The "Ice Breaker" -a How Much Do I Need? calculator
The 'how much capital do you need?' calculator can be found everywhere on the net.... Enter your age, when you want to retire, what retirement income (lifestyle) you wish to enjoy, .... and the calculator will tell you how much capital you must save in order to meet your goals.
The problem is that these calculators are very primitive... they avoid the complexity of tax and omit the effect of CPP, OAS and inflation.
Here is the RRIFmetic version of the 'how much do you need?' calculator...
(this is a good way to get a 'reluctant client' started on the way to a full planning session, by the way)
First create the client file.
Lets say he is 30 years old.
Give him a fairly large RSP.... say $1 million (this is arbitrary!).
Now, ask when he wants to retire (say he says 60), and what his ATI (target lifestyle) need is. Drop in that ATI in the first column and run it down from age 60 to the bottom. (the top of the 1st column from 30 to 60 must be empty!) ...... "I need $35,000 to live on at my retirement age of 60" (enter 35000 in the age 60 cell, and 'yes' to the copy-down prompt.
The result grid will show the ATI being driven out from 60 to the bottom as you specified, but different (higher or lower), of course from 30 to 59. We don't care about the ATI in this pre-60 time period at this stage!!!!
Examine the size of the Reg Principal (4th column in results grid) at age 60. This is the answer to the "how much do I need" question.
This isn't exactly intuitive... however, it is fully tax accurate and includes inflation/CPP/OAS, unlike most simple retirement calculators.
Look at this as a quick 'ice-breaker' with a client, when you are just getting him to open up without him having to announce his salary, existing savings, outstanding loans, etc.
When were you born? when do you want to retire? what ATI/lifestyle do you need in retirement? (most prospects are willing to commit this much) A couple of mouse clicks and a few seconds of data entry.... (dropping $1 million into his RSP) and amortize. Very fast!
In 3 seconds you can immediately tell the client how much capital he needs- ("Regist Principal" at age 60), and because it shows income tax, OAS, clawback, and CPP, you will have demonstrated the accurate/inclusive nature of the program and established your credibility. You can now proceed to the next phase... putting in his real RRSP (replacing the $1 million RRSP), throwing in any nonreg capital, equity, salary, loans, a future capital gain,... etc and progressing on to a full financial plan.
Again, this is a simple beginning to a two step process.... a quick "how much do you think you need?", and, after you have established your credibility with tax/clawback/CPP... etc, you can progress to creating the full financial plan.
BTW.... to prove to yourself that the $1 million entered was arbitrary, change it to $2.5 million or $500K and amortize again. Magically, the size of the RRSP at 60 (the start of the $35,000 ATI targetting) will be exactly the same. Of course, the ATI pre-age 60 will be different.