How Much Do You Need To Retire in Canada? It’s Easier To Calculate Than You Think
Friday, February 16, 2024
How Much Do You Need To Retire in Canada? It’s Easier To Calculate Than You Think
Friday, February 16, 2024
Mitch Zaba
You’re close! But how close?
How much money do you really need to retire these days?
Well, it depends. (cliche I know)
However, we can take this “it depends” cliche statement and narrow it down to the penny so that you have a clear idea of where you stand.
It’s a simple formula to follow.
- Start with your desired income. If you’re used to earning $200,000 then you might use a retirement income of 70% of that. That’s because you will enter retirement debt-free, as well as you won’t have to contribute to employee deductions such as pensions, CPP, EI, or health benefits. Your income number would then be $140,000/year. Finally, subtract any government benefits like the Canada Pension Plan and Old Age Security. That could be $24,000/year x 2, leaving you with an annual gap of $92,000.
- Next, decide how long you need that income. The Canadian Pensioners Actuaries reported that 60-year-old married or common-law partners have a 50% chance to live to age 94. Crazy! That means your money needs to last 34 years.
How do we plan? We plan to use your savings until age 90, then sell your house and use the equity to move into assisted living afterward. - Finally, determine your conservative rate of return net of inflation. The portfolio you used to grow your money will not be the same as your retirement portfolio. You must take less risk to prevent or mitigate market downturns. Below, we show you the effects on savings requirements for 4%, 5%, and 6%. We personally use 4% with the mentality of underpromising and over-delivering.
As a result, a 60-year-old couple could get a formula of $92,000/year for 30 years at 4% per year. The amount they would need to be saved in your pensions and RRSPs would be $1,605,729.87.
Check out the tables below to see different savings needs at different income levels and rates of returns.
Remember, these annual incomes are in addition to your CPP and OAS benefits and are pre-tax.
If you want to type in your custom, after-tax income, visit https://www.mitchzaba.ca/required-savings-calculator.
| 3% Rate of Return | 25 Years of Retirement | 30 Years of Retirement | 35 Years of Retirement |
|---|---|---|---|
| $75,000/year | $1,317,978 | $1,482,434 | $1,624,009 |
| $100,000/year | $1,757,233 | $1,976,499 | $2,165,258 |
| $125,000/year | $2,196,700 | $2,470,802 | $2,706,768 |
| 4% Rate of Return | 25 Years of Retirement | 30 Years of Retirement | 35 Years of Retirement |
|---|---|---|---|
| $75,000/year | $1,184,078 | $1,309,132 | $1,411,552 |
| $100,000/year | $1,578,707 | $1,745,440 | $1,881,995 |
| $125,000/year | $1,973,527 | $2,181,958 | $2,352,664 |
| 5% Rate of Return | 25 Years of Retirement | 30 Years of Retirement | 35 Years of Retirement |
|---|---|---|---|
| $75,000/year | $1,069,125 | $1,164,260 | $1,238,389 |
| $100,000/year | $1,425,443 | $1,552,284 | $1,651,120 |
| $125,000/year | $1,781,933 | $1,940,496 | $2,064,048 |
Remember, these rates of return are after inflation. It’s best to choose a more conservative number and be surprised with outperformance than to choose an aggressive rate of return and be disappointed with underperformance.
The latter could be disastrous.
There you have it. Does retirement seem closer or further than you think?
I’m Not Quite Ready, Here Are 4 Strategies You Can Use To Stretch Your Retirement Savings.
If you don't quite have enough saved for retirement then you can consider these effective strategies. I’ve listed them in order of impact from best to worst.
- Start with your desired income. If you’re used to earning $200,000 then you might use a retirement income of 70% of that. That’s because you will enter retirement debt-free, as well as you won’t have to contribute to employee deductions such as pensions, CPP, EI, or health benefits. Your income number would then be $140,000/year. Finally, subtract any government benefits like the Canada Pension Plan and Old Age Security. That could be $24,000/year x 2, leaving you with an annual gap of $92,000.
- Next, decide how long you need that income. The Canadian Pensioners Actuaries reported that 60-year-old married or common-law partners have a 50% chance to live to age 94. Crazy! That means your money needs to last 34 years.
How do we plan? We plan to use your savings until age 90, then sell your house and use the equity to move into assisted living afterward. - Finally, determine your conservative rate of return net of inflation. The portfolio you used to grow your money will not be the same as your retirement portfolio. You must take less risk to prevent or mitigate market downturns. Below, we show you the effects on savings requirements for 4%, 5%, and 6%. We personally use 4% with the mentality of underpromising and over-delivering.
Hi, I Am Mitch Zaba
Over the past 10+ years, we've worked closely with clients showing them how to grow their wealth, pay less taxes and how to create predictable passive income in the stock market.
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