Calculate How Much You Need to Retire in Canada (2024)
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Did you know that the average Canadian household is facing a retirement savings shortfall of about 43%? This means that many Canadians may not have enough money saved to support themselves in retirement and may need to rely on government programs such as the Canada Pension Plan and Old Age Security, as well as personal savings and investments, to make up the difference.
To avoid falling into this trap, you can use our planning for retirement calculator to see whether your current projected savings meets your savings goal.
How does retirement work in Canada?
Retirement typically involves a combination of government-provided benefits and personal savings and investments. Here's a general overview of how retirement works in Canada:
Personal Savings and Investments
As Canadians approach retirement age, they will need to plan for how they will convert their savings and investments into a stream of retirement income that will last throughout their retirement years. This may involve drawing down savings, annuities, or other income-generating investments. This might involve putting savings from income into in a Tax Free Savings Account (TFSA) or Registered Retirement Savings Plans (RRSP).
In addition to government-provided benefits, many Canadians also save and invest their own money for retirement. This may include contributions to employer-sponsored retirement plans, such as Registered Retirement Income Funds (RRIFs) or Locked-In Retirement Accounts (LIRAs) as well as individual savings and investment accounts.
A good online brokerage can help you get started investing and planning for your financial future.
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Government Benefits
The government provides several retirement benefits, including:
- The Canada Pension Plan (CPP): A national pension plan that provides a monthly payment to eligible contributors who have worked and made contributions to the plan.
- Old Age Security (OAS): A federal program that provides a monthly payment to eligible Canadians who are 65 years of age or older and have met certain residency requirements.
- Guaranteed Income Supplement (GIS): A benefit for low-income seniors who receive OAS and have little to no other income.
How much money should you aim to save for retirement?
The amount of money you should aim to save for retirement in Canada depends on various factors, such as your desired retirement lifestyle, expected retirement expenses, and expected sources of retirement income.
As a general rule of thumb, financial experts recommend saving enough to replace at least 70-80% of your pre-retirement income during your retirement years. This means that if you earn $50,000 per year before retirement, you should aim to have a retirement income of $35,000-$40,000 per year. To achieve this level of income replacement, you may need to save a significant amount of money over your working years. Some financial planners suggest saving at least 10-15% of your pre-tax income each year for retirement, while others recommend saving more if possible.
Use our Canadian income retirement calculator or get in touch with a financial advisor today to discuss your specific situation and goals.
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Are retirement savings taxed?
Retirement savings in Canada can be taxed differently depending on the type of account in which the savings are held. Here are some of the ways that retirement savings are taxed in Canada:
| Type of savings | How they are taxed |
|---|---|
| RRSP | Contributions are tax-deductible, which means that they can reduce your taxable income for the year in which they are made. However, withdrawals are taxable as income in the year they are withdrawn. |
| TFSA | Contributions are made with after-tax dollars, which means that they do not reduce your taxable income for the year in which they are made. However, withdrawals are tax-free, including any investment earnings that have accumulated within the account. |
| RPP | Contributions are made with pre-tax dollars, which means that they reduce your taxable income for the year in which they are made. However, withdrawals are taxable as income in the year they are withdrawn. |
| Other investment accounts | Savings and investments held in non-registered accounts are subject to taxation on any investment earnings, such as interest, dividends, and capital gains. However, they are not subject to tax when they are withdrawn. |
Tax on retirement savings in Canada can be complex, and it's important to consult with a financial advisor to understand the specific implications of your savings strategy.
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How to use the Canadian retirement planning calculator?
Using our Canadian retirement income calculator is simple. First enter your current age, what age you intend to retire at and the annual income you want to have after retirement. Then enter your existing savings, your monthly contribution and your rate of return into the online retirement calculator.
Once all these elements have been entered the retirement income calculator will be able to reveal to you the full value of your savings goal, your projected savings at retirement and what the discrepancy is between the two. This will let you know if you are currently saving at a sufficient rate to achieve the standard of living you are aiming for in retirement.
How can a financial advisor help with retirement planning?
A financial advisor can be a valuable resource when it comes to planning for retirement in Canada. Here are some ways that a financial advisor can help:
| Strategy | How it works |
|---|---|
| Retirement Planning | Develop a personalized retirement plan that takes into account your current financial situation, goals, and timelines. This may include developing a savings strategy, identifying potential sources of retirement income, and developing a plan for managing investment risk. |
| Investment Advice | Provide investment advice and help you choose the right investment vehicles to help you reach your retirement goals. This may include recommending stocks, bonds, mutual funds, exchange-traded funds (ETFs), or other investments. |
| Tax Planning | Minimize your tax burden with a tax-efficient retirement strategy. This may include taking advantage of tax-deferred investment accounts, maximizing contributions to government-sponsored retirement plans, and managing withdrawals from retirement accounts to minimize tax liability. |
| Risk Management | Manage risk in your retirement portfolio and protect your assets. This may include developing a diversified investment portfolio, managing investment risk, and protecting your assets with insurance products such as life insurance, disability insurance, or long-term care insurance. |
| Estate Planning | Put together an estate plan that ensures your assets are distributed according to your wishes after you pass away. This may include drafting a will, establishing trusts, and minimizing estate taxes. |
A financial advisor can help you develop a comprehensive retirement plan that takes into account your unique situation and helps you achieve your retirement goals.
What should you do if your projected savings are less than your retirement goal?
If our retirement calculator Canada shows you that your projected retirement savings are less than your target savings goal, there are several steps you can take to help bridge the gap and achieve your retirement goals. Here are some options to consider:
| Strategy | How it works |
|---|---|
| Increase your savings | One of the simplest ways to bridge the gap is to increase your retirement savings. You can do this by increasing your contributions to your employer-sponsored retirement plan, opening an individual retirement account (IRA), or increasing your contributions to a Tax-Free Savings Account (TFSA). |
| Adjust your retirement goals | If your savings are falling short of your retirement goals, you may need to adjust your expectations for retirement. This may include working longer, delaying retirement, or adjusting your retirement lifestyle to reduce your expenses. |
| Consider downsizing | Another option is to consider downsizing your living arrangements or other expenses to reduce your retirement expenses. This may include selling your home and moving to a smaller, more affordable residence, or downsizing other expenses like transportation or travel. |
Another step is to talk to a financial advisor who can analyze your situation objectively and show you how to make changes or improvements.
Start working with a financial advisor today
