{"id":994,"date":"2021-01-20T03:57:10","date_gmt":"2021-01-20T03:57:10","guid":{"rendered":"https:\/\/www.thomascchan.com\/old\/?p=994"},"modified":"2021-01-20T03:58:46","modified_gmt":"2021-01-20T03:58:46","slug":"everything-you-need-to-know-about-retirement-in-canada","status":"publish","type":"post","link":"https:\/\/www.thomascchan.com\/old\/everything-you-need-to-know-about-retirement-in-canada\/","title":{"rendered":"Everything You Need to Know About Retirement in Canada"},"content":{"rendered":"\n\n\n<figure class=\"wp-block-embed-youtube wp-block-embed is-type-video is-provider-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"ast-oembed-container\"><iframe loading=\"lazy\" title=\"How Much Do you need to Retire in Canada? | Retirement in Canada\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/KANW_hHdx50?start=206&#038;feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.sunlife.ca\/en\/about-us\/newsroom\/news-releases\/announcement\/counting-pennies-the-frugal-facts-of-retirement\/123315\/\" target=\"_blank\" rel=\"noreferrer noopener\">3 out of 4 Canadians do not have a financial plan when it comes to retirement<\/a> and if that\u2019s you, here is my guide on preparing for retirement in Canada. If you\u2019ve been living in Canada for some time, I think you\u2019ll agree with me that the living standard in Canada is generally pretty good, especially where I live in Vancouver, BC. You can golf and ski on the same day! This high standard of living also comes with a high price tag so it\u2019s no surprise that Canadian is an expensive country. From housing, cell phone bills to taxes, it\u2019s not easy to make our ends meet let alone save up for retirement. Let\u2019s get started so a comfortable retirement can be in your future.&nbsp;<\/p>\n\n\n\n<h2><strong>So how much do I need for retirement in Canada in 2021?&nbsp;<\/strong><\/h2>\n\n\n\n<p>According to a poll done by CIBC in 2018, Canadians estimated they will need an average of $756,000 for retirement, yet the average amount Canadians actually save for retirement is $184,000. What is even more surprising is the fact that 90% of the respondents didn\u2019t even have a detailed retirement plan describing their retirement lifestyle or income needs. 30% did not have retirement savings at all and 26% had no clue how much they will need for retirement. Honestly, these results are quite worrying.&nbsp;<\/p>\n\n\n\n<p>When you talk to people around you, it seems like a million dollars is the magic number that most people aim to have for retirement but do you know why many think that this is what they need? Is this number sensible, or does it only sound good because that will make you a \u201cmillionaire\u201d? Is one million dollars enough for retirement? Or what is enough for retirement?&nbsp;<\/p>\n\n\n\n<p>Let\u2019s break it down.&nbsp;<\/p>\n\n\n\n<p>The answer on how much you need for retirement is: <strong>there isn\u2019t one set amount or plan for retirement that works for everyone.<\/strong> Everyone\u2019s needs and situations are different and the amount you need should be reflective of your retirement goals. It\u2019s like asking how much water one needs to drink per day. The simple answer is 4L but that\u2019s not the only answer. Similarly, there isn\u2019t one number that works for everyone. You take into your account what age you want to retire, the lifestyle you want after retirement, if you\u2019ll be making any income at all after retirement, etc.&nbsp;<\/p>\n\n\n\n<h2><strong>How to calculate how much you need for retirement<\/strong><\/h2>\n\n\n\n<p>Having said that, there are many rules that can help us figure out that number we need for retirement more easily. There is the infamous 4% Rule and the 25X Rule. This idea stemmed from the concept of <a href=\"https:\/\/www.youtube.com\/watch?v=Uq7RRwqGlss&amp;t=41s?sub_confirmation=1\" target=\"_blank\" rel=\"noreferrer noopener\">F.I.R.E (financial independent and retire early)<\/a>. These two rules are most commonly used for retirement and are as follows:<\/p>\n\n\n\n<ul><li>The 4% Rule states that during your retirement, it is recommended to withdraw 4% of what you have saved. Once you figure out what you need to live off of, you can better determine how much you need to save in total&nbsp;<\/li><li>The 25X Rule suggests you should assume 25 years of retirement&nbsp;<\/li><\/ul>\n\n\n\n<p>Together, these two rules can give you a rough idea of how much you need to save up for retirement.