Deciding how much you need to save for retirement might be confusing and overwhelming. While average savings benchmarks can show you how you stack up with peers in your age group, determining your individual retirement goals might be a different ball game altogether. For example, the magic retirement number depends on factors such as spending habits, tax rates, and inflation.
The eventual goal of retirement planning is to save enough to lead a comfortable life. So, how much money do you need to retire today? Most Canadians believe they need at least $1 million to retire comfortably. Given that the average retirement savings for Canadians above the age of 65 is $272,000, it’s evident that the average Canadian household might not have enough retirement reserves.
Notably, the average 65-year-old has $129,000 saved in the RRSP (Registered Retirement Savings Account), while the average TFSA (Tax-Free Savings Account) balance is even lower at $41,000.
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Is the average retirement savings enough?
Retirees have a lower risk appetite, meaning most of their savings could be deployed in fixed-income products such as Guaranteed Investment Certificates (GICs). While interest rates on GICs are hovering around 5%, the Bank of Canada just announced its third rate cut in as many months. This means the yield on GICs will also fall in the next year, which suggests retirees would have to consider other products to begin a steady stream of recurring income.
If the interest rates on GICs fall to 4%, an investment of $272,000 in these products will help you earn less than $11,000 in annual interest income. If we include the average annual Canada Pension Plan (CPP) payout of $9,798, the total income might be close to $20,500 or $1,708 monthly.
If we exclude rental costs, an individual would spend around $1,500 monthly in major cities such as Toronto and Vancouver. This suggests that $272,000 in retirement savings would cover basic expenses.
However, suppose the Bank of Canada continues to cut rates. In that case, it might be prudent to invest in blue-chip dividend stocks such as Brookfield Infrastructure (TSX: BIP.UN) to benefit from a steady income stream and long-term capital gains.
The bull case for Brookfield Infrastructure stock
Brookfield Infrastructure acquires and operates cash flow-generating assets in sectors such as utilities, midstream energy, transportation, and data infrastructure. Down 20% from all-time highs, it currently offers a tasty dividend yield of 4.8%.
Despite a sluggish macro environment, Brookfield Infrastructure has increased its adjusted funds flow from operations by more than 10% year over year in the last six months. A key driver of the company’s funds flow is the acquisition of Triton International, the world’s largest intermodal operator.
Brookfield Infrastructure ended the second quarter (Q2) with a backlog of US$7.7 billion, an increase of 15% year over year. Its key projects include pipeline expansions and data center build-outs to support the artificial intelligence megatrend.
Moreover, the Canadian giant continues to sell legacy assets and invest the proceeds in higher-return projects. In Q2, it monetized assets worth US$210 million, increasing its capital-recycling initiatives to US$1.4 billion in 2024. Further, it expects to raise US$2.5 billion from asset sales, which would be deployed towards accretive acquisitions, driving future cash flow and dividends higher.
In the last 15 years, Brookfield Infrastructure has raised dividends by 9% annually, enhancing the effective yield over time.
