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

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John spent the last 30 years working, and like many Canadians, thought that in itself was enough to be ready to retire. Unfortunately, he didn’t begin saving until about 15 years ago.

Let’s say that hypothetically, despite some obstacles, John managed to put away approximately $357,000 for his retirement.

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Now he’s a year away from celebrating his 65th birthday, and he wants to know: Can I retire?

John isn’t alone. Across the country, many Canadians approach retirement with more questions than answers. What plagues most of these pre-retirees are the same concerns:

• Have I saved enough for retirement?
• How long will my savings last?

For people like John, a good place to start is to work backwards. Here’s how to do it.

Start with the basics: What does the average household spend?

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. (1) 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. But even with that extra support, 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.

Read more: What is the best credit card in Canada? It might be the RBC® British Airways Visa Infinite, with a $1,176 first-year value. Compare it with over 140 more in 5 seconds

Compare savings: How are much are Canadians putting away for retirement?

StatsCan 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. (2)

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

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 who 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 household 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.

Using a budgeting app like Monarch Money can help John track his spending and find places to cut costs so he has more money to support his retirement.

With Monarch Money, you can build a budget  and get a comprehensive look at all your transactions, account balances and investments all in one place. This can make planning your finances for retirement a streamlined experience. Monarch Money also allows account linking for a couples, so you can plan your retirement together.

If you’re ready to start planning your financial future you can get 50% off your first year of Monarch Money with the code MONARCHVIP for a limited time. Monarch Money also offers a seven day free trial, so you can see if it’s right for you and retirement goals.

Beyond cutting expenses, John needs to think about how to get the most out of his benefits and look for other ways to save — and fast.

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 can let your money work for you. For instance, storing these funds in a day-to-day account, like a chequing account, make for minimal interest earnings that won’t even cover the cost of inflation.

  Instead, it’s often better to 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 through Simplii Financial. With no monthly fees or minimum deposit required, this HISA gives your cash a chance to grow faster.

  Even better, if you open a high interest savings account with Simplii today you can earn 4.50% interest for 5 months on eligible deposits up to $200,000. This boosted rate easily outperforms standard savings account interest rates, and also puts you above the curve when it comes to inflation.

• 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.

  If you’re looking for a low risk way to invest in your retirement, EQ Bank’s RSP could be a good option. Contributions and investment growth are both tax-deferred, so you can reduce your taxable income, grow your savings and only pay tax when you withdraw at retirement.

  With a 1.50% interest rate, opening an RSP through EQ Bank gives you a chance to grow your retirement fund so you can enter your golden years worry-free.

• 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

  While not all retirees want to work in retirement 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 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 supplements can help boost your monthly income in later years.

— with files from Justin Ho

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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, 2)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.