All About the Numbers


Numbers play an important role in everything we do, but nowhere are they more prevalent than in finance. I recently came across a few statistics, which were quite interesting and very worthwhile, especially when it comes to planning for our golden years.


The first number is the rule of 72. This is an indicator of when your investment doubles. You simply take your expected rate of return, and divide it into 72. For example, if you have an annual return rate of 8%, you divide that into 72, and your investment will double every 9 years.


Another great collection of numbers to know is where the marginal tax rate in Ontario changes. The first marker is $14,000, the base exemption before you pay any tax. From there, all the way up to $45,000 puts you in a 20% tax rate. When you get to $89,000 a year, you are in a 29% tax rate and at $100,000 you slide into a 43% tax rate. The highest rate for people living in Ontario, is 53% at an income level of $230,000. Keep in mind this is your marginal tax rate, not your average tax rate (total taxes you pay divided by your total income).


The next number is one that determines if you are financially independent. The number is based on your lifestyle assets (your home, cottage, vacation properties, etc.). You add up the value of your lifestyle assets and that number should be 30% or less of your net worth. It is OK if it’s higher, it just means you are not quite financially independent yet. Financial independence, is of course what you need to be able to retire.


The next number is 20. If you are able to consistently save 20% of your income, you will be able to have a great retirement. Unfortunately, many people, in their mid-forties, dip into their savings to buy cars, go on trips, etc., which takes away from that financial security. Those should not be paid for out of your 20% savings.


The last number, and one of the most important ones for retirees, is the 4% rule. This is the amount of money you can withdraw from your portfolio annually, without the fear of running out. In other words, if you have half a million dollars in your portfolio, you can safely withdraw $20,000 a year, from age 65 onward. Add to this the CPP and OAS benefits (about $20,000 per person), and any pensions you may have. If you want to retire earlier, say at 55, you should be looking at an annual withdrawal of 3% of your portfolio. Consequently, if you are in your eighties, the number can go up to 6%.


I came across these numbers on a podcast from Assante Wealth Management, and found them to be quite interesting. As with any information of this type, you should talk to your advisor before making any decisions or changes, to the way your money is managed.


I should mention, there is one more number not to be missed, and it is $10, with which to buy a lottery ticket so you can ignore all the above and move to the south of France.

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