How Much Money Do You Need to Retire in Canada? (Guide)

Retirement savings is what we barely ever pay attention to, although the need to retire is there and getting closer every year. As many are aware, it is true that becoming retired means a drop in the quality of life, and the more lavish your lifestyle now may be, the more modest it will have to be to avoid running out of your funds once you retire. Since many people overestimate the amount they need to retire, today, we will be covering exactly how much money you need to retire at different ages, as well as the different ways to calculate your yearly savings or a comfortable income during retirement. 

In fact, your retirement nest egg does not have to be very big for you to afford a decent life post-retirement. What many people forget about when planning one is that children will move out, the house will have been paid off by the time they retire, and they will not commute as much to work. Some may need to save as little as 640,000 for their retirement. Still, starting early is the key here as it can save a lot of headaches and even help you put aside far less money than if you waited a decade or so to start saving. 

Canada offers several ways to save for your retirement. RRSPs, TFSAs, CPP, and OAS, may all sound confusing, but we will cover them all, including a comparison of expected contributions for people starting at different stages in life. As always, long-term financial planning does not come easy, so we always recommend doing your own math and fact-checking or hiring a financial advisor.

Cost of Living in Canada

The main reason for this recommendation is that you should be able to take into account different contributions, inflation levels, interest rates, and tax rates, all at the same time. This can be a draining process and is likely to take a long time and a lot of expertise to get right. For this reason, you may need to consider the average cost of living in Canada first to have something to compare your desired savings to. 

Average Cost of Living in Canada

Canada is not a very affordable country. An average family of four can expect to spend an average of CAD 4,790 per month without rent. A single person, again without the rent, can expect to spend CAD 1,340 per month. An apartment will easily cost between CAD 1,442 and CAD 1,663 per month for a single-bedroom apartment, while a 3-bedroom place will cost CAD 2,350-2,700 a month, depending on location. 

Your basic utilities, including electricity, heating, cooling, water, and garbage disposal, will cost around CAD 200.00 per month for a 1-bedroom apartment. Your mobile phone will kick out another CAD 55.00 while joining a gym will cost the same. Schooling your kids will cost you CAD 1,000 per month per child, while international schools start at 1.5 times that amount. 

Breakdown of Expenses 

On top of these expenses come all others: food, transportation, clothes, and going out. The expenses add up, and so does your expected retirement fund. Based on some rough estimates, you should consider your average monthly costs and count that you would need approximately 70% of that amount to keep living the same lifestyle in retirement. Although this may seem counterintuitive, remember that paying off a mortgage, schooling and supporting your children, and commuting to and from work, take up a considerable amount of money. 

Cost	% of Total Income	4-Member Family Estimate
Transportation	9.1%	CAD 649.74
Clothing	2%	CAD 142.80
Sports	4.5%	CAD 321.30
Groceries	31.4%	CAD 2,241.96
Utilities	7.8%	CAD 556.92
Rent	31.2%	CAD 2,227.68
Restaurants	14.1%	CAD 1,006.74

Source (percents only): Numbeo.com

How Retirement Expenses Differ from Working Years

Now, this would be almost CAD 84,000 a year. So, how come an average Canadian can retire with much less? Well, most of these costs decline. Children move out, you purchase your home, and you spend less money on transportation and clothing. Many couples also decide to downsize their homes and appetites, especially for travelling and restaurants. Lower income also means lower taxes, which would say you need barely 70% of what you are used to spending in your working life. 

Retirement Income in Canada

Now, this is something that can be planned. Once you have your estimate, you will know how much you need to set aside. And while there are many different ways to calculate your personal savings and monthly income post-retirement, you also need to retire comfortably, so this may increase the money you need to put aside each month while still young. And while living expenses do keep increasing, you may want to start building good financial habits as soon as possible. 

This is where a certified financial planner comes in handy. Do not forget that the numbers above are an estimate, and they do not reflect your specific financial situation, and that you need a financial planner or a financial advisor to estimate your current expenses, propose ways for saving for retirement, and where you could cut back – possibly for investments. A good retirement income is what we all want, but an average Canadian has barely CAD 280,000 at the moment of retirement – which is simply not enough. 

Sources of Retirement Income 

But where does the retirement money come from, and where to put the extra you have when you save money during your working life? Well, there are many retirement plan options out there, but most advisors will agree that a balanced portfolio of savings and investments is what you need for the most security and happy retirement. In fact, Canada offers the following retirement programs: 

• RRSP
• TFSA
• CPP
• OAS
• RRIF, and others. 

Besides these, you can also invest in stocks and bonds and even make additional income through dividends. 

Eligibility Requirements for Government Benefits

The two most popular sources of additional income for retirement include OAS (Old Age Security), and CPP (Canada Pension Plan). With the former, you must be at least 65 years old to get the benefits, be a Canadian citizen, or have been one for at least ten years since the age of 18, or 20 years if you currently live outside of Canada. The latter scheme is a bit more straightforward: you must be at least 60 years old and have made at least one valid contribution to the CPP fund. 

