Retirement is a major life milestone that requires diligent planning and preparation to ensure you can retire comfortably and maintain your desired lifestyle. With life expectancies rising and healthcare costs increasing, determining how much money you will need for retirement is now more critical than ever.
Our guide examines key factors that affect retirement savings goals, provides average retirement savings figures, and explains different strategies and accounts to maximize your nest egg. Read on for advice on calculating your retirement number and optimizing your savings to retire worry-free.
How to Estimate Your Retirement Needs in Canada
According to the BMO Retirement Survey 2025, the participants believe that they will need an average of over $1.54 million to retire, and about two-thirds (63%) said higher prices were making it harder to save for retirement.
These numbers serve as a good starting point, but everyone’s situation is unique, and there is no single magic number for retirement. The amount varies based on your intended retirement age, lifestyle, debt levels, and other sources of retirement income.
You can create a reliable estimate using these three methods:
The Income Replacement Rule (70-80%)
The commonly recommended replacement ratio is 70 – 80% of your pre-retirement income. If your final working salary were $100,000, you would aim to have $70,000 – $80,000 annually in retirement income.
Why not 100%? Because some major expenses disappear after you stop working:
- Payroll deductions: If you stop working, payroll deductions like CPP and EI usually stop.
- Retirement savings: You’ll be drawing down savings, not adding to them.
- Work-related costs: Commuting, work lunches, and professional attire costs are eliminated.
- Mortgage: Many people aim to have their mortgage paid off by retirement.
The 4% Withdrawal Rule
Another popular retirement planning method is the 4% withdrawal rule. This rule states you can safely withdraw 4% of your initial retirement savings in your first year of retirement, and then adjust that amount for inflation each subsequent year.
Example: With a $1,000,000 nestegg, you could withdraw $40,000 in year one. The rule suggests that, if the withdrawal amounts exceed 4%, you risk depleting your retirement funds prematurely.
Modern take: The “4% rule” is a rule of thumb, not a guarantee. It can be a starting point for planning, but your sustainable withdrawal rate depends on fees, inflation, asset mix, and the order markets move in. Financial planners now suggest a lower withdrawal rate may be safer, especially given market volatility and longer lifespans. Some also recommend “dynamic withdrawal” strategies, where you withdraw less in years when the market is down.
Calculate your Budget in Details (Most Accurate)
This is the most personal and accurate approach. Instead of estimating, you calculate your actual expected expenses in retirement.
First, track your current spending. Use a spreadsheet or app for 3-6 months to see where your money truly goes. Then, list all anticipated monthly expenses:
- Housing: Property taxes, insurance, utilities, maintenance.
- Healthcare: Out‑of‑pocket costs vary by province and coverage (drugs, dental, and private plans). Use your quotes and provincial rules to build a budget.
- Transportation: Car payments, insurance, fuel, maintenance, or public transit.
- Debt: Any remaining mortgage, car loan, or line of credit payments.
- Lifestyle: Travel, hobbies, dining out, entertainment, gifts. Be realistic about the costs of your desired lifestyle.
- Financial support for others: Expenses for dependent family members, such as elderly parents, grown children, or grandchildren.
The Government of Canada offers a free Canadian Retirement Income Calculator that estimates how much retirement income you may receive from government pensions, employers, RRSPs and other sources to determine if it aligns with your desired replacement ratio. You can input all the information you track above to calculate a target tailored to your unique situation.
The Provincial Factor – Where You Live Matters
Your retirement number can change significantly depending on your province. Differences in income tax rates, sales taxes, property taxes, and healthcare costs can have a major impact on how far your savings will stretch.
| Province | Average Cost of Living | Healthcare Premiums |
|---|---|---|
| Alberta | Moderate | No |
| BC | High | No (replaced by Employer Health Tax) |
| Ontario | High | No |
| Quebec | Low-Moderate | Yes (Prescription Drug Insurance) |
| Noca Scotia | Moderate | No |
For instance, a $60,000 annual withdrawal from a Registered Retirement Income Fund (RRIF) would result in different after-tax income in low-tax Alberta than in high-tax Nova Scotia. Quebec has a lower overall cost of living, but requires residents to pay into its public prescription drug insurance plan.
What Are Your Sources of Retirement Income in Canada?
Canadians have access to a range of accounts and strategies for saving and investing for retirement. Consider maximizing your contributions to these beneficial options:
Canada Pension Plan (CPP): A monthly, taxable benefit. The amount you receive depends on the contributions you make. You can take it as early as 60 or delay it to 70.
Old Age Security (OAS): A monthly benefit for most Canadians 65 or older. It is also taxable. For high-income retirees, this benefit is “clawed back.” For the OAS payments from July 2026 to June 2027, the OAS recovery tax starts when your 2025 net income is over $93,454. The threshold is indexed and updated annually; verify the current threshold here and factor it into your retirement income plan.
Registered Retirement Savings Plans (RRSPs): Allow tax-deferred growth of your retirement savings. You pay tax only when withdrawing funds in retirement.
Tax-Free Savings Accounts (TFSAs): A flexible, tax-free savings vehicle. TFSA withdrawals are generally tax-free, but penalties can apply for over-contributions or certain non-permitted situations.
Workplace Pensions: Defined benefit pension plans pay a predictable, guaranteed monthly income for life.. Defined contribution plans specify retirement contributions, but benefits depend on investment performance.
Non-Registered Accounts: Once registered plans are maxed out, open a non-registered investment account. Retirement savings in these accounts don’t get special tax treatment, but they provide more flexibility for withdrawals than registered plans.
