Then you start hearing words like:
- Tax-Free Savings Accounts (TFSA)
- Mutual Funds
- Registered Retirement Savings Plans (RRSP)
- Stocks and bonds
Where do you start? Well, these options mentioned above are all tools you can use to help you save for your retirement. Depending on your situation, you just need to figure out what works for you. TFSAs and RRSPs allow you to save your money and earn interest, whereas mutual funds and stocks/bonds involve investments and are a bit riskier.
The Average Amount in an RRSP at Retirement
An RRSP is a Registered Retirement Savings Plan. RRSPs are tax-deductible and are used to save money for retirement. Each year, the government calculates how much an individual can deposit into an RRSP without incurring tax.
You can then claim any amount you put into your RRSP on your taxes and receive a tax break. If you choose to take out any of these savings before you reach retirement age, you will be taxed; otherwise, interest is earned on this amount. The amount of interest gained depends on the type of RRSP or mutual fund you have decided on.
In Canada, the average amount held in RRSPs at retirement varies by region, but the national average is $144,613 as of 2022, slightly higher than $141,923 in 2021. This has gone up from $112,295 in 2020. Every year, more and more Canadians are investing in their future. Now, keep in mind this is just what the average Canadian has invested in RRSPs.
This does not include any workplace pensions, government pensions, investments, assets, or TFSAs. For most, this would not be a livable amount over a substantial period, but it would provide a comfortable cushion in addition to other retirement income.
If you do decide to create an RRSP, don’t forget that the funds need to be transferred into a Registered Retirement Income Fund (RRIF) by the time you turn 71 to avoid being taxed on them. Now, what exactly is an RRIF? A RRIF is a way for the holder of your RRSP, or any other retirement investment, to pay you in monthly installments without paying the tax of an RRSP. This is a registered fund and is considered to be income that will be reported on your taxes.
How Much Money Should You Have to Retire?
When calculating how much money you need to retire in Canada, there are a few factors to consider. First, what do you plan to do during retirement? Do you want to travel? Will you still have any debt to pay? Do you have any family members you will still financially support? Do you have a workplace pension? Next, you need to consider what age you would like to retire.
This will estimate how many years you would like to be supported financially by retirement income and will affect the total amount you should have saved. Once these factors have been considered, you need to assess how your monthly spending under a fixed retirement income will compare to how you currently spend your money. Are there expenses you can cut? What income will you need to live a lifestyle similar to how you currently live?
Taking Inflation into Consideration
Another important factor to consider when retirement planning is inflation. In Canada, the inflation rate is roughly 2% per year. Based on this and how many years you have until your anticipated retirement date, you can estimate the changes in bills and expenses over time and save a little extra.
Canada Old Age Security (OAS)
In Canada, on top of your pension as well as any RRSPs, TFSAs, and mutual funds, you can also receive Old Age Security (OAS) and Canada Pension Plan (CPP) benefits. These benefits, because they are government-regulated, will increase with inflation, whereas personal savings like RRSPs will not, so it is important to keep that in mind when creating your retirement plan.
The CPP Retirement Pension replaces part of your income when you retire. To qualify for this benefit, you must be at least 60 years of age and have made at least one valid contribution to the CPP/QPP benefit. CPP benefits are not automatic; you must apply to receive them. These benefits are based on your pre-retirement income.
OAS pension amounts vary by individual and depend on how long you have lived in Canada. It is based on your yearly net income, and you may be taxed on it if you exceed the allotted net income amount. With OAS, once you turn 75, you can also receive a 10% increase in your pension amount.
This amount is also subject to change due to inflation and is reviewed periodically by the Government of Canada. These amounts are meant to offset your retirement savings and can be calculated into your retirement budget.
The maximum amount you can receive from OAS changes, but as of 2023, the maximum OAS benefit is $778.45 per month if you’re 75 or older. If you’re between the ages of 65 and 74, then the maximum amount you could receive is $707.68.
OAS Clawback Amount in 2026
The OAS clawback, also known as a recovery tax, occurs when you earn over the threshold amount of $93,454. Your monthly pension amount is reduced by $0.15 for every dollar that is over this amount. This will occur from June 2026 to July 2027 and is based on your 2025 annual income.
If you’re between the ages of 65 and 74, your benefits are completely wiped out when your income exceeds $152,062. For those age 75 or older, your benefits are wiped out when your income exceeds $157,923. down over the rest of your life so, for most, it will work out to be within the parameters they are able to live the relatively same lifestyle.
Should You Delay CPP Until Age 70?
While you are able to access your CPP at age 60, most don’t until they reach 65. However, many who are still working choose a CPP deferral until age 70. By doing this, you’ll notice a CPP enhancement of 42% more as your maximum CPP payment, then if you took your CPP at 65.
That said, delaying your CPP payments won’t impact the amount of the survivor’s benefit. This will still be based on the maximum amount you could have received at 65.
