Canada Retirement Savings: What's the Ideal Amount?
Determining the amount you should save for retirement is a daunting task that requires personalized calculations. Although arbitrary figures like $1 million are occasionally suggested, they don't provide an accurate depiction of one's needs and expectations. Instead, it's crucial to analyze your budget and expenditures to determine the amount you should save. However, there are ways to gain a ball-park estimate of how much money you'll require to cover your retirement expenses.
Statistics Canada data reveals that Canadian couples over the age of 65 spend an average of $48,453 per year. To cover that amount for 25 years, you'll need at least $1,211,325 if you retire with your significant other. However, data from 2019 shouldn't be relied upon entirely, as inflation can significantly influence retirement needs. Therefore, you should assume that you'll need at least $1.2 million in total retirement savings, although the actual amount may be higher.
If $1.2 million seems excessive (or insufficient), you can use the 70% rule, which implies that you'll need 70% of your pre-retirement income annually for 25 years. As an example, if your household earns $150,000 per year, you'll require $2,625,000 in retirement savings. Alternatively, you can use the 4% rule, which states that you should withdraw only 4% of your savings annually for a maximum of 25 years. For instance, if you have $400,000 saved, the rule suggests withdrawing $16,000 per year, excluding any additional income streams.
Data from Statistics Canada indicates that economic families aged between 55 and 64 have roughly 9,100 saved for retirement. While individuals have roughly half as much, with $446,500 in total retirement savings. These figures can provide a good estimate, but it's essential to consider your income and lifestyle. Personal factors should temper the numbers, and you might require less or more than the suggested amounts based on your expectations and needs. It's imperative to ask yourself questions to get a realistic estimate of how much you'll need to save.
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