Let me start by congratulating you for asking one of the most critical questions in life: “How much money do I need to retire in Canada?”
Despite the obvious consequences of not having a retirement plan in Canada, some people still don’t bother about their retirement days.
Thus, I always salute everyone that’s actively planning for their retirement in Canada.
As someone with formal education on retirement planning who’s also planning for her retirement, I found it worthy of answering the popular question:
How much do I need to retire in Canada?
Over the years, I have been providing personalized responses to this question, but since many people keep asking me the same question, I thought it worthwhile to give a general answer.
While retirement planning varies from person to person, all financial experts agree that there are fundamental factors that determine the amount you need to retire in Canada.
Using my personal experience and what I have learnt from others, here I provide all the factors you need to determine how much money you need to retire in Canada.
In the end, I discuss practical tips to help improve your retirement income in Canada.
Understanding Retirement in Canada
Retiring in Canada is one of the best decisions you can make. Compared to other countries, such as the US, the cost of living in Canada is slightly lower. This means you can easily maintain your current standard of living during retirement in Canada.
That said, “The True North” offers a wide selection of retirement opportunities, ranging from picturesque waterfronts to vibrant cities.
Besides the low standard of living and numerous retirement opportunities, retirement in Canada also exposes you to retirement benefits such as the Old Age Security (OAS) and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP).
However, despite the retirement benefits and other retirement opportunities in Canada, they may still not be enough to live the life of your dream during retirement.
This explains why so many smart Canadians like you ask: How much do I need to retire in Canada?
As mentioned previously, there’s no one-fits-all answer to this question due to individual differences.
As you continue reading, you will learn about factors you need to consider when determining the amount you need to retire in Canada.
How Much Money Do I Need to Retire in Canada?
It depends on your retirement goals, sources of income, retirement age and province or territory.
Although there have been numerous theories on calculating the amount a person needs to retire in Canada. Some of the popular theories include:
- 70% Theory: This theory stipulates that 70% of your pre-retirement income without a mortgage is the amount you need to retire. But if you still have a large mortgage and other expenses, the theory suggests you save up to 100% of your pre-retirement income.
- 4% Theory: This theory suggests that you save an amount that will enable you to spend 4% of your savings annually on retirement. For instance, you would need to save $1,000,000 to spend $40,000 annually during your retirement.
- Desired Annual Retirement Income x 25 Theory: This theory suggests that 25 times your desired annual retirement income is the amount you need to retire in Canada.
While the above theories offer different estimations on how much money a person needs to retire in Canada, they may not apply to all.
Since different individuals have different situations, it’s essential to provide a personalized estimate on how much a person needs to retire in Canada.
Thus, how much money you need to retire in Canada depends on the following factors:
1. Retirement Goals
What do you intend to achieve during your retirement days? This should be the first question you should ask yourself before asking: How much do I need to retire in Canada?
When it comes to your retirement goals, you should consider your:
- Travel plans
- Retirement location
- Debt payment
- Family needs, etc.
Furthermore, you should consider everything you need during retirement and compare the cost between now and your retirement days.
2. Retirement Age
The amount you need during your retirement days will depend on the age you desire to retire.
Although the standard retirement age in Canada is 65, it doesn’t mean you can’t retire at the age of 35. However, it’s advisable you save for 30 years ahead of your retirement.
Thus, determining when you will retire will ensure you have enough income to enjoy your retirement days.
When determining the age you want to retire, the Canada Revenue Agency recommends that you consider your:
- Current living expenses
- Desired retirement lifestyle
- Health condition plus your spouse/partner’s health condition
- Investment, savings and pension incomes
- Retirement plan plus your spouse/partner’s retirement plans
- Current debt
3. Sources of Income
There are three major sources of retirement income in Canada: registered and non-registered savings and government benefits.
That said, your registered savings include your Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). Your non-registered savings include your savings account and investments.
On the other hand, government benefits include your Old Age Security (OAS) and Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) and other provincial or territorial benefits.
Moreover, your company may also provide pensions to support your retirement in Canada.
Depending on your province or territory, you may need to save more for your retirement. If you’re living in one of the cheapest places in Canada, your savings may be relatively low.
But if you’re living in one of the expensive places such as Toronto and Montreal, you may need to save a lot.
Furthermore, the cost of living in rural areas differs from the cost of living in urban areas in both cheap and expensive places in Canada.
Thus, your retirement savings should reflect the cost of living in your current location.
How Much Do I Need to Retire in Canada Calculator?
Thanks to technology, there’s now a calculator that answers the question: How much do I need to retire in Canada?
The Canadian Retirement Income Calculator helps you with the estimate of how much retirement income you need.
That said, the calculator examines your various sources of income, such as the Old Age Security (OAS) pension and Canada Pension Plan (CPP) benefits.
Accordingly, you will need to complete a series of modules to estimate your retirement incomes from different sources. Afterwards, you will need to compare your sources of income to your goal income.
By using the retirement income calculator, you will understand how your income and expenses affect your retirement income.
However, the calculator only estimates; it doesn’t provide the exact amount you need for your retirement. Thus, you should not solely rely on this calculator for the question: How much do I need to retire in Canada?
8 Practical Tips for Improving Your Retirement Income in Canada
Now you know how to determine your retirement income in Canada. But what if you take a step further to improve your retirement income? That’s a wise decision!
Thus, improving your retirement income means you don’t have to bother about the question: How much do I need to retire in Canada?
Why? You will have enough income to anticipate any unforeseen expenses during retirement.
