How Much Money Do You Need To Retire in Canada in 2024?

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In the retirement series, I wrote about the Canada Pension Plan, RRSPs, Old Age Security, and other employment pension plans.

Taking it a step further, I want to address a question I’ve often asked myself (and have been asked by others):

“How much money do I need to have saved up before I retire?”

“How can I retire at age 50, 55, 60, or 65 years old?”

“Do I need $1 million to retire?”

“How much income will I need in retirement?” …

or more specifically: “How much money do I need to retire in Canada?”

These, of course, are important questions!

As you grow older, you start to wonder if you’re putting aside enough money for retirement and if your retirement nest egg will hold up when you finally do retire.

While I do not have all the answers, I’ll take a stab at providing an answer that hopefully gets you started on the road to arriving at the “magic number” or “multiple” that works for you.

How To Calculate Retirement Income in Canada – Rules of Thumb

When it comes to income required in retirement in Canada, there are several rules of thumb or schools of thought out there. If you are looking for a definite answer to put your mind at rest, you may be disappointed.

The one thing everyone readily agrees on is that when it comes to retirement income, it is not “black and white,” and there is no 100% consensus.

Popular rules of thumb include:

Rule 1: 4% Withdrawal Rate

The 4% withdrawal rule infers that you build up a retirement portfolio that provides a certain amount of income per annum at a 4% or so withdrawal rate. A 4% withdrawal rate is often referred to as a “safe” withdrawal rate.

For example, say you have figured out that you need $40,000 per year in retirement. Using a withdrawal rate of 4%, you should have a minimum of $1 million in retirement savings before you retire.

⇒  $40,000 ⁄ 4% = $1,000,000

This rule of thumb works whether you plan to retire early at 35 or go the conventional route and retire at 65 years or later. It’s the strategy often utilized by many “early retirement” enthusiasts or the movement popularly referred to as “FIRE” – Financial Independence/Retire Early.

Note: For earlier retirement plans, consider that you will not be receiving a government pension or retirement benefits until later in life and adjust your income needs accordingly.

The general idea behind the funds lasting you for life is based on historical market returns. If we assume your investment portfolio generates approximately 7% annually in long-term returns, then real returns of approximately 4% are expected after accounting for inflation (assuming an inflation rate of 3%).

Essentially, a 4% withdrawal rate assumes your investment portfolio is not highly conservative (i.e. you are invested in a good proportion of stocks/equities).

how much money do you need to retire in canada

Rule 2: Desired Annual Retirement Income x 25

This rule follows the 4% withdrawal rate rule. They are pretty much the same, but this is easier to calculate for those who would rather not dabble in fractional math. It infers that to meet your income needs in retirement, you want to have at least 25 x your desired annual retirement income.

For example, say you estimate that your expenses per year in retirement are $40,000. You would be expected to save up a minimum of $1 million in retirement savings.

⇒  $40,000 x 25 = $1,000,000

Related: The Complete Guide to Retirement Income in Canada

Rule 3:  70% of Working Income (or more)

This rule estimates that you will need between 70% and 100% of your pre-retirement income in retirement: 70% if you are typical and do not have a mortgage and up to 100% if you are still paying a hefty mortgage plus other atypical expenses while retired.

The idea behind this rule is that your expenses are generally expected to be lower in retirement: no mortgage payments, no longer need to save for retirement, kids are financially dependent, etc.  After computing this amount, you can then proceed to calculate how much you need (lump sum) by going back to Rule 1 or 2.

For example, assume you earn $100,000 per year before retiring. Using the 70% rule, you will need approximately $70,000 ($100,000 x 70%) in annual income to maintain your lifestyle in retirement. Going back to Rule 2, it implies you need:

⇒  $70,000 x 25 ⇒ $1.75 million in retirement.

I think the 70% rule is a reasonably liberal estimate of retirement income needs (barring exceptional circumstances). A survey conducted by Sunlife and released in 2016 shows that Canadian retirees were, on average, living on 62% of their pre-retirement income.

Rule 4: Pre-Retirement Income x Multiples of 10 to 14

This rule suggests that you can calculate how much you need to save for retirement by multiplying your income just before retirement by a number between 10 and 14.

