Canadians Expect to Need $1.7 MILLION to Retire – That’s a Problem!

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According to a new BMO study and related articles on this subject we read, Canadians polled now expect to need $1.7 million to retire.

Well, we believe anyone feeling they absolutely need $1.7 million to retire on, that’s a problem.

Read on.

Canadians Expect to Need $1.7 MILLION to Retire – That’s a Problem!

How much do you need to retire? 

Answer: “it depends”.

Yes, those are the facts.

A key part of any retirement planning usually comes back to the question: How much do I need to save to retire?

Well, we’re here to tell you that $1.7 million saved up for retirement, while interesting, may or may not be what you need at all.

What you may need in retirement varies by individual, by couple; it can largely depend on your income today and desired income needs going forward and it can also depend on many things outside of your direct control like taxation, inflation, and sadly, your time of death.

Herein lies problem #1 we have with such catchy titles – they are interesting but not relevant.

Knowing how much you may need to save, based on how old you are, could be a great first step in the retirement planning puzzle but like most things in life, planning only gets you so far. We’ll come back to that point in a bit.

How much should you consider having to retire?

Answer: “it depends”.

Let’s look at some common back-of-the-napkin retirement planning rules of thumb (and why they are flawed).

Live off 70-80% of your pre-retirement income

Some retirement experts recommend strategies such as saving 10 times your pre-retirement salary and/or living off 70-80% of your pre-retirement annual income. That means if you make $100,000 annually at retirement, you need at least $70,000-$80,000 per year to have a comfortable lifestyle after leaving the full-time workforce.

The problem with this rule of thumb is it does not account for government benefits, part-time work, or your desired lifestyle. It’s another blanket statement. Not helpful.

Use the 4% rule

Other retirement experts including some self-proclaimed experts in the Financial Independence, Retire Early (FIRE) community have fallen in love with the 4% rule for an early retirement plan. It’s a decent rule of thumb but again, flawed for today’s times.

That rule implies, based on only U.S. historical research at least, that one could determine your retirement income needs by dividing your desired annual retirement income by 4%.

Using a desired $80,000 in annual retirement income, as an example, implies you would need a retirement nest egg of about $2 million ($80,000 / 0.04).

While also lacking to account for government benefits, part-time work, or your desired lifestyle, there are other flaws with this rule that early retirees should ignore in particular!

We won’t repeat that content, you can check out those details here:

Why the 4% Rule Doesn’t Work for Early Retirement (FIRE)

We believe a far better approach to any retirement drawdown design is using variable (percentage) withdrawals. This method uses a variable (and an increasing) percentage (hence the name) to determine withdrawals from a portfolio during retirement.

Again, the 4% rule is interesting but this “rule” may be totally irrelevant to you.

Use retirement savings by age

The big money manager Fidelity in the U.S. published content years ago that is still used today.

Fidelity devised a savings age-based model to help assure you’re at least in the ballpark to have enough money for retirement.

Target Retirement Savings by Age
 Age Annual Salary
 30 1x annual salary
 40 3x annual salary
 50 6x annual salary
 60 8x annual salary
 67 10x annual salary
Source: Fidelity (no affiliation)

Put another way:

Fidelity Savings By Age 2023

Beyond the previous challenges highlighted above, this age-based guideline is rather linear (literally) meaning it assumes full-time work would need to end in your late-60s.

Canadians Expect to Need $1.7 MILLION to Retire – That’s a Problem!

How much money does the “average” Canadian have saved?

Statistics Canada tracks asset and debt levels held by Canadian households.

Note that this is the household family average, which includes single-person households.

Age GroupPrivate Pension AssetsFinancial AssetsTotal Average Savings
Under 35$73,800$32,100$105,900
35 to 44$192,600$47,900$240,500
45 to 54$406,700$110,000$516,700
55 to 64$567,500$130,800$698,300
65 and Older$405,600$166,800$572,400

Source: Statistics Canada

Notes:

  1. Private Pension Assets exclude public plans administered or sponsored by governments: Old Age Security (OAS) including the Guaranteed Income Supplement (GIS) and the Spouse’s Allowance (SPA), as well as the Canada/Quebec Pension Plans (C/QPP).
  2. Financial Assets include bank accounts, investments, etc. That also means government retirement plans such as the Canada Pension Plan (CPP) are still out of scope!
  3. You can play with the filters in the link above – this is just one example/data extract.

Interesting, right??