Tax Implications of Retirement Income

Some sources of retirement income in Canada are not taxable, while others are. Some examples of non-taxable retirement income in Canada include CPP and OAS. When investing in RRSPs, you do not pay income tax on the contribution money, but you do once you start withdrawing it. However, if you decide to turn your RRSP funds into RRIF, you still get to pay the taxes but cannot make any further contributions to the RRSP. You should always seek additional advice from a financial advisor to see how you can benefit the most from a combination of these funds. 

Retirement Savings Required

If you ever searched Canada Pension Plan schemes or even what ideal retirement goals should be to secure enough annual income for years to come, you may have seen different estimations of how much money you need. However, as the life expectancy of Canadians grows, the need to save grows as well. The thing is that you can retire based solely on the amount of money you have in sole or mutual funds, but more goes into the equation to make sure the funds will last. 

How To Calculate Retirement Savings Required

For example, if you would like to retire earlier than the current average of 64.5 years, you will need more money than someone retiring at 65. As the average life expectancy is around 85 years, this means that a person retiring at 65 will need to have put away 20 years’ worth of income towards their taxed and tax-free savings accounts. If you want to retire early, you will need even more, as the period you will be retired for is longer, and you will have fewer work years to put aside enough money to last you in your retirement. 

Considerations for Retirement Lifestyle and Goals

In addition to this, you will also need to consider your current and retirement lifestyle and goals. If you would like to indulge yourself in your twenties and thirties, you will be left with only around 20 work years to put the money aside, meaning you will have to dedicate a much higher percentage of your income to a Canada pension plan. 

On the other hand, the desired lifestyle in your retirement will also dictate how much you need to save. Some may want to downsize and live a modest life, while others may want to travel and enjoy a more ‘comfortable retirement.’ However, overinflating numbers and striving to a magical CAD 1.7 million that many online sources talk about may simply be unnecessary, especially as retirees spend way less than is usually thought. 

How To Save For Retirement in Canada?

On your way to saving up, and considering the average retirement age of 64.5 (~65), we will look at some of the ways you can save much money during your working years to ensure you can retire at a reasonable age. The news of the elderly having to work to support their income does occasionally hit, and nobody wants to be on that end of the spectrum. 

The 4% Rule 

This rule relies on saving up the pre-retirement income to the point that you can live comfortably by withdrawing no more than 4% of your savings every year. Estimations say that, even when adjusted for the inflation rate, this money should then last you for more than 30 years. You would need to save up to 25 years’ worth of expenses (assuming good health and low medical costs) and have some of them invested. 

50/30/20 Envelope System 

There are many envelope systems and ways to save money using strict division like this. Basically, the 50/30/20 system states that you should use: 

• 50% of your income for your needs (housing, food, clothes, transportation, utilities, and healthcare)
• 30% of your income for your wants (restaurants, fancy clothes, travel, luxury items, cars, watches) and 
• 20% of your income for your savings (pension funds, retirement funds, investments, stocks, and bonds)

This way, with estimated annual capital growth, you will secure a steady annual income. Pay attention that this system takes years to accumulate enough money. If starting later in life, like after 35, as opposed to 25, you may want to up the numbers to 50/25/25 or even 50/20/30 starting even later. 

Retirement Years X Desired Income 

We know that an average Canadian will make it to the age of 85. This is the number from which you should subtract your desired age of retirement and then make sure to multiply that by roughly CAD 32,000 (the average annual expenses of a Canadian retiree) to get your goal amount. See the table below for an example calculation for a goal amount of CAD 32,000 a year:

Retirement Age	Years in Retirement	The Goal Amount is @CAD 32,000 a year
50	35	CAD 1,120,000
55	30	CAD 960,000
60	25	CAD 800,000
65	20	CAD 640,000

This is a great system because it allows you to estimate how much you will need to put aside every year to get to this number. Please bear in mind that these are plain savings and that no investments or interest rate is applied to these numbers. For this, you should contact a financial advisor. 

Retirement Age	Years in Retirement	The Goal Amount is @CAD 32,000 a year	Amount to Save per Year
50	35	CAD 1,120,000	CAD 44,800
55	30	CAD 960,000	CAD 32,000
60	25	CAD 800,000	CAD 22,857
65	20	CAD 640,000	CAD 16,000

Saving by Age 

Saving by age does not outline any savings per year or even per month. It simply states how much money you should have saved by a certain age. Many find these numbers insufficient, especially as in the 7th decade of your life, this system estimates you should have 10X your annual income saved up. Depending on individual circumstances, most Canadians will need more than this, with an estimated 25X the annual income being the most common (including the gains from interest rates, dividend payouts, and capital gains). Here is the system:

Age Example	Savings By Age
30	1X your annual salary
35	1.5X your annual salary
40	3X your annual salary
45	5X your annual salary
50	6X your annual salary
55	7X your annual salary
60	8X your annual salary
65	10X your annual salary

Probably the best way to follow up on this method is to invest, rather than save the money, as capital gains and dividend income can combine for an extra heavy compound interest accumulation. This way, you can save less and retire with more than by simply saving in a low-interest-rate savings account. 

