How much does it cost to retire in Canada?

There are differing opinions in financial planning about what percentage of income Canadians need to save for retirement. Recommendations run from 40% up to 70% of what you earned before you left the workforce. However, it may not be useful to think about retirement planning in just these terms.

Since everyone’s situation is different, estimating a percentage isn’t the best strategy. You need to look at:

• • • what retirement means for you, and
    • what your expenses might be.

An advisor can help you figure out how much you need for retirement and how much you must save. In the meantime, start by answering these 10 questions.

1. When did you start saving for retirement?

“Some people wait to start saving for retirement. But the older you start, the higher the percentage of income you must put aside. That’s because you’ve lost years of compounding,” says Gordon Pape, author of numerous books on personal finance. “A 25-year-old might only need to save 8% to 10% of income each year. However, a 45-year-old might have to save as much as 25%.”

In short, the longer you save, the more you’ll likely have in your nest egg. Investment income can also build your account balance.

2. When do you plan to retire?

Are you considering retiring at 60 instead of 65? You’ll need to save more because you’re losing five prime contribution years. Your savings will also have to last longer.

If, after reading that, you think you may need to delay your retirement date, you’re not alone. Canadians’ retirement plans have been impacted by recent high inflation and higher interest rates.

Abacus Data and the Healthcare of Ontario Pension Plan (HOOPP) recently conducted a survey on retirement in Canada. Results show that one in four unretired Canadians say they expect to continue working in retirement in order to support themselves.. Interest rates continue to impact 61% of surveyed Canadians’ ability to save for retirement *.

In this case, strategizing your savings, income and care options will be key to your eventual happy retirement.

* Source: Canadian Retirement Survey 2024

3. How long are you going to live?

No one can predict their date of death. However, Canadians are generally living longer. According to the most recent census from Statistics Canada, Canadian children born in 2016 expect to live to 82. Not to mention, those who are 100+ are the fastest-growing age group in Canada.

Given this, it’s wise to factor longevity in your retirement plan, especially if:

• • • your relatives lived to 95, and
    • you’re in good health.

4. What are your plans for retirement?

How do you picture spending time in retirement? A modest retirement may only require 50% of your pre-retirement income. But what if you’re planning an active retirement with travel? You may need 70% or more of your previous earnings.

Some people spend less in retirement than when working full-time. There are a lot of expenses that start to go away. For example, the cost of commuting, buying lunch, or updating your wardrobe.

Despite these savings, retirees spend differently as they grow older. Think about your retirement in three stages:

1. 1. 1. The first stage comes immediately following work. You may be in good health and you’ll have money to spend on travel and other leisure activities.
      2. Next comes a quieter stage. Your energy may start to dip, and you may become more comfortable with a slower pace.
      3. Finally, as health issues become more prominent, you may pay significant sums on health care as you age. These costs may include long-term care.

All of this is very personal. No two retirement experiences are alike. To help plan for these scenarios, consider various retirement income options.

5. Do you have a workplace pension?

Some employers sponsor a workplace RRSP or pension plan and match some or all of your contributions. This annual tax-deferred bonus will reduce the amount you have to save on your own.

6. How much will you earn on your investments?

To calculate how much you need to reach your retirement savings goals, you’ll need to assume a rate of return on your investments. While there’s no predicting exactly how steady your returns will be, diversifying your portfolio can help.

An advisor can help you diversify your portfolio and select a realistic number for your investment projections.

7. What assets do you have?

One of the first places you’re likely saving is in a registered plan. And you can save up to 18% of your earned income in:

• • • an RRSP, or
    • an employer-sponsored defined contribution (DC) plan.

You’ll get a tax deduction for your contributions, and your investments will grow on a tax-deferred basis. Contributions to your defined benefit plan will very likely reduce your RRSP contribution room. Unused RRSP contribution room can be carried forward to future years.

Beyond your RRSP, you may have assets such as:

• • • a Tax Free Savings Account (TFSA),
    • other unregistered savings,
    • real estate, or
    • a business.

Depending on the value of these assets, you may not need to save as much in a workplace pension or RRSP.

8. Will you make early withdrawals from your RRSP?

When you withdraw money from your RRSP, you pay tax on the withdrawal at your marginal rate. You also lose the contribution room and the benefit of compound interest over time. Saving up an emergency fund in a TFSA is often a better option. This is because contribution room is restored in the next year.

9. How much do you want to leave for loved ones?

Do you want to spend all your money when you’re alive? Or do you want to leave a legacy for your children or favourite charity? This decision will play a role in how much you need to save for (and spend in) retirement.

10. How often should you review your retirement savings plan?

It’s a good idea to review your retirement savings plan with an advisor:

• • • at least once every three years, or
    • in connection with a major life event (e.g., birth of a child or the loss of a spouse).