How much do you need to save to retire by age 60?
Can retirement occur at all despite not really saving for retirement until age 45?
Waiting to save for retirement certainly has risks.
Read on to learn more including how our latest case study shows you it’s possible to retire by age 60 despite starting a little later in the game.
Financial independence facts to remember
You may recall from previous case studies in this series, achieving financial independence (FI) in a short period of time is a simple concept but it’s not easy to achieve.
Realizing FI takes a plan, some multi-year discipline, and ideally one or both of the following:
- For every additional dollar you save, you can invest that money so it can grow your wealth faster, and/or,
- You can realize financial independence by consuming less.
Here at Cashflows & Portfolios, we suggest you optimize both options above.
Check out how Michelle, a 20-something software engineer, plans to retire by age 40 including how much she’ll need to save to accomplish that goal.
This couple plans to retire by age 50 by using their appreciated home equity.
There are different roads to any retirement
Members of our site have already learned the powerful math behind early retirement: the more you save, the faster you’ll achieve your goal.
But life is not a straight-line. There are many different roads to retirement. Everyone has a unique path.
- What if you didn’t have a high-paying job coming out of college or university?
- What if you decided to have children and raise a family?
- What if you don’t have any workplace pension to rely on?
Depending on the path you took in life, including what decisions you made, your retirement planning could be vastly different than anyone else’s.
Modest savings can still add up
Not every person has a high savings rate. In fact, most don’t.
If you’re in your 40s or 50s, and you’re starting to think about retirement more, this post is for you!
We’re going to show you how Jacob and Marie, both age 45, who have 15 years left to save and invest for their desired retirement date of age 60 can still realize these dreams through a modest saving rate.
Let’s look at their case study.
How much do you need to save to retire at 60?
In our profile today, our couple is Jacob and Marie.
They are both aged 45 and live in a small town in Alberta. They have no children.
Unlike Will and Zoe with a young family, who live in a booming real estate market with a 7-figure house value to lean on for early retirement, Jacob and Marie have a modest home, with modest jobs. Their house price appreciation has not gone through the roof.
In fact, their house price hasn’t risen much at all, unlike many house prices that have soared in value across Canada. They also have no company pension plans to rely on for their retirement. So, if they are going to fund their retirement dreams they will need to do it pretty much on their own.
With some government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS) to rely on we believe Jacob and Marie can retire at age 60.
Let’s find out how!
Learn where your money goes – the profile and cashflow
As new readers to Cashflows & Portfolios, Jacob and Marie know they need to nail down their cashflow needs and want to help them figure out their retirement goals.
We thank them for their readership that includes a FREE cashflow spreadsheet form with their subscription!
Here are the cash flow and investing assumptions for this couple:
- We know they want to retire at age 60, currently 45, but have few assets in the bank. That’s not great but read on why: up to now, they’ve focused on paying down their mortgage. That mortgage was a huge stressor for them given their modest income. But with no debt on the books, they can finally start plowing any money previously going into the mortgage into their investments for retirement in 15 years. Good plan!
- Marie has a decent job, making $60,000 per year. Jacob’s employment is more modest, he makes $40,000.
- From their profile, they have $0 contributions to date in their TFSAs and RRSPs but that will change with the mortgage now gone!
To help Jacob and Marie invest in some low-cost investment ideas for their TFSAs and RRSPs, we sent them these links:
Everything You Need to Know about TFSAs.
Everything You Need to Know about RRSPs.
- Our couple has a small cash fund for emergency funds but it doesn’t amount to much so it’s immaterial to their retirement income projections.
- We’ve assumed (as done in other recent case studies on our site) they will take their Canada Pension Plan (CPP) benefits at age 70 – the latest possible date to maximize government income benefits.
- They will take their Old Age Security (OAS) benefits at age 65. (It makes more sense to delay CPP over OAS.)
- As mentioned above, they own their home now free and clear. It is now worth $350,000 with no plans to move. We have house price appreciation and general inflation pegged at 2% increases year-over-year for the next 15 years.
- Their future investments (focused on equities) will return about 6.5% between now and age 65, and we’ve assumed some inflation-related wage increases as well at 2%.
- Thanks to some frugal habits now and then, their after-tax spending needs are about $55,000 per year. That means they can bank close to $30,000 per year into their investments.
