If you’re weighing debt against saving, or checking whether your coverage still matches your life, an advisor can walk you through it – especially around big life events like a large purchase, an illness, or a change in family status.
Rocking chair? What rocking chair? Retirement in Canada looks different for everyone today, but the real question usually isn’t “what will my retirement look like?”. It’s “where do I even start?”. We can help you figure it out – whether it’s setting your retirement goals, figuring out where your retirement income comes from, or where to focus your next steps. It all starts with developing a clear picture of your current situation to build from. We can help with that too.
What’s retirement planning?
Retirement planning is different for everyone, depending on your stage of life. It includes identifying, building, or reviewing the income you’ll live on to reach your goals. In Canada, that generally means three sources working together: government benefits, an employer pension plan (if you have one), and personal savings.
Before you think about accounts
Before you open an account or increase your contributions, consider these three checks first:
Emergency fund
Keep a few months of expenses in a savings account outside your retirement accounts. This will give you a cushion when life throws a curveball, instead of dipping into your retirement savings early (and the tax hit that can come with it).
High-interest debt
Paying down high-interest debt first, like credit card debt, can make more sense than contributing to retirement savings. The savings from eliminating that interest often outweigh what you’d earn investing.
Income protection
Disability, critical illness and life insurance don’t build retirement savings directly, but they protect your ability to keep contributing to your retirement savings.
You don’t have to check every box before you start saving for retirement, but it’s worth knowing where you stand on each.
The three sources of retirement income in Canada
In Canada, your retirement income likely comes from three sources:
- Government benefits (CPP/QPP and OAS)
- Workplace pension plans (if you have one)
- Your personal savings
Let’s look at these one at a time, starting with the one that provides guaranteed forms of income if you qualify for them: government benefits.
Government benefits (CPP/QPP and OAS)
Many working Canadians contribute to the Canada Pension Plan (CPP) throughout their careers, or the Quebec Pension Plan (QPP) if they worked in Quebec. They can start collecting a monthly benefit based on those contributions, generally as early as age 60, although this early start comes with a permanent reduction of your retirement pension. Alternatively, you can defer CPP to as late as age 70 or age 72 for QPP and receive a permanent deferral bonus.
Old Age Security (OAS) is a separate benefit you may qualify for once you’re 65, based on how long you’ve been a resident in Canada rather than your work history. Keep in mind, you may have to repay some of the OAS back – also known as a ‘clawback’. But this only applies if your income is above a certain threshold. You can defer OAS to age 70 and receive a permanent deferral bonus of up to 36%.
Together, CPP/QPP and OAS form the foundation of your retirement income, but on their own they typically replace only a portion of what you earned before retiring. This is why the other two sources of income matter. When you choose to start collecting your CPP/QPP and your OAS also affects how much you get.
When should you start collecting CPP/QPP and OAS?
You can start collecting as soon as you’re eligible. But is it better to hold off and receive more when you choose to start?
Will the enhanced CPP be enough to live on?
CPP benefits have risen, but you’ll probably need more than CPP for a comfortable retirement.
Still working while collecting CPP/QPP and OAS?
Wondering how employment income affects your government benefits? Here’s what to know.
Employer pension plans
If your workplace offers a pension plan, it’ll generally include one or both of the following:
- a defined benefit plan pays you a set income in retirement, based on your salary and years of service – you’ll know roughly what to expect. You generally won’t need to make investment decisions and your pension amount is set when you retire. Your pension may not be indexed to increase over time. As long as the pension plan remains funded, you generally aren’t responsible for the investment risk on a defined benefit plan. These pensions remain common in government sectors but are becoming rare in the private sector.
- a defined contribution plan builds up a pool of savings from what you and your employer put in, and your eventual income depends on how those investments perform along the way. You can choose the type of investments based on your risk tolerance. Keep in mind, you take on the investment risk and future funding associated with a defined contribution plan. Not every job comes with one, but where an employer matches your own contributions, that match adds extra money to your retirement savings whenever you contribute.
Explore registered pension plans (RPPs)
Some employers offer a hybrid pension plan that includes both aspects of the above. Keep in mind, both pension plans reduce your Registered Retirement Savings Plan (RRSP) contribution room over time. However, you may still have room to contribute to personal savings depending on the type of plan and when you joined.
Take a closer look at how employer matching works and what it can mean over time: Are you passing up free retirement savings?
