When surveyed, most Canadians think they’ll need $1.5 million or more to retire. In big Canadian cities, that can probably actually be a pretty close estimate of what’s needed, considering the higher cost of living tied to real estate and healthcare in these city centres.
However, on average, most financial experts suggest that the number could be lower than this by a considerable margin. Let’s dive into what the data actually say about where Canadians should aim to get to by age 65. And importantly, here at The Motley Fool, we’re always looking to help in any way we can with idea generation around new investment opportunities to get you there.
Let’s dive in!
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What’s the magic number for retirement?
Of course, I should start with a preamble around the fact that everyone is unique. Every household has its own expectations around how long they’ll work, where they’ll live, and how they’ll want to spend their retirement. Some may have higher capital needs due to higher expected discretionary spending levels on retirement and other factors. Others may already be battling an illness, and contrary to popular belief, healthcare in Canada isn’t “free” — especially if you’re taking high-cost drugs for a condition.
Thus, planning out what a realistic spending amount in retirement will ultimately be depends on many factors outside of expected market returns from one’s Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
That said, the rule of thumb most financial experts espouse is that Canadians have enough to replace between 60% and 80% of their pre-retirement income in retirement. Over the course of 30 years (if you plan to retire around 65 and live to 95), that could equate to anywhere between $800,000 and $1.4 million. Again, it depends on one’s pre-retirement income and situation.
How to go about generating these sums?
For younger Canadians reading this piece, the good news is that you’re already a millionaire in terms of time. Being able to save and invest and let those funds compound over a very long period of time can lead to very large numbers decades down the line.
Of course, the closer one is to retirement, the more capital should be put into one’s RRSP (and TFSA), with maxing out these accounts the priority. Doing more when one is younger will relieve a significant burden as we age, but the unfortunate reality of investing is that it can easily become a “tomorrow problem.”
Starting early, investing consistently, and ignoring the urge to pull capital out of tax-advantaged accounts can be very beneficial over the very long term.
