How much money will you need to retire and live comfortably in Canada?

Knowing how much money you will need to retire can be tricky! You don’t want to find yourself in a situation where you are completely dependent on others for your income. It’s important to get a handle on this before you retire.

Our clients commonly ask us questions such as:

“How much money will I need in retirement?”

“How can I retire before I’m 50, 55, 60, or 65 years old?”

“I don’t want to work until the day I die. What are my options to retire without working?”

“How much do I need to retire comfortably?”

“How do I invest so that my money will grow?”

Every client is different, so it’s nearly impossible to answer each of these questions with a single answer.

Our goal is to give you some background knowledge on how much money Canadians need for their retirement years. We’ll discuss three main topics: where your funds will be coming from (in terms of income), how many years you would like to receive this income (how long you expect your savings / investments / retirement funds to last) and what other expenses or goals you might have as a retiree.

By the end of this article, we hope to help answer those questions above and give some direction on how much money Canadians need for their retirement years.

How much do I need to retire in Canada?

You may begin to question whether you’re saving enough for retirement as you become older, and if your retirement nest egg will be enough when you finally do retire.

Canadians estimate, on average, they’ll need $756,000 in personal savings for a comfortable retirement, according to a survey by the Canadian Imperial Bank of Commerce (CIBC).

It is also recommended that when planning for your retirement, you should always aim higher because it’s better than not having enough money when you get there.

How much do retirees spend?

People like to spend more when they retire. You might travel more, purchase a car or yacht, buy a vacation home, eat out more often and buy higher quality consumer goods. But if most people’s spending goes up during retirement, is there a point where this starts to become unsustainable?

A BMO wealth management study in 2015 found that retired Canadians spend $28,800 per year on average. Adjusted for inflation, that works out to needing roughly $32,000 a year in 2021. If you are 65 and plan to retire today, expecting to live until you are 90, you would need to have about $800,000-$1,000,000 on hand to retire comfortably.

What about debt?

Don’t take debt into retirement. Period. Consider this: you have a mortgage. You pay $12,000 per year interest + principle. If your earnings are $80,000 / year after tax, you’re paying 15% of that income to this debt. Now you retire, your retirement income drops to $48,000 / year after tax. You are now paying 25% of your income to this debt. That is going to hurt! Don’t take debt into retirement. Keep working.

How do I calculate how long my savings will last in retirement?

To calculate how long your savings will last, it’s important to understand best investing practices and your financial situation. For example, if your total annual income right now is $50,000, you can use an online retirement calculator to see an estimate of how much money you’ll need every month to maintain the same standard of living.

Your savings may last longer if you invest your money and you know that you can draw on it for income, or you plan to work part-time.

Where does my income come from after I retire?

So, you’ve retired and now it’s time to live the good life. But where does your income come from after retirement?

The answer is: from your savings and investments. Retirement income is most typically made up of:

Pensions (including Canada Pension Plan and Old Age Security) and registered savings plans such as RRSPs and Tax-Free Savings Accounts (TFSAs).

Other sources of retirement income include but are not limited to: Income from employment sources such as part-time work, self-employment or a business that you might own during your retirement years Interest, dividends and rent earned on investments such as bank deposits, bonds, mutual funds, stocks and exchange traded funds.

How many years will my savings last?

The amount of money you will need in terms of retirement savings will depend on how long you plan to live in retirement. If you retire at 65 and expect to live to 90, then your savings need to last you 25 years.

Planning ahead is key! By planning ahead and focusing on good investments, you can increase the likelihood of having enough money to live comfortably during these years. Putting together a financial plan with a Certified Financial Planner may be useful when trying to figure out how much money you need saved up before retiring or retiring early.

If you would like to learn about how much money you’ll need to live comfortably in retirement, click here to schedule a free 15-minute consultation with one of our Certified Financial Planners.

Resources

Canada Pension Plan retirement pension

Allowance for people aged 60 to 64

Pension benefits (including CPP and OAS)

Canadian Retirement Income Calculator