How much do I need for retirement?
What expenses can you reduce or eliminate when you retire?
Financial planning experts estimate that to maintain a standard of living, you need a retirement income of at least 70% of the gross salary you were receiving before retirement.
An income that is lower than your current employment income will be enough, as many expenses will be reduced or eliminated by retirement:
- Job-related expenses: contributions to employment insurance, the Quebec Pension Plan or the Canada Pension Plan, professional or union dues, group insurance premiums, etc.
- Lifestyle expenses: the cost of transportation and clothing, mortgage payments, dependent children, etc.
- Expenses related to income tax: reduction in taxable income, access to pension income credit and age-related credits, etc.
- Retirement savings: contributions to the employer’s pension group plan, RRSP, TFSA, etc.
Government plans such as the Canada Pension Plan, the Old Age Security pension and, in Quebec, the Quebec Pension Plan, will only provide a basic minimum income. You'll need to add other personal savings, since this won't be enough to live on.
The higher your pre-retirement income, the less public plans will be able to replace it. If you want to have a retirement income of at least 70% of your salary, you need to invest more in a private group retirement savings plan.
The 70% replacement ratio for everyone?
You need to view the 70% rule as a general guideline. Depending on the lifestyle that you want in retirement (travel, leisure, indulgences) and based on your personal situation, this percentage could be too high or too low for you. Remember to consider unexpected events and healthcare expenses, which are very high, as well as the estimated length of your retirement.
Budget for success
There are many benefits to budgeting. The projects you plan for retirement are a very positive way of approaching the subject. Your budget is one of the tools you'll need to stay on track with your goals.
Use our follow-up and planning tools to assess your progress in reaching your retirement goals and develop your savings strategy.