What do you feel when you think about retirement: fear and confusion or excitement and  confidence?

‍

It’s an emotive topic and we might prefer to look away from it. Unfortunately, that’s not an effective strategy.

‍

Money is at the heart of it and it isn’t going anywhere. If you want to feel confident and prepared for retirement, you need to get your numbers straight.

‍

That’s why we’ve written this article – to give you more confidence, explain the details you might be unsure of and reveal the lesser-known tactics that can make retirement planning a happier experience.

‍

How much does it cost to retire in Canada?

As a ballpark figure, the average Canadian over 65 earns just over $40,000 per year after tax. For most retirees, their income and expenses drop when retiring, but you’ll need your retirement savings to pay you a steady ‘salary’ over the years.

‍

The more nuanced truth is that there’s not a specific number for successful retirement in Canada. The answer really depends on your lifestyle and goals for retirement.

‍

So, let’s talk numbers and then look at lifestyles.

‍

How much money does the average Canadian retire with?

Data from Statistics Canada’s latest Canadian Income Survey and Survey of Financial Security can be filtered for over 65s, which means we can see their:

‍

• average and median annual income
• average and median retirement savings balance

‍

Given the age of this data, you should only use these figures as a guide.

Statistics Canada defines ‘seniors’ as any Canadian over the age of 65, so some of these people will still be in work.

‍

Just in case you’re not 100% sure about the difference:

‍

• Median = the value in the exact middle of all the data.
• Average = the sum of all the values, divided by the total number of values.

‍

Key factors influencing retirement savings

Unfortunately, your retirement isn’t decided entirely by you. To make a strong, resilient plan for retirement, you’ll need to account for factors beyond how much you can save.

‍

When calculating what you’ll need for retirement, you’ll need to account for:

‍

Cost of living

The general ongoing costs of day-to-day life don’t disappear in retirement.

‍

You’ll need to know what everyday living costs are throughout the year, from a tank of gas to doing a load of laundry.

‍

Healthcare expenses

As you get older, your healthcare needs tend to grow. In an ideal world, you won’t have any complex medical needs, but the likelihood increases as you age.

‍

You’ll need to plan for a gradual increase in your healthcare costs in both nominal and real terms.

‍

Housing costs

Housing costs can be a surprise for many retirees – the common belief is that their mortgage will either be paid off or pretty small, but a mortgage isn’t your only housing cost.

‍

It’s entirely possible that you might have to pay for:

‍

• Major renovations or modifications to your home
• Assisted living towards the very later stages of your life
• A new home, whether downsizing, relocating or any other reason

‍

Lifestyle choices

Retirement should be a joyful time, filling your newfound time with experiences and great memories.

‍

Not everybody dreams of going on a year-long cruise, but most of us have some sort of dream for retirement. Those plans usually come with a price tag, so you need to know how you’ll fund them.

‍

Inflation rates

Your annual budget for your first year of retirement will not be the same as your 10th year – not in real terms, at least.

‍

Inflation affects all of us and the cost of goods and services will keep on rising. Your retirement savings need to account for inflation, either by continuing to earn a return that’s at least in line with inflation or by steadily increasing your drawdown or annuity.

‍

Calculating how much you will need to retire in Canada

To make a clear plan, you need a clear idea of the retirement lifestyle you want to fund – and what you’re likely to be able to afford.

‍

• A basic standard: enough money to cover your basic expenses, with enough for one Canadian vacation a year and not much room for frivolous spending 
• Living comfortably: covering your usual expenses and adding in some nice extras, like an international holiday and the freedom to spoil your family when you want.
• Retiring in luxury: all of your day-to-day expenses covered, with a lifestyle full of big spending and experiences – cruises and long family holidays, Michelin star dining and all the cultural capital you can dream of.

‍

How you put your savings together is down to you, as you can use multiple different income streams to create your full retirement income.

‍

Sources of retirement income

You’re not short on options for retirement savings in Canada. We’ve covered the most common below, but there are a few other niche options we’ve missed off the list to keep things simple.

‍

Canada Pension Plan (CPP)

Every working Canadian pays into their CPP account, along with their employer. It’s a state-supported retirement scheme that, in 2024, can pay up to a maximum of $1,364.60 per month to retirees.

‍

Your income from your CPP is determined by the payments you’ve made throughout your working life. The average monthly payment in 2024 was $816.52. The more you pay in, the more you get out.

‍

Quebec organises its own version of the CPP, called the Quebec Pension Plan.

‍

Old Age Security (OAS)

OAS is the other social insurance available to Canadians, open to almost all citizens over 65. If you’re in a lower income bracket, your OAS can be supplemented by the Guaranteed Income Supplement (GIS). When you turn 75, you get a 10% increase added to your OAS.

‍

Your eligibility is determined by:

‍

• How long you’ve lived in Canada since you turned 18
• Your income in the previous year – current threshold is <$152,609 for over 65s and <$148,179 for over 75s.

‍

The program is indexed to the cost of living and updated quarterly. For the latest numbers, check the government’s OAS webpage.

‍

Personal savings and investments

There are several retirement accounts you can open and contribute to as a Canadian, including:

‍

• Registered Retirement Savings Plans (RRSPs)
• Registered Retirement Income Funds (RRIFs)
• Locked-in Retirement Accounts (LIRAs)
• Deferred Profit Sharing Plans (DPSPs)

‍

These accounts offer tax incentives, usually in the form of deferrals, deductions, or tax-free withdrawals.

