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How much income will $100,000 pay

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Written by Jim Yih • 16 Comments
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Many financial calculators spit out a number to answer the monthly newsletter.
question ‘how much is enough?’ Those that know me know that I
wonder whether there is really such thing as enough? Enter your email...

The problem is retirement is not a number. Whatever the Join Now

number is, it does not really solve our problems. In fact it just We promise not to use your email for
spam!
leads to more questions. One of those questions is How much
income will I get from my investments?

Using withdrawal rates

POPULAR POSTS

One of the ways to ballpark the amount of income you can take CPP Payments: How much will
from your portfolio is to use a withdrawal rate. The debate over you get from Canada Pension
Plan in Retirement?
what is a safe withdrawal rate will continue and change but let’s
Four reasons why you should
use an example of 4%. If a withdrawal rate is 4%, then on still take CPP early
$100,000 you could expect $4000 per year from the portfolio. How to calculate your CPP
retirement pension
Obviously, this approach is a little simplistic and depends on the
rate of return you can expect on the portfolio. As safe withdrawal
rate assumes a retiree should be in a safe, conservative portfolio.
and is meant to
RECENT POSTS
‘annuitize’ the total asset.
If you invested in a
balanced portfolio and
achieved an average
return of 4%, then your
$100,000 capital would
be preserved. The
greater the returns, the
greater the potential risk
in the portfolio and
therefore, the greater the variability of returns. When this
happens market volatility can really destroy portfolios that are
paying out an income because the math works against you.
How much will the government
pay you?
How to get your CPP early
The Retirement Income Guide
for Canadian Non-Resident
Expats
Why Robo Advisors Aren’t Just
for Millennials
Securing your retirement with
guaranteed income
Are you prepared for health care
expenses in retirement?
5 tips for handling an
inheritance the right way

It all depends

So let’s get back to the question “How much will $100,000 pay
you in retirement?” the answer is what is so often is “It depends”

The income off a portfolio depends on many different factors:

when are you going to retire and take income?

when are you going to die?
what rate of return will you get?
how much volatility is there in the portfolio?
do you want to preserve capital?

If you look at this question from a purely mathematical

perspective, it really boils down to 2 things – how long will you live
and what rate of return can you expect on your money.

In our retirement workshops we use a little table with these two

variables to help answer the question. Here are some different
outcomes for different scenarios

If you are retired and plan to live 21 years and will make 5%
on your money, $100,000 will pay you $7800 per year or
$650 per month
If you are 70 years old and plan to use your money over 10
years and will make 3% on your investment, that same
$100,000 will pay you $11,720 per year or 977 per month
If you are 55 and plan to live 30 years but hope to make 7%
on your investment, every $100,000s will pay you $8060 per
year or $672 per month
If you plan to live 25 years of retirement but are optimistic
about earning 10% on your investment, that same $100,000
will now pay you $11,020 per year

As you can see, the range of outcomes can vary dramatically

depending on how many years you will receive income and what

j 38 s
return you will earn on your investments. We all want a simple
answer and often default to the ‘safe withdrawal rate’ but that
21 f 27

method is overly simplistic.

You can download a little cheat sheet that I use to help estimate a
safe withdrawal rate based on these two variables.

Download this – How much will $100,000 pay

me (annually)? (16610)

Withdrawal calculators

Another way to figure out how much $100,000 will pay you is to
use some free online financial calculators. I’ll share a couple that
I use.

The Money-Zine Withdrawal Calculator is a really simple

calculator. It’s a US calculator so if you put $0 for pension and
social security, you just have to punch in data for 5 other boxes
and you can get a sense of how much monthly income a lump
sum will pay you.

The Retirement Withdrawal Calculator does much the same thing

as the Money-Zine calculator but it allows you to account for
inflation on your income as well as preserving a lump sum amount
of your asset.

The financial calculators I use the most come from Mackenzie

Financial. They are easy to use and free. There are many
calculators on this page but I use the Investment and Regular
Withdrawal Calculator a lot with clients.

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Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author,
and Financial Speaker on wealth, retirement and
personal finance. Currently, Jim specializes in
putting Financial Education programs into the
workplace. For more information you can follow him
on Twitter @JimYih or visit his other websites Group
Benefits Online and Advisor Think Box.

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16 Responses to How much income will $100,000 pay you
in retirement?

Brian Poncelet,CFP says:

Jim,

How about $8200 per year for life? Guaranteed.

Taxes payable about $750 a year.

Called annuity.

cheers,

Brian

Reply
bob says:

annuity’s purchasing power is washed away by inflation!