Based on my personal experience and what I have seen work for others, here are 8 practical tips to improve your retirement income in Canada:
1. Have a Retirement Plan
The concept of retirement planning refers to getting prepared for everyday life after retirement. It involves managing incomes and assets, reducing expenses, and increasing savings.
Imagine a situation where you are no longer able to work and generate more income. This means casting yourself in a spell of hardship and reducing your days on earth.
Consequently, retirement planning helps you prepare for the rainy days when you’ve all the means to do so.
2. Open a Registered Account
An account devoted to saving for your retirement is called a retirement account.
A retirement savings account is the best vehicle for saving for your retirement days because your savings and investments enjoy tax advantages.
Some of the best retirement accounts in Canada are TFSA and RRSP. A TFSA is a registered savings account with a tax-free advantage on savings and investments.
With a TFSA, your contributions, withdrawals and earnings are tax-free.
On the other hand, an RRSP is a registered savings account with a tax-free advantage on contributions and earnings on savings and investment.
However, you’re taxed upon withdrawal on RRSP (exceptions apply).
But unlike TFSA, an RRSP has an expiration date. So when you turn 71, you must convert your RRSP to an RRIF.
3. Save on High-Interest Savings Account (HIRA)
A regular savings account offers low-interest rates and high fees. On the other hand, a high-interest savings account (HISA) offers high-interest rates with fewer fees.
Thus, saving on a high-interest savings account is a cost-effective means of maximizing your retirement income in Canada.
However, not all HISAs are the same. Compared to regular savings accounts, some HISAs are just as good as that.
Some of the best high-interest savings accounts in Canada include:
- Saven Financial High-Interest Savings Account (1.55% interest rate)
- Neo Financial High-Interest Savings Account(1.30% interest rate)
- EQ Bank Savings Plus Account (1.25% interest rate)
- Oaken Financial Oaken Savings Account(1.15% interest rate)
4. Build an Emergency Fund
When an emergency occurs, it poses a sudden danger to life, health, the environment, etc.
But even though emergencies occur without warning, there are steps you can take to be prepared in advance.
One of the most important things you can do to prepare for unforeseen circumstances and reduce costs during your retirement is to build an emergency fund.
Overall, an emergency fund will help you avoid regret or panic that comes with unexpected events in life.
5. Pay Off Your Debt
Debt could be your major obstacle to attaining your retirement goals. So paying off your debt is an excellent decision if you want to improve your retirement income.
Although it is not wrong to have debt, debt could help you improve your education or business, increasing your earnings potential. However, debt becomes a problem when you can’t payback.
So whether you’re battling with secured or unsecured debt, it’s essential to clear them off to maximize your retirement income.
6. Increase Your Income
Increasing your income is a wise step to improving your retirement income in Canada.
Not only will you remain consistent with your retirement savings, but having different means of income will help you save more.
Regardless of your age or province, there are hundreds of additional income sources in Canada. Some of them include:
- Affiliate marketing
- Online surveys
- Social media management
7. Cut Down Your Expenses
Cutting down your expenses is one of the major steps to improving your retirement income. To achieve this, you need to differentiate between your needs and wants.
Needs refer to your essential obligations or necessities. Wants refer to your non-essential wishes or desires.
Thus, you need to focus on your wants when looking for areas to cut expenses.
However, cutting your expenses doesn’t imply sacrificing your current living condition. You should strike a balance so that you can live the life you desire from now to your retirement days.
8. Consider Insurance
Working hard and saving more isn’t the only way to improve your retirement income. Insurance is another critical tool to consider.
Insurance is coverage against future expenses on your health, car, pet, travel, home, property or life entirely.
So having health insurance, critical illness insurance, or life insurance could reduce your unexpected expenses, helping you focus on your retirement goals.
Planning for your retirement is an intelligent step to securing your long-term financial freedom.
Most importantly, knowing how much money you need to save for your retirement is critical to enjoying your desired lifestyle in retirement.
Hopefully, you can now boldly answer the popular question: How much money do I need to retire in Canada?
As mentioned previously, the response to this question varies from one person’s situation to another.
Overall, your retirement goals, retirement age, sources of income and location determine how much you need to retire in Canada.
But if you’re not sure how to calculate your retirement income, don’t hesitate to contact me for a personalized solution.
What is the Average Canadian Retirement Income?
The average Canadian retirement income depends on your savings, investments and Old Age Security (OAS) and Canada Pension Plan (CPP) benefits.
How Much Money Do You Need to Retire Comfortably in Canada?
There’s no exact amount on how much you need to retire comfortably in Canada.
That said, the amount you need to retire comfortably in Canada depends on your retirement goals, sources of income, retirement age and province/territory.
How Much Money Do I Need to Retire at 55 in Canada?
The amount of money you need to retire at 55 in Canada depends on your current age, retirement goals, sources of income and province/territory.
How Much Do I Need to Retire in Canada at 60?
Different factors determine how much you need to retire in Canada. This includes your current age, retirement goals, sources of income and province or territory.
Have more questions on: How much money do I need to retire in Canada? Kindly drop them in the comment section.
Hi, I'm Adeola Adegoke. I am a licensed Insurance Broker in Manitoba, and I hold a master’s degree in Mathematical Sciences (with a major in Financial Modeling) from the African Institute for Mathematical Sciences (AIMS), Tanzania.
Also, I have a second master's degree in Statistics from the University of Regina, and I am currently pursuing my Ph.D. in Statistics at the University of Manitoba.
The primary purpose of Money Reverie is to help everyday Canadians make better financial decisions by providing up-to-date financial news and information, reports, product reviews, and government programs.