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Are you a senior in Canada looking to settle down and live the rest of your days peacefully? Or are you someone that’s trying to save up for the future?
This article will also help you understand all the things that may influence the retirement savings of an individual. It is to be noted that like all other information on the internet, we cannot provide any guarantee that the information written below is flawless.
1. Current Living Expenses in Canada
The average monthly salary in Canada is around $3,500. Now we have to understand that living in Canada alone means that you are living in one of the most well-developed countries in the entire world. And with all that development comes great monthly expenses or annual expenses that take a huge percentage of your monthly income or annual income.
1.1. Housing
For the majority of Canadians, housing is said to account for about 30% of an individual’s monthly/annual income. That’s upwards of 2000 CAD per month that is to be spent on housing.
Well, it is to be noted that Canada is comprised of many cities. So, the city that the individual lives in plays a huge influence on the housing cost of a Canadian.
Besides, there are several ways you can reduce this cost like splitting the rent with a roommate or even generating passive retirement income with apps such as Air BnB when you are not residing at your place.
So, retirement income can also be generated if you are a homeowner.
1.2. Food
The price hike of foods in the current world is truly something else because currently an average Canadian spends almost 21% of their earnings on food alone. That’s almost 1200 CAD that’s being paid per month.
We have to keep in mind that this type of purchase is extremely hard to keep control of and is unpredictable on what it’s going to be like per month. Instead of splurging often on one month and eating like goats on another, one can always just have a balanced diet regularly while consuming junk now and then.
1.3. Transportation
Now, when we talk about the transportation of a person, it varies greatly from person to person. But it comes down to one question which is whether you own a car or not.
If you don’t own a car, a person living in a metropolitan area needs to spend about 9% of the income i.e. 800 CAD on Uber and transport. But if you often use a means of public transport for efficient traversing, then your expenses, in this case, will significantly reduce. Getting passes for bus and train can also help in this case.
On the other hand, if you’re the proud owner of a car, then you still need to spend about 200 CAD on maintenance of your vehicle and purchasing fuel. If one is a car owner, then he/she should most definitely get it checked out in time because a car may need parts replacement which people are seen to be often unaware of.
1.4. Utility
The utility fee is the monthly fee that one needs to spend on day-to-day living. These include electric bills, gas bills, water bills, internet bills, and so on.
An average citizen in Canada needs to spend about 8% of their monthly income i.e. about 650 CAD per month on the utility bills that come with living in a rented apartment or with his/her own house.
1.5. Clothing
With the hustling and bustling of city life, very few of us have the leisure to go out and buy some clothes for ourselves. So, unsurprisingly, this part of a Canadian’s monthly expense takes up a very little percentage of his/her total expense.
So, after calculating the total cost for the purchase of clothing each month, it rounds up to about 2% of their income of the month i.e. 130 CAD per month.
2. Some Tips with Practical Values for Retiring
2.1. The Early Bird Gets the Worm
Taking control of your life’s later years and thinking about saving up is never a bad idea. But the earlier you realize this, you start saving earlier for your latter years. As a result, you get more bread that you can consume in your golden days.
2.2. Set Clear Goals
The foundation of a project is seeing a realistic and possible vision for it. So, establishing realistic goals for your latter years can help.
Furthermore, you may even be earning good money even in your apartment if you play the right cards that are needed to be played.
2.3. Seek Professional Advice
Retirement planning is a big part of retiring in Canada.
So, be sure to consult a financial advisor to plan your golden days properly. By tailoring their advice to individual circumstances, they can assist in maximizing savings strategies and aiding in well-informed investment decisions.
2.5. Tax-free Savings Accounts
Opening up tax-free savings accounts in a bank you’ve known for a long time is definitely a great thing to do. Here you can store your personal savings according to a registered retirement savings plan from your monthly income or annual income.
These savings accounts generate no taxes and are a great way to track your monthly savings. Besides, it may also generate some good retirement income while generating no income tax.
3. Common Retirement Planning in Canada to Build Up Your Savings for Retirement
A solid retirement plan is very essential for the retirement years when you may have lesser income than your pre-retirement income. A well-defined retirement plan may also even help you to generate a retirement income that is more than the average retirement income and maybe even more than your pre-retirement income
3.1. Government Plans
The Canada Pension Plan (CPP), Old Age Security (OAS), and Quebec Pension Plan provide a foundation of income for many people who need to retire in Canada. The OAS and CPP benefits are very great government benefits and are established whilst keeping every senior citizen’s life in mind.