Who Qualifies for GIS?
GIS, also known as the Guaranteed Income Supplement, is for those who have an annual income below a specific threshold. In order to qualify for GIS eligibility, you must:
- Be a minimum of 65 years of age or older
- Receive the Old Age Security pension
- Live in Canada and not be under a sponsorship agreement
In terms of income, you must fall within these thresholds for 2026:
| Situation | Annual Income |
| Single, Divorced, or Widowed | Less than $22,800 |
| Have a spouse or common-law partner who receives the full OAS. | Combined income of less than $30,096 |
| Have a spouse or common-law partner who receives the allowance. | Combined income of less than $42,144 |
| Have a spouse or common-law partner who doesn’t receive OAS. | Combined income of less than $54,624 |
How Annuities Create Lifetime Income
With annuities, you can create lifetime income through both risk pooling and conservative investing. How it works is you give the funds to an insurance company that will pool your funds with money from many other people. These funds are invested safely and use both math and life expectancy data to guarantee payments for the rest of your life.
What are the Sequence of Returns Risks in Early Retirement?
When it comes to investing for retirement, the sequence of returns risk is the risk that poor market returns in early retirement will permanently deplete your portfolio. Due to the fact that early retirees will withdraw their funds while the asset values are low, losses are locked in, which leaves insufficient capital to recover.
In order to help mitigate the fallout when you retire early, there are some strategies you can use to sustain your retirement. These include:
- Holding 2 to 3 years or living expenses in cash equivalents
- Taking advantage of conservative asset allocation
- Adopting dynamic withdrawal guardrails that can reduce spending during poor market years
How Does Pension Income Splitting Work for Couples?
On top of using the pension income tax credit and the age amount credit to save some money on your taxes, the other thing you can take advantage of is pension income splitting. This allows higher-earning spouses and common-law partners to allocate up to 50% of their pension income to the lower-earning spouse. However, your age will impact what you’re able to income split.
For those who are age 65 or older, pension splitting is allowed for:
- Life Income Funds
- Locked-in retirement accounts
- Registered Retirement Income Funds (minimum RRIF withdrawals)
- Life annuity payments from Registered Pension Plans
- RRSP Annuities
For those who are under the age of 65, you can usually only split lifetime annuity payments from a Registered Employer Pension Plan. The only exception is when the received because of the death of a spouse.
Can You Retire on $500,000 or $1,000,000?
Many people want exact numbers when it comes to retirement. Am I able to retire on $500,000 or even $1,000,000? The truth is, it is hard to say yes or no to a fixed amount. Instead of basing their income on 70%, some people also multiply their ideal yearly income by 25.
This is based on an average retirement lifespan of 25 years. There is another way to calculate this: the 4% rule. This helps determine how much you can withdraw from your retirement accounts each year without risking depletion.
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 used to earn around $100,000 per year while working.
Let’s go over a few common questions regarding how much is needed to retire. Can you retire on $500,000 in Canada? Based on some of these rules, let’s calculate what the retirement income would be. The average retirement age in Canada is 65. Assuming the $500,000 will last you 25 years, your yearly retirement income would be $20,000. For most, this would not be enough to retire.
This is lower than the average Canadian income and might be difficult to live off, depending on your monthly expenses. However, retiring on $1,000,000 could be substantially more manageable. Given the same principle as before, this would leave you with an annual income of $40,000.
Even with inflation, if your expenses align, this would be a very manageable income. We can extend this further and consider what it would look like to retire with $2,000,000. This is an extremely manageable number. Even over a span of 25 years, your annual income would be $80,000.
How Much Do You Need to Retire Early in Canada?
Honestly, it is very difficult to dictate what the ideal amount would be to retire with. These numbers above are just estimates based on common principles. But what if you want to retire early?
Retiring at age 60
For example, you have $500,000 saved for retirement, and you want to retire at 60. Instead of calculating this amount based on 25 years, a good start would be to use 30 years. The annual income based on this principle would then be $16,667.
Will this cover your yearly expenses? It could be very difficult. If this is at least 70% of your pre-retirement income, it could be possible, though. It would also depend on whether this was the only income you would receive after retirement.
Retiring at 55 or 50
What if you want to retire even earlier than 60? What about 55 or even 50? To get a good estimate of what you would need, it would be ideal to add these years to the 25-year guideline. For example, you have $1,000,000 set aside for retirement, and you want to retire early.
Based on 35 years, if you retired at 55, your annual income would be roughly $28,571.42. If you were to retire at 50, based on 40 years, your annual income would be around $25,000.
Before you make any decisions, it is important to get a second opinion, but these numbers can give you a good idea of what you can retire with and at what age.
How Much Money Does the Average Canadian Retire With?
While it is difficult to determine the exact amount needed to retire based on individual circumstances, the average annual retirement income for senior couples is $65,300. Roughly half of that amount ($32,000) would be average per person.