Personal savings
The third source of retirement income is what you save and invest yourself, most often through one or more of these accounts:
Registered Retirement Savings Plan (RRSP)
Lets your contributions grow tax-deferred. You get a tax deduction for contributing, but once you start making withdrawals, you pay taxes at your marginal tax rate. Chances are your income (and tax rate) will be lower in retirement, providing greater taxes savings over the long run.
Tax-Free Savings Account (TFSA)
Doesn’t give you a tax deduction or reduce your taxable income today. You can contribute up to your TFSA contribution limit, and any growth on that money is tax-free. Plus you won’t pay tax on withdrawals.
Non-registered investment account
Doesn’t offer either tax advantage – you report any interest, dividends, or capital gains as taxable income – but it also has no contribution limit or withdrawal rules. Useful once you’ve maxed out your RRSP and TFSA, or if you want savings you can access freely.
Many Canadians use a mix of these accounts. By the end of the year you turn 71, you’ll need to close or convert your RRSP. Most Canadians convert it into a Registered Retirement Income Fund (RRIF), which pays you retirement income, with a minimum amount you must withdraw (and pay tax on) each year. Alternatively, you can convert your RRIF to an annuity to provide you with predictable guaranteed income.
How do RRIFs work?
A RRIF is a common way to turn your retirement savings into come. But what is a RRIF and how does it work?
Looking for guaranteed retirement income? Think about an annuity
An annuity can provide guaranteed retirement income – for your life and the life of your spouse or common-law partner.
RRIF vs annuity
Although they’re often compared, a RRIF and a payout annuity work in fundamentally different ways.
Combining the three sources of income together
These three sources rarely give you the same level of income, and that’s normal. If you have a strong workplace pension plan, you may lean less heavily on personal savings. If you don’t, you may need to rely more on your personal savings, alongside CPP/QPP and OAS.
A reasonable starting order to consider:
- Contribute enough to a workplace pension to get any employer match in full, since that’s often the strongest return available before you look anywhere else.
- Make contributions to an RRSP, TFSA, or both, based on whether you expect to be in the same, a higher, or lower tax bracket when you retire.
- Time your CPP/QPP and OAS around your other income and your life expectancy, since when you start collecting and at what age you intend on retiring also shapes how much you lean on personal savings.
If you’re also carrying debt, like a mortgage, that’s not necessarily competing with these three sources – the right order for tackling both often depends on the debt’s interest rate and terms. These articles can help you think through the right balance between debt repayment and retirement savings:
Pay off debt or save for retirement?
Managing both debt and savings is the key to retiring with enough money to be comfortable.
Save for retirement or pay off your mortgage?
Not sure if it’s better to pay off your house or save for retirement? Ask yourself these important questions before you decide.
RRSP vs TFSA
When it comes to estate planning, many believe 2 common myths. We’ll separate fact from fiction so you can help make sure your legacy follows your wishes.
Where an advisor can help
Whether to pay down debt first, build up an emergency fund, or how to allocate your contributions across an RRSP, TFSA, and other accounts often comes down to your full financial picture. That includes your income today, what you expect it to be later, and what other goals you’re balancing. An advisor can help you work through that and point you toward the specific accounts and products that fit your situation.
How much do I need to retire?
There’s no single number that works for everyone, since it depends on your expenses, health considerations, when you plan to retire, and the kind of retirement you want.
A common starting guideline from the Government of Canada is to aim to replace 60-70% of your current income, since some costs (like saving for retirement and children’s education, work-related expenses) typically drop away in retirement. Here’s a table that shows you what that could look like at a few different income levels – find the range closest to yours:
| After-tax income before retiring | Guideline range (60-70%) |
|---|---|
| $40,000 / year | $24,000 - $28,000 / year |
| $50,000 / year | $30,000 - $35,000 / year |
| $75,000 / year | $45,000 - $52,000 / year |
| $100,000 / year | $60,000 - $70,000 / year |
| $125,000 / year | $75,000 - $87,500 / year |
| $150,000 / year | $90,000 - $105,000 / year |
| $175,000 / year | $105,000 - $122,500 / year |
| $200,000 / year | $120,000 - $140,000 / year |
Remember, your total retirement income will include funds like the CPP/QPP, OAS, and any pension funds you may have. Determining how much to save for retirement isn’t just about multiplying the range income by the number of years you hope to be retired. And more importantly, the taxes on each form of retirement income vary. You’ll generally think about your expenses in “after-tax dollars”, which means the tax on each income source can drastically affect how much you need to save.
