How much does it cost to retire in Canada?
Life looks different and your retirement goals may have changed, too. Looking to figure out how much you need to meet these goals? Start by answering these 10 questions
If you’re saving for retirement, it’s likely in a registered retirement savings plan (RRSP) or employee pension plan. But are you saving enough? Can you keep the lifestyle you’re dreaming of in retirement? How much do you need to retire in Canada?
Opinions differ when it comes to the percentage of income Canadians need to save for retirement. Recommendations run from 40% up to 70% of what you earned before you left the workforce. However, it may not be useful to think about retirement planning in just these terms.
Since everyone's situation is different, estimating a percentage isn't the best strategy. You need to look at:
- what retirement means for you, and
- what your expenses might be.
An advisor can help you figure out how much you need for retirement and how much you must save. In the meantime, start by answering these 10 questions.
1. When did you start saving for retirement?
“Some people wait to start saving for retirement. But when you’re older, the higher the percentage of income you must put aside. That’s because you’ve lost years of compounding,” says Gordon Pape, author of numerous books on personal finance. “A 25-year-old might need to save only 8% to 10% of investment income each year. However, a 45-year-old might have to save as much as 25%.”
In short, the longer you save, the more you’ll likely have in your nest egg. Investment income can also build your account balance.
Are you on track to meet your retirement savings goal?
Find out by using our Retirement savings calculator.
2. When do you plan to retire?
Are you considering retiring at 60 instead of 65? You’ll need to save more, because you’re losing five prime contribution years. Your savings will also have to last longer.
If, after reading that, you think you may need to delay your retirement date, you’re not alone. Canadians’ retirement plans have been affected by the current economic reality of rising inflation.
Abacus Data and the Healthcare of Ontario Pension Plan (HOOPP) recently conducted a survey on retirement in Canada. Results show that 60% of Canadians agree they will push back their retirement date if inflation keeps rising.
In this case, strategizing your savings, income and care options will be key to your eventual happy retirement.
*Source: Canadian Retirement Survey 2022
Try our RRSP calculator.
3. How long are you going to live?
No one can predict their date of death. However, Canadians are generally living longer. According to the most recent census from Statistics Canada, Canadian children born in 2016 expect to live to 82. Not to mention, those who are 100+ are the fastest-growing age group in Canada.
Given this, it’s wise to factor longevity in your retirement plan, especially if:
- your relatives lived to 95, and
- you’re in good health.
Curious what your approximate life expectancy is?
Try our Life expectancy calculator.
4. What are your plans for retirement?
How do you picture spending time in retirement? A modest retirement may require only 50% of your pre-retirement income. But what if you’re planning an active retirement with travel? You may need 70% or more of your previous earnings.
Some people spend less in retirement than when working full time. There are a lot of expenses that start to go away. For example, the cost of commuting, buying lunch, or updating your wardrobe.
Despite these savings, retirees spend differently as they grow older. Think about your retirement in three stages:
1. The first stage comes immediately following work. You may be in good health and you’ll have money to spend on travel and other leisure activities.
2. Next comes a quieter stage. Your energy may start to dip, and you may become more comfortable with a slower pace.
3. Finally, as health issues become more prominent, you may pay significant sums on health care as you age. These costs may include long-term care.
All of this is very personal. No two retirement experiences are alike. To help plan for these scenarios, consider various retirement income options.
5. Do you have a workplace pension?
Some employers sponsor a workplace RRSP or pension plan and match some or all of your contributions. This annual tax-deferred bonus will reduce the amount you have to save on your own.
- Read more: How do employee pension plans work?
6. How much will you earn on your investments?
To calculate how much you need to reach your retirement savings goals, you’ll need to assume a rate of return on your investments. While there’s no predicting exactly how steady your returns will be, diversifying your portfolio can help.
An advisor can help you diversify your portfolio and select a realistic number for your investment projections.
Need help with your retirement savings plan?
A Sun Life advisor can help. Find one near you.
7. What assets do you have?
One of the first places you’re likely saving is in a registered plan. And you can save up to 18% of your earned income (to a maximum amount) in:
- an RRSP, or
- an employer-sponsored defined contribution (DC) plan.
You’ll get a tax deduction for your contributions, and your investments will grow on a tax-deferred basis. Contributions to your defined benefit plan will very likely reduce your RRSP contribution room. Unused RRSP contribution room can be carried forward to future years.
“I strongly encourage people to max out their RRSP contributions every year. This can be an enormous challenge. But in future, you’ll be glad that you did it,” says Bruce Sellery, author of Moolala Guide to Rockin' Your RRSP: Start Rockin' in Five Easy Steps. (There are exceptions where this is not the best long-term strategy. Talk to an advisor to find out what works best for you.)
Beyond your RRSP, you may have assets such as:
- a Tax Free Savings Account (TFSA),
- other unregistered savings,
- real estate, or
- a business.
Depending on the value of these assets, you may not need to save as much in a workplace pension or RRSP.
8. Will you make early withdrawals from your RRSP?
When you withdraw money from your RRSP, you pay tax on the withdrawal at your marginal rate. You also lose the contribution room and the benefit of compounding over time. Saving up an emergency fund in a TFSA is often a better option. This is because contribution room is restored in the next year.
- Read more: The hidden costs of early RRSP withdrawals
9. How much do you want to leave for loved ones?
Do you want to spend all your money when you’re alive? Or do you want to leave a legacy for your children or favourite charity? This decision will play a role in how much you need to save for (and spend in) retirement.
- Want to leave a legacy with life insurance? Get a free life insurance quote.
10. How often should you review your retirement savings plan?
It’s a good idea to review your retirement savings plan with an advisor:
- at least once every three years, or
- in connection with a major life event (e.g., birth of a child or the loss of a spouse).
Wherever you are in your retirement savings, it’s likely a good time to have a conversation with your advisor. If you don’t have an advisor, find one to work with. A Sun Life advisor can help with your retirement savings options.
This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation