How much money you need to retire depends on a lot of things, but the biggest is you. One person might want a big suburban home that all the grandkids can visit, while another is happier in a tiny-house with a half-fridge and a bed they can’t sit up in without bumping their head. The good news is there are two easy(ish) ways to calculate how much you’ll need to get there, and it works for both types of people — and everyone in between.
The fastest way to find your golden number is to use the scarily ubiquitous solution of AI. Here’s a quick script to get your favourite all-knowing technology to help you out: “I’m a ____ year-old Canadian with a current household income of _____ and current savings of _____. Please calculate how much I need to save for retirement, including my estimated OAS and CPP payments and accounting for inflation.” (The “please” is important. In case computers ever do come alive one day, you want to have made a good impression.)
On the off chance that you’re not ready to have a digital advisor, here’s how to handle the calculation on your own.
Step 1 - Estimate how much money you’ll need each year in retirement
We have no idea how much you’ll spend on hard candies and pickleball lessons, and neither do you. But you do have a lifetime of experience that shows you what you spend money on now. You also know that you won’t be spending quite that much in retirement, since some of those expenses will likely no longer apply — like mortgage payments, life insurance, saving for your kids’ education, and of course: putting money aside for retirement.
Instead of listing all of your current expenses and removing the ones that will no longer be a factor, one common approach is to assume that you will spend 70% of your current income in retirement. So if you make $65,000 a year now (and you don’t think that will drastically change), you can safely assume that you’ll need to spend $45,500 ($65,000 x 0.7) per year of retirement.
Step 2 - Account for what the government’s going to give you, and subtract it
Many people forget that they’re not the only ones funding their retirement. The government helps too, with the following pensions.
Canadian Pension Plan (CPP).
If you’ve ever been paid by a paycheque (as opposed to cash in a briefcase or gold bullion) you’ve contributed to the CPP — 5.95% of the first $68,500 you earn every year. Which means you will eventually be paid by the CPP. The exact amount depends on how much you contributed, for how long, and when you start taking payments. For 2024, the maximum was $1,364 a month, but the average was just over $816 a month. (For a more accurate estimate for you, you can use the CPP’s handy calculator.)
Old Age Security (OAS)
The refreshingly un-jargony program known as Old Age Security isn’t based on how much you’ve contributed over the years. It’s just a thank you for being Canadian, and it’s doled out once you hit 65, based on how many years you lived in Canada after turning 18. In 2024, the maximum monthly payout was $718.33, or just over $8,600 a year.
One thing to note: OAS payments get clawed back if you make above a certain income in retirement, which includes the money you pay yourself out of your retirement accounts. Yet another reason to be mindful of how much you withdraw from your savings and which accounts you withdraw it from.
Guaranteed Income Supplement (GIS)
The GIS is another income program for seniors, but both the eligibility and amount depends on a few factors, including your marital status and your income from the previous year. It maxes out at about $1,000 a month, and it can get clawed back depending on how much income you have from other sources.
Step 3 - Subtract the pension you expect from past employers
According to Statscan, a little under 40% of Canadian workers are members of some sort of workplace pension plan. That’s 6.7 million people who have reliable pension income coming their way in retirement. Exactly how much will depend on a lot of factors, including how long you paid into the plan and how it has performed. But you should be able to ask your employer for an estimate to help you with planning.
Step 4 - Multiply the total by 25
This is based on something called the 4% rule (multiplying something by 25 is the same as dividing it by 0.04 – 4% — but much easier to get your head around). As the thinking goes, if you withdraw 4% of your globally balanced, diversified portfolio every year in retirement, you should be able to last 30 years without scraping the bottom of your financial barrel.
Congratulations! Now you have the total amount of money you need to have saved by the time you retire. But…
Step 5 - Don’t forget inflation!
Your calculation so far is in today’s dollars. You need to adjust that number to account for all the years of inflation between now and your last day (in the office, not on earth). Get ready to be a little shell-shocked, especially if you’re young.
To get your inflation-updated number, multiply the number you calculated above by 1.02n, where n is the number of years before you plan on retiring.
Congratulations! Now you have the total amount of money you need to have saved by the time you retire. If you want to leave anything to your heirs (or that cat shelter that once sent you such cute free address labels), you can add that to this total or choose to live more frugally.
Next up: saving
Thanks to compound interest, all of this is easier to achieve the younger you start. But how much do you actually need to save each year? You can get a good estimate using a retirement savings calculator. There are a bunch online, so just find one that works in reverse, where you tell it your retirement goal and it tells you how much to save each month.
