One of the biggest questions about retirement is figuring out how much you’ll need to live on. There is no one-size-fits-all number, since debts, health, hobbies, aspirations and spending habits are different for everyone.
Then there’s age, a big factor that’s overlooked, mainly because we have little control over it. Some people don’t make it past 70, while others live until they’re 100. This can have a huge bearing on how much you need to save for retirement.
The topic of life expectancy can keep many people up at night. Take Christine, a hypothetical but relevant case study for this particular form of anxiety. Christine is 63, has an annual salary of $120,000 and is poised to retire in two years with about $750,000 in retirement savings. She also owns her own home, and projects that she’ll spend about $75,000 in retirement per year.
Christine thought she’d have enough savings until she considered that her mother lived until 96. She’s done the math and is worried her retirement savings won’t last past the age of 90. Christine has no children who can help supplement her income should she live into her 90s, and has found herself wondering what happens to elderly people when they run out of money.
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Does Christine have enough?
Christine, despite her worries, is better prepared for retirement than most. As of 2023, the total saved in RRSPs and similar retirement funds by single people over 65 was just $285,299, according to data from Statistics Canada (1).
Christine can take comfort in the fact that her savings are a little better than average. She is, however, short of recommended savings targets. Scotiabank, for example, suggests that individuals planning to retire at 67 should have saved at least 10 times their salary and expect to spend 70% of their current income in retirement (2).
If you’re behind on saving for this target, CPP and OAS payments can help narrow the gap. The average payout from CPP is about $844.53 and based on her income, Christine can expect to receive $734.95 per month from OAS. This makes a total of $1,579.48 per month on average, which will supplement Christine’s projected spending. However, the actual figure can vary depending on the age Christine accesses these benefits and her lifetime earnings.
Current figures show that retirees typically spend about $6,500 per month in retirement, which aligns with Christine’s $75,000 per year targeted spending (3).
Using the 4% rule, Christine will be able to draw down her savings at a rate of $3,541 per month until age 90 — but she’ll be short of the average monthly spending amount, assuming she receives the average CPP benefit. So what can she do to make her nest egg last?
How to manage retirement spending
Not all retirees can look forward to having their savings and benefits payout reach the $6,500 mark each month. The average employer-sponsored registered pension plan balance for those 65 and older is $231,300, and the RRSP balance for people in the same age group is $102,200. This means most people will have just a little savings to supplement their CPP benefits in retirement.
For those who are less prepared for the future, there are a few options to consider in order to boost your savings:
- Delay retirement: Working even a couple of extra years can help you stow away more cash in your retirement funds and delay your CPP benefit so that you can get a larger monthly payout. Those who delay until the age of 70 can receive up to 42% more of their monthly benefit than if they started receiving it at 65.
- Look for other savings vehicles: If you can invest in GICs or other savings vehicles, it can give you an extra income source in retirement, even if it’s a small one.
- Re-evaluate your retirement spending: While the average monthly spend reported by Statistics Canada is a good benchmark, can you do a little better in your monthly budgeting? Consider trimming down expenses, or even moving to a less costly area to bring down your overall cash needs in retirement.
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Selling your home
As Christine owns her own home, she has a valuable asset that she can convert to cash for her retirement. Selling her home may make her feel more relaxed about her retirement savings, though there is an emotional component to leaving the place you’ve lived in so long.
Aging in place is becoming more popular, especially as the baby boomer generation hits retirement. However, while it may sound economical to stay in the home you own outright so that you don’t have to pay rent, consider the costs of owning a home. Any major repairs needed will have to come out of your retirement savings, and most seniors don’t realize that, as they age, they may need significant modifications to their home to make it more accessible. This might include ramps, a stairlift and modifications to the bathroom to improve safety.
Aging in place also means that healthcare costs will be high. In-home nursing costs may be covered by your provincial health care service under certain circumstances, but in many cases, community services are available by co-payment, the cost of which can add up quickly.
So while it may be a wrench, retirees should consider selling their beloved home and look into other living options. This may mean a retirement community for seniors, where apartments are designed for accessibility, or a long-term care home if their health doesn’t permit them to live independently.
The worst-case scenario
While Christine can sell her home to alleviate her financial worries, fears about running out of money due to a long-term illness are justified. What happens when someone has no more savings and is entirely dependent on their CPP and OAS benefits?
If Christine runs out of money and is assessed as low income, she can apply for the Guaranteed Income Supplement (GIS) in addition to her regular CPP/OAS benefits. Programs like 211 in Ontario can help her find provincial or federal coverage, including the Guaranteed Annual Income System (GAINS) to help supplement the remaining costs of her care and maintenance. Services differ by provincial health care system, so it’s important to research and understand what forms of assistance may be available in your area.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Statistics Canada (1, 3); Scotiabank (2);
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.