- Again, they are going to need to save and invest wisely on their own since neither partner has any Group RRSP nor any workplace pension plan to look forward to. It’s all on them…
One of the biggest questions/challenges for Jacob and Marie is if they should take CPP at age 60 or 70 given they have a modest retirement income. We believe it’s best to take CPP at 70 and you’ll see why soon.
For further reading on when to take CPP, check out this other case study below:
When to take Canada Pension Plan (CPP) in retirement.
Can they retire by age 60? What the math says…
Jacob and Marie are smart to make contributions to their RRSPs now that the mortgage is done, over their TFSAs (providing that RRSP tax refunds are reinvested). While we continue to believe the TFSA is a gift of an investment account for every adult Canadian to take advantage of, the math via our projections tells us that more money saved, and working sooner than later, will help this couple realize their desired retirement goals and more.
With the mortgage gone, our couple can invest about $30,000 per year inside their RRSPs vs. the current $12,000 per year in available TFSA contribution room per couple. Excluding any major lump sum investments to either account (we can run more scenarios showing TFSA vs. RRSP in the future), by taking advantage of unused RRSP contribution room in our scenario and contributing as much as possible to their RRSPs for the coming 15 years, this snowballing effect proves to be a winning formula once they hit age 60.
Without any pensions to rely on, thanks to these diligent RRSP contributions over the coming 15 years, Jacob and Marie will amass a combined RRSP portfolio value worth just over $700,000 despite being a zero now (age 45).
Again, we can’t emphasize enough that a high savings rate will do wonders for your portfolio whether you use the RRSP or TFSA!
You can read more in this dedicated post about the power of saving early and often where you can.
With their strategy by focusing on their RRSPs first, and making any contributions to their TFSAs with any money leftover in the coming years, we can see that Jacob and Marie are going to be more than fine in retirement even by starting their investing journey at age 45.
From their net worth calculation, while their real estate will make up the bulk of their assets as inflation increases the value of their home with time (at just 2%), we can see the RRSP assets are no slouch:
We’ve calculated the optimized drawdown for this couple will be their TFSA first, to minimize tax, then RRSP/RRIF assets.
Their maximum sustained spend is a healthy $59,000+ per year starting at age 60, in real dollars/today’s dollars (meaning they can actually spend more than they do today throughout retirement.)
And finally, you can see from that tax optimization we talked about above, they should withdraw first their minimal TFSA assets, then draw down the RRSP/RRIF assets, and by deferring CPP until the latest possible date (age 70), remaining RRIF assets can still be used well into their 90s.
I mean – look at the tax line in the chart below! That’s optimized!
Even then, not shown in this graphic below, they have that $350,000 home that has appreciated to a tax-exempt value of $870,000 by the time they are age 90 over a few decades. They could always sell that home then or anywhere along the way for any long-term care needs.
Final thoughts – how much to save to retire by 60
Saving early and often is sometimes just not an option. Even when it is, sometimes the mortgage debt takes priority.
Personal finance is sometimes much more than any math decision. How you feel about debt, how you want to manage debt can making paying off any mortgage sooner than later a priority. That’s not wrong, that’s just the personal in personal finance.
If that’s your decision, killing off debt before investing, this case study demonstrates that a modest retirement is still well within reach for many 40-somethings if they mind their cashflows and portfolios like this couple has done.
Couples considering paying off their mortgage before investing need to consider the opportunity costs of missing out on any stock market equity gains which may or may not materialize when they start saving for retirement. Paying down debt instead of investing is a tradeoff – something we’ll write more about on this site over time.
To help you plan for your retirement and help solve the retirement decumulation puzzle, let us know if there are any specific scenarios that you would like to see. As well, make sure you subscribe to our site so you never miss a post!
If you are interested in obtaining private projections for your financial scenario, please contact us here to get started.
Disclaimer: Any information shared on our site (“Cashflows & Portfolios” https://cashflowsandportfolios.com/) or related to our site, is for awareness and illustrative purposes only.
We thank you for reading and sharing this post!
I might have missed it somewhere but wondering why withdrawing out of RRSP in 60-70 year frame up to minimal taxation limit is not advisable? If they have minimal taxable income does this not make sense?
Hi Murray…if I understand your question, you are curious why this couple did or did not withdraw from RRSP starting at age 60?