Understanding how these programs work and their eligibility requirements is crucial in planning for retirement income.
3.2. Employer Pensions
A workplace Pension that is issued by the employer of a person is very crucial if one is to save up money for retirement. In such cases, a person gets a set amount of money that they get as their monthly pension. Some cases of yearly pensions can also be witnessed.
Employer pensions are also more in amount than that of the ones issued by the government. As a result, they also ensure a better quality of living due to their better amounts.
It is to be noted that these employer-sponsored pension plans mainly operate according to the Canada pension plan.
3.3. Investments and Trading
Investments and building up a good investment portfolio are great ways to earn some passive retirement income/ investment income for your retired life which may even be more than the average retirement income in Canada. Having an informed mindset is essential for determining the right time and choice of investments.
Besides investing, trading is also splendid because it requires some of the least working capacity. So, trading stocks, cryptocurrency, mutual funds, and/or other assets is one of the paths to go in your golden days.
3.4. Other Income Sources
If you’re a home-owner, renting it out or just simply Air BnB-ing it is good for making some good money. Moreover, one can always open up a firm if they have enough money for it after retirement and where their employees manage the firm themselves.
In such ways, people can make a lot of money for spending the rest of their days with peace and love.
The Icy Canada team talked to Marty Burbank, Owner of OC Elder Law, about the Old Age Security (OAS) program in Canada. Here are his thoughts:
“As an expert in estate planning and elder law with over three decades of experience, I’ve seen the significant impact financial security can have on the quality of life for seniors.
From my work in Orange County, we’ve dealt with many cases where proper planning could have eased the financial uncertainties faced by our aging population. This background gives me insight into how pivotal programs like Canada’s Old Age Security (OAS) are in supporting seniors.
The OAS program is a cornerstone in Canada’s retirement income system, providing a basic pension to those 65 and older. However, there are areas where it could be enhanced to better support the aging populace.
For instance, indexing the OAS payments more closely with actual living costs would help seniors keep pace with inflation, ensuring they can afford everyday expenses without financial strain.
Moreover, introducing flexible access options, similar to those I’ve advised on in estate planning, could help individuals tailor their retirement benefits to their unique life situations. Many of my clients benefit greatly from plans that adapt to their changing needs over time.
Offering early access to reduced OAS for those in dire need, or allowing deferred access for increased benefits, can make this program more adaptable to individual financial circumstances, reducing elderly poverty and enhancing the quality of life as Canadians age.”
4. Factors Affecting Retirement Savings and Retirement Income in Canada
Retirement savings in Canada are influenced by various factors that individuals need to consider when planning for their future. The extent to which individuals should save money for a financially secure retirement is heavily influenced by these factors.
Let’s talk about some of the main things that may be affecting an individual’s retirement savings in Canada.
4.1. Current Age and Retirement Age
The age at which individuals start saving for retirement and their expected retirement age are important considerations. Starting to save at an earlier age allows for a longer time horizon to accumulate funds and benefit from compounding returns.
The number of years individuals have to save significantly impacts the amount they need to save per annum to achieve the goal they have for retirement.
4.2. Income Level
Income level plays a significant role in retirement savings. Higher-income levels generally provide individuals with more disposable income to allocate toward retirement savings.
However, it’s important to note that individuals with lower incomes can maybe even generate income during retirement that is more than average Canadian retirement income by making adjustments to their budget and adopting effective saving strategies.
4.3. Investment Returns
The rate of return on investments has a direct impact on retirement savings. Higher investment returns can help individuals reach their savings goals more quickly, while lower returns may require individuals to save more or adjust their retirement plans accordingly.
The choice of investment vehicles and the ability to diversify investments such as in mutual funds and stocks can help mitigate risks and potentially increase returns.
4.4. Life Expectancy
With Canadians living longer, considering life expectancy is crucial for retirement planning. Longer life spans mean retirement funds must last for an extended period, potentially necessitating larger savings to cover expenses throughout retirement.
