What it takes to retire with a comfortable $10,000/month in Canada

Stats about retirement in Canada

For those between the age of 55 to 64, the median amount for saved for retirement breaks down to the following:

• $150,000 in your Registered Retirement Savings Plan (RRSP)
• $21,489 in your Tax Free Savings Account (TFSA)
• $127,007 in non-registered accounts, such as an investment portfolio

This works out to just under $300,000 (or a grand total of $298,808) saved for non-income earning years. For Canadian open to the idea of living frugally and depending on government programs like the Canada Pension Plan (CPP) and Old Age Security (OAS), this sum may be more than adequate. But it’s not nearly enough to support a $10,000-per-month lifestyle.

This doesn't mean you need to save tens of millions of dollars in order to live comfortably in your retirement years. However, to live on $10,000 per month in retirement, without running out of money, is only possible with careful planning and savings strategies. To help, follow these tips.

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Calculate your total income

To determine how much you’ll need in savings to maintain your desired spending rate, it’s important to gather information about all sources of income you’ll have access to in retirement.

For many, government benefits like CPP and OAS make up a sizable portion of their retirement income. According to a poll conducted by Ipsos on behalf of the Ontario Securities Commission, 85% of retirees rely on CPP for their primary income, with another 73% relying on OAS, sometimes boosted with the Guaranteed Income Supplement (GIS).

Other revenue streams that are less essential, but equally as important, to Canadian retirees include investment income — with 34% of Canadians relying on income from investment portfolios — a workplace pension (51%), as well as personal savings or selling investments (33%).

Several factors can affect your total income in retirement. How much you contribute to CPP during your working years will influence the amount you receive, as well as the age at which you begin collecting benefits. For example, claiming CPP at age 60 results in a lower monthly amount than waiting until age 65 or 70.

Your portfolio allocation — the types of investments you hold in your RRSP or TFSA — can also impact how much you've saved by the time you retire. Higher-risk investments offer the potential for greater returns but also come with more volatility and this can translate into portfolio losses.

Additionally, the timing of your retirement will affect how long your savings need to last. The average retirement in Canada now spans decades, since people now live longer. This means the earlier you retire the more you may need to set aside.

How much you need to save for a comfortable retirement

Many financial planners use the 4% as a general guideline for determining how much savings are required for a secure retirement.

First introduced by financial adviser William Bengen in 1994, the rule suggests that a retirement portfolio should last 30 years if you withdraw only 4% of the portfolio and allowing the rest to continue accumulating earnings. Bengen agreed that overall withdrawal percentage would have to adjust, based on inflation, but the overall aim was to keep the maximum withdrawal to the 4% benchmark.

That 4% rule aligns with the newer idea of the FIRE movement, or financial independence, retire early.

Using the 4% rule for a $10,000 per month comfortable retirement goal

Using Bengen's 4% withdrawal rule, any Canadian that wishes to live comfortably on $10,000 per month during retirement would need a portfolio that could sustain an annual withdrawal of $120,000. Working backwards, this means your retirement portfolio needs to reach around $3 million in invested funds; however, this amount can be reducted if you factor in the income supplements from CPP, OAS, and other sources of income.

Using the guardrails framework for a $10,000 per month comfortable retirement goal

Another approach is the "guardrails" framework introduced by Jonathan Guyton and William Klinger. This method prompts retirees to choose an initial withdrawal rate — typically between 4% and 6% — and adjust their withdrawals based on market conditions to ensure they don’t deplete their savings too quickly.

It’s important to remember that these strategies are guidelines, not guarantees. Some experts, including Morningstar analysts, have suggested a safer withdrawal rate may be closer to 3.7%, given today’s economic conditions.

Speaking with a trusted financial adviser can help you assess your current financial situation and retirement goals to determine the best strategy for you.

Sources

1. Ontario Securities Commission: Profiles of Retirement (Jan 10, 2024)

2. Morningstar: Unpacking the 4% rule for retirement-portfolio withdrawals, by Christine Benz (Nov 5, 2014)

3. The White Coat Investor: What Is the Guyton-Klinger Guardrails Approach for Retirement?, by Eric Rosenberg (Nov 1, 2024)