Here's How Much Money You'll Need To Retire

While 65 is the goal retirement age for many people, retirement is a very personal decision that relies on a variety of factors, such as how much you enjoy working, your health, your family situation and of course, how much money you’ve saved for retirement.

Below you’ll find some guidelines and rules of thumb you can use to determine how much money you might need in retirement, as well as tips for optimizing your retirement savings.

» MORE: Can annuities fund your retirement?

Aim to save 70% of your pre-retirement income

The amount of income you need during retirement depends on your individual circumstances, but one common rule of thumb is to save about 70% of your annual pre-retirement income.

The assumption behind this guideline is that your expenses will decrease slightly when you stop working and you’ll no longer be setting aside money for retirement.

So, if you earned $80,000 a year on average while working, you might reasonably expect to need retirement income of $56,000 a year. Of course, if your lifestyle doesn’t change much or you are still paying down a mortgage in retirement, you might need much more than 70% of your income (in fact, some experts say to aim for 100%).

To figure out the total amount you should aim to save for retirement, start by doing the math to get 70% of your pre-retirement income (in this example, $56,000). Multiply that amount by 25. Why? Because it’s a good idea to assume you’ll live at least 25 years after you retire. In our example, that would result in a sum of $1.4 million.

Next, subtract any employer pension income you expect to receive during those 25 years or government benefits from programs such as the Canada Pension Plan (CPP), Old Age Security (OAS) and Guaranteed Income Supplement (GIS).

To continue our example, let’s say you have no company pension but expect to receive $10,000 per year in CPP/OAS (based on the average monthly amount for April 2024). That means you’d subtract $250,000 ($10,000 x 25) from the $1.4 million total. So, iIn this case, you should aim to have approximately $1,150,000 saved for retirement.

🤓 Nerdy Tip: If you want to set a more exact goal for retirement — one that takes into account things like federal assistance and investment savings — the government of Canada has a handy Canadian Retirement Income Calculator you can use.

Answer these questions to find your goal retirement savings amount

The 70% rule is just a starting point, however, and may not be sufficient for all lifestyles. You also need to consider your own personal goals and likely spending costs during retirement. Ask yourself:

How old will you be? Retiring early is appealing, but typically means you’ll need to save enough to support your needs for longer.
Will you keep working? While most people stop working completely in retirement, some may continue to do creative or part-time work that supplements their savings.
Will you be downsizing? If you plan to move to a smaller home in retirement, your maintenance costs and utility bills will likely be lower than they are now.
Where will you live? If you live in a major city, you’ll need to save more; if you live in a smaller town, daily expenses tend to be less than they would be in an urban center. Cost of living also varies by province or territory.
What are your travel plans? If you plan to be very active during retirement and travel frequently or go down south every summer, you’ll need to have more money saved than if your goal is to take it easy and stay close to home.
Do you have health coverage? Do you have supplemental insurance that would pay for medical or dental services or drugs not covered under your provincial health plan during retirement? If not, you may want to save more.
Will you have any debt? If you’ll still have a mortgage or any other debt by the time you retire, make sure to factor those payments into your calculations.
Will you support anyone else financially? If you’ll have financially dependent children or other family members when you retire, plan those costs into your budget.

How to save for retirement

Whether retirement is decades away or closer than you’d like to admit, there’s never a bad time to think about ways to maximize your savings. There are a variety of ways to save for retirement in Canada. Here are just a few examples:

Tax-free savings account (TFSA)

One of the best ways to plan for a financially successful retirement is by putting money aside every month in a tax-free savings account. Any interest or investment income you earn is not taxable, and withdrawals are also tax-free. The earlier you begin to save the better, as that allows your money to grow faster thanks to the power of compounding returns.

» See our picks: Canada’s best high-interest TFSAs

Registered retirement savings plan (RRSP)

You can ease your tax burden by putting money aside in a tax-deferred registered retirement savings plan, or RRSP. You get an income tax deduction in the year you make your RRSP contributions, but you pay tax on the money you withdraw during retirement.

» See our picks: Canada’s best high-interest RRSP accounts

Workplace pension

If your employer offers optional membership in a workplace pension plan, be sure to participate. Companies often provide matching contributions that can go a long way toward boosting your retirement savings.

» MORE: Defined benefit vs defined contribution pension plans

Non-registered accounts

If you’ve got any money left over after you’ve maxed out your contributions to your TFSA and RRSP, it’s worth setting aside additional funds for retirement. Non-registered accounts don’t offer any tax advantages, but may offer more flexibility and control. Non-registered accounts include high-interest savings accounts and investing accounts.

» See our picks: Canada’s best high-interest savings accounts