For example, say your income before retirement was $100,000/year. Following this rule, you should accumulate at least (depending on which multiple you’re working with):

  • Multiple of 10: $100,000 x 10 = $1 million
  • Multiple of 11: $100,000 x 11 = $1.1 million
  • Multiple of 12: $100,000 x 12 = $1.2 million
  • Multiple of 13: $100,000 x 13 = $1.3 million
  • Multiple of 14: $100,000 x 14 = $1.4 million          … during your working years.

Rules 3 and 4 implicitly assume that you are using the income earned during your highest income-earning years as the basis of your calculation. This means that if you are a younger person in an entry-level position (i.e. low starting salary) looking at retiring early, calculations using these approaches will not work for you in the longer term.

Related: CPP vs. OAS: How Do They Compare?

How much income will you need in retirement? Learn about how to calculate your retirement income needs, the various income sources, investing accounts, and government benefits. #retirementplanning #saving #investing #retirement #financialplanning #personalfinance

How To Estimate Your Retirement Income Needs in Canada

The income available to you during your retirement years (distribution phase) will depend largely on how much you were able to set aside during your working years (accumulation phase), plus other available government and employment benefits.

Steps to estimating or calculating your retirement income needs include:

A. How much income do you expect to live on per year?

You can compute this amount using different strategies – for example, by using the 70% pre-retirement income rule or by simply looking at the lifestyle you envisage living in retirement and estimating what your expenses will add up to (including taxes).

Note: In your calculations, if looking at your current lifestyle and expenses, remember to eliminate expenses that may no longer be relevant in retirement such as mortgage payments, cost of commuting to work, childcare expenses; RRSP, CPP, and EI payments, etc. And remember to add new expenses that may crop up, such as travel expenses, hobbies, health issues, etc.

B. How much government benefit do you expect to receive?

If you have lived and worked in Canada before retirement, you can expect to receive Old Age Security (OAS) and Canada Pension Plan (CPP) benefits.

The amount you receive will generally depend on how long you have lived in Canada (for OAS), how much you have contributed to the plan, and for how long (for CPP).

Using OAS and CPP numbers for 2024. Let’s assume the maximum monthly OAS payable is $713.34 for a total of $8,560.08 per year (ages 65 to 74), while the maximum CPP is $1,364.60 for a total of $16,375.20 per year.

Most people will get less than the maximum amount. For example, the average monthly CPP benefit paid in 2024 is $831.92 (40% less than the maximum amount payable).

For individuals who immigrated to Canada in their adult years (like me), the total government pension they will be eligible for will be significantly reduced.

Using the 2024 maximum government pension amounts as an example, total payouts from this source to a single senior are:

$8,560.08 (OAS) + $16,375.20 (CPP) = $24,935.28 per year

Here’s how many years you need to work to get the maximum CPP.

C. How much do you need to save up?

To calculate this amount on an annual basis, you will need to subtract expected government pensions from the annual expenses you calculated in Step A, and then multiply the remainder by 25 (or divide by 4%).

For example, a couple who estimates their annual retirement income needs to be $70,000 will need to save:

Annual expenses in retirement from age 65 (couple)$70,000
Deduct Total Government Pensions expected (couple) a-$34,909.39
Income Withdrawn from Savings/Year b$35,090.61
How Much Do You Need To Save For Retirement? c$877,265

a. Most individuals will not get the full government pension amount from OAS and CPP. The amount here reflects 70% of the maximum CPP & OAS amounts for a couple in 2024, i.e. (70% x $24,935.28 ) (x 2) – moderately conservative estimate. 
b. Line 1 minus line 2
c. Derived by multiplying the annual income withdrawn by 25 (i.e. $35,090.61 x 25) or dividing by a 4% withdrawal rate (i.e. $35,090.61 / 4%). The result is the same for both formulas.

As shown in the table above, government pensions offset some of the savings required by the couple pre-retirement. The more government pension they qualify for, the less money is required in their investment portfolio.

Additionally, if one or both partners have a defined benefit pension, it will further lower the amount of savings required to meet their desired retirement income.

