How Much Do You Need to Retire Comfortably in Canada?

Preparing for retirement is a huge financial milestone, and people have dreamed of it for years. How much you’ll need to save to retire comfortably in Canada depends on various factors, including your desired lifestyle, current income, and expected expenses.

Here, we’ll help you assess your retirement savings goals and share some tips on how to get there. With that information, you’ll be one step closer to answering the question, “How much do I need to retire?”

Assessing Your Retirement Needs

Some financial experts suggest that retirees will need approximately 60 to 70 percent of their pre-retirement income to maintain their standard of living throughout retirement. This accounts for reduced retirement expenses, such as eliminating work-related costs.¹

However, this percentage can vary based on individual circumstances. For example, you might need a higher replacement ratio if you want to travel a lot or pick up some new (expensive) hobbies. Conversely, a more modest lifestyle may require a lower percentage.

Calculating Your Retirement Savings Target

Because everyone has a different retirement situation, answering the question “How much do you need to retire comfortably in Canada?” is difficult. One way to answer this is to estimate your retirement savings target.

To estimate your personal retirement savings goal, consider the following steps:

Determine Your Desired Annual Retirement Income

Decide on the annual income you’d like during retirement. For example, if you want to live off $70,000 annually and anticipate receiving $15,000 from government pensions, you’ll need $55,000 from personal savings.

Apply a Withdrawal Rate

Financial professionals often use a 4 percent withdrawal rate, suggesting you can withdraw 4 percent of your retirement savings for the first year of retirement. In addition, some experts recommend tacking another 2 percent to adjust for inflation for the following years. For example, you might want to consider withdrawing 6 percent of your retirement savings in the second year of retirement.²

Here’s an example based on the desired annual income we mentioned earlier:

Required Savings = Desired Annual Income / Withdrawal Rate

Required Savings = $55,000 / 0.04 = $1,375,000

This means you’d need approximately $1.375 million in personal savings to generate $55,000 annually.

Factors Influencing Your Retirement Savings

Several factors can impact your retirement savings needs:

Inflation: The rising cost of living can erode purchasing power over time, requiring more savings.
Life Expectancy: The current life expectancy for Canadians is about 82 years. Longer life spans require more retirement savings to sustain a comfortable lifestyle throughout retirement.³
Healthcare Costs: Don’t forget to account for potential medical expenses, which can be significant in later years.
Government Pensions: Factor in benefits from the Canada Pension Plan (CPP) and Old Age Security (OAS), which can supplement your retirement income.

Tips for Achieving Your Retirement Goals

There are many roads that can help you get to your retirement goals. Here are some tips to help you build sufficient retirement savings:

Start Early

The power of compound interest means that the earlier you begin saving, the more your investments can grow.

Contribute Regularly

Aim to save a consistent percentage of your income. Many experts recommend an annual retirement savings goal of 10 percent to 15 percent of your pretax income. You might also consider ramping this up as you get closer to retirement.⁴

Utilize Tax-Advantaged Accounts

Contribute to Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) to benefit from tax incentives.

Diversify Your Investments

A well-balanced portfolio can help manage risks and optimize returns. Determining how much you need to retire comfortably in Canada involves understanding your personal goals, expected expenses, and current financial situation. While general guidelines and recent statistics provide a starting point, you’ll need to tailor your retirement to your unique circumstances. Working with a financial planner can provide you with personalized insights and strategies to help you pursue a secure and comfortable retirement. Feel free to contact our investment firm with any questions about planning your retirement in Canada — we're here to help you make informed, confident decisions.

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.