How Much Money do I Need to Retire in Canada?

So you’ve arrived at the stage where you ask yourself – how much money do I need to retire in Canada?

Despite knowing that you’d need roughly 80% of your savings in retirement, unfortunately, we can’t give you the exact sum because it depends on numerous factors.

However, we can tell you how to calculate the savings needed for your situation and ways to increase your monthly pension.

Sounds good? Let’s get into it!

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Retirement in Canada

Before we get to the meat and potatoes of our topic, let’s talk a bit about retiring in Canada.

When getting ready for retirement, it’s essential to keep track of your expenses and ensure you’re starting your golden years on the right foot. This process can look different for everybody, so don’t worry if yours doesn’t resemble a friend’s.

Here’s what you’ll need to take into account.

Retirement Age

As you may already know, there is no predetermined retirement age in Canada. Therefore, some people are thinking about retiring at 50, while others choose 65.

For reference, the average age of retirement in Canada is 64, proving that many people aren’t so quick to leave their working lives behind. But why is your age important?

Well, your age is one of the crucial factors you should analyze to determine how much you’ll need to retire. Therefore, the more you delay your retirement, the more your savings will accumulate, resulting in more assets during your later years.

Retirement Pension

If you’re thinking about retirement, the thought of pension has probably already crossed your mind. Luckily, as a Canadian, you have your fair share of options to choose from in terms of pension resources.

It goes without saying that the sum varies depending on the individual and their salary during their working years. Still, as a reference, the average retirement income in Canada is $702.77 in Canada Pension Plan payments. Aside from CPP, Canadians can benefit from other sources, which we’ll discuss later.

Retiree Spending

Before retiring, you should also closely look at your spending habits to determine the amount of money you need. Again, these numbers vary from household to household, but the average spending of Canadian retirees is approximately $28,800. However, as we are currently in the middle of inflation, this sum has grown to around $32,000.

Therefore, for retirees to sustain their lifestyles, we strongly recommend looking into their spending and doing some simple calculations, which we’ll also discuss below.

How Much Do I Need to Retire In Canada?

Now, let’s discuss the reason you clicked on this article – finding out how much money you need for retirement. As we mentioned previously, there is no correct answer to this question. More so, it depends on factors unique to your situation. So, let’s go over them.

When to Retire

Unsurprisingly, when to retire in Canada is one of the most complex questions future retirees can ask themselves. Sadly, it makes it all the more difficult when no one can answer that question for you. However, you can gain valuable insight by determining how long you’d want to stay in retirement, how much money you’ve saved, and how active your life is.

To illustrate, the average Canadian life expectancy is approximately 82 years. With the average retirement age being 64, a significant chunk of Canadians chooses to allow themselves about 20 years in retirement. However, experts suggest retirement planning until 90, so you can leave some wiggle room and not be left stranded if you live longer.

You shouldn’t be making the choice of retiring lightly. Even though you might be ready for retirement, it doesn’t mean your bank account is too! Ensure your pension plan can sustain you for decades because our life expectancy is growing at a fast rate.

Related: RSP vs. RRSP

Your Expenses

As a rule of thumb, you need 70% to 80% of your current salary to maintain the same lifestyle and keep up to date with expenses. This is so because you’ll probably be spending less during your retirement because you won’t need to commute or you’ll have lower bills.

Moreover, picking the right place to retire so that you’re fulfilled but your expenses don’t break the bank is another essential factor to consider. The ideal town or city can look different for many people. Still, it seems like Parksville is the best place to retire in Canada because of its affordable housing and proximity to medical centres.

To determine how much money you’ll need when you retire, you should look at a month’s worth of expenses and do some calculations. Calculate the money you usually spend on bills and subtract other expenses you won’t have in retirement. Ensure you cover everything, and don’t forget to include any long-standing payments, like a mortgage or managing properties.

On the other side of the coin, make sure to add a rough estimate of other expenses that might arise, like a new hobby, travel costs, or medical bills.

If this sounds too confusing, you can always reach out to a financial advisor to sort things out for you and guarantee you’re not cheated out of any savings.

Monthly Income

Last but certainly not least, you have to think about what resources you can draw on when you’re no longer working. Currently, most Canadians use their savings as their primary income source. Apart from that, retirees can take advantage of numerous government plans established to aid in retirement.

The question of monthly income for retirement is of the utmost importance because you must know whether this money can sustain your lifestyle or cause you to have to downsize significantly. There are numerous income opportunities for retirees, the most popular being the Canadian Pension Plan.

However, Canadian retirees can benefit from other income sources, such as:

  • Old Age Security (OAS)
  • Retirement Savings
  • Salary for part-time work
  • Employer Pension Plans
  • Investments

To figure out the income you should aim for in retirement, you should start by taking 70% or 80% of your pre-retirement income and multiplying it by 20 or 25, depending on how many years you think you’ll be retired. Then, you should subtract any benefits you expect to receive, and there you have your number!

We know these equations can seem complicated when you encounter them for the first time. Luckily, with this retirement calculator, Canada helps retirees by providing them with tangible results, free of uncertainty.

How To Increase Your Monthly Pension?

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Before you retire in Canada, learn about the advantages available to you. Therefore, if your monthly pension is on the lower end, you can increase your earnings in three different ways.

Workplace Pension

If your employer offers a pension plan, you need to hop on it! Remember that sometimes your boss might not announce that they provide pension, so make sure to ask your HR representative if you can participate in an optional membership. By taking part in this plan, you can significantly boost your retirement savings.

Tax-free Savings Account

Tax-free Savings Accounts (TFSA) are one of the best ways to achieve a financially successful retirement. So, by putting money aside in these accounts monthly, you’re sheltering your investment income from taxation. Moreover, withdrawals from these accounts are also tax-free.

It’s important to note that your money can accumulate faster if you start saving early on in life. That way, when you’ve finally reached retirement age, you have a nice stash of cash at your disposal.  Retiring in Canada sure has its perks!

Registered Retirement Savings Plan

If you don’t want to put money in a TFSA, you can do so in a tax-deferred Registered Retirement Savings Plan (RRSP). With this option, you get an income tax deduction for the year you contribute to RRSP while also easing your tax burden. However, unlike a TFSA, you need to pay tax when withdrawing money during retirement with an RRSP.

Finishing Thoughts

We’ve reached the end of our guide on how much money do you need to retire in Canada. By taking time to think about your retirement plans and calculating how much you’ll need to retire in Canada, you’ll have something to fall back on in your golden years and avoid feeling stuck.

FAQ

What is a good retirement income in Canada?

There is no objectively good retirement income, as it mostly depends on your lifestyle and expenses. However, to live comfortably as a retiree in Canada, a retirement income of around $70,000 would cover all your needs and allow for new hobbies or travel.

How much money do you need to retire?

We’ve determined that there isn’t a one-size-fits-all. Instead, each person should calculate the amount of money needed before retiring to ensure they live a decent life and aren’t just making enough to keep the wolf from the door.

How much is the pension in Canada?

The average monthly pension from CPP is $702.77, or $642.25 from OAS.

ABOUT AUTHOR

When Angela combined her deep-seated love for linguistics with her growing interest for finance and money management, she struck a gold mine. She’s scoured the internet far and wide for all things related to money and finances, including payments, budgeting and investing. Now she’s eager to share her knowledge and skills with the world, determined to make it a better place. In her free time, she loves to read a good book.

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