How Much Does a Single Person Need to Retire in Canada?
We are continuing to explore how your relationship status affects your retirement planning.
Over the past few episodes, we have looked at both remarrying and divorce - but what if you are single? You may be asking yourself, "exactly how much do I need to retire as a single person in Canada?"
The big question is, if you have no other income besides part-time work and CPP benefits, how much money do you need to have saved?
What’s Inside?
Prefer to Listen?Here’s the podcast episode!
Rather Read All About It?Jackie Wants to Retire
I have a client who is considering retiring early. We’ll call her Jackie. Jackie doesn’t have to retire now, she only just turned 60, she’s in good health with a good job. But she is just done with the stress of that job and is thinking about pulling the pin and opting for a life without full time work for a while.
Jackie is a single woman since she split with her common-law partner several years ago. Her question to me, a question I get so often, is: “Can I retire now? If not now, when?”
What is the Average Retirement Age in Canada?
According to Stats Canada, the average retirement age is 63.5 years. At the same time, the expected lifespan of the average Canadian has increased to 82.5 years. So, our retirement years are a longer part of our lives than in the past. And we need money to live those longer, quality lives.
Jackie needs to answer a few questions first. If she were to retire today, how much money would be going out each month and how much would be coming in?
Figure Out Your Monthly Expenses
So, step one, here’s what she can do now. She can take her last bank statement and credit card statement.
Write down all the expenses she has in a month and what they were for, groceries, BC Hydro, etc.)
If she has any expenses she pays once a year, like property taxes, she can divide those by 12 and add that to her monthly expenses. Now she knows how much money is going out every month.
Now, according to Stats Canada, the average household spending for one-person households, not including income tax, insurance or pension contributions was $36,339. That’s for people of all ages, not just retirees. So, if Jackie’s actual expenses are high, she may want to go back and consider what expenses she won’t be needing when she’s retired. For example, she might save money on gas since she’s not commuting anymore. It will likely cost her less money to live as a retired person than as a working person.
After she’s figured out what money is going out, she can concentrate on what’s coming in.
Calculate How Much Money is Coming In?
What are some of the income sources she might receive?
She may have part time employment or business income she’d like to pursue.
Next, Jackie can find out what kind of income she can expect from her CPP benefits. The average CPP monthly income Canadians receive is $727 per month, but if Jackie starts taking CPP benefits at age 60, she can expect to receive only about $465 a month.
To figure out what she might expect, she can go to the Service Canada website anytime and she’ll find what sort of income she can expect if she takes it at age 60, 65, 70 or any time in between. The younger she is when she starts taking it, the lower her benefit will be at the start. I’ll work with her to figure out when is the ideal time to start taking it.
When Jackie turns 65, she can expect to also receive Old Age Security Pension. If she’s been living in Canada most of her life, she can expect about $685 a month in income from OAS as of October 2022, but this amount is adjusted for inflation all the time.
Then, there’s corporate pensions, or public employee pensions, such as teachers. If you are fortunate enough to have such a pension, you will usually receive some sort of annual statement that lets you know how much income you can expect to receive if you reach a fully vested certain age, usually 65, and how much you might receive before that, something known as a bridge pension amount that you can receive at a certain age, like 60. I’ve seen situations where clients have negotiated to receive that early bridge pension amount and then they turned around and became self-employed consultants for their same company. If you’re in a highly sought after vocation, you might consider negotiating that before you leave.
But, if Jackie has no corporate pension, that means she will be relying on part time work and her CPP benefits, which are only going to bring in about $5,500 if she takes them at age 60. She’s too young to receive OAS yet.
What other sources of income might Jackie have if she retires at age 60? How about an RRSP, a Registered Retirement Savings Plan? Jackie has wisely been contributing to an individual RRSP, the one I manage for her, and a TFSA, Tax Free Savings Account. If she has saved enough in those accounts, she may be able to rely on them for income.
But she has also been having part of her paycheque going to a group RRSP with her employer. And, her company has been matching part of those deposits. They’ve been putting money in too for her. So, when she retires, she can either roll that group benefit into her own RRSP that I have been managing for her, or it can be rolled into a new type of account I will manage for her called a Locked In Retirement Account. It will depend on what type of group benefit she had, and I’ll help her figure that out.
How Much Do You Need to Save for Retirement?
The big question is, if she has no other income besides part time work and CPP benefits, how much money does she need to have saved?
Let’s say she earns $10,000 a year doing part time work and receives $5,000 a year in CPP benefits. If her expenses are about $35,000 a year as we said, that means she needs to withdraw $20,000 a year from her RRSP or TFSA. $35,000 minus $10,000 minus $5,000 is $20,000.
How big does her nest egg need to be to withdraw $20,000 and make it last throughout her retirement? I’ll be able to calculate for Jackie exactly what that amount is and which amounts she should withdraw from which account in order to pay the least amount in taxes. But if you want to estimate that amount for yourself, take $20,000 and divide it by 4%, or .04. The answer is $500,000. So, Jackie is going to need $500,000 in savings plus earn a part time income of $10,000 and start taking her CPP benefits now if she wants to retire right now at age 60.
What if she doesn’t have that amount saved? Well if she owns a home, she might consider downsizing to a smaller home and investing the difference. She might consider renting out a portion of her home. Many people I know have built carriage homes in their backyards, moved themselves into those homes and rented out the larger home for income.
She also might consider moving to a less expensive area. Here is a link to the Cheapest Places to Live in Canada. Number one? Quebec City.
Another young retiree I know owns several rental properties throughout the world and those properties provide enough income for her to live in a warm climate year round. You may have seen the videos created by Jerry Brown, who interviews people who’ve found a great retired life in Mexico, living off of 300USD a month. Could You Retire on 300 dollars a Month?
Is that for everyone? Maybe not. But with a little creativity, and building a mindful spending plan, I’ll bet you can create a life you enjoy with less stress.
Here’s a little inspiration from someone who is travelling the world for a year
Are you going through a life transition and need to find a wealth advisor to manage your investments? You don’t have to feel intimidated wondering how to find the right one. Grab my free guide, “12 Smart Questions to Ask When Interviewing a Wealth Advisor.” This guide gives you all the questions and why you should ask them. Just go to GloryGray.com, pop in your email address and we’ll send it right to your inbox.
That’s all for today, if this podcast helped you, please subscribe and tell others about it so we can help them too.
Until next time, this is Glory Gray, your personal trainer for financial fitness telling you to take charge of your finances, plan for the future but most of all, enjoy today. Bye for now.
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