Our projections optimized the value of the estate for this couple, higher at the end in this case which is only their primary home upon death. To do that and achieve a max spend throughout retirement, the draw down order was TFSA then RRSP. Doing that allowed RRSP assets to grow more in their early 60s leaving just CPP + OAS + RRSP/RRIF assets to spend for the bulk of their retirement.
Thanks for your readership.
CAP
Thank you. That was my question. I guess it depends on rate of return on TFSA vs RRSP but I always assumed withdrawing RRSP to threshold that is tax free would maximize value. Food for thought, I will plot my own scenario out again with this in mind. I appreciate the response.
Murray
It does. I recall in our scenario here Murray we used 6.5% (mostly equities). We are largely against using anything higher than 7% for sure long-term.
You would think that always, withdrawing from RRSP first vs. TFSA makes sense but not always. I had to work my brain through this myself! But when you think about it, the more $$ in the RRSP, the more time it has to compound, the higher the RRSP asset value. Then, if the goal is to have a higher estate value then it makes sense the TFSA gets tapped first. Of course, not everyone wants to have a higher estate value at death but it’s something to consider for any legacy purposes/wealth transfer purposes.
Anything, interesting stuff and always lots of considerations when it comes to draw down plans.
Again, we appreciate the engagement.
CAP
I love these. Would it not be better to fill the TFSA first? Their TFSA limit is not 12K initially, it’s 30K until they reach their contribution limit which should take about 6 years. At age 45 they are starting at a combined contribution limit of 151K. Why no fill that first? This would allow the possibility of higher MTR making the RRSP impact greater.
Thanks for doing this. Enjoying the new site.
Thanks for your feedback. We enjoy posting them!
We didn’t play around with lots of lump sum contributions either way – lump sums each year for TFSA vs. lump sums for RRSP. That might also adjust the max spend of course. We simply wanted to focus on this scenario whereby with lots of RRSP contribution and/or TFSA contribution room at age 45 folks can still have a decent retirement to say the least at age 60 if they get after their savings and investing plan.
Of course, different contribution rates, different inputs will always yield different results to your larger point.
CAP
Sorry, it would take about 9 years to catch up the TFSA.
Question: You wrote:
“With the mortgage gone, our couple can invest about $30,000 per year inside their RRSPs vs. the current $12,000 per year in available TFSA contribution room per couple. ”
However, it was also stated that this couple had made no contributions, as of yet, to either their RRSPs or TFSAs. So they have $75,500 contribution room each in their TFSAs. Why wouldn’t it be better to fill up their TFSA contribution room first and then proceed with the plan outlined above? They can invest using their TFSA just as they would in their RRSP but all their assets would be theirs; RRSP moneys being partly owed back to the government. Then after TFSAs were maxed out, RRSP tax refunds could be used in future years to contribute to RRSPs.
Great questions! Like we mentioned, we’re always a fan of maxing out TFSA room as soon as possible. I’ve (Mark) done this myself in my own life! But with a “maximum spend” desired in retirement, surprisingly for this couple, the order of making contributions to their TFSAs, then RRSP, etc. does not allow them to spend as much in retirement.
I recall our results were close to $56k+ as max spend per year if they contribute to their TFSAs first, and then RRSP vs. $59k+ as max spend per year if they contribute to their RRSPs. We did not play around with too much lump sum contributions either way.
As always, lots of combinations to post, they are really endless!
Great point Karen, re: “RRSP moneys being partly owed back to the government.” They are and potentially in the future we can profile others whereby they focus just on the TFSA and forget the RRSP altogether.
Thanks for reading!
CAP
Hi Mark,
Thanks for the new blog. Wondering if taking OAS at 65 means one could still be eligible for GIS if one doesn’t receive the maximum OAS benefit due to not having the full 40 years in Canada?
I was born in Canada but spent about 20 years working overseas. Had planned to wait till 70 to claim OAS. Think that would put me at 36 or 38 years. But your article got me thinking I may be better off taking OAS at 65 and deferring the CPP.
I am married and my wife will not be eligible for OAS when I reach 65 (She’s 20 years younger than me and has only lived in Canada for about 3 years to date.).
We will be very unlikely to exceed the about $43,000 joint income threshold.
I would be happy to have you do a full assessment. However my situation is a bit complicated.
