The amount of money required for a comfortable retirement in Canada
Determining the required amount of money for your retirement can be quite perplexing! You certainly don't want to find yourself in a predicament where you are entirely reliant on others for your income. It is crucial to gain a thorough understanding of this matter before you actually retire.
Our valued clients frequently inquire about the following:
"What is the exact amount of money I will need for retirement?"
"How can I retire prior to the ages of 50, 55, 60, or 65?"
"I do not wish to work until my last breath. Do I have any options to retire without working?"
"What is the suitable amount for a comfortable retirement?"
"How should I invest my funds to ensure their growth?"
Since each client is unique, providing a singular answer to each of these questions is almost impossible.
Our objective is to equip you with essential knowledge on the monetary requirements for Canadian retirees. We will delve into three primary subjects: the sources of income during retirement, the anticipated duration of this income (how long you expect your savings, investments, or retirement funds to last), and any additional expenses or goals you may have as a retiree.
By the end of this article, we hope to illuminate the answers to these aforementioned questions and provide you with insights into the financial needs of Canadian retirees.
What is the necessary amount for retirement in Canada?As you grow older, you may begin to question whether you are saving enough for retirement and if your retirement nest egg will suffice when the time comes.
According to a survey conducted by the Canadian Imperial Bank of Commerce (CIBC), Canadians estimate that they will require approximately 6,000 in personal savings for a comfortable retirement.
When planning for retirement, it is advisable to aim for a higher amount as a precautionary measure to ensure you do not face any financial issues in the future.
What are retirees' typical expenses?People tend to increase their spending during retirement. You might indulge in more travel, purchase a car or yacht, acquire a vacation home, dine out more frequently, and buy higher quality consumer goods. Nevertheless, if most individuals experience an upsurge in expenses during retirement, is there a threshold where this becomes unsustainable?
A study conducted by BMO wealth management in 2015 revealed that retired Canadians spend an average of $28,800 per year. Adjusted for inflation, this amounts to approximately $32,000 per year in 2021. Therefore, if you are currently 65 years old and planning to retire, with an expected lifespan until the age of 90, you would require approximately 0,000-$1,000,000 in savings to retire comfortably.
What about debt?
It is imperative to enter retirement without any debt. Period. Consider this scenario: you have a mortgage and you pay $12,000 per year in interest and principal. If your post-tax income is ,000 per year, you are dedicating 15% of that income towards debt repayment. Now, during retirement, your income drops to $48,000 per year after taxes. Consequently, you are now allocating 25% of your income towards debt repayment. This will undoubtedly cause significant distress! Thus, refrain from carrying any debt into retirement and continue working.
How do I determine the longevity of my retirement savings?In order to estimate how long your savings will last, it is crucial to understand sound investment practices and assess your financial situation. For instance, if your current total annual income is $50,000, you can utilize an online retirement calculator to estimate the monthly amount required to maintain the same standard of living.
Your savings would last for a longer duration if you invest your capital wisely, allowing you to draw from it as a source of income or if you plan to engage in part-time work.
From Where Does My Income Originate Following Retirement?
So, you've reached the stage of retirement and now it's time to relish the fruits of your labor. However, have you ever pondered where your income will derive from after you retire?
The response lies in your savings and investments. The primary components of retirement income generally encompass:
- Pensions (including the Canada Pension Plan and Old Age Security), as well as registered savings plans like RRSPs and Tax-Free Savings Accounts (TFSAs).
Additionally, other sources of retirement income may include, but are not confined to:
- Earnings derived from employment, such as part-time occupation, self-employment, or the ownership of a business during your retirement phase.
- Interest, dividends, and rent gained from investments, such as bank deposits, bonds, mutual funds, stocks, and exchange-traded funds.
What is the Duration of My Savings?
The longevity of your savings will be influenced by the span of time you anticipate being in retirement. Should you retire at 65 and envisage living until 90, your savings must be sufficient to last you for 25 years.
Preparation and forward thinking are paramount! By engaging in strategic planning and focusing on sound investments, the probability of possessing an adequate sum of money to sustain a comfortable lifestyle during these years will increase. Collaborating with a Certified Financial Planner to develop a comprehensive financial plan can be advantageous in determining the amount of savings required prior to retirement or early retirement.
If you're interested in discovering the amount of money necessary for a comfortable retirement, feel free to schedule a complimentary 15-minute consultation with one of our Certified Financial Planners by clicking here.
For further information and resources regarding retirement income in Canada, we recommend exploring the following links:
- Retirement Pension of the Canada Pension Plan
- Allowance for Individuals Aged 60 to 64
- Pension Benefits (including CPP and OAS)
- Canadian Retirement Income Calculator