Most of us are eager to know when we can retire.
Sadly, there is more to the equation than simply turning 65. When planning for retirement, it is essential to consider when you will retire and what kind of lifestyle you will lead.
There is no universal approach to retirement. It necessitates budgeting and a thorough evaluation of the type of retirement lifestyle desired, investments, prospective government assistance, and other factors.
If we make some assumptions about inflation rates, investment returns, and the cost of living in Canada, you could undoubtedly retire with $1 million.
This may not be the case for everyone, however, and it depends on four variables:
1 How long do you anticipate retiring to be?
2 Your anticipated monthly “income” from government pensions and assets
3 How much do you plan to spend annually?
4 How well your money performs when you invest is dependent on your decision to do so.
When you have an estimate of these three figures, you can use the following equation to determine if $1 million will be sufficient:
During Retirement Planning, Considerations
1 When are you planning on retiring?
How much you should have saved for retirement can vary significantly based on the age at which you plan to retire.
Generally, the earlier you retire, the more money you will need to save for retirement.
Your savings will have more time to appreciate, and you will have fewer years in retirement if you retire later.
Moreover, your Canada Pension Plan (CPP) payments will increase the longer you delay retirement, making it even “easier” to retire later.
Statistics Canada, Canada’s national statistical agency, reported that the average retirement age of Canadians in 2021 was 64,4 years old.
Consider saving over $1 million for retirement if you intend to retire before the average age (around 64).
If you intend to retire after the average age (perhaps 70 or later), you may need less than $1 million.
What is the optimal age to retire? Check out this blog post to learn: 55, 65, or never?
2 How do you plan to spend your golden years?
Just as essential as when you plan to retire is how you intend to live in retirement.
How do you intend to spend your time when you retire? Do you anticipate spending less, the same amount, or more than before retirement?
Have you put off specific trips and experiences until retirement? Do you wish to lavish your grandchildren with gifts?
How do you intend to spend your time when you retire? Do you anticipate spending less, the same amount, or more than before retirement?
Have you put off specific trips and experiences until retirement? Do you wish to lavish your grandchildren with gifts?
According to the 2017 StatCan Survey of Household Spending, the average expenditure per household for Canadians over 65 was $60,359 (including taxes).
Considering inflation and the escalating cost of living over the years, we can expect this figure to be approximately $64,000 today.
3 How much will you receive in government income?
Consider your monthly CPP payment and other “asset” incomes (such as rental income) as the third most essential factor in your retirement planning.
Variables such as your pre-retirement income, the type of income you earned, and the number of “low-earning” years will impact your CPP payments.
However, according to StatCan, the average CPP payment for 2020 was approximately $710.41 monthly.
- Your Investment Returns
This will be the most challenging factor to predict, but it will be an essential one. How you decide to invest your retirement savings will significantly impact how long your income will last in retirement. It is necessary to create a comprehensive financial plan, evaluate the amount of risk you can accept in your portfolio, and invest accordingly.
Based on these three assumptions regarding your retirement age, lifestyle, and CPP income, you can quickly calculate whether you can retire on $1 million in Canada.
Suppose Adam desires to retire at 65 years old. He would like to plan his retirement until he reaches the age of 90—twenty-five years in retirement.
Adam currently spends approximately $50,000 annually and intends to spend roughly the same amount during his retirement years (note that this is about $10,000 less than the average expenditure for his age demographic).
He anticipates that his monthly CPP income will be approximately $700, totaling $210,000 throughout his 25-year retirement ($700 x 300 months in retirement).
By calculating ($50,000 x 25) – $210,000, he discovers that $1,040,000 will be sufficient for his retirement years.
Yes, you can retire in Canada on $1 million if your planned retirement resembles this example.
Remember that this is a straightforward calculation, but it can serve as a helpful starting point for determining how much money you will need for retirement.
Although it does not account for inflation, returns on investment (ROI), or lifestyle increases, it can provide an accurate approximate estimate.
Can I Retire in Canada at Age 60 with $500,000?
With $500,000 in Canada, retiring at age 60 with a family of four may be difficult. Why? Consider the calculation below:
If you retire at age 60 and intend to spend an average of $60,000 per year during your 30 years of retirement, you will need approximately $1,800,000 (30 years x $60,000 per year).
Suppose you receive $700 monthly from the CPP (though you may receive less if you retire at age 60). During retirement, you will receive approximately $252 000 ($700 monthly for 360 months).
Even with returns on investments, you will need approximately $1,500,000 to retire in Canada at age 60 (spending the average amount until age 90).
Nonetheless, this does not mean that it is impossible. I know that planning until age 90 is optimistic (given the Canadian life expectancy of 82) and that some seniors can live comfortably on $40,000 or even less annually (especially if their mortgage has been paid off!).
It depends on your retirement years, investment returns, and lifestyle.
Conclusion
With $1 million, it is unquestionably possible to retire comfortably in Canada.
If you have a financial advisor, they can assist you with this type of situation. It never harms to seek advice from a professional who can point you in the right direction and paint a clear picture of what your retirement might entail.