‍

Employer pensions

Private businesses can enrol employees in an employer-sponsored Registered Pension Plans (RRPs). The principle is the same as a RRSP, but RRPs are established and administered by the employer rather than the individual.

‍

Employers contribute to your RRP in every paycheck. You can choose to sacrifice a percentage of your salary, too. Some will offer matched contributions up to a certain percentage – i.e., if you pay in 8%, they do the same.

‍

Home equity 

For most Canadians, much of their net worth is in their home. By the time you retire, you probably will have built up a lot of equity.

‍

How you access that equity is a tricky question. There are options available that don’t include selling your house and downsizing – including getting a reverse mortgage.

‍

‍

Calculating your retirement needs

Retirement can seem a bit of an abstract concept until you’re close to it. The problem is, you need to plan for retirement long before making the jump into post-work life.

‍

Estimating monthly expenses

We wrote about basic, comfortable and luxurious retirement lifestyles earlier. Deciding how you want your retirement to look will determine your expenses.

‍

Some should stay the same – your energy bills won’t change hugely if you’re living a basic or luxurious life, for example. Others, however, could vary wildly,

‍

Take time to sit down and really plan out what you spend and at what intervals. An honest approach is the only way to do this. You could work with a financial advisor or retirement planner to help.

‍

Accounting for inflation

As the years go by, prices rise and your money is worth less. Your plan has to account for inflation, otherwise your retirement pot will shrink in real terms.

‍

You could keep your money invested and aim to outpace inflation, take an inflation-linked annuity or lean on index-linked retirement programs like your OAS.

‍

Meeting the 4% rule

General consensus is that your annual retirement spending should be no more than 4% of your total savings. If you’re more risk averse, it’s 3% or even lower. You then use that number as your basis for all future years, while accounting for inflation.

‍

The idea is that, as long as you keep your money invested, it’s incredibly likely that your savings should last for at least thirty years – or even grow.

‍

Setting a retirement date

Our salaries are often near their highest when we’re close to retirement and the idea of one more year of saving can be tempting. Before you know it, you’ve spent half a decade waiting and there’s no way to get those years back.

‍

Setting – and sticking to – your retirement date makes it way more real. It’s daunting and it’s oh-so exciting.

‍

Strategies to achieve your retirement goals

Retirement doesn’t just happen and it isn’t something you can sort out at the last minute. A happy retirement starts 30 or 40 years before it finally happens!

‍

Saving and investing early

They say the best time to plant a tree was 20 years ago and the second best time is now. Even if you’re late to start, it’s better to start now rather than later.

‍

Ideally, you want to make the most of compounding interest. In other words, letting the interest you earn stay in your account, add up and earn its own interest. Before you know it, your savings are earning as much in interest each month as you once paid in.

‍

Maximizing contributions to retirement accounts

Retirement accounts are so valuable because of their tax advantages. Prioritising your savings into dedicated retirement accounts usually makes the most financial sense.

‍

And if you have a RPP via your employer, contributing up to their maximum match (if offered) is always advisable. Otherwise, you’re leaving money on the table each month.

‍

Diversifying your investment portfolio

Investing in a diverse portfolio will help protect your savings from forces outside your control.

‍

If you over-index your savings in one specific stock or sector, you could lose a lot of money if something goes wrong. Diversifying your investments elsewhere will create a buffer.

‍

None of this is financial advice. Talk to a retirement planner or other financial advisor if you need more help.

‍

Common retirement planning mistakes

We’re all trying our best, especially with something as broad as retirement planning. If you can avoid making these common mistakes, you’ll be doing better than most.

‍

• Underestimating expenses: you’re on a fast-track to difficulties if you’re kidding yourself about your expenses. You have to be ruthlessly honest about expenses in your retirement planning. There are no rewards for modesty here.
• Ignoring healthcare costs: statistically, you’re in the final third or quarter of life. Healthcare needs inevitably accelerate during this time. If you aren’t budgeting for an increase in healthcare costs, you could end up in financial trouble.
• Failing to adjust for inflation: inflation keeps the wheels of our economy turning. Unfortunately, we’re one of the cogs in the machine and have to keep up. Your spending power will shrink in retirement, unless you plan accordingly – as we’ve written about already.
• Not including home equity: you can plan a leaner-than-needed retirement by neglecting a big part of your net worth. Unlocking some of the equity you’ve built up in your home can buy you a better retirement.

‍

You may need less money to retire than you think

For the average Canadian over 65, real estate makes up 39.2% of their net worth. You need the right tool to get that out.

‍

For many, releasing that equity would mean selling and moving somewhere cheaper. With a reverse mortgage, you can stay in your house and unlock all the equity you’ve built up.

‍

Reverse mortgages work by lending you cash secured against up to 55% of your home’s value. The loan only becomes payable when you move out. Bloom’s reverse mortgages are protected by the Home Equity Guarantee, which means you’ll never pay back more than the fair market value of your home at the time of sale.

‍

Learn more about our reverse mortgages or get a quote by answering just four questions today.

‍

Calm from chaos, clarity from confusion

Retirement planning can quickly go from daunting to exciting, once you have a clear idea of what to do and where to start.

‍

In Canada, we have a lot of options and flexibility, so there’s a way to plan for retirement for everybody. The real key is to start as soon as possible, even if you’re starting late.

‍

Among all the savings accounts and government programs, there’s another way to (at least partly) fund your retirement: a reverse mortgage.

‍

Above all else, a bit of knowledge makes retirement planning so much easier. Reading this article has put you in a good position, now it’s over to you to make a clear plan about your lifestyle, expenses, savings and income.

‍

Remember to review reverse mortgages, too.

‍