Diversify your retirement savings by utilizing various accounts and tax strategies. Consistently invest over time to take advantage of compounding growth.
Common (and Costly) Retirement Planning Mistakes to Avoid
A solid retirement plan is about more than just hitting a savings number; it’s about avoiding common traps. Here are some of the most common mistakes and how to avoid them.
Mistake #1: Over-Relying on the 4% Rule
Many treat the 4% rule as a law of physics, assuming they can withdraw 4% of their portfolio each year without fail. However, as mentioned before, it’s not a guarantee. A market crash early in your retirement could seriously damage your long-term security if you stick to a rigid withdrawal rate.
The Solution: Adopt a flexible approach. Consider a more conservative starting rate (e.g., 3.5%) or a “dynamic withdrawal” strategy, in which you take less in down years and more in up years. Stress-test your plan with a financial advisor to see how it holds up under various market conditions.
Mistake #2: Ignoring the OAS Recovery Tax (“Clawback”)
It’s easy to assume you’ll receive your full Old Age Security (OAS) pension, but high-income retirees often get a surprise. For every dollar you earn that exceeds a specific threshold set by the government, you lose 15 cents of your OAS benefit.
The Solution: Plan your withdrawals strategically. Income from a TFSA is tax-free and does not count towards the OAS clawback threshold. Splitting pension income with a spouse can also help you both stay under the limit.
Mistake #3: Forgetting About RRSP/RRIF Withholding Tax
Financial institutions are legally required to deduct withholding tax at source on RRSP withdrawals (and on RRIF withdrawals that are above the minimum required amount).
The rates are tiered: 10% on amounts up to $5,000, 20% on amounts between $5,001 and $15,000, and 30% on amounts over $15,000 (rates are different in Quebec). If you ask for $20,000, you will receive significantly less.
The Solution: Always factor withholding tax into your withdrawal plans. If you need $20,000 in cash, you will have to withdraw a larger gross amount to account for the 30% tax.
Mistake #4: Ignoring Province-Specific Health Costs
Healthcare is not one-size-fits-all in Canada. Coverage for prescription drugs, dental, and other services varies dramatically by province. Budgeting based on a generic average will be inaccurate.
The Solution: Do your homework. Research the specific senior health and drug benefit programs in your province of retirement. Get quotes for supplemental health insurance plans in your area. This localizes your budget and makes it far more realistic.
What If You Won’t Have Enough Saved for Retirement?
If your projections show a shortfall? Don’t panic, you have options if it looks like you won’t have enough money to retire comfortably:
- Delay retirement: This allows more time to save and earn investment returns while shortening the length of retirement you have to fund. Even delaying retirement by 2-3 years can have a significant impact.
- Increase savings rate: Even a 1-2% increase in your savings rate now can lead to tens of thousands of dollars later due to compounding.
- Re-evaluate your lifestyle: Be honest about your “needs” versus “wants.” Could you travel more affordably or dine out less?
- Consider phased retirement: Work part-time for the first few years of retirement to supplement your income and allow your investments more time to grow.
- Downsize and relocate: Selling a large house and moving to a smaller property or a less expensive area can significantly reduce living costs. However, consider the land transfer tax and realtor fees carefully.
- Optimize your government benefits: Deciding when to take CPP and OAS is crucial. Delaying CPP from age 65 to 70 means a 42% larger, inflation-protected paycheque for the rest of your life.
- Consider retirement income products: Annuities through insurance carriers can provide guaranteed income for life. A reverse mortgage on your home can be taken as lump sums or scheduled advances.
With some adjustments like these, you can still achieve a comfortable retirement even if you come up a little short of your savings goals.
Here is some additional information that can support your retirement planning:
Summary: Your Path to a Comfortable Retirement
Calculating your retirement number is one of the most empowering steps you can take for your future self.
- Review your plan annually and adjust for life changes and market conditions.
- Start with a realistic estimate of your annual spending needs.
- Account for all income sources, including government benefits and workplace pensions.
- Identify the gap that your personal savings must fill.
- Set a clear savings goal and automate your contributions to RRSPs and TFSA accounts.
Take time to calculate your own unique number based on your specific situation and plans, as no one is the same. With prudent preparation, consistent saving, and disciplined investing, you can amass the savings you need to enjoy your post-work years comfortably doing the activities you love.
FAQs about How Much Money Do You Need to Retire in Canada
How do I calculate how much I need to retire in Canada?
Some key factors to consider are your desired retirement lifestyle, debt levels, government pensions you'll receive, whether you'll downsize your home, and what other retirement income sources you'll have. Retirement calculators can help you estimate based on your specific details.
Where should you live in Canada for retirement to stretch your savings?
Relocating to rural areas or smaller communities within Canada where the cost of living is lower can help your retirement savings go further. Compare housing costs, taxes, groceries, and utilities.
Why do you need more money if you retire early in Canada?
Retiring early means your savings need to support you for a longer period of time. You also miss out on extra years of growth through saving and investment returns. Starting CPP early at age 60 also reduces your payments.
When should you take CPP to maximize retirement income in Canada?
You can take CPP as early as 60, but delaying until 65 gives you the full amount. Delaying even longer to age 70 increases your monthly CPP payments by 42%.
Do workplace pensions reduce how much you need to retire in Canada?
Yes, employer pensions provide additional guaranteed retirement income. Make sure to account for any pension income you may receive when calculating your retirement savings target.