Retirement Planning Resources

There are many free retirement planning tools and resources. Different newsletters, government resources, financial advisors, and services for all who would like to start saving early, and different planning tools and calculators are available both in person and online. As most people want t get there and even retire early, all of these can be useful. The most important thing is to remember that discipline is more important than having a lot of money to become with. 

Government Resources for Retirement Planning

The Canadian government offers three programs for retirement savings. These include: 

• CPP (Canada Pension Plan)
• OAS (Old Age Security)
• Guaranteed Income Supplement (GIS)

These combined offer a powerful financial kick for the more mature age. You can investigate each of these separately and discuss them both at your workplace and with your financial advisor. 

Financial Advisors and Services for Retirement Planning

If you do not have one already, you should seek out a financial advisor. They should be able to give you the best advice on how to save and what portion of your income you should put aside at different stages in life. While you may want to earn a quick buck while young and invest in a more lucrative fund, the more mature you get, the more you will need to invest in more secure options, such as large funds, agricultural funds, and government bonds. 

A good financial advisor will be able to do this exact thing – help you reap the benefits of high-yield savings accounts without making your money too insecure. They will also be able to help you cut down on your expenses and control your spending – a kind of personal financial audit, if you will. Finally, they can help you understand different programs offered by the government better and understand how to divide contributions among multiple programs. 

Retirement Planning Tools and Calculators

Of course, on the way to saving up for your retirement, many Canadians use online calculators. In essence, they are compound interest calculators that you can use to estimate better how much money you should be putting aside. You should understand that you should use each of these calculators with caution because no one can predict where the economy is going to go and what will happen to the inflation rates in the next year, let alone 3-4 decades. 

With this in mind, these calculators are a great tool to have, but being seduced by fancy numbers and high-interest rates (and yields) can often sound too good to be true. For this reason, always try to err on the safe side and assume lower returns than economists predict. Remember, any kind of savings and investment is a marathon rather than a spring race. The Canadian Retirement Income Calculator and Calculator.net can be great starting points, but only if coupled with a moderate lifestyle and a good financial advisor. 

What Are The Best Places to Retire in Canada? 

Canada offers a lot of benefits for the retired, not only for its own citizens and permanent residents but also for all those who live abroad and would like to retire there. In fact, Canada is the fourth safest country in the world and one of the most comfortable for living in, but what puts many people off is the high prices that they can see when visiting larger Canadian cities. 

Overview of Top Retirement Destinations in Canada

However, it should be stated that this is often not the case. Although large cities do get expensive, the same is true for New York and Miami. They are simply not suited for retirees but are rather bustling metropoles with high economic activity. In Canada, there are many places that do not follow this pattern but are rather suited for a more leisurely lifestyle and offer many chances for sports and recreation. 

Among these are: 

• Squamish, British Columbia
• Canmore, Alberta
• Wasaga Beach, Ontario 
• Quebec City
• Mahone Bay, Nova Scotia
• Fredericton, New Brunswick
• And many others

Take A Look At Canada Bans Foreigners from Buying Residential Property:

Factors to Consider When Choosing a Retirement Location

When thinking of a location to move into once you retire, you should consider a multitude of factors. These will determine how long your savings will last, the things you can do, as well as all part-time employment opportunities. In fact, these factors include: 

• Housing costs
• Food costs
• Home insurance costs and taxes
• The car you will be driving
• Whether you own your home or not

Housing Costs

Housing costs make it to the top of the list for the sheer reason that these are likely to be the highest expenses you will ever have. In fact, these costs can eat away more than a third of your working life income, and getting a mortgage once you are retired may not be the best option. Choosing an area with lower housing costs and ‘rightsizing’ down from your current home size is usually the right thing to do. 

Downsizing may be a good idea even if you own your home because you will be able to sell it and purchase a smaller place. The remaining money can then be invested into more funds for retirement or even used to travel and enjoy the things you could not enjoy during your working life. In any case, the smaller size of your home will also mean lower property taxes and less money spent on insurance. 

Food Costs & Insurance Costs

On the other side of the spectrum are all other expenses, such as your food costs and even your healthcare costs. What you want are low costs, so moving to a smaller area may be beneficial. Canada is lucky enough to have a good healthcare system, so choosing one area over another is simply an issue of how close to you your doctor will be rather than how you will afford one. 

Car You Are Driving

The car you drive is also going to be a big determiner of your lifestyle and how many luxuries you will be able to afford. As cars cost a lot, there is a loan or a lease that can make them less expensive. Driving your old car for a few more years, or going for a more efficient model is going to do wonders for your financial health, so try to find a balance between your wants and needs. 

FAQs

Final Thoughts

Retirement planning in Canada is very important, as it will help you start early and earn a lot through capital growth and good interest rates. To be able to do this, you may need to seek professional advice and a financial advisor to help guide you on the way there. This being said you may want to consider your unique circumstances and understand that there is no ‘one size fits all’ type of solution. Rather, explore and research workplace pensions and similar options and understand that your fixed income will need to be stretched to accommodate your long-term needs.