Costs don’t stop at retirement – make sure your income doesn’t, either

You've likely heard retirement advice your whole life, and now you're wondering how much of it is practical for you. Traditional advice suggests that you can live on about 70% of your pre-retirement income after retiring. But how can that be the case, when costs don’t stop in retirement? And just how fast does 70% of your income go if you’re not used to living off of it? 

Saving for retirement today is definitely a challenge for today’s retirees: 

• 12% of Baby Boomers have adult children living at home.
• 62% of Baby Boomers can’t save for retirement because they are supporting adult children.
• Those who are preparing for retirement themselves spend an estimated annual $33B caring for aging parents in Canada.
• 34% of Canadian retirees over 55 hold some debt, including mortgages.
• Purchasing power is dwindling thanks to rising interest rates and inflation.

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But even in light of these statistics, your outlook on retirement shouldn’t be all doom and gloom. In fact, there’s there’s a lot of fun to be had with all your new-found time off. Retirement means more leisure time, and you’ll want to fill that time with hobbies, travel and entertainment.  

However, there's one problem: those activities and adventures cost money. So how can you ensure your income will carry you through? 

 

Leverage pension, benefits and tax credits 

Pre-retirement, your income is largely determined by your salary. While tax credits and other supports might not be entirely enough, help from the Canadian Pension Plan, Old Age Security and post-retirement tax breaks can pad out your retirement nest egg.


Let’s look at a 50-year-old Canadian prospective retiree who currently makes $80,000 and wants to maintain the standard of living they have enjoyed even after retiring. Here’s what they would consider: 

 

Expected retirement age	65
Average life expectancy	83
Current value of RRSP	$300,000
Monthly RRSP contributions to age 65	$800
Expected annual RRSP rate of return	7% (6% after retirement)
Annual RRSP income in retirement	$53,291
Current value of TFSA/additional savings	$100,000
Monthly savings contributions to age 65	$0
Expected annual savings rate of return	5% (4% after retirement)
Additional income	$0
Additional annual income in retirement	$8,039
Monthly workplace pension payments	$0
Monthly Canadian Pension Plan (CPP) payments*	$800
Annual pension income	$9,600
Old Age Security (OAS)	$8,492
Total estimated retirement income	$79,421

*CPP payments will vary based on individual contributions over the past 40 years. As of 2023, the average monthly CPP payment is $772.71.

In this case, our retiree—like 62% of Canadians—has no workplace pension. Based on these calculations, their post-retirement income from RRSP and savings is just over $61,000. With CPP and OAS, the total is just shy of this $80,000 goal. 

After age 75, OAS increases to $9,341, raising the total income to $80,270.