We have communicated before through your My Own Advisor site. I’d be very interested to know your thoughts.
Thanks.
Cheers, Ian
Thanks for your comment Ian!
The way GIS works, you must be eligible for OAS.
In order to be eligible for the GIS:
1. You must be receiving the basic OAS.
2. You must be resident in Canada.
3. Your income must be lower than the maximum allowed income levels.
Assuming that works out, yes, you can get GIS – here is a great case in detail to help you out!
https://www.cashflowsandportfolios.com/retirement-on-a-lower-income-using-guaranteed-income-supplement-gis/
https://www.cashflowsandportfolios.com/what-is-old-age-security-oas-and-what-is-oas-clawback/
To get (OAS) benefits, you must have lived in Canada for 10 years after age 18. To get full benefits, you must have lived in Canada for at least 40 years after age 18. Those who can’t meet the 40-year residency requirement get a pro-rated benefit.
We can certainly help you out with an assessment and provide some estimates for anything including OAS.
Thanks very much for your readership on My Own Advisor Ian – appreciated 🙂
CAP
Hello, I have seen in many readings that if people retire, say at 60 or earlier, if they can wait til 65 or 70 to take their gov pension they should, but my concern is if you retire @ 60 and are lucky enough not to need the gov pension and wait the 5 to 10 years then those 5 to 10 years count again your monthly amount you will receive, and hence you will end up with a lower monthly amount because of this. Can you shed some light on this? Thank you
Hi Jerry,
Here are some thoughts on CPP. We can’t speak to other pensions of course but there are major advantages to delaying CPP to age 65 or even 70.
Thoughts?
https://www.cashflowsandportfolios.com/when-is-the-best-time-to-start-collecting-cpp/
CAP
Yes, but assuming you stop working at 60, but dont apply for CPP until 65 or 70, all those year til you apply will count as zero years contributions to you CPP hence the calculation for what you will receive monthly would be less at 65 or 70 if you did not take it at 60 since you did not pay in all those year after you stopped working at 60. Does this make sense and is this the correct way of looking at this scenario?
Hi Jerry,
Thanks for comment. If we understand your concern, yes, stopping work at age 60 and not taking the money via CPP until age 65 or 70 can be a concern, but the reality is, it can be beneficial not to take CPP right at age 60 when you retire and instead, use other assets for income needs. Your monthly CPP payment is not downgraded. In fact, there are penalties per se taking CPP at age 60 vs. 65 (traditional age) vs. age 70.
“One of the biggest questions/challenges for Jacob and Marie is if they should take CPP at age 60 or 70 given they have a modest retirement income. We believe it’s best to take CPP at 70 and you’ll see why soon.”
You can read more here given that provided this couple in our case study inflation-protected government benefits at the highest possible value.
https://www.cashflowsandportfolios.com/why-you-should-take-cpp-at-age-70/
Again, no hard and fast rules in personal finance, there is often emotion over math involved.
Thoughts?
CAP
Yes, but CPP is calculated based on years worked(max 40 I think) and how much you make to a max amount per year. Assuming some one could stop working at 60 (“retired”) and not take CPP til 65, does this mean each year from 60 to 65 counts as zero earnings years in the calculations? I am unclear on these facts, but based on this waiting til 65 would have a seriously negative impact on the monthly amount you would receive, and hence taking it at 60 when you stopped working in the first place would be the wiser choice. As long as you are working from 60 to 70 then retired this would not be an issue as you would not have zero earning years during this period. Does this make sense, and is it in fact the reality? Thanks in advance!
Correct Jerry. CPP is a contributory plan. Remember though, CPP works like this:
The standard age to start the pension is 65. However, you can start receiving it as early as age 60 or as late as age 70. If you start receiving your pension earlier, the monthly amount you’ll receive will be smaller. If you decide to start later, you’ll receive a larger monthly amount.
Your CPP amount depends on the age you started your pension, your contributions and your average annual earnings.
The maximum payment amount for taking CPP at age 65 is $15,043 per year (2022).
If you take CPP at age 60 – the amount is 36% less than that.
If you take CPP at age 70 – the amount is 42% higher than that.
If you are working after age 60, that’s different. You are likely contributing to CPP and there is really no good reason to take CPP then.
Our best!
CAP