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 63% say they will not have enough retirement savings due to inflation.
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: No more CPP and EI contributions.
- 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. For 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: Financial planners now suggest a more conservative withdrawal rate of 3% to 3.5% 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: Provincial plan gaps, supplemental insurance, dental, and prescriptions. Budget for at least $5,000- $7,000 per year per couple.
- 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 dramatically based on your province due to differences in income tax rates, property taxes, and healthcare costs.
| Province | Top Marginal Tax Rate (2025) | Average Cost of Living | Healthcare Premiums |
|---|---|---|---|
| Alberta | 48.00% | Moderate | No |
| BC | 53.50% | High | No (replaced by Employer Health Tax) |
| Ontario | 53.53% | High | No |
| Quebec | 53.31% | Low-Moderate | Yes (Prescription Drug Insurance) |
| Noca Scotia | 54.00% | Moderate | Nova Scotia |
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.” In 2025, the clawback begins if your net income exceeds ~$90,997
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 investment gains and withdrawals are not taxed.
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.
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 carefully the land transfer tax and realtor fees.
- 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 or reverse mortgages on your home can convert assets into guaranteed income streams. These products provide a fixed monthly income for life.
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:
- Retirement Planning as a Newcomer in Canada
- What Happens to Your RRIF When You Die
- Locked-in Retirement Fund (LRIF)
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. Early CPP and OAS claims are also reduced.
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.
