Determining how much money you need for retirement

From: Financial Consumer Agency of Canada

Set your retirement goals

How much you need to save depends on how you want to spend your retirement. Think about:

  • your travel plans
  • your hobbies
  • your age when you retire
  • if you'll work after you retire
  • if you'll have children or grandchildren to support
  • where you want to live
  • whether you’ll have debt to pay, such as a mortgage or a loan

Compare your current spending with expected retirement spending

Look at how much you spend now. Then, figure out how those expenses will change when you're retired.

For example, you won’t need to spend money on getting to work, but you might decide to spend more on hobbies or on travel.

First, use the Canadian Retirement Income Calculator to estimate how much retirement income you may have.

Then use the Budget Planner to help you better understand and review your budget.

Consider discounts for seniors

You may save money by taking advantage of seniors’ discounts.

Low-fee bank accounts for seniors

Many financial institutions offer low-fee bank accounts for seniors. They usually offer these accounts to people 60 years old and older. Speak to somebody at your financial institution to find out if they have accounts for seniors.

Seniors who have a low income can get special no-cost bank accounts. Find out if you're eligible to get a no-cost bank account.

Use the Account Comparison Tool to help you find the account that best suits your needs.

Discounts on goods and services

Many businesses offer discounts to seniors on a wide range of goods and services including:

  • groceries or household supplies
  • entertainment and travel
  • insurance
  • public transportation
  • education

Always ask about seniors’ discounts. It could save you money.

Decide when you will retire

Deciding when you'll retire has a big impact on how much you need to save. It's important to have a basic idea of how long you should expect to be retired. You'll need to make sure you have enough money to support yourself for the entire length of your retirement.

When deciding when you'd like to retire, think about:

  • the lifestyle you want when you retire
  • your spouse or partner’s retirement plans
  • your health or spouse or partner’s health
  • your current financial obligations and living expenses
  • how much you'll get from pensions, personal savings and investments

How long you'll live will also impact how much you have to save for retirement. Today’s Canadians live longer than past generations. It may be smart to budget for 30 years of retirement or more.

Use the retirement guide from the Canadian Life and Health Insurance Association to prepare for retirement.

Plan for unexpected expenses in retirement

Unexpected events can have a big impact on your retirement savings.

It's possible that you could face:

  • having to retire earlier than expected because of personal, professional, or health reasons
  • major unplanned expenses such as home or car repairs
  • health emergencies, or a need for additional care, for yourself or a loved one
  • having to move or make changes to your home because of a change in your health or the health of a loved one

To help plan for unexpected events, set up a bank account or another type of investment or savings tool to use as an emergency fund. Have a percentage of your income automatically deposited into the account. The fund should be enough for you to live on for 3 to 6 months.

Create an emergency fund

Having an emergency fund is always a good idea. It's even more important in retirement, when you won't be working. Your emergency fund should be in addition to your regular retirement savings.

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Figure out if you need insurance

Consider whether you have enough health insurance, disability insurance or life insurance. Think about whether you'll need to purchase more insurance to lower the risk and financial impact of unexpected events.

Determine your insurance needs.

Retirement planning and inflation

Inflation is the rising cost of consumer goods and services. In Canada it's calculated using the consumer price index (CPI) . The CPI tracks how the price of more than 600 consumer goods and services purchased by Canadians changes over time.

In recent years, the average rate of inflation in Canada has been 2% per year. This means the cost of goods and services has been rising by 2% every year.

Impact of inflation on the cost of goods and services

When saving for retirement, keep in mind that goods and services will cost more in the future. You can predict how much more goods and services may cost by looking at rates of inflation in past years.

Figure 1: How much a $100 item increases in cost over time because of inflation

Figure 1: How much a $100 item increases in cost over time because of inflation

Text version: Figure 1 - How much a $100 item increases in cost over time because of inflation
Year Cost in Canadian dollars
2002 $100.00
2003 $101.53
2004 $103.95
2005 $106.62
2006 $107.71
2007 $110.28
2008 $113.14
2009 $113.24
2010 $116.01
2011 $119.37
2012 $120.75
2013 $121.54
2014 $124.41
2015 $125.69
2016 $129.92

Source: Bank of Canada Inflation Calculator. The average rate of inflation in Canada between the year 2000 and 2014 was 2.00%.

Impact of inflation on pensions and savings

The amount you get from public pensions, like the Old Age Security (OAS) pension and Canada Pension Plan, is protected against inflation. This means as the cost of living goes up, the value of your benefit goes up as well.

Not all employer pensions are protected against inflation. Ask your pension administrator or employer whether your pension is protected against inflation.

Personal savings and investments, such as mutual funds or guaranteed investment certificates (GICs), are usually not directly protected against inflation. Your savings need to grow by at least the rate of inflation. If not, the amount of things your savings can buy in the future will be less than what they can buy now.

For example, something bought for $100 in 2002 would cost $129.92 in 2016. If your income isn't protected against inflation, you may have a hard time maintaining your lifestyle in retirement as the cost of goods and services increases.

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