# How Much Money Do I Need to Retire in Canada?

Saving for retirement is an integral part of life that some of us tend to overlook when we’re young.

Yet, the younger you start planning for this chapter, the easier it will be to reach your financial goals.

Before you can start saving, you have to understand how much money you will need.

Here’s what you should know.

## Retirement Rules of Thumb

A few rules of thumb will pop up anytime you discuss retirement plans.

These tools help you approximate the budget you will need in place upon retirement.

However, like any rule, they are not one size fits all.

There are always exceptions to every rule, so be sure you know where you see your lifestyle in the future.

You can adjust these rules if a particular one doesn’t work for your situation.

### 1. 70 Percent Rule

The 70 percent rule assumes you will need 70 percent of your current annual income each year in retirement.

This means that if you currently earn \$50,000 a year, you will need \$35,000 each year in retirement to maintain your current lifestyle.

Assuming you want to have enough for 25 years of retirement, you must have \$875,000 upon retirement to ensure you maintain the same lifestyle.

To calculate this, you would take your current annual income \$X and multiple it by .70 to find 70 percent of that.

Then take that number and multiply it by the years of retirement you’re planning for.

So, 70 percent of annual income X retirement years = how much money you will need when you retire.

This rule assumes that you will spend less in retirement as your mortgage will be paid off, your children and grandchildren will not be financially dependent on you and you will not be commuting to work every day.

If any of these factors may not be the case in your situation, you’ll want to plan for more.

### 2. 4 Percent Rule

The 4 percent rule assumes that if you calculate how much money you need annually to live your life, you can take that number and multiply it by 25, and that’s how much you will need to retire at any age.

So, for example, if you currently need \$45,000 a year to cover all your expenses, you multiply that number by 25 and arrive at \$1,125,000.

This rule says that you could immediately retire and take out 4 percent from these savings a year to live on and be set for life.

Yes, even at 30 or 40 years old.

The rule was popularized by the Financially Independent, Retire Early movement, known as the FIRE movement—by those wishing to retire much younger than most traditionally do.

It relies on high income, extreme savings and a frugal lifestyle to do this at such a young age—but the rule can be applied to more traditional retirement ages with the same effect.

### 3. Savings Milestones

Savings milestones tell you the approximate savings you should have saved up at every age.

It’s a general rule that lets you know if you’re on track to meet your retirement needs.

Don’t be disheartened if your savings aren’t currently on par with this rule.

Many people can save significantly more in their later working years than in the early years due to higher salaries and promotions at work, making up for the lost time.

The general rule of thumb is that by 30, you should have one year’s worth of your annual salary saved up, and from there, it should increase as you age:

Age Savings Milestone
35 2x annual salary
40 3x annual salary
50 6x annual salary
60 8x annual salary
67 10x annual salary

## Pros and Cons of Retirement Rules of Thumb

### Pros

• They’re helpful if you’re working toward a baseline amount.
• They allow you to start planning early.
• They provide a general guideline that allows you to implement a savings plan.
• They are flexible and allow room for interpretation based on your situation.
• They are simple to understand, even if you’re not comfortable with math.

### Cons

• As with any financial rule, these rules make assumptions about your living situation.
• They usually skew toward those with steady, consistent incomes.
• They assume you have the ability to put away significant savings.
• They don’t consider your location, child status, mortgage status, etc.

Did You Know?

The average age of retirement in Canada is 64? This number skews higher for self-employed people, at 67, and lower for those working in the public sector, at 62.

## Retirement Considerations

There are many factors to consider when planning for retirement.

Since it is far from one size fits all, you’ll have to factor in your particulars to find your magic number. You

will also need to consider how various factors will affect the income you need at that time, which could be much different from your current lifestyle and situation.

### 1. Inflation

Inflation in Canada has recently been a hot discussion topic.

This is an essential factor to keep in mind when calculating how much you will need—as your income today won’t stretch quite as far in 30 or 40 years because of inflation.

You will want to calculate possible inflation rates over the years leading up to your retirement age to see how much you will need in retirement, accounting for inflation.

If your savings are in an account with an interest rate that at least covers inflation, you should be okay, but most Canadian savings accounts don’t even come near that 2-3 percent rate needed.

This is why investing your savings, where you can make an average 5-7 percent return, is so important.

### 2. When Will You Retire?

Age of retirement plays a huge factor in figuring out exactly how much you will need.

The more savings you have, the earlier you can retire.

If you want to retire early, you will need to be significantly more frugal to ensure you meet the number you need to live comfortably over a longer, more extended period.

On the other hand, if you enjoy your career and foresee doing it as long as possible, you may not need quite as much as someone who worked a highly physical job and will need to retire sooner.

Many choose to continue working part-time in retirement, which can also change how much you need.

### 3. Where Will You Live?

Retiring in an expensive city like Toronto or Vancouver will undoubtedly cost more than retiring in a small town with lower expenses.

It’s important to consider where you will want to live.

Will you be open to downsizing? Will you be okay with leaving the city if you’ve always lived there? While downsizing seems to save you money, moving costs add up, and it can be quite strenuous to move at an older age.

If you want to maintain your current home and lifestyle, account for inflation in that area.

If you’re expecting to move somewhere more affordable, factor that in.

### 4. Unexpected Expenses

While it’s easy to follow the above rules and assume you will be fine, they don’t account for unexpected expenses.

Health issues and home repairs can add up.

You should have at least 3-6 months of expenses saved up as an emergency fund, just in case.

This emergency fund allows for a safety net if something unexpected pops up.

### 5. Government Benefits

As a general rule, people tend to overestimate the benefits of CPP and OAS.

Yes, these are added income you will have in retirement—but the number you receive will be based on your contribution over your entire career, and it will likely be less than you might think.