At 65 and set to retire with $357,000 in the bank: How much money can you comfortably spend each year?

Start with the basics: What the average Canadian retiree household looks like

The average Canadian retiree household (assumed to be over the age of 65) spends roughly $62,000 per year, according to a 2021 report from Statistics Canada. This means retired couples can expect to pay roughly $5,200 per month on housing costs, groceries, transportation and moderate entertainment (such as hobbies, seeing friends and gifts for families).

With this figure in mind, each spouse contributes about $31,000 per year or $2,600 per month to pay for living expenses, once they retire.

The good news is that most working Canadians can expect some help from government sources.

For instance, the average monthly Canada Pension Plan (CPP) payment for a retiree was $815 in 2024, according to Government of Canada data. Plus, most Canadian retirees can expect an income supplement through Old Age Security (OAS) of approximately $654 to $1,087, depending on their marital status and retirement income.

Based on these averages, most Canadian retirees can expect government income supplements to provide between $1,400 to $1,900 in monthly income. This works out to $16,800 to $22,800 per year per person — or $33,600 to $45,600 for a couple.

Using these supplements, you can now work backwards:

• $5,200: What you need to budget for expenses, each month
• $1,400 to $1,900: What you can expect from government pension and income supplements, each month
• $3,300 to $3,800: Shortfall each month

Based on these calculations, the nest egg of $357,000 would need to provide between $3,300 and $3,800 in income each month. Split these costs with a partner and you may reduce the monthly income from your savings portfolio to $1,650 to $1,900 per month in investment income.

But is this nest egg large enough for the retirement you are envisioning?

To get a good idea if your savings nest egg is large enough, you can examine where you stand in comparison with your peers.

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Compare savings with the average Canadian retiree

StatsCan data shows the average Canadian aged 65 or older has approximately $517,000 in retirement savings, including private pension assets, employer-sponsored pensions, RRSP and non-pension assets.

From this perspective, John’s savings of $357,000 appear a bit low, but it’s a solid start towards a comfortable retirement.

Plan for longevity

The World Health Organization (WHO) pegs average life expectancy in Canada at 82 years — meaning that retirees starting this next phase of their life at age 65 should plan for 17 years of retirement living.

If John were to plan for a conservative 20-year retirement, then your $357,000 nest egg would need to provide $17,850 in income per year, ignoring any investment growth.

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Calculate how long your money will last

The “4% rule” is a common guideline for retirement withdrawals. Using this rule, retirees should withdraw no more than 4% of the portfolio’s value — ensuring that the bulk of the principal continues to accrue interest, earnings and dividends that are then used to fund another year of retirement living.

How much can John comfortably spend in retirement?

Using the 4% rule, John could withdraw up to $14,280 in the first year. When combined with the average income generated from government pension and income-supplement plans, John would have approximately $34,500 in income.

If John had a spouse that could also contribute a similar amount, there would be no need to worry; however, if John is single and must pay for all living expenses out of his own retirement earnings, he is going to have problems.

Recall that the average retiree spends about $62,000 on living expenses — with each spouse contributing approximately $31,000 to cover these costs. Unfortunately, John doesn’t have enough to cover the full amount, which means he will need to consider ways to cut down on expenses.

Worried about your finances? How to stretch your savings

Even with a strong start at saving, there are always ways to bulk up your nest egg. To help, here are five strategies to make sure your retirement savings last.

• Make your money work for you: Inflation, alone, will eat away at your purchasing power so it's critical that you stash your nest egg in accounts that will let your money work for you. For instance, store these funds in a day-to-day account, like a chequing account, and the minimal interest earnings won't even cover the cost of inflation. Instead, keep the bulk of your savings in an investment portfolio (using a trading account with low fees). Additionally, you can keep emergency funds in a high-interest savings account.

• Minimize taxes using registered plans and strategic withdrawals: Make use of TFSAs and RRSPs to legally shield yourself from paying more tax. When you get to retirement, be strategic about where you withdraw money — as some withdrawals will add to taxable income in retirement, while others will not. In general, withdrawals from your TFSA will not increase taxable income and prompt any clawbacks in government supplements, such as OAS. RRSP withdrawals, however, are taxable and will increase your taxable income in retirement.

• Downsize your home or relocate: Shelter costs often make up the largest retirement expense — and it’s not just about the mortgage or rent payment. Heating and electricity bills can add up if your home is larger than your needs. To help reduce these costs, consider downsizing to a smaller property. If you don’t have familial or friendship ties keeping you in one place, consider relocating to a less expensive city or region. This can also help free up some extra cash that can be used to supplement your retirement savings.

• Part-time income: While not all retirees want to work in retirement, some choose to while others must. If you’re in this position, keep in mind that any additional income can supplement your savings, help you delay collecting CPP and OAS and help give you peace of mind.

• Delay CPP and OAS if possible: For every year that you delay CPP after age 65, you can expect your payment to increase by 8.4% per year (up to age 70). OAS benefits also rise commensurately by 7.2% for each year you delay. If you don’t need the money right away, a delay in collecting these income supplments can help boost your monthly income in later years.

Bottom line

With $357,000 in savings and steady income from CPP and OAS, your financial outlook has a solid start, but there’s work to be done. If you decide not to work and not to delay your CPP and OAS earnings, you can budget approximately $34,000 per year available to pay expenses — and this should last until your savings are depleted in about 20 years.

By fusing smart withdrawal strategies and careful budgeting, there is no doubt you can enjoy a comfortable retirement.

To stretch savings even further, consider downsizing, part-time work or optimizing your investments.

Remember: retirement isn’t just about how much you have but how you use it.

— with files from Justin Ho

Sources

1. Statistics Canada: Household spending by age of reference person (Oct 18, 2023)

2. Government of Canada: Canada Pension Plan: Pensions and benefits monthly amounts

3. Government of Canada: Old Age Security pension and benefits

4. Statistics Canada: Assets and debts held by economic family type, by age group, Canada, provinces and selected census metropolitan areas, Survey of Financial Security (x 1,000,000) (Oct 29, 2024)

5. WHO: Canada (Health data overview for Canada)

6. Forbes: What Is The 4% Rule For Retirement Withdrawals? (Feb 19, 2023)

7. Government of Canada: When to start your retirement pension

8. Government of Canada: When to start receiving OAS