How much do you need in your registered retirement savings plan (RRSP) to retire comfortably in 2025?
It’s a reasonable question to ask because if you don’t have an employer-sponsored pension, you are unlikely to cover your costs in retirement with the Canada Pension Plan (CPP) and Old Age Security (OAS) alone. The average CPP benefit is approximately $700 while OAS pays $725 to those aged 65–74. The two benefits combined therefore do not even cover rent in large Canadian cities. It is possible to boost your CPP to $1,800 per month, but that entails delaying taking benefits until age 70 and earning maximum pensionable earnings.
Most Canadians can delay taking CPP until 70 if they have the will for it, but attaining maximum pensionable earnings depends on your level of career success, which is not something you can just snap your fingers and change.
So, absent a defined benefit plan, you’ll be needing some RRSP or TFSA savings to retire. In this article, I will explore exactly how much you’ll need according to financial advisors.
Between $750,000 and $1.7 million
According to estimates from various Canadian advisors and polls of Canadians, it takes between $750,000 and $1.7 million in savings to retire in Canada. The $750,000 estimate comes from a CIBC survey while the $1.7 million estimate comes from a Bank of Montreal survey (the latter was conducted more recently).
It’s not surprising that the range of estimates is so wide, as there are many different factors that go into determining whether you have enough to retire:
- Home ownership. Do you rent or own your home? If you own your home, do you still have a mortgage? A mortgage-free homeowner usually has fewer recurring expenses than a renter, or a homeowner with a mortgage.
- Home equity. Are you counting the wealth in your home as savings or not? If you don’t count it (i.e., restrict the term ‘savings’ to RRSPs, TFSAs, and cash), then a lower estimate is more accurate.
- Where you live. Do you live in an expensive big city, or a cheap rural area? If it’s the former you may well need $1.7 million, if it’s the latter maybe $750,000 will suffice.
- Tax sheltering. The TFSA’s tax shelter is more valuable than the RRSP’s tax deferment. Placing $750,000 entirely in a TFSA is likely adequate for most people. The same amount in an RRSP might not cut it.
How to grow your RRSP wealth
Regardless of how much you need to retire, it helps to save money and invest prudently in your RRSP, so that your money is there for you when you need it. The best way to do this is with exchange-traded funds (ETFs). ETFs are diversified investment portfolios that trade on the stock market. They eliminate the need for you to meticulously research individual companies and reduce your risk.
Take the BMO Canadian Dividend ETF (TSX:ZDV), for example. ZDV is a diversified Canadian fund consisting of 50 dividend stocks. Its 3.8% yield is higher than average and can provide considerable passive income. The ETF has a relatively modest 0.39% management expense ratio. The number of holdings provides substantial diversification. And finally, as a Canada-only fund, its dividends are not subject to withholding taxes. Overall, this is a fund worth considering.