If you were to estimate what amount you should have saved for retirement based on the Canadian average, a single person should have $800,000, and a couple should have $1.6 million. This is based on the amount lasting you roughly 25 years at $32,000 annually.
Even though these numbers are considered to be the norm according to Statistics Canada, that doesn’t mean more or less won’t work for you. It is also important to remember that in Canada, you are eligible for full CPP benefits (QPP in Quebec) and OAS between the ages of 60 and 70.
Which Retirement Accounts Should You Withdraw from First?
When you’re ready for retirement, the most common strategy for tax-efficient withdrawals is to withdraw from non-registered accounts first. After that, you should withdraw from RRSPs and RRIFs, and then TFSAs. Annuity payments and annuity rates aren’t impacted. This strategy is known as decumulation.
That said, some prefer to withdraw their RRSPs early in order to smooth out their tax brackets and prevent forced withdrawals and OAS clawbacks. This is known as an RRSP meltdown. Before you decide to make any withdrawals, though, you need to consider the sequence of returns in order to predict the right withdrawal order and a safe withdrawal rate.
Retirement Calculator
Years ago, having a million dollars in savings might have been enough to retire, but the increased cost of living has made this difficult. Even so, according to Statistics Canada, many don’t even have that saved. To determine how much you need saved, though, a popular method is the Canadian retirement income calculator.
This calculator, also referred to as a retirement savings calculator or retirement planning calculator, gives you an estimate of how much money to retire in Canada you should have saved. Then, financial advisors can help you determine how much income is realistic and if it’s close to the same amount you’re used to.
It’s important to note, though, that planning can help lower your bills, so you’re not going to need the higher income that you’re used to. You could end up with more money while receiving less money monthly. This is often the case if you’re able to be mortgage-free before you retire. Plus, you can also choose to create other savings like an emergency fund that isn’t part of your retirement income.
Can You Retire With Nothing Saved?
The good news is that you’re able to retire in Canada with nothing saved. However, it can make retiring with a mortgage more difficult. Government benefits such as Old Age Security, Guaranteed Income Supplement, Canada Pension Plan amounts, and provincial aid can help, but they aren’t always enough.
If you’re in this situation, you may have to resort to alternatives like downsizing your home, a home equity line of credit, or a reverse mortgage. Some also seek part-time work in retirement to help with their retirement income shortfall. Others opt to start with semi-retirement or go with a phased retirement plan.
Long-Term Care Costs in Canada
One of the biggest concerns when you retire is longevity risk, which is when you outlive your retirement savings. While some government programs will offer a cost-of-living adjustment, you also need to consider long-term care costs and other healthcare costs. Depending on your income, the full cost of these amounts may not be covered, and you may even have to pay for private health insurance.
If you go with subsidized public care in Canada, your costs are likely to be between $1,500 to $2,300 per month, but private-pay and non-subsidized facilities can range from $6,000 to $12,000.
Defined Benefits Vs Defined Contributions
If you get a pension from your employer, there are two different types that you could have. These include defined benefit plans and defined contribution plans. While there are other choices for pension income, like deferred profit-sharing plans, these two are the most popular.
Defined Benefit Plans: These plans are guaranteed payouts that offer a steady payout that you can’t outlive. These are the least risky to you since employers take the risk and fund any shortfalls. They also use professional fund managers, and more the most common choice for traditional corporate and government pensions. It also gives you the option to take out the commuted value when you leave your job.
Defined Contribution Plans: The most common type used by employers is the group RRSP. Both you and your employer make RRSP contributions, and your contributions will be part of your RRSP contribution room. The main difference is that your payments run out when the money does, and you choose your own investments.
Retiring Abroad as a Canadian Non-Resident
When you’re looking for a secure retirement when retiring abroad, there are many things that you need to consider, including:
- Snowbird tax rules
- Non-resident withholding taxes on your income sources
Before you move, it may be a good idea to get professional advice. With rising costs and the hit to your taxable income, your minimum monthly income could be reduced even more due to your tax bill. This means that your average CPP payment and average monthly payments will be impacted, ultimately reducing your annual net income.
Strategies to Use for Retirement
While you are going to OAS income, as well as other government income, you should have a financial plan that include other income alternatives like rental income and investments where you earn compound interest. Depending on how you invest and your risk tolerance, your investment return will impact your monthly amount.
That said, when you’re making a retirement plan, your professional advisor can help you whether or not you’re carrying debt. In fact, most retirees can benefit from an advisor’s opinion on when to use their TFSA contributions and the trade-offs of the different retirement income strategies, like the:
- Bucket strategy
- FIRE movement strategy
- Retirement Spending Smile strategy
- Estate planning strategy
- Dividend income strategy
- Spousal RRSP strategy
They can also help you with unused First Home Savings Account contributions and even employer pension buyouts. They’re also great at keeping your finances up to date, and in fact, more than half of retirees will benefit from speaking to a financial advisor just once.
