Retirement in Canada: What's the Cost?

Your plans for retirement may have shifted as a result of how your life now appears. Want to know how much money you'll need to reach your objectives? To get started, please respond to the following 10 questions.

How much does it cost to retire in Canada?

You may have an RRSP or a pension plan through your workplace if you're putting money aside for retirement. Will you be able to retire with the comforts you envision if you don't save enough?  

Getting ready to create a retirement plan that works for you Help is available from a Sun Life advisor.

Seek out a trusted guide.

But the more pressing issue is, how much does retirement in Canada really cost? Furthermore, how much money do you need to put away each year to have enough for retirement? No easy solution exists at this time.

The financial planning community in Canada is divided over the optimal savings rate for retirees. Recommendations range from forty percent (40%) to seventy percent (70%) of your final salary. Is it helpful, though, to view retirement preparation in such terms? Maybe not

Given the variability of individual circumstances, generalizations about percentages are not particularly helpful. What you should check out:

  • the significance of retirement to you, and
  • to what extent your costs could go  

Finding out how much you'll need and how much you should save for retirement can be difficult; a financial advisor can help. For now, try your hand at estimating by answering these 10 questions.

The earlier in life you begin saving for retirement, the lower your percentage of income can be. Famous personal finance author Gordon Pape explains that this is because you have lost years of compounding. According to some estimates, a person in their twenties-fives only needs to put away 8-10% of their annual income. To retire comfortably, a 45-year-old may need to set aside as much as 25% of his or her income. ”

Putting it simply, the longer you save, the bigger your retirement fund will be. Capital gains from investments are another avenue for savings accumulation.

Do you plan on retiring earlier than the typical age of 65, say, 60? Since you won't have those five years to put toward retirement contributions, you'll need to put away more money. Plus, you'll need your savings to go further.

Alternatively, perhaps you should put off retirement. If so, you're not alone. Increases in interest rates and inflation have had an effect on Canadians' retirement savings plans.

Retirement in Canada was the topic of a recent survey by Abacus Data and the Healthcare of Ontario Pension Plan (HOOPP). The majority of Canadians (63%) agree that rising inflation will force them to delay retirement.

Planning ahead for your retirement savings, income, and healthcare needs is crucial to enjoying your golden years.  

Data from the 2022 Canadian Retirement Survey

A person's death date is unknown. Nonetheless, Canadians are living longer than ever before. Children born in Canada in the most recent census have a life expectancy of 82, according to Statistics Canada. A further interesting fact is that Canadians over the age of 100 make up the fastest-growing age group.  

Taking life expectancy into account in your retirement plan is therefore important, especially if

  • Some of your ancestors reached the age of 95, and
  • Your health is excellent.

Upon reaching retirement age, how do you plan to spend your time? Half of your pre-retirement income might be sufficient to support a comfortable retirement. On the other hand, you may need 70% or more of your pre-retirement income if you intend to lead an active retirement full of travel.  

You can relax knowing that, on average, retirement spending will be lower than it was when you were working full-time. Numerous costs will eventually end. You won't have to worry about expenses like gas, lunch, or new clothes because you won't need to leave the house.  

Despite these financial reserves, retired people's spending habits change as they age. It is helpful to think of retirement in three phases when planning for your income needs:

  1. After finishing the day's work, the first phase begins. It's possible that you'll be in fine shape and financially secure enough to do some sightseeing and other fun stuff.  
  2. Now we enter a more mellow section. The energy you once had may begin to wane, and you may find that moving at a more leisurely pace suits you better.  
  3. Finally, as you get older and your health starts to decline, you may end up spending a lot of money on medical care. Long-term care is one possible expense that falls into this category.

This is, after all, a very private matter. Retirement is a unique journey that no two people take the same way. Different strategies for generating income in old age can help you prepare for these eventualities.

This annual tax-deferred bonus will reduce the amount you need to save on your own if your employer offers a workplace RRSP or Pension plan and matches some or all of your contributions.

  • Employee pension plans: an explanation (read more).

It is necessary to assume a rate of return on investments in order to determine how much money you will need to save each year in order to retire comfortably. Investment returns are unpredictable, but you can reduce risk by spreading your money around.  

An expert opinion can aid in portfolio diversification and the selection of a sensible target return.

Any questions? Consult a Sun Life advisor. Locate the nearest one.

A registered plan is likely to be one of your first savings vehicles. Additional opportunities to set aside up to 18% of your salary include:

  • a Registered Retirement Savings Plan,
  • a type of retirement plan in which contributions are determined by a formula rather than by employee payroll deductions  

You can deduct your contributions from your taxes, and the growth of your investments will be postponed. The amount you can put into your RRSP due to defined benefit plan payments will likely decrease. Carryover of unused RRSP contribution room to subsequent years

"Every year, I urge everyone I can to put as much money as possible into their RRSPs." This can be a very difficult task. According to Bruce Sellery, author of The Moolala Guide to Rockin' Your RRSP, "you'll be glad you did it in the future."

You might have other assets besides a registered retirement savings plan.

Depending on their worth, you might be able to reduce the amount you put away each year in your 401(k) or IRA.

You will be subject to income tax on the amount you withdraw from your RRSP at your individual marginal tax rate. Not only do you miss out on potential contributions and the growth that comes from compounding interest, but you also lose those benefits prematurely. The next year is a good time to start saving for an emergency fund, as this is when you can once again contribute to a tax-free savings account (TFSA).

  • The hidden costs of withdrawing from your RRSP early can be found in the following article.

Do you plan on spending all of your money while you're still alive? Or perhaps you're thinking about leaving something to future generations, such as a family business or a charitable organization. Your retirement savings goal and annual spending budget will both be affected by this choice.

The information presented here is meant merely as a guide. When it comes to matters of law, accounting, or taxes, Sun Life Assurance Company of Canada will not offer guidance. We strongly recommend consulting with an attorney, accountant, or tax expert for guidance tailored to your individual circumstances.

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