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Post-pandemic, Canada experienced a dramatic spike in inflation—up from roughly 2% in 2019 to a peak 12-month inflation rate of 8.1% in June 2022. As of October 2023, the inflation rate was 3.1%. Since today’s cost of living is higher than anticipated, there’s a feeling among those close to retirement that they may have to delay their retirement age to save more money. According to Statistics Canada’s June 2023 Labour Force Survey, about 55% of people who are planning to retire (but haven’t completely retired yet) report that they would continue to work if they could do so part-time.
If you’re planning for retirement, it’s a good idea to review all your potential sources of income, including government benefits, workplace pension plans and your own savings and investments. How do you stack up against the average Canadian retiree—and what steps can you take today to grow your retirement nest egg?
The average Canadian retirement income
According to the 2021 Canadian Income Survey, the average after-tax income for senior families in 2021 was $69,900. And for a senior individual, it was $31,400. That works out to $5,825 per month for a couple and $2,616 per month for an individual. Would that be enough to maintain your current lifestyle, if you were to retire, say, tomorrow?
Of course, the amount of money you need for your retirement could differ drastically from the averages, and it will depend on the lifestyle you want to lead after you stop working. If you’re a 35-year-old planning to retire at 65, for example, try calculating the monthly amount you would like to have in retirement—in today’s dollars. Let’s say that’s $3,000 per month after tax. Considering an inflation rate of 3% and with 30 years to go until you retire, that translates to a future value of $7,282. Where’s this money going to come from? Let’s look at all the possible sources.
Sources of retirement income: CPP, OAS and more
Typically, young people are not in a hurry to think about retirement. But planning early can help you understand how much money you’ll need, where it will come from, and how to fill any gaps. Plus, the earlier you start saving and investing, the more you could benefit from compound growth. In Canada, retirees can receive income from multiple sources, including government programs and personal savings.
Retirement income source | How it works |
---|---|
Canada Pension Plan (CPP) | • Working Canadians contribute to the CPP during their working life. • Quebec residents have the Quebec Pension Plan, and Alberta is in the midst of a debate about a possible withdrawal from the CPP. • In retirement, Canadians receive a monthly amount, which is calculated based on how much they contributed and for how long. • In 2023, the maximum you can receive per month is $1,306.57, and as of June 2023, the average monthly CPP received (at age 65) for a new retirement pension was $772.71. |
Old Age Security (OAS) | • This is a monthly payment received once you turn 65. • It’s based on how long you’ve lived in Canada since age 18. • As of 2023, the maximum monthly OAS amount you can receive if you’re 65 to 74 years old is $707.68. • If you’re 75 and over, the maximum is $778.45. |
Guaranteed Income Supplement (GIS) | • The GIS is another government program for seniors. • The eligibility and amount received are based on two factors: your marital status (single, divorced, widowed, married, common-law) and your previous year’s income. • As of 2023, the maximum amount is either $636.26 or $1,057.01, depending on your marital status and your/your partner’s or spouse’s income in the previous year. |
Employer-sponsored pension plan | • These are registered plans set up by your employer to which contributions are made either by you and your employer or just your employer. • There are two types: defined benefit plan (DBP) and defined contribution plan (DCP). • In a DBP, you know the amount of money you will receive each month in retirement. • In a DCP, the contributions are known, but the amount received in retirement isn’t known beforehand, because it depends on the performance of the financial markets. |
Personal retirement savings and investments | • Personal retirement savings include all the investments you’ve made for your retirement—apart from government programs and employer-sponsored plans. • These include registered investments such as your registered retirement savings plan (RRSP) and tax-free savings account (TFSA), as well as your unregistered investments. • Registered accounts provide either a tax deduction, tax-deferred growth, tax-free growth or a combination of these. • Non-registered investment accounts offer no tax breaks, but note that different types of investment income are taxed differently. (Learn more about investments and taxes.) |
Build retirement savings with RRSP contributions
The RRSP is a cornerstone of many Canadians’ investment and retirement plans. It’s a registered account that offers a tax deduction for contributions and tax-deferred investment growth. You can contribute up to 18% of your previous year’s earned income, up to a maximum of $30,780 in 2023. You can contribute to your RRSP anytime in the calendar year plus the first 60 days after the end of the calendar year. For the 2023 tax year, the deadline is Feb. 29, 2024.
Your RRSP can hold multiple types of investments, including:
The benefits of all-in-one ETFs
Canadian investors are increasingly aware of stock market opportunities as they search for growth to beat the rate of inflation. But what should you buy? Stocks? Mutual funds? ETFs? Many investors prefer exchange-traded funds because they can offer convenience, diversification, professional management and lower fees than comparable mutual funds. Additionally, ETFs can be easier to buy and sell using an online broker.
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