Overall, to fund their preferred retirement lifestyle, the couple in the scenario above will need about $900,000 in their retirement nest egg.

Related: CPP and OAS Benefits for Surviving Spouse and Children

How Much Do You Need To Retire?

How much you need to retire will depend on your needs. Using the couple described above, who needs $70,000 annually, almost half of this is provided through their government pensions.

So, instead of requiring $1.75 million based on the 4% withdrawal rule ($70,000 x 25), they may need less than $1 million in their personal retirement accounts and be able to retire comfortably.

Some Canadians will need even less, with paid-off homes and decreased income requirements when retired. As such, it’s no surprise that the average retirement savings as per Statistics Canada, are much lower.

You can check out various income scenarios using this Canadian Retirement Income Calculator.

What Can Change Your Retirement Income Needs?

Calculating your income needs in retirement is not an exact science. Life happens, and it may leave your retirement plan in tatters. Some possibilities include the following:

  • Health issues that cause you to retire earlier than planned or which result in higher-than-expected medical bills early in retirement
  • Financially dependent kids in retirement
  • Divorce
  • Significant mortgage payments
  • Run-away inflation or a market crash, and much more.

If, for one reason or the other, you are unable to save enough money for retirement at age 60, 65, or earlier, depending on what your plans were initially, the following strategies may be useful in managing your “savings/income gap”:

1. Work for longer and delay government pension till later: Working for a few more years and/or delaying when you start receiving OAS/CPP can significantly increase your eligible payouts down the road.

2. Semi-retire and work part-time: Every year you delay dipping into your retirement nest egg means more money to spend in the future.

3. Start saving aggressively: The earlier you start saving, the better for you. Time is the game-changer regarding the returns you can earn on your investment portfolio. If you are running out of time, you will need to put aside more funds more often.

4. Consider adjusting your retirement lifestyle expectations and spending less: If you have run out of time to build an adequate retirement portfolio to pay for the lifestyle you desire, you may have no choice but to take out less money from your savings and live accordingly.

5. Downsize and sell your home: You can consider beefing up your retirement savings by downsizing and selling your home to utilize the equity you have built up over the years. Alternatively, you may consider taking out a home equity line of credit (HELOC) or a reverse mortgage.

6. Other Government safety nets: If your income in retirement puts you in the low-income bracket (as specified by the government on an annual basis), you may qualify for additional government benefits, including the Guaranteed Income Supplement (GIS) or the Allowance.

Some resources that may come in handy as you plan for retirement include those provided by the Canadian Life and Health Insurance Association and this Retirement Calculator.

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Closing Thoughts

When it comes to your retirement planning in Canada, starting early is the key. Compounding interest is your best friend, and it’s better to be over-prepared than under-prepared.

So, do you feel you are on track with your retirement savings/planning? What amount do you feel you would need in retirement? Leave answers in the comment section below.

Other Retirement Investing Posts:

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu, personal finance expert, author, and founder of Savvy New Canadians, has written about money matters for over 10 years. Enoch has an MSc (Econ) degree in Finance and Investment Management from the University of Aberdeen Business School and has completed the Canadian Securities Course. His expertise has been highlighted in major publications like Forbes, Globe and Mail, Business Insider, CBC News, Toronto Star, Financial Post, CTV News, TD Direct Investing, Canadian Securities Exchange, and many others. Enoch is passionate about helping others win with their finances and recently created a practical investing course for beginners. You can read his full author bio.

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45 thoughts on “How Much Money Do You Need To Retire in Canada in 2024?”

  1. Gravatar for Davis

    I agree with G Doyle & his comments. I basicly done the same as he did & I will be 68 this year. Would be nice to see some figures.

    • Gravatar for Enoch Omololu

      @Davis & G Doyle: I have another retirement income article coming soon with additional analysis. Stay tuned!

  2. Gravatar for Davis

    I read some of your Articles as to how much one needs for retirement. I currently live off of a little more than $2,000 a month & live quite well. My place is paid off & I don’t have any bills except the basics which I figure to be around $1,500 a month. With my Retirement in 2 months I figure I will be getting roughly $2,600 a month from my investments which include OAS & CPP. I just don’t see how one needs $ 700 to $1,000.000 to retire on unless they plan on living first class or are deeply in debt.

