Can I Retire on 1 Million dollars in Canada? How About $500,000?

Most of us are keen to know when we can finally retire.

Unfortunately, there is more to the equation than just turning 65. Questions such as when you will retire and how you will live when you retire are essential questions to ask when planning your retirement.

Retirement is not one-size-fits-all. It requires budgeting and taking a good look at what kind of life you want to live as a retiree, your investments, potential governmental support, and more.

So, can I retire on 1 million dollars in Canada?

If we were to make some generalizations about inflation rates, returns on investment, and cost of living, you could retire on $1 million in Canada.

But this may not be the case for everyone, and it more or less depends on three variables:  

  1. how long you think you’ll be in retirement
  2. what your monthly “income” will be from government pensions and assets
  3. and how much money you will spend each year.

 When you have an estimate of these three numbers, you can use the following equation to figure out whether $1 million will be enough.

Annual expenditure X predicted number of years in retirement – total income you’ll receive in retirement.

It might be obvious that the later you retire, the less you will have to save for your retirement. However, I know many of us are trying to retire as soon as possible.

Let’s get into the details.

Things to Consider During Retirement Planning 

Can I Retire On 1 Million Dollars In Canada

Here are three questions to consider when you start your retirement planning.

1. When Do You Plan to Retire?

When Do You Plan to Retire?

The age at which you would like to retire can make a big difference in how much you should have saved.

As a rule of thumb, the earlier you retire, the more money you will need to have saved up for your retirement years.

The later you retire, the lower your savings factor will be, mostly because your savings will have a longer time to appreciate, and you will also have fewer years in retirement.

In addition, your Canada Pension Plan (CPP) payments will be higher the longer you delay your retirement, making it even “easier” to retire later. 

According to Statistics Canada, Canada’s national statistical agency, the average retirement age of Canadians in 2021 was 64.4 years old.

Below you can see further details of this statistic and how retirement age changes in different classes of workers in Canada.

Class of WorkerAverage Age of Retirement, 2021
Private Sector (those who work as an employee of a private firm or business)64.8
Public Sector (those who work for a local, provincial or federal government, government service or agency, a crown corporation, or a government-funded establishment such as a school or hospital)62.4
Self-employed (incorporated and unincorporated working owners, self-employed persons who do not have a business and persons working in a family business without pay)67.6

If you plan to retire before the average (around 64 years old), you might want to consider saving up more than $1 million for retirement.

If you plan on retiring after the average (perhaps around 70 years old or later), you may need less than $1 million for your retirement.

What do you think is the best age to retire? Check out this post to find out: 55, 65, or never?

2. How Do You Plan to Live When you Retire?

How Do You Plan to Live When you Retire?

How you plan to live after your retirement is just as important as when you plan to retire.

What kind of life do you plan to be living as a retired person? Do you expect to spend less, the same, or more than the amount you were spending pre-retirement?

Do you have travels and experiences you’ve been putting off for retirement? Do you want to be spoiling your grandkids?

What kind of life do you plan to be living as a retired person? Do you expect to spend less, the same, or more than the amount you were spending pre-retirement?

Do you have travels and experiences you’ve been putting off for retirement? Do you want to be spoiling your grandkids?

Do note that according to the StatCan Survey of Household Spending, the average spending per household for Canadians over 65 was $60,359 (including taxes) in 2017.

Taking inflation and rising costs of living over the years, we can expect this number to be around $64,000 now. 

3. How Much Government Income Will You Receive?

How Much Government Income Will You Receive?

The third most