&nbsp;<\/p>\n\n\n\n<p>For example, if Tom figures that each year he would need $50,000 for his living expenses. His OAS and CPP will contribute around $10,000 of his retirement in today\u2019s money, meaning the other $40,000 would have to be covered by his own savings. If Tom anticipates his retirement life to be 25 years, then one million dollars is indeed his magic retirement number because if he puts that one million dollars into an investment portfolio with a 4% return, then he can estimate that he won\u2019t outlive the money.&nbsp;<\/p>\n\n\n\n<h2><strong>Factors that affect retirement in Canada<\/strong><\/h2>\n\n\n\n<p>Now keep in mind these are common rules to serve as a starting point for you. There are still many factors to think about when it comes to your retirement such as inflation, your investment\u2019s rate of return, the age of your retirement, etc. So remember this:&nbsp;<\/p>\n\n\n\n<blockquote class=\"wp-block-quote\"><p><em>Your retirement plan can be perfect, but us as human beings aren\u2019t.&nbsp;<\/em><\/p><\/blockquote>\n\n\n\n<p>In fact, the term 4% rule is a little misleading as well, because you are withdrawing 4% of your savings in year 1 of your retirement, but for subsequent years, you are supposed to adjust the annual withdrawals by the rate of inflation, and the withdrawals are also subject to tax.&nbsp;<\/p>\n\n\n\n<p>Also with the recent <a href=\"https:\/\/www.youtube.com\/watch?v=Uq7RRwqGlss&amp;t=41s?sub_confirmation=1\" target=\"_blank\" rel=\"noreferrer noopener\">F.I.R.E<\/a> movement that has popularized early retirement, some individuals retire even in their 30s or 40s. For these individuals, the 25x rule obviously doesn\u2019t apply, and the 4% withdrawal also has little use because it doesn\u2019t work well for more than 35 years of retirement.&nbsp;<\/p>\n\n\n\n<p>We can also use a financial calculator to verify our retirement and to see if one million dollars is enough.&nbsp;<\/p>\n\n\n\n<p>For instance, Nancy is 30 years old and wants to retire at 60 with the same living standard as she has today. She is currently making $60,000 a year. With the help of the financial calculator estimating 2.5% inflation every year, Nancy needs around $125,000 per year when she retires.&nbsp;<\/p>\n\n\n\n<p>Since she will stop working, she needs an investment portfolio that can give her $125,000 per year. Let\u2019s multiply this number by 10 giving her $1.25 million. This is because at her retirement, with a 10% return each year, she will get $125,000. If we want to be conservative, we might need to adjust for a lower return and would multiply by 15 or 20 times.&nbsp;<\/p>\n\n\n\n<p>Nancy would need to save $10,000 a year with an 8% return to get a $1.25 million retirement savings, meaning she needs to start NOW.&nbsp;<\/p>\n\n\n\n<p>Fun fact: if we divide $10,000 to Nancy\u2019s income of $60,000, we will get 16.7%.<\/p>\n\n\n\n<p>Do you know what the annual RRSP contribution limit is? It\u2019s based on 18% of your previous year income.<\/p>\n\n\n\n<p>Ah. You see, the Canadian government didn\u2019t randomly select a percentage. Their intention is that if you can save that 15 \u2013 18% income with a reasonable rate of return for a long period of time, then you should be set for retirement. You can find the financial calculator <a href=\"https:\/\/www.canada.ca\/en\/services\/benefits\/publicpensions\/cpp\/retirement-income-calculator.html\" target=\"_blank\" rel=\"noreferrer noopener\">here<\/a> so you can calculate a more accurate number for your own retirement. Or, you can also consult with me for assistance.\u00a0<\/p>\n\n\n\n<h2><strong>Rethinking your retirement in Canada<\/strong><\/h2>\n\n\n\n<p>Now you might be wondering, so Thomas does that mean as long as I reach that number, then I am safe?<\/p>\n\n\n\n<p>Not quite.