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How Much Money do You Need to Retire?
Answer: $1,561,245.98
Unfortunately, it's not that simple. Every person will need a different amount, depending on what income they will have, and what they want to do after they retire. However, everyone should have a home, and no non-tax-deductible debt before retiring. Hopefully by now you have defined your goals, have a budget, have maybe purchased a home, are in the process of paying off your debt, and have started to invest. The next step is to figure out how much money you will need, and where it is going to come from. To do this, take your current budget and revise it to suit your retired life.
The following are probably items you will no longer need to spend money on after you are retired:
 | buying a home |
| raising children |
| education costs |
| saving for retirement |
The following are items you will probably spend less money on:
| alarm clocks |
| clothes |
| purchasing automobiles - you will probably be driving less, so your vehicle will last longer |
| auto insurance - may be cheaper if you are not driving to work |
| auto gas and maintenance |
| other forms of transportation if you did not drive to work |
| life insurance - may not be needed if you have no mortgage |
| disability insurance |
| eating out |
Your spending on the following items will probably not change, except for inflationary increases:
| house insurance |
| home maintenance (until you're too old to do it yourself) |
| groceries |
| telephone |
| cell phone |
| cablevision or satellite |
| internet access |
| books/subscriptions |
| household furnishings |
| entertainment |
Your spending may increase on the following budget items:
| travel |
| toys - boats, atvs, dune buggies (either for you or the grandkids) etc. |
| leisure activities |
| health care |
| donations |
| heat & light, because you will be home more |
| gifts (grandchildren?) |
In order to plan your new budget, you should group your expenses into mandatory and discretionary. Different people will put different things into these categories, so we will leave it up to you.
You need to compare your total expenses to the total of the income that you know you will be getting, such as
- Canada Pension Plan,- Old Age Security (OAS),
- possibly Guaranteed Income Supplement (GIS)
- company pension plan
- annuities
- dividends from stocks held outside of RRSPs/RRIFs
- withdrawals from RRSPs or RRIFs
Tax Tip: Plan to live off your dividends
In order to make sure you don't run out of money in your retirement, we recommend that you have enough dividends from Canadian stocks (better tax treatment) to cover any shortage of income from the above sources. When you draw money out of RRSPs/RRIFs, you should buy mainly blue-chip Canadian dividend-paying stocks with the money. You should hold these stocks forever. If you can live off the dividends from your investments instead of selling investments, you are in the best financial position.
However, if this money is not adequate to support your spending after you retire, you will need to either
| earn income from a part time job or a business |
| reduce your discretionary spending, or |
| as a last choice, withdraw money from savings or RRSPs/RRIFs and spend it |
This job may seem daunting, but there are plenty of resources on this website which can help you with your planning. The thing to remember is that this is just planning, and plans can often go astray. For this reason, you need to leave yourself some wiggle room in your estimating.
Annual Retirement Income Calculator
To help determine how much annual income your non-registered investments can provide, see our Annual Retirement Income Calculator. Keep in mind that this calculator is reducing your investments to provide part of the annual income, and this is not advisable.
RRSP/RRIF Withdrawal Calculator
Use our RRSP/RRIF Withdrawal Calculator to estimate the annual withdrawals from your registered plans. These withdrawals should be used to purchase mainly Canadian dividend-paying stocks. When you finally have all of your investments outside of your RRIF, they should be made up of about 60% to 80% Canadian dividend-paying stocks and 20% to 40% foreign stocks. This will provide some protection against a falling Canadian dollar.
Borrowing to Invest - Not for Novice Investors!
See our Borrow to Invest article and Calculator for information on how borrowing to invest can help you build up funds for retirement.
Tax Tip: Plan ahead for a good retirement!
Revised: September 20, 2024