    • Gravatar for Enoch Omololu

      @Davis: Thanks for your comments. The numbers used in the calculation may be on the higher end for some people and lower for others. It’s only an approximation. In your case, with a paid-off mortgage/house, steady investment income, low ongoing bills, CPP, and OAS, your required retirement income could be much lower. Also, I don’t think these numbers translate to “first class” in many cases for a retiree who continues to live in Canada (not abroad). Perhaps, very comfortable? If you add in expenses like ongoing contributions/gifts to kids, mortgage, or rental costs, these can quickly create a dent in an otherwise stellar retirement pot. Lastly, Canadians are living longer than ever. I have factored this in as well.

  3. Gravatar for G Doyle

    You need to stop using millionaires as examples. Most retired Canadians do not have anywhere near a million dollars, most don’t even have half that. Those same Canadians on average also only have half the max of CPP or less. I am included in this group. I am 67 and have worked since I was 16. I put away as much as I could through work. But, the first 15-20 years we didn’t have a pension fund to contribute to. So I was in my 30’s before I even got started. And at that time there was very little left to save each week.
    Due up some scenario’s based on these much lower amounts which is where most Canadians reside.

  4. Gravatar for Charlene

    Thanks for the article.
    My husband (64) and myself (65) have retired. We have just over 1 million in savings and RRSP’s. We have a mortgage free home valued between 1.2 and 1.4 million. We will downsize in about 5 years. We have decided to delay taking OAS and CPP until age 70. We are hoping this isn’t a mistake. We want to have about $150,000 cash now to help the kids with downpayments. Hoping this is doable. We would like to have $65-$70,000 income per year. Are we on track?
    Thanks.

    • Gravatar for Enoch Omololu

      @Charlene: I would advise you work with a financial planner to run the numbers for you so you can feel confident about your retirement plans.

      For a $70,000 per year income using the 4% withdrawal rule, you will need approx. $1.75 million in retirement savings/investments. This does not account for your OAS and CPP benefits which would theoretically lower the amount you need. A lot of other factors go into this though…types of investments you are holding and your portfolio returns? Cost of accommodation when you downsize? etc.

  5. Gravatar for Lenny

    Good morning Enoch, this is a great article. I like how you illustrate the fact that not everybody was born in Canada, therefore there are considerations for every case.

    I am hoping you can give me an idea on a general question: I’ve been living and working in Canada for 22 years, luckily with a high income. If I want to retire in 5 years, at age 55, and apply for CPP only at age 65 or 70, would my CPP benefits be impacted for not contributing for 10 or 15 years? And if so, any advice?

    Thank you in advanced.
    Lenny.

    • Gravatar for Enoch Omololu

      @Lenny:

      Yes, it will be impacted because your CPP benefit amount is dependent on:
      – the age you decide to start your pension

      – how much and for how long you contributed to the CPP

      – your average earnings throughout your working life

      That said, delaying CPP till age 70 increases your benefits and this could balance things out a bit.

      https://www.savvynewcanadians.com/take-cpp-at-age-70/.

  6. Gravatar for Juan

    Hi Enoch, thanks for the usefull information. Ablut the 4% rule, what type of investment is considered that will generates 4% + 3% for inflation? As you mentioned it may not be 100% conservative, what would be the anual returns in a more conseevative scenario to dont risk the equity?

    • Gravatar for Enoch Omololu

      @Juan: In today’s investment climate, you will need to hold a significant amount of equities to generate 7% or more. A balanced portfolio is generally weighted 60% stocks (equities) and 40% bonds (fixed income/cash). One example of a 100% conservative portfolio is a GIC. As of today, you’d be looking at a return of ~2% to 2.50% per year for a long-term GIC.

  7. Gravatar for JM

    Curious to know if income taxes is considered in the example where you need $70,000 to cover expenses, the income derived from CPP/OAS/RRSP-RIF? After tax net is less than that $70,000. thanks.

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