Retirement income sources – what do you have beyond CPP and OAS?

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In Canada, retirees have an important foundation through CPP and Old Age Security (OAS) on which to start their retirement savings programs.

Still, CPP and OAS won’t pay for everything and it would be a mistake to assume that Canada’s national pension plan will cover all your costs.

How much you really need to retire depends on a lot of things: the extent to which you plan to travel, whether you’re planning upgrades to make your house more comfortable, costs for prescription medications, non-covered medical expenses, and so much more.

Financial planners and pension experts frequently use the term ‘Magic Number’, based on a percentage of your current income, to come up with an idea of how much you should expect to spend each year after you retire.

Many experts cite a need for retirees to have 70% of their working income in order to retire comfortably. So, if you made $65,000 a year when you were working, the math says you’ll need $45,500 once you retire.

These so-called Magic Numbers also come with several assumptions on the planner’s part, including:

  • you’ve paid off the mortgage on your principal residence;
  • your children are through university, have moved out and you are no longer supporting them financially;
  • you aren’t making support payments to a former spouse or common-law partner;
  • you are either single, or if you are married are not planning to get divorced;
  • you are in generally good health and are taking sufficient care of yourself to ensure you’ll stay that way for 15 to 20 years; and
  • you aren’t anticipating any major expenses, like having to buy a new vehicle or a cottage.


Choose your multiplier

Once you determine how much you’ll actually need each year, multiply that number by the number of years you expect to live in retirement.

So, if you expect to be retired for 35 years (which brings you to age 100 if you retire at 65), then using our simple example, multiply $45,000 x 35 and the math will tell you that you need $1.575 million saved for retirement.

Sounds hard, and it is. But here’s some good news: if you contribute enough to CPP to collect $10,000 annually, then you only have to save enough to have an extra $35,000 for each year in retirement.

Suddenly, the math looks like this: $35,000 x 35 = $1.225 million in needed savings. And that’s before you factor in OAS, which for most Canadians comes in around $7,200 a year.

What’s more, many Canadians are now opting to work a little longer – to 67 and 70, which can shave a few years off your savings needs.

And, keep in mind, these estimates assume that all the cash is in place on the day you retire. If you leave a portion of your savings invested and they earn an average 5% to 7% annual return, your nest egg will continue to grow during retirement.

For anyone who hasn’t started saving, those numbers should be sound motivation to start exploring the various options for ways to line up your finances for a comfortable retirement.

A qualified financial advisor can provide specific insights about how much you need to save, and how to get that process started.


CPP Investment Board, Investing Today for Your Tomorrow.

The content on this site is provided for information purposes only. CPPIB is not a financial advisor, and the content on this site does not provide financial advice. Every person’s financial planning needs are different. For advice on how you should prepare financially for retirement, please consult a credentialed professional financial advisor.

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