Reply
SPBrunner says:

I had read a lot about this subject before I stopped working and
decided to take 4% from my portfolio per year. I stopped working
in 1999. Then came 2000 and then 2008. I changed my mind
and I only take out the equivalent to dividends earned each year.

Reply
Claude Mayrand says:

The fluctuations in markets is the exact reason why

taking out only the income is the perfect strategy.

The actual capital is secondary as long as it produces

the income we need.

It’s another reason RRIFs are a flawed retirement

income vehicle.

Reply
RAHAT KHAN says:

Hi claude,
Can you please elaborate further.
 I am new to discussion!
Thanks,

Reply
Claude Mayrand says:

Rahat,

Search my name on this website.

Take charge of your finances,
don’t rely exclusively on others.

Educate yourself about retirement

income; attend free seminars,
lookup tmxmoney.com.

Reply
Dave says:

Brian

What age are you basing your 8200 on? That’s just short of 700
per month. Best I can see for annuities is about 500 per month
on 100k. Please provide more details.

Reply
Jim Thomson says:

My financial advisor told me not to bother buying an annuity at

these ultra-low interest rates because returns are too low.

Reply
Mary says:

I always find these articles do not discuss the complexities

associated with the minimum and maximum withdrawal rates for
LIFs and RIFS. No one can just arbitrarily select a flat
percentage rate for withdrawals if their money is in registered
funds. The great majority of today’s investors would fall into that
category.

Reply
Claude Mayrand says:

Mary,
 I realized this particular problem would occur as I
learned a little more each year about my RRSP; how
do I get the money out when retiring?

When I found out the amount was fixed by some

ambiguous complex rules subject to change at any
time, I decided to liquidate my RRSP before 71, and I
also decided to look into other means to accumulate
and regulate my retirement income.

So far, so good. Even going through this January 2016

stock market rout.

Reply
Ramesh says:

Claude,

What was the result/tax impact of liquidating your RRSP before

71 and how did that strategy help?

Reply
Claude Mayrand says:

Ramesh,

At present there’s only ±$15,000 left in my RRSP. So

not much impact. Most of my withdrawals over the
were of similar size.

In previous years, the withdrawals were partly

deposited in my TFSA. Any tax withheld was mostly
refunded.

Most of my income is from dividends, some from

Return Of Capital; I pay very little income tax because
of 2 major factors. I have no interest income at all in
my taxable account.

One can earn ±$53,000 in dividends before paying any

income tax. Return Of Capital is income tax deferred
until I sell the stock/fund; it’s not even counted on my
tax return; the deferred income then becomes taxable
like capital gains.

My major portfolio is a Margin Account; that interest is

100% tax deductible from my taxable income. (My
 income is very tax advantaged and my interest
expense is 100% tax deductible)

Because I’m way over 20, I’m not perfect anymore.

Any stock losses are applied against any stock profits.

The highest income tax percentage I’ve paid (line 435

÷ line 260) since 2008 is 8.8%.

My portfolio focus is how much income I can generate

with my portfolio. The value of my portfolio is the least
of my portfolio priorities.

I know, I know… Another rant but I wasn’t busy

Sunday.

Reply
Kalib says:

Jim:

I am glad I came across your informative site.

I have a question relating to estimating my CPP benefits at the
age of 65. I just turned 56 and planning to work full time until 65.

Currently, If I were 65 today,you could receive a monthly

retirement pension of: $608.37 according to Service Canada

Regards,
Kalib

Reply
Doug Runchey says:

Kalib – You haven’t asked a question, but this article

might answer it: https://retirehappy.ca/understanding-
cpp-statement-contributions-soc/

Reply
Nahk kahn says:

I am a 58 year old with 70-80K P/Y income for last 10 years.

Since last year I am working partially with same employer due to
a work related disability and my total annual intake is dropped to
30-35K.

I will appreciate if someone could advise as to what are my

options and should I continue working with modified schedule
 (with less hours) as this may affect my CPP entitlement if I retire
at 60.

Reply
Claude Mayrand says:

Nahk,

Two things come to mind.

If you retire at 60, will you still be working?

Since you now have paid time on your hands, and you
are showing interest in managing your money, educate
yourself about investing – the types of investments
and investment income like dividends and their
implications on income tax, the plethora of free
reputable Internet tools available like tmxmoney.com.

The learning process is very personal and depends

only on you; no one can advise you on how to take
your financial future in hand. The alternative is finding
someone who will perfectly address your situation at
any cost.

Reply

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