When it comes to planning for retirement, evaluating your nest egg is a big part of the process. In fact, the state of your retirement savings can heavily influence when you decide to retire.
Take this hypothetical case study with real world resonance. Jim is 61, worked in the corporate world for most of his career, and after he was laid off, he wondered if now might be the time to take a step back and retire. Before being let go, he and his wife, Helen, made a combined $300,000 a year. They also carry no debt and have $1.5 million in savings.
While Jim would like to retire now, the decision hinges on whether Helen also plans to retire at the same time, how much they truly need to live comfortably, how long their savings will last and the role Old Age Security (OAS) and the Canada Pension Plan (CPP) will play in their dream.
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To figure this out, let’s get into the numbers.
Retirement has changed — for better and worse
The retirement landscape is rapidly evolving. In 2023, a record 15% of Canadians aged 65 and older were still working, a significant increase from just 6.6% in 1994 (1). These numbers suggest that not only are an increasing number of mature adults delaying retirement, but many may be forced to work longer than they envisioned strictly out of necessity.
Similarly, as of 2022, among Canadians aged 65 to 74, 21% were employed, with nearly half of them reporting that they remained in the workforce out of necessity rather than choice (2).
Meanwhile, increased life expectancy means the “retirement gap” is widening. According to Public Health Canada, a 65-year-old Canadian today can expect to live an additional 21.0 years on average: 19.5 years for men, and 22.3 years for women (3). With longevity as a rising factor, retirees must often make savings and investments last well into their late 80s or 90s.
Of course, these are just averages, but one of the biggest risks to any retirement plan is outliving your savings. If Jim and Helen live into their nineties, their money has to last nearly three decades.
Market downturns, higher-than-expected inflation and rising long-term care costs could erode their purchasing power over time. And while Canada’s universal health care system covers most core medical costs, retirees still face many out-of-pocket expenses for vision, prescription drugs, home care and supplemental insurance their provincial health care doesn’t cover — burdens that can become more restrictive as they age.
Read more: Here are 5 expenses that Canadians (almost) always overpay for — and very quickly regret. How many are hurting you?
How much should you have saved by age 61?
Financial planners often suggest that by the time you reach your early sixties, you should have between eight and 10 times your annual income saved for retirement. For Jim and Helen, that would mean a nest egg of between $2.4 million and $3 million.
With $1.5 million saved, they are ahead of many Canadians — median retirement savings for households with Canadians aged 55 and 64 is around $335,000 — but their savings are still below this guideline (4).
There is no single “golden number” for retirement savings, because spending habits, health and lifestyle choices vary. However, $1.5 million can provide a comfortable retirement for some, especially if at least one spouse continues to earn income and delays withdrawing from savings accounts.
Estimating retirement income at 61
If both Jim and Helen retire this year, they could presumably begin drawing from their retirement accounts without penalty. Using the commonly cited 4% withdrawal rule, $1.5 million could give them about $60,000 annually before taxes. That’s 80% less than the couple’s current level of yearly income.
Moreover, claiming OAS at 65 — the first year Canadians are eligible for benefits — means locking in a smaller monthly benefit than if you delay collecting. The Government of Canada says OAS payments increase by 0.6% for every month you defer past age 65, up to age 70 — a maximum increase of 36% if you wait the full five years.
Similarly, you can start CPP as early as age 60, but monthly payments are reduced by 0.6% for each month before age 65 — a 36% reduction if taken at 60. On the flipside, delaying benefits past 65 increases your CPP by 0.7% a month — amounting up to 42% more if you wait until age 70.
That said, if Helen waits until age 70 to collect OAS and CPP, she could receive up to one-third more each month than if she started both at 65 — a significant and lifelong boost of income.
Jim could claim his CPP benefit earlier for flexibility, or also wait another nine years in order to maximize his payout. The best timing depends on their health, expected longevity and whether they need the income immediately or can wait until a little longer.
By coordinating when each partner claims benefits, retiring Canadian couples can effectively increase their combined lifetime retirement income while reducing the risk of running out of savings.
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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.
Vanier Institute (1); Statistics Canada (2); Government of Canada (3); Fidelity (4)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.