Some questions to help you determine how much you need to retire
Answering these questions can help turn that guideline into a number that reflects your own situation:
- What kind of lifestyle do you picture for retirement, and what would it cost month to month?
- How much are you already contributing to a workplace pension or retirement account?
- Are there other goals – a mortgage or a child’s education – that are competing with retirement saving right now?
Once you’ve come up with your desired income, you’ll want to review the various savings pools and their associated taxes to see if it provides you the lifestyle you desire.
Budget calculator
Where does your money go? This monthly budget calculator can help you manage your spending and understand if you're falling short, breaking even or coming out ahead.
How to create a budget
Do you live paycheque to paycheque? No money left over for savings? It’s probably time to make a budget.
How to budget as a couple
Money is one of the main sources of conflict in a couple. However, even if it’s a delicate topic, it can’t be avoided.
Where an advisor can help
An advisor can help turn these into an actionable retirement plan built from your own expected expenses, not just a percentage rule.
When to start saving for retirement
The earlier you start, the more time your savings can have to grow, thanks to the power of compounding. The returns you earn start generating their own returns, year after year. That’s why people who contribute the same total amount over their careers can end up with noticeably different balances. It all depends on when you make those contributions.
This table* shows how starting retirement savings 10 years earlier can make a difference. The first two columns compare what happens when someone starts at age 25 versus age 35, each contributing $100,000 total over their career. Despite saving the same amount, the early starter ends up with roughly $80,000 more at retirement due to the power of compounding returns. The third column shows how much extra the 35-year-old would need to save each year – nearly $4,550 instead of $2,500 – to catch up and reach the same retirement balance as the person who started at 25.
| Contribution scenario | Starts at 25 | Starts at 35 | What starting at 35 would take to match |
|---|---|---|---|
| Years contributing (to age 65) | 40 | 30 | 30 |
| Total contributed | $100,000 | $100,000 | $135,600 |
| Annual contribution | ~$2,500 | ~$3,333 | ~$4,550 |
| Illustrative balance at 65* | ~$302,000 | ~$222,000 | ~$302,000 |
* Assuming a hypothetical 5% average annual return, for illustration only. Actual returns will vary and aren’t guaranteed.
Starting later doesn’t mean it’s too late to make a meaningful difference. The best time to invest was yesterday, the next best time is today. And retirement planning isn’t a one-time decision: as your income, debt and health or insurance coverage change, how much you need to save may change too. An advisor can help you figure out what that means for your specific situation.
What are your next steps after planning for retirement?
Here’s where to focus your next steps once you have a clear picture of your current situation:
Actively saving for retirement today?
Self-employed? How to retire comfortably?
Whether work is a series of contract jobs or you run your own business, these tips can help you save for retirement.
Retire at age 65 or stay in the workforce?
Wondering if it’s best to retire or keep working? Here’s some information to help make that decision.
Checklist: Are you ready for retirement?
Even though you’re still busy working, the years and months before retirement are a key time to plan and prepare. The following can help all your tasks get taken care of – whether you’re retiring in a few years or months.
Already retired, or turning your savings into income?
If you’re already retired, or getting close, these articles can help:
How to keep more of your retirement income and pay less tax
Want to turn your savings into as much retirement income as you can? Try looking at your retirement income through a tax lens.
Easy ways to split income in Canada
Income splitting isn’t as confusing as it sounds. When you do it correctly, the strategy can help reduce how much you and your spouse or common-law partner pay at tax time.
Is there money out there with your name on it?
Millions of dollars in unclaimed cash is sitting in the coffers of banks, pension plan administrators, and insurance companies. Some of this money could be yours.
Thinking about what happens to your money after you’re gone?
Retirement planning and estate planning go hand in hand. Here’s where to start.
For bigger or more complex situations - settling an estate, minimizing estate tax, or making sure your will lines up with your other legal and business plans - a Sun Life advisor can help.
What to do when your spouse dies
Being recently widowed is hard enough. Making important decisions while you’re grieving is harder. This checklist can help you prioritize what needs to be done when your spouse dies.
Questions to ask when writing your will
A will protects both your assets and your family. But most Canadians have an out-of-date will – or no will at all. Find out what to think about when you write yours.
Key documents you need to gather before you die
Can you imagine what would happen if you died and your family didn’t know where to find your will? Or your money?
This information is meant for educational and illustrative purposes only. Some conditions, exclusions and restrictions apply.
Reviewed by Paul Thorne