The takeaway for you is that most Canadians, let alone couples, who think they need $1.7 million ready for retirement in invested assets will never have it saved up – not by a long shot.

Do some Canadians need $1.7 million to retire?

Answer: Yes!

And we have yet to do a case study on that very specific enough number, until today.

Before we reveal the assumptions and our findings, back to the BMO study.

Accordingly the press release above, we found the following of interest:

  • “BMO’s Retirement Study found that 74 percent of Canadians are concerned about how current economic conditions, most notably inflation and rising prices, will affect their financial situation, and 59 percent believe this will affect their confidence in meeting their retirement goals.”

Rightly so.

Inflation can be a wealth-killer but there are ways to invest for higher inflation that My Own Advisor wrote about some time ago.

  • We read about the “golden age” to retire is somewhere between “the ages of 60 and 69, with an average age of 62.” We’ll use age 62 for our case study below.
  • We found it very interesting that “one-fifth (20 percent) of Canadians are contributing to their RRSPs to achieve financial independence as early as possible and 15 percent are saving towards an unexpected early retirement. If they could retire early, one-in-five (21 percent) Canadians would like to retire in their 50s.”

While the article goes on to state the merits of financial advisors as “powerful resources” we think our unbiased content and services as a paid-for-service support team here are pretty darn good too.

Besides, in our low-cost process and services, which ignores any money management, you provide all the inputs and assumptions for us to work with – so we go well beyond alleviating “some of the financial pressures” that many Canadians face. We also share what our DIY investor community thinks about to support your decision-making. We’ll link to our low-cost support model for you to check out below too which includes massive discounts that some returning clients are getting already this year!

So…do some Canadians need $1.7 million to retire?

Yup.

But we anticipate not very many at all…based on what you desire to spend, how long you might live, and a host of other factors that will be very personal. Again, spending is personal.

According to some data we looked at:

  • The average Canadian household was spending about $67,000 in 2020. So, for the sake of this post, adjusted for inflation, let’s say that’s $72,000 per year now. Mind you, that’s household spending, on average which may not be specific to retirees since childcare expenses and saving for retirement should be done by retirement.
  • The amount of personal savings required to retire in Canada is challenging to estimate because it relies on several variables, again, preferred lifestyle but also varied sources of income (i.e., government pension, investments, workplace pension, etc.). We’ve read a few sources that indicate the average household spending for some Canadian retirees might be around $40,000 per year – but that seems a bit low to us. Average monthly household expenditures for those 65 and older — including rent, groceries, and healthcare — stand at around $4,345 in the U.S., according to the latest government data. Adjusted back to Canada, let’s put that number at about $6,000 CDN per month.
  • In 2020, David Aston from The Toronto Star writes “If you’re looking for a middle-of-the-road benchmark, consider that an average Canadian senior’s spending — including income tax — is about $43,000 a year for singles and $65,000 a year for couples. That’s my estimate based on Statistics Canada Survey of Household Spending data that I’ve adjusted in several respects.”

This makes some ranges for retirement household spending somewhere between $40,000 per year on the lower end of “average” and closer to $72,000 per year per household on the higher end of “average”.

Again, these are just some examples of what your spending might be in this “average” range. This sum (and your spending needs) can differ significantly from others based on your personal situation.

Nevertheless, leveraging the following assumptions, we were curious if Canadians need to be worried about having $1.7 million to retire with.

Many should not.

Here are our assumptions:

  • Desired retirement age, for a couple = 62 each.
  • Desired household spend for a couple = $6,000 per month, after-tax.
  • We will include max OAS (Old Age Security) income for each, age 65 for both.
  • We will include 75% of max CPP (Canada Pension Plan) income for each, starting at a traditional age 65.
  • We will include 3% inflation over the coming decades.
  • We assume our fictional couple lives in Alberta.
  • We will assume our couple is debt-free, they own their home in Calgary worth $500k, with no outstanding lines of credit.
  • Our couple has no workplace pension plan(s) whatsoever to rely on. It’s all on them – the entire $1.7 fictional million dollar portfolio they believe they need to start retirement with.
  • We’ll also assume based on the BMO article/study they have always invested very well and wisely, inside their RRSPs exclusively, such that as a couple they have most of this $1.7 million saved between them. We will assume they have $1.5 million saved up in their RRSPs. We will assume the rest is $200,000 saved up in some cash within a TFSA invested in laddered GICs to shield themselves from stock market safety.
  • The rate of return on their RRSPs pre-retirement was about 7% but we’ll roll that back to 5.5% in a 90/10 mix of stocks and bonds for the coming decades.
  • Any income in excess of the desired spending is deposited into their TFSAs.
  • The rate of return on their $200k in cash/GICs is just 4% now and going forward.
  • They figure they might die-broke with their spending to age 95, with real estate as their final asset for the kids.

The results – do you need $1.7 million to retire?

If you are an average spending Canadian, then you absolutely do not need $1.7M to retire.  That is unless you want to leave behind a large final estate.

Using the assumptions above, spending $6k/month after-tax (increasing with inflation annually) starting at age 62 results in a final estate value of $3.5M.

Take a look at their assets/net worth throughout retirement:

But what if the couple wants to spend more?  What’s the most that they can spend based on the assumptions above?

The answer?  Up to $90k/year after tax and increasing with inflation annually!

Canadians expect to need $1.7 million to retire – that’s a problem summary

The amount you need to save depends on a variety of factors such as:

  • The age you want to retire at
  • The kind of lifestyle you want
  • Your household status (married/partner or single or other)
  • Whether you’ll continue working (or not) during some or any retirement years
  • Whether you’ll have to pay down a mortgage or other debt (or not)
  • How inflation might impact your portfolio
  • How taxation will impact your portfolio
  • Your rates or return during retirement
  • When you might pass
  • And more and more and more….

Many financial planners say you’ll need around 70-80% of your pre-retirement income as an estimate. Other planners might suggest starting with the 4% rule. Still, others might suggest some savings targets while working to assure you have a chance to meet your retirement income needs.

All of this, while interesting, may not be relevant to you whatsoever.

Knowing how much you may need to save, based on how old you are, could be a great first step in the retirement planning puzzle but like most things in life, planning only gets you so far.

This means you’ll need to consider the process of planning and re-planning as a major key to your retirement income puzzle. Retirement planning, therefore, happens long before retirement and long after you start retirement to ensure your plan is on-course or can be adjusted back to course. We’ve seen tons of evidence this process of re-planning works and works very well.

Our problem with such catchy titles and information is they are not usually relevant to you when you dive deeper – personal finance and investing are and will always be personal.

For today’s post, that means you probably don’t need a $1.7 million dollar portfolio in your early 60s to enjoy a very comfortable retirement. Then again, maybe based on your spending needs, you do 🙂

More reading and case studies:

Can you retire using just your RRSP? It is possible!

Could you retire if the Global Financial Crisis happened, again?

Curious about investing in the TFSA or RRSP? Well, consider the TFSA first at any income level. Read on why when the TFSA wins over the RRSP for investing. 

Need some support? We’re here to help!

Knowing how to demystify the retirement income puzzle is not trivial work but it’s absolutely something we can help with. If you need some help solving your retirement decumulation puzzle (i.e., how to efficiently withdraw from your retirement accounts), or figuring out if you have enough saved to spend for your retirement income plans, we’re here to help answer those questions and more!

If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.

Thanks for your ongoing readership and for sharing this site with others. We feel our site and services are totally unique in Canada and we appreciate all the feedback!

Again, keep all the comments and questions, coming! 🙂

Mark and Joe.

Disclaimer: Any information shared on our site (“Cashflows & Portfolios” https://cashflowsandportfolios.com/) or related to our site, is for awareness and illustrative purposes only. Any reproduction of any site content is strictly prohibited without consent and authorization. 

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28 thoughts on “Canadians Expect to Need $1.7 MILLION to Retire – That’s a Problem!”

  1. Wasn’t the average spending by everyone considerably less than average in 2020?

    I’ll curious what the average spending is for 2023.

    Great post! Thanks CAP

    Reply
    • Thanks Sean!
      We’ll be curious what the “average” household spending is in 2023, as well, when the data comes out. That will be hindsight of course.

      We didn’t get into the details here but we believe everything after March 2020 until now needs a major asterisk * associated with the pandemic.

      CAP

      Reply
      • For sure 2020/2021 are affected by Covid. You couldn’t do anything or go anyplace.
        2020 $32K
        2021 $42K – major expense of furnace change. Gee
        whiz, if not for Covid I would have
        overspent
        2022 $38K Still on the low side
        Considering I had budgeted for $42K net expenditures back in 2015 I am quite happy with the way this has turned out.
        As to the article. if I were 20-25 years with possible future family and house and looked at $1.7 million to achieve retirement I think I would be quite disheartened. Stretch this out for inflation and I would be really dejected.
        At 50 -55 and a million in the bank I would think probably feasible.
        At 20-25 your future is unknown. Any job cuts in there?
        So it is all conjecture. Just an attention grabber and depending on your age a disconcerting one.
        Squirrel away as much as you can while you can. Life has many paths and hopefully yours will be a happy one.

        RICARDO

        Reply
        • Thanks very much for your comment!

          That’s some low spending overall, but well done 🙂

          We figured for this case study, $6k per month was a pretty comfortable retirement. We absolutely know and have met folks, including couples, that live off less. Some, a bit more than that too – again – “it depends”.

          I definitely agree with you any 20-25 year-olds, we see that $1.7M and likely fold and give up. Most 50-somethings too.

          It is all very much conjecture which is why such headlines might be not relevant to some people whatsoever 🙂

          Thanks very much for your comment.
          CAP

          Reply
  2. At age 65 this Alberta couple could create 72K/month and pay no tax in 2023.
    OAS at 16500
    CPP at 23000
    TFSA at 8000
    Eligible Div at 24500

    Total income 72K with no tax owing due to age amount and personal amount totaling almost 47K. This even accounts for the dividend gross up.
    That is a required savings of 200K TFSA plus 612K Dividends (4%) for a total of 812K. They would need to save a bit more to bridge the gap from 62 to 65.

    Love that taxtips calculator

    Reply
    • Yes, Taxtips.ca has some great tools 🙂 One of the best sites around.

      We also listed a few free tools here for folks:
      https://www.cashflowsandportfolios.com/the-best-free-retirement-calculators/

      To your point, if no other income, it is incredible that folks/a couple could earn almost $100k per year in tax-free dividends if invested in a taxable account – thanks to the Canadian dividend tax credit.

      $1.5M in taxable vs. RRSP could likely churn out 4-5% yield (say 4.5%) and you could live off $67,500 per year + CPP + OAS for life I suspect quite easily.

      Joe and I feel the same, which we didn’t include here, the ability to “live off dividends” for the most part makes these $1.7M to retire numbers a bit bonkers for most Canadians – it is far too much money for many.

      CAP

      Reply
  3. Thanks for the interesting case study.

    I’m wondering-how much do the numbers/amounts needed change if the couple rents, as opposed to owning their own home, mortgage-free? Obviously they have to pay maintenance costs on the home, but are they more financially flexible/need less money because of this “free rent”?

    Also, a suggestion for another case study. How much do single seniors (often women) need to have, given the tough tax treatment single people receive? (No income splitting, etc.) There are a lot of them and as the population ages, the numbers are growing.

    Reply
    • Thanks for your comment.

      Fair point on renting. Arguably, a debt-free home (which is an asset) is less expensive than renting.

      Great call on aging women and likely a good candidate for a case study, more singles in general including some folks that might rent too.

      Appreciated,
      CAP

      Reply
    • In my case I would need to get an apartment at no more than $800mth. I have a four bdr, two story with attached garage.
      Too big for what I need now but it sure costs less than even a two bed apartment.
      Mind you I wouldn’t have to cut the grass or any exterior maintenance nor some of the interior maintenance either. However I don’t have to listen to any family squabbles nor do I get the munchies because they cook better than I do.

      RICARDO

      Reply
  4. $72k spending , including tax, seems low
    I would be interested to see a break down of this number by expense category
    for a retired couple living in their mortgage free home,Thanks
    Bill

    Reply
  5. Thanks for the great info!

    Just wondering, is the portfolio for a couple or single? We will have to decide soon to take 100% survivorship or some other percent when each of us retires. The pensions are not huge and the actuaries will have determined the numbers. That said, if one of us passes, the expenses do not go down by 50%. While we each have our own RSP’s and TFSA’s, the non-registered acct is joint.
    Just interested in your thoughts about two people vs one.
    Thanks!

    Reply
    • Hey Marty,
      Sorry for the delay, the comment was caught in spam and we removed it!

      This portfolio is for couples, vs. singles. Having $3.4M for a couple is a tremendous amount of money. It would be hard to spend it all at $10,000 per month from age 55+ to be honest with 3% inflation over time.

      We believe any couple with about $1.5M invested, + CPP, + OAS, is likely going to have a very good retirement. Some have more, some have less, but anyone in their 50s and certainly 60s with close to $1.7M invested with modest spending means and no debt shouldn’t have any retirement worries. The math more than works for most Canadians and even much less.

      Hope that helps a bit!
      CAP

      Reply
    • Hey Soymilk,

      That’s fair, re: long-term care needs. But keep in mind someone retiring at age 55 or age 60, with $1.7M invested, can start spending at least $6k per month, if not closer to $7k per month, and still end up with millions invested in their 90s to spend to age in place, assuming they have no debt of course. Our case study identified that potential.

      From our post:
      “Using the assumptions above, spending $6k/month after-tax (increasing with inflation annually) starting at age 62 results in a final estate value of $3.5M.”

      It’s absolutely better to save more than to save less for retirement. We hope to do the same here. The reality is, most folks won’t live to age 95 in our case studies and they can likely be assured with good savings and spending habits before retirement that should continue during retirement.

      Thoughts?
      CAP

      Reply
  6. Points well taken.

    But I am now taking into account a crumbling health care system in my retirement planning. An acquaintance had a possible diagnosis of breast cancer, but was told she had to wait three months for further testing. She instead personally paid for tests at a private clinic in the States, where she discovered she had cancer and it was spreading rapidly. I know I would to the same, having once waited seven weeks for tests. Another person I know was facing a three week wait for further tests after his heart attack-he found the stress extremely difficult. My niece, who works as an x-ray technician, says frequently she is on shift where their hoped for team of 12 people instead consists of four. She doesn’t want any more overtime!

    You still may have the funds available for healthcare costs, but might have to cut back on other line items, such as charitable giving, gifts to family and so forth. I am taking a hard look at my financial plan for retirement as it relates to health care and long term care costs and upping the figures!

    Reply
    • Yes, healthcare is a HUGE wildcard and getting worse by the day I think. Sadly.

      I think many Canadians are likely going to be in that boat: cutting back on charitable giving, gifts to family and so forth.

      I know for Joe and I, respectively, we’re budgeting for higher healthcare costs as we age. As such, we include 2.5-3% sustained inflation for the coming 30-40 years to ensure as we age, our portfolios can hopefully cover those higher costs. That’s the thinking anyhow!

      Stay well.
      CAP

      Reply
  7. When you say they have a $500k house, that is part of the $1.7, otherwise they have $2.2.

    I have been retired for 18 years and I find being careful with money and not having the expense of commuting and working it can cost quite a bit less… Also virtually all Canadians get OAS and CPP so that should also reduce the draw. I would also say many Canadians might even manage with a couple getting CPP and OAS x2, low taxes, owning a modest home or have a lower rent apartment its pretty easy. Cars and Insurance are large expenses, food can be reduced by a little careful shopping for specials…
    Smoking costs can bankrupt you, alcohol can be a problem and drugs, including prescription try to do zero.. For me, my largest cost by far are taxes..

    Reply
    • Thanks Scott.

      We included the $500k house to show net worth but this couple cannot spend their house. With $1.7M they can spend up to $90k/year after tax and increasing with inflation annually – so unless all Canadians need to spend $8k per month after-tax, every month, always rising with inflation they don’t need that much saved. Some do however!

      We agree with the smoking, drugs and alcohol for sure!
      CAP

      Reply
    • A house is an asset, not that different than stocks or bonds, it provides a dividend, a place to live, potential Capital gains and no rent to pay. The asset can also be mortgaged, leased out or sold, so yes it should be considered in the $1.7 million, or whatever number is being used. Arguably while the property tax may/will increase, likely not as much as rent will.

      Since I travel a lot, I have a modest home, 1000 sq ft, but it costs me much less than rent. One caveat with “Home” ownership, the condo’s Ive looked at have large monthly maint fees that can run close to $1000 per month, this is closer to renting than owning imo.

      Reply
  8. If you have money in a RSP, you can not count it as 100%.

    EG $1,000,000 in a bank account of after tax money is $1m, $1m in an RSP is closer to equal $500K. Sometimes I feel that the only thing the Canadian Govt can do properly is collect taxes. At least they get a tremendous amount from me…

    Reply
      • You can look at it as a loan to pay back or a tax due, regardless RSP money is not the same as non RSP money and should be discounted… The old bird in the hand versus 2 in the bush..
        Especially when it converts to a RIF you have little say in what comes out and when. My personal experience is, never use the maximum option with out very carefully determining the consequences, and even then think twice.

        Reply

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