How Much Do I Need to Save For Retirement in Canada?

June 24th, 2019

how-much-need-retirement-canadaThere’s no need to lose sleep over planning for retirement if you learn some financial concepts and plan for your financial independence accordingly. Presently, low interest rates have made it effortless to secure loans and other financial products, but those same low interest rates made growing savings and investments is challenging. Therefore, you need to know more than how much you need for retirement in Canada. You need to know how to save so that dollar can be stretched further than ever before.

Determine Your Retirement Lifestyle

Everyone is different. As such, there is no one-size-fits-all method for figuring out exactly how much money you will need when you retire, but there are a couple of ways to estimate how much you might be spending in the future.

The first step is asking yourself some questions about your retirement goals:

  • What hobbies will you (and your partner) have?
  • Will you travel?
  • Will you move, downsize, or renovate your home?
  • Do you have debts to pay, such as mortgages and other loans?
  • Do you have children and grandchildren to support?
  • Will you be retired part-time or full-time?
  • What age will you retire?
  • Will you receive government benefits and financial support?

Once you figured out some example expenses, the duration of your working life, and so on, you have come up with some variables to work with.

Estimate Your Income Needs

Looking at how much you spend now and will hypothetically in future is one way to estimate income needs. You can also see if how much you’re currently saving is going to furnish your future lifestyle completely or if you need to apply for government benefits and other discounts. Here are some ways retirement financial advisors calculate retirement needs:

Putting 18% vs. 10% of Income into an RRSP

Let’s say you’re making about $45,000 a year. Most of the time, people will put 10% of their annual income into a Registered Retirement Savings Plan (RRSP). Yet, depending on when you started saving and your retirement goals, 18% of annual income might be better. Here’s a quick comparison:

  • 10% of $45,000 = $4,500 RRSP contribution
  • 18% of $45,000 = $81,00 RRSP contribution

If you start saving at 25-28 years old, you have roughly 40 years to save. By contributing 18% of your annual income, you nearly double what you have saved for retirement—even before figuring in investment returns and other sources of income.

4% Withdrawal Rate

Now that you have an idea of how much you will have saved, use the 4% withdrawal rule. 4% is the “safe” withdrawal rate.

For example, if you have calculated you will need about $35,000 per year (for ages 65-95) to be comfortable in retirement, then you divide $35,000 by 4% to find you’ll need at least $875,000 saved up.

There are many other ways to calculate estimates of how much you are going to need, and financial advisors like the team at Potvin Financial can explain in detail how to use them more effectively. You can also use a retirement plan calculator.

Now that you know some ways to calculate your retirement income, you should be able to come up with the answer to the question “how much do I need for retirement in Canada?” If you are having trouble, please don’t hesitate to contact a member of our financial advisor team.

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