4.5. Inflation and Cost of Living
The impact of inflation and the cost of living cannot be ignored when planning for retirement. Accounting for inflation and estimating future living expenses helps ensure that retirement savings keep pace with the cost of living.
5. How Much Does the Average Canadian Have to Save for Retirement?
The amount of money people have to have as their retirement savings heavily relies on what kind of retirement lifestyle they want to lead. Depending on that lifestyle, he/she needs to save up that much money.
Here, we will be discussing some of the standards of living that most retirees in the country want to lead.
5.1. Modest Lifestyle
Having a modest lifestyle as a retirement lifestyle is the goal for most retirees in the beautiful city of Canada. Not having to rely on your children and just living your life comfortably with either your pension or investment money are some of the main characteristics of this lifestyle.
Moreover, living an independent life where you don’t need to depend on others is like the ultimate idea of a retiree’s life. On average, a conservative estimate for the essential lifestyle is estimated around 2,000 CAD to 3,000 CAD per month, which amounts to 24,000 CAD to 36,000 CAD annually.
5.2. Restful Lifestyle
Although a level up a modest lifestyle, a restful lifestyle is not very far away from it. A restful lifestyle is comprised of having enough money when getting medical services for yourself whenever you need as well as treating the family squad to dinner every once in a while.
Moreover, being able to give gifts (which you think are enough) to the family during the holidays and going on a vacation per annum are also some characteristics of it.
The financial needs for this lifestyle are higher, with estimates ranging from 3,500 CAD to 6,000 CAD per month or 42,000 CAD to 72,000 CAD annually.
5.3. Luxurious Lifestyle
For this section, we are going to talk about the people who have hustled at every opportunity in their life and have gained something from almost every opportunity thrown in their way and thus, finally saved up much money to live the rest of their lives in style and luxury.
This type of lifestyle may include extensive travel, high-end dining experiences, multiple properties, and indulging in various hobbies and interests. Safe to say, you can even make your children join in on the fun and make them successors to the amazing firms for which you worked your entire lives.
The financial requirements for this lifestyle can vary significantly, but estimates suggest a range of 15,000 CAD to 50,000 CAD per month or 200,000 CAD to upwards of a million dollars annually.
6. How to Choose What Lifestyle to Lead During Retirement
Choosing what kind of life one wants to live after their work life is over is a personal issue that should only be influenced by personal preferences.
But regardless of which lifestyle we choose in our retirements, it’s needless to say that we should always prioritize a good balance diet, a healthy medical service and thus, taking care of our basic needs first of all.
7. Frequently Asked Questions
7.1. Does the amount I have to save vary from state to state?
Ans: Yes, it does. Since the development of some states are lesser in quality and quantity than others, choosing to live in those states will indeed cost you less money.
7.2. What’s the ideal age to start thinking about retirement?
Ans: The average Canadian retire at about 65 years of age and hardly many people retire early in Canada. So, starting to save money before that and starting a good retirement savings plan with/without the help of a certified financial planner is a must, and even more so, if you want to retire early.
Since most of us start our work life in our 30s, most of us hit our peak earning capability by 40. So, starting to save a lot of money by the age of 40 is a good idea. 40 is also thought to be the average retirement age i.e. the perfect age to start thinking of a way to retire in Canada.
7.3. Which country requires the least amount of money to retire comfortably?
Ans: Newfoundland and Labrador are the provinces in Canada that have the lowest average cost of living. So, it’s highly probable that the money required to retire comfortably here is the lowest too.
But it’s to be mentioned that the lower the cost of living is, the lower the form of lifestyle becomes.
7.4. Which country requires the most amount of money to retire comfortably?
Ans: The name of the Canadian province that has the highest expenses i.e. cost of living of all other provinces is called Alberta. Therefore, it is very likely that you need the most assets and more money to retire in Alberta than you need in any other province.
With the extensive living, comes an extravagant and luxurious lifestyle too.
8. Conclusion
Although the assets that you need to retire in Canada are more than you need in most other countries, there’s no doubt you will be living the rest of your golden days in peace.
So, it’s pretty evident that to accurately calculate how much a Canadian needs for retirement you also need to think about many factors such as inflation rate, standard of living, employment, cost of living, and so on.
Guest Author: Saket Kumar
Last Updated on by Saket Kumar
