Answering the question “How much do I need to retire?” is difficult because everyone’s financial situation is different – but using a guide like “4% Rule,” “70% Rule,” or the formula combining your salary and age can be a good starting point. The key is to plan ahead as much as possible.
Plus, the numbers can be different if you’re a single person vs. if you’re in a committed relationship, if you’re taking care of aging parents, if you’re still supporting your adult children in some way, or for a long list of other reasons.
Whatever your circumstances may be, making a plan to save a certain amount of money is important. Here, we’ve summarized a few plans and formulas that can help give you an idea of what amount you should be striving for.
Let’s take a look.
3 questions to ask yourself when deciding how much you need to retire
While everyone’s situation is different, the average Canadian senior (age 65 and up) who is part of a family has about $739,200 saved for retirement, and single individuals have roughly $384,100. These same people have net worths of $1,298,800 and $589,700, respectively.
When determining how much money you will need in order to retire, the important thing is to find a number that’s both realistic and specific to your personal circumstances. Therefore, there are a few questions you should ask yourself first.
- When do you want to retire? The age when you retire might be different than when your parents retired, or even when your friends and colleagues decide to call it quits. But you need to do what’s right for you, whether that means continuing to work because you crave the activity and stimulation, or stepping out earlier in life so that you can benefit from the extra rest.
- Where would you like to live when you retire? In this case, “where” includes both geographical location and housing situation. Retiring to a condo along the coast of Florida is going to require a different budget than if you stay in your family home in the middle of rural Saskatchewan.
- What will your expenses be? And speaking of budgets, you’ll want to consider what the typical household expenses will be in your golden years. A smaller home will cost less to heat, but you also may want to travel, which will cost extra. Consider your retirement income sources, regular expenses, and plan accordingly.
With these questions in mind, let’s take a look at the various formulas and plans recommended to figure out the precise amount of money you’ll need to live your post-working years in comfort.
The 4% rule for retirement amounts
This method is perhaps the most simple of them all and requires taking some time to figure out how much income you’ll require in order to live a comfortable life. Whatever that number is, multiply it by 25 – or 4% – and the result is the amount you’ll need in savings in order to retire.
For instance, if you decide you need about $40,000 per year to live on during retirement, you’ll need $1,000,000 in savings to make that happen.
No matter what age you want to retire at, this approach allows you to see exactly how much you’ll need in the bank to do so. For this reason, it’s a favourite among those in the FIRE movement (Financially Independent, Retire Early).
70% of working income
Whatever income you make during your working years, it’s unlikely that you’ll need that same amount of income once you retire. You likely won’t have mortgage payments or any dependents still at home, you won’t be commuting to and from work each day, and so forth.
As an example, if you made $100,000 each year before retirement, you’ll need somewhere around $70,000 post-retirement. Or if you made $70,000 pre-retirement, you’ll need about $49,000 to live during your golden years.
Again, everyone’s situation is different, but this is a general rule of thumb to keep in mind.
Multiply your salary saved by each age mark
One simple method for figuring out how much you need to retire in Canada is suggested by Fidelity Investments in their “How much do I need to retire?” article and is especially helpful if you’re still young and relatively new to retirement savings. Essentially, all this method requires is for you to have set aside a certain multiple of your salary by the time you hit certain age milestones.
This table puts it into an easy-to-understand format.
| Age | Multiply your salary by… |
|---|---|
| 30 | 1x |
| 35 | 2x |
| 40 | 3x |
| 45 | 4x |
| 50 | 6x |
| 55 | 7x |
| 60 | 8x |
| 67 | 10x |
It’s unlikely that you’ll meet all of these goals on time, but using them as savings targets can be very helpful.
The 50/30/20 rule for retirement savings
The concept of the 50/30/20 rule is pretty straightforward: spend 50% of your after-tax income on needs and 30% on wants, then put the remaining 20% into savings.
Of course, “needs” refers to things like mortgage payments and buying groceries, while “wants” involves entertainment, travelling, etc.
Here’s an example of how someone with a $75,000 annual income would break things up for the year using this method:
| Category | Percentage | Amount |
|---|---|---|
| Salary | N/A | $75,000 |
| Needs | 50% | $37,500 |
| Wants | 30% | $22,500 |
| Savings | 20% | $15,000 |
Of course, breaking this down further and using it as part of your monthly budget is recommended.
How to save money for your retirement
Once you’ve figured out how much money you need for retirement, it’s time to make a savings plan.
There are plenty of ways to go about this, but one of the most popular and valuable methods of saving for retirement is to use a Registered Retirement Savings Plan or RRSP. The best ones will help you save on taxes while still earning optimal interest as the years go by.
These accounts can hold a number of different investments, including:
- cash,
- stocks,
- bonds,
- mutual funds,
- ETFs,
- GICs,
- options, and
- treasury bills.
Opening an RRSP through Questrade is an excellent way to begin planning for your future. Questrade has a long list of account options and is upfront and transparent with all the fees involved with using their service.
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- TFSA
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- Family RESP
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How much do you need to retire in Canada?
Hopefully, the information presented here will help you make a better plan for your retirement.
Do you already know how much you need to retire? Did you use a different method for figuring this out than those we’ve mentioned here?
We’re always interested to hear the stories and opinions of our readers, so feel free to leave your thoughts in the comment section below.
FAQ
How much do I need to retire in Canada?
The answer to this question is different for every person. There are several factors to consider, including when you want to retire, where you’ll live, and others. You can read more about these considerations here.
Is there a calculator to figure out how much money I need to retire?
Yes, there are retirement savings calculators available online and they usually consider the amounts you’ve already set aside, what you plan to save each month in the future, and the age when you plan to retire. In fact, you can use our own handy calculator to help you figure this out.
What’s the best age to retire in Canada?
The optimal age for retirement is different for every Canadian, but the average age in 2021 was 64. Your preferred age for retirement is one of the several details to consider when deciding how much money you should save, as well as when and how to begin saving.
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