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How Much Money Does a Canadian Need To Retire?

  • 5 min read

Retirement is a time in life when individuals are no longer working and are living on their savings, pensions, and other sources of passive income. In Canada, the average retirement age is 65, but many people choose to retire earlier or later based on their personal circumstances. The amount of money a Canadian needs to retire depends on several factors, including their lifestyle, inflation, and the expected length of their retirement.

Calculating Retirement Income Needs

To determine how much money a Canadian needs to retire, it is important to consider several factors, including their current expenses, expected inflation, and the length of their retirement.

The first step in calculating retirement income needs is to determine your current expenses. This includes everything from housing and food to entertainment and travel. It is important to be as accurate as possible when calculating your expenses, as this will give you a better idea of how much money you will need to maintain your current lifestyle during retirement.

Next, it is important to factor in inflation. Inflation is the rise in prices of goods and services over time, and it can have a significant impact on the cost of living during retirement. The average rate of inflation in Canada is approximately 2%, which means that the cost of living is expected to double every 35 years.

Finally, it is important to consider the length of your retirement. The longer you expect to live in retirement, the more money you will need to have saved. The average lifespan in Canada is approximately 81 years, but this can vary greatly depending on several factors, including genetics, lifestyle, and overall health.

Pros and Cons of Different Retirement Income Sources

There are several sources of retirement income that Canadians can use to fund their retirement, including pensions, savings, and investments. Each of these sources has its own pros and cons, and it is important to consider these when deciding how much money you will need to retire.

  1. Pensions: Pensions are a type of retirement income that is provided by an employer. In Canada, the most common type of pension is the Canada Pension Plan (CPP), which provides a monthly income to eligible individuals starting at age 65. The amount of income received from the CPP depends on the amount of contributions made throughout an individual’s working life.

Pros: Pensions provide a reliable and predictable source of retirement income, and they are not subject to market fluctuations. They are also protected by government guarantees, which means that they are less likely to be affected by economic downturns.

Cons: Pensions can be limited, and they may not provide enough income to support an individual’s desired lifestyle during retirement. They may also be subject to changes in government policies, which can impact the amount of income received.

  1. Savings: Savings are another important source of retirement income, and they can come from a variety of sources, including RRSPs, TFSAs, and other savings accounts.

Pros: Savings provide individuals with greater control over their retirement income, and they are not subject to changes in government policies. They also offer greater flexibility, as individuals can choose to withdraw funds at any time.

Cons: Savings are subject to market fluctuations, and they may not provide enough income to support an individual’s desired lifestyle during retirement. Additionally, individuals are responsible for managing their own savings, which can be challenging and time-consuming.

  1. Investments: Investments are a way of growing your savings and generating additional income during retirement. This can include stocks, bonds, and other financial products.

Pros: Investments offer the potential for higher returns, which can help to increase an individual’s retirement income. They also offer greater control and flexibility, as individuals can choose where to invest their money and when to sell their investments.

Cons: Investments are subject to market fluctuations, and they can be more volatile than other sources of retirement income. Additionally, they require a certain level of knowledge and experience, and individuals must be prepared to take on some level of risk.

Examples of Retirement Income Needs

To give you an idea of the amount of money you might need to retire, let’s consider a few examples:

  1. A single person with an average lifestyle: If you are a single person with an average lifestyle, you might need approximately $30,000 to $35,000 per year in retirement income. This assumes that you are living in a moderate climate, and that you have a relatively modest lifestyle.
  2. A couple with an average lifestyle: If you are part of a couple with an average lifestyle, you might need approximately $45,000 to $55,000 per year in retirement income. This assumes that you are both living in a moderate climate, and that you have a relatively modest lifestyle.
  3. A single person with a high-end lifestyle: If you are a single person with a high-end lifestyle, you might need approximately $75,000 to $100,000 per year in retirement income. This assumes that you are living in a more expensive climate, and that you have a more luxurious lifestyle.

The amount of money a Canadian needs to retire depends on several factors, including their lifestyle, inflation, and the expected length of their retirement. Pensions, savings, and investments are all sources of retirement income that Canadians can use to fund their retirement, and each has its own pros and cons. It is important to consider all of these factors when calculating your retirement income needs, and to save and invest early in order to have enough money to support your desired lifestyle during retirement.

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Christopher - BSc, MBA

With over two decades of combined Big 5 Banking and Agency experience, Christopher launched Underbanked® to cut through the noise and complexity of financial information. Christopher has an MBA degree from McMaster University and BSc. from Western University in Canada.

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