How Much Money Do You Need To Retire Comfortably In Canada?

People who plan long term are always eyeing their retirement age. They plan accordingly to make sure that they have reasonable finances to maintain a good standard of living after retiring. However, estimating the right amount of money that is required to retire comfortably in Canada is not so easy. 

What Is The Average Retirement Income In Canada?

The average Canadian Pension Plan retirement pension, without any additional savings, is just $8,303 a year. Similarly, the average monthly payout for CPP was $723.89, in 2019, this is 37% less than the maximum amount of $1,154.58. That’s because many people don’t earn enough money during their careers to receive the maximum payout.

These figures highlight that the average Canadian has no access to the maximum payout which is also not a liveable income. 

What Is A Retirement Plan?

After retirement, you not only stop working but your income also stops. You can have plenty of free time but not income while you still require to eat and live. This is where retirement planning comes in. An effective retirement plan will create a strategy to replace that lost income upon retirement. This will allow you to cover your cost of living and allow you to have a comfortable retirement. The basic goal of this plan is to help you achieve your retirement goals.

How Much Do You Need To Retire At 55 In Canada?

Some people wish to retire earlier than 65 years of age and set their retirement goal age as 55.

If you are eyeing 55 as your retirement age you should use a calculator like this one to see how your income and finances can be organized to retire before 65. It might not be doable. But if it is, a calculator can show you exactly how much money you need to retire in Canada. You can also consult with a professional retirement planner to assist you with determining your numbers. 

There are, however, a few good rules of thumb to consider when planning for your retirement savings goal.

How Much Do I Need To Retire In Canada?

The amount of money you need to retire comfortably will depend on your lifestyle in retirement. Moreover, the region in Canada where you plan to retire and what plans you have for retirement will also be important considerations. You can use a retirement calculator to get an estimate on how your personal income, savings plan, and life plans impact your retirement savings needs.

The basic rule of thumb is to use the 70% pre-retirement income rule which means you need at least 70% of the amount of your current income in retirement also to live comfortably.

Having a mortgage in retirement will require you to have as much as your current annual income when you retire. However, if you’re one of the lucky few without a mortgage, you need less.

What Are The Options For Retirement Planning?

There are numerous methods to help you save for retirement but most people know only about a few of them. One of them is the traditional Registered Retirement Savings Plan. It is a secure way to save for retirement. 

However, there are other methods as well but you might not have considered them yet. There are also some options that you might know about cannot rely upon them. It is important to consider all of these when thinking about how much money you need to retire in Canada.

Here are some popular rules that will help you to cover your expenses in retirement and ensure a steady retirement income:

1. Savings By Age Rules

Fidelity investments came out with this rule of thumb, it requires you to have a multiple of your salary saved by the time you reach a certain age.

Age 30: one times your annual salary

Age 40: three times your annual salary

Age 50: six times your annual salary

Age 60: eight times your annual salary

Age 67: ten times your annual salary

It is also possible for you to achieve this goal by saving 15% of your income at 25 years of age and using half of your money to invest in stock over your lifetime.

2. 50/30/20 Rule

The most common rule of thumb is to use 50% of your earnings on your monthly needs, 30% on wants, and 20% on personal savings.

You might be thinking if 20% savings are a reasonable amount. There is a simple way to calculate it. Let’s assume you invest your money at a 4% investment rate of return over 40 years from age 25-6 with zeros taxes. Also, take into account the benefits of TFSA and RRSP accounts. Here is a simple breakdown for average salaries:

50/30/20 rule:

Average Annual Salary: $ 50,000, $ 75,000, $ 100,000

Savings/Year (20%): $ 10,000, $ 15,000, $ 20,000

Length (years): 40, 40, 40

Rate of Return (%): 4%, 4%, 4%

Amount Saved:  $950,255,  $1,425,383,  $1,900,510

If we look at the saved amount, with only $50,000 average salary over 40 years, with 20% savings you can have around a million dollars when you retire.  That will provide you with a reasonable amount of money for retirement and give you a decent cash flow.

3. The 4% Rule

The first thing you will need to do is to find out how much annual income you will need. You can seek advice from a financial advisor in this matter. You can then multiply this income amount by 25. This will give you the amount you need to retire regardless of how old you are. In theory, even if you’re only 30 years old, you can retire and have enough money to last you for the rest of your life.

The 4% rule has been popularized by the Financial Independent, Retire Early (FIRE) movement.

4. Years Multiplied by Expenses Rule

You will need to estimate the number of years you might spend in retirement. And then multiply these years with your annual expenses to find out the amount you need. The older you are when you retire, the fewer years you will have for retirement:

For example, if Lucy retires at 70 and goes on to live until 85. While her annual expenses are $85,000 so this means she will need $85,000 for 15 years which will amount to $1.275 million for her retirement spending. 

Where Can I Find Professional Financial Advisor Near Me

Retirement planning can be tough so you must seek professional financial advice from financial advisors in your area. The financial advisor can help you to secure steady sources of retirement income. He will also help you to save for safety nets such as an emergency fund. He will also advise you on the retirement benefit you can receive and how you can qualify for government pensions. 

If you’re a Canadian resident, and you are seeking advice regarding your retirement you should contact Worthy Financial. At Worthy Financial, our professional advisors make sure that you’re on the right path to save the desired amount you need before you retire. Moreover, they will also advise you on other related matters such as benefit pension and pension accounts. 

Don’t hesitate, book your free retirement planning consultation today with one of our expert advisors, or call us at 1 (877) 365-3050.