the safe deposit box the government says I don’t need anymore) that date back to Alberta Government Telephones privatizing? So I had to remember them all and track down what they added or removed from our bank account/s.
The successful attempt took a more simplistic approach.
Identify all the sources and amounts of income coming into our lives during each calendar year, including the one off’s:
- Pay deposits including performance bonuses, annual bonuses, SARs, RSUs, CAP and SP plan withdrawals etc.
- Income tax refunds
- Blog advertising deposits
(big bucks here! E.g. it’s neck and neck in a race with what those 18 Telus shares generate)
- ING Direct bank referral deposits
(in the same race! but ahead of the ads)
- Interest income from bank accounts, HISAs, GICs, Canada Savings Bonds (none of those left for us adults but we still had some for the first year I did this math)
- Dividend payments made by direct deposit or by cheque
(we still have paper shares for a few companies)
I didn’t have to include any income
- earned in our RRSPs or LIRAs
- earned in our TFSAs
- earned in our defined contribution pension plans
- earned in our CAP/SP provided we didn’t withdraw any money out to spend
because those earnings were not available to be spent on discretionary costs. That made this a bit easier.
Then I had to identify all the ways that income left our hands
- RRSP contributions that year
- Charitable contributions that year
- TFSA contributions that year
- RESP contributions that year
- Amount spent on a major vacation (we kept tight track of that one out of curiosity as we don’t do big vacations often)
- Amount spent replacing the Camry after it was taken away from us
- Amount paid for beyond-our-control costs including Natural gas Electricity Water Internet Telephones Car Insurance Home Insurance Property Taxes
- Non-Registered Savings contributions that year
By subtracting those costs from that income, I could see what our discretionary spending was. (I already had a pretty good idea of it, of course, because my husband spends almost everything on his credit card and I spend almost everything on debit from an account which is only used to buy things. This exercise was to give some ‘science’ to my estimate, since my husband always way over estimates our spending based on the lunch room conversations of his more profligate friends. Note: this is while he is eating his home-cooked lunch and they are eating take out.)
Why I Nearly Had Two Heart Attacks
I did this exercise for the past three complete years. So I nearly had two heart attacks.
The first came when I thought our spending had increased $20 000 one year. I couldn’t believe it, though. Sure, we let our eldest get pizza lunch once a week at the new school, and we pay when the youth group goes to LaserHunt, but $1667 more per month?!
That one didn’t take too much detective work. I’d set up a new savings account that year at ING Direct for orthodontics so we didn’t invest that money when we needed it handy to pay the bills. I forgot to subtract the one time cost of funding that account from our income.
The second heart attack came from a different year having an $10 000 increase in spending. That one was a bit more heart palpitating because I have been feeling guilty about how often I’ve been suggesting we go out for dim sum. (Once we even went without the children, on a weekday!) The real cause of the extra spending was much harder to track down, which is a bit funny because I wrote about the cause several times on my website. What can I say? I’m not fond of adding numbers.
Anyway, it turns out that we had put $11 000 into a TFSA Kickstarter account at ING Direct in November but I had only subtracted $11 000 for our January contribution to our TFSAs from our income. Because we transferred the TFSA from ING to InvestorLine before I started this work, there was no obvious sign of it when I was poking around online adding up numbers. So when I corrected for this, our spending actually went down a few hundred dollars that year, not up. Phew. I would have missed those spiced squid tentacles if we’d had to cut back on lunches.
And the Actual Retail Value is…!
So now I suppose you think I’m going to tell you how much we spend on junk a year, huh? Nope. You’ll have to go read someone else’s blog if that’s what interests you.
In percentage terms, we’re saving way more than we’re spending. Which is good because we are not going to have much of a pension in retirement so we’d better not get used to having money to spend.
After adding back in the not-under-our-control costs, I had an annual spending number to start figuring out our retirement plans. I doubt we’ll spend less in retirement because we don’t spend a lot now.
I actually have two numbers: a ‘regular annual spending’ number and a “r.a.s. plus a vacation or a new car or a major home reno’ number. Those sort of give us the two ends of the retirement spectrum we’d like to land between, at a minimum.
Ideally, we’d like to have more. We’d like to be able to
- help our children (with a loan! Not a gift!) with the costs of their first home and,
- if they’re interested, pay for a wedding for them (limit one per customer: choose your partner as carefully as possible!)
- It would be nice to be able to fully fund their ‘higher’ learning, too, although there are limits to that. No perpetual students need apply.
So we’ll keep saving like the dickens regardless of what this experiment unveils. Because at any time, the money could dry up. Layoffs and “early retirement” are almost as common today as they were when we entered the workforce.
Budgeting for Retirement:
- Reduce How Much You Must Pay on a Fixed Schedule
- The Long Term Costs of Maintaining a House Must Be Included
- What Does It Really Cost to Eat for a Month?
- Dental Costs for Hygiene, X-Rays, and Fillings
- What Rate of Inflation Should I Use?
Planning for Retirement:
- Testing the Service Canada Retirement Income Calculator
- Testing the TD Retirement Savings Calculator
Have you got a good grip on how much you spend per year? Can you use it to extrapolate what you’ll spend in retirement? Please share your misery (or miser-y) with a comment.