&nbsp;<\/p>\n\n\n\n<p>Here\u2019s why: Retirement is no longer the final stage of our lives, but instead, it\u2019s a transition between life stages. It\u2019s no different than going to school or getting married so you may want to consider a <a href=\"https:\/\/www.thomascchan.com\/old\/reinventing-retirement-planning\/\" target=\"_blank\" rel=\"noreferrer noopener\">flexible retirement strategy<\/a> considering the retirement stages below.\u00a0<\/p>\n\n\n\n<p>There are three stages in retirement:<\/p>\n\n\n\n<ol><li>The gogo stage &#8211; Right after your work life where everyday is basically a weekend. You travel, you play golf, you live at the same house. You\u2019ll spend more than what you used to make back then because it\u2019s the time when you have the most flexibility<\/li><li>The slow go stage &#8211; You are still enjoying the same things as the gogo stage but less frequently. As a result, you will spend less than what you used to make.&nbsp;<\/li><li>The no go stage &#8211; You will spend more time at home and have less activities so you will spend roughly 70% of what you used to make.&nbsp;<\/li><\/ol>\n\n\n\n<p>In summary, the law of average suggests that $1 million to $1.2 million in your bank account should put you in a comfortable position to enjoy retirement life. Following these simple hacks can help us quickly determine a figure that we should aim towards saving for retirement.&nbsp;<\/p>\n\n\n\n<h2>Planning your retirement<\/h2>\n\n\n\n<p>I hope this helped you get some clarity on your retirement journey. As Canadians, we are quite fortunate that there are supplemental retirement incomes for us from the government such as <a href=\"https:\/\/www.thomascchan.com\/old\/is-it-better-to-take-canadian-pension-plan-cpp-early\/\" target=\"_blank\" rel=\"noreferrer noopener\">CPP<\/a>, OAS and GIS.\u00a0<\/p>\n\n\n\n<p>If you\u2019re interested in learning more, you can find more videos on my <a href=\"https:\/\/www.youtube.com\/c\/ThomasCChan?sub_confirmation=1\" target=\"_blank\" rel=\"noreferrer noopener\">YouTube<\/a> channel to help you make better decisions when it comes to wealth, retirement and insurance in Canada. I\u2019m always here to help put together a personalized plan for you so feel free to <a href=\"mailto:thomas@novellawealth.com\">email me<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>3 out of 4 Canadians do not have a financial plan when it comes to retirement and if that\u2019s you, here is my guide on preparing for retirement in Canada. If you\u2019ve been living in Canada for some time, I think you\u2019ll agree with me that the living standard in Canada is generally pretty good, &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/www.thomascchan.com\/old\/everything-you-need-to-know-about-retirement-in-canada\/\"> <span class=\"screen-reader-text\">Everything You Need to Know About Retirement in Canada<\/span> Read More \u00bb<\/a><\/p>\n","protected":false},"author":2,"featured_media":997,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_uag_custom_page_level_css":""},"categories":[11],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v16.1.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Everything You Need to Know About Retirement in Canada | Thomas Chan<\/title>\n<meta name=\"description\" content=\"The ultimate guide to planning your retirement in Canada. 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If you\u2019ve been living in Canada for some time, I think you\u2019ll agree with me that the living standard in Canada is generally pretty good,&hellip;","_links":{"self":[{"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/posts\/994"}],"collection":[{"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/comments?post=994"}],"version-history":[{"count":3,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/posts\/994\/revisions"}],"predecessor-version":[{"id":1000,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/posts\/994\/revisions\/1000"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/media\/997"}],"wp:attachment":[{"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/media?parent=994"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/categories?post=994"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.thomascchan.com\/old\/wp-json\/wp\/v2\/tags?post=994"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}