What Retirement in Canada Looks Like Financially

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Canada offers striking beauty, has a high-quality living and is a haven if you’re seeking a balanced life. The country also provides big benefits for those in retirement, including an affordable cost of living and publicly funded universal healthcare with no copay or deductibles. But how much can the average retiree live on and have in savings to be comfortable?

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GOBankingRates spoke with finance experts who explained what to know about retirement in Canada.

Cost of Living in Canada

The cost of living varies depending on where you live, but according to Tyler Thielmann, president and CEO of Spring Financial Inc., the average monthly salary for a single person is $736, and for a family of four, it is $2,323.

“It’s important to remember that this does not include any rental costs,” he said. “Monthly costs with rent are estimated to be $1,708 per month per person and $3,911 for a family of four. This is the bare minimum needed to live.”

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How Much Canadian Retirees Need To Save

While everyone’s circumstances differ, “the general person will need a total of between $700,000 and $1,000,000 at retirement, roughly 70% to 80% of their average pre-retirement income,” Thielmann said.

If you’re Canadian, he also suggested you “put away at least 15% of your gross income for retirement once you enter the workforce.”

However, there are several things to consider regarding the amount set aside for retirement.

“The benchmark will look different depending on when you started saving, the assets contributing to your account, your current age and your marital status,” said Rebecca Awram, mortgage advisor at Seniors’ Lending Centre.

“If you are 55 or over, around the average retirement age, you should have six to 14 times your annual salary saved to date,” she explained.

“If you are on a pension plan, I would recommend conducting a detailed analysis with a financial advisor to better understand how your portfolio may change in the next couple of years, including assets like your mortgage,” she added. “You may find that if you stay in the game for just one or two more years, you will be better set for retirement in the long run.”

How To Calculate for Retirement

To better understand how much Canadians need for retirement, Thielmann suggested using the 4% rule.

“This helps to determine how much from your retirement accounts you can withdraw every year and not risk depleting your funds,” he explained.

“Based on this rule, if you had $750,000 put away for your retirement, you could take out $30,000 a year and live off that for 25 years. This would be the retirement income of the upper middle class who were used to making around $100,000 per year when they were working.”

How Canadians Save for Retirement

The Canadian government offers different methods of saving for retirement that look a bit different from the U.S. but have plans with a similar design for tax breaks.

“Canada does not have 401(k) accounts,” Awram told us.

“However, Canadians can direct savings contributions to tax-deferred accounts, whether it be a TFSA or RRSP,” he added. “If your employer also contributes to your TFSA or RRSP, ensure you aim to match their amount to get the maximum benefit. This will hit a cap, but directing as much as possible to this account will help compound your savings.”

According to Thielmann, there are five common government systems and savings programs people can utilize for retirement. Here’s what he had to say about the options:

• Registered Retirement Savings Plans (RRSP): Contributions to an RRSP are tax-deductible, and the investment income earned in the plan is tax-deferred until withdrawn, typically in retirement when the individual may be in a lower tax bracket.
• Tax-Free Savings Account (TFSA): A flexible Canadian savings account that allows individuals to earn investment income tax-free. Contributions to a TFSA are not tax-deductible, but withdrawals — including investment gains — are tax-free. There is an annual contribution limit set by the government, which can be carried forward if not used.
• Registered Retirement Income Fund (RRIF): Funds are transferred from an RRSP into an RRIF, where they must be withdrawn periodically according to a minimum schedule set by the government.
• Locked-In Retirement Account (LIRA): LIRAs are designed to preserve pension funds until retirement, and withdrawals are typically restricted until a certain age. Funds in a LIRA are eventually converted to a life annuity or a LIF — Life Income Fund — upon retirement.
• Employee Profit-Sharing Plan (EPP): Contributions made by the employer to the plan are tax-deductible, and the investment income grows tax-deferred until the employee withdraws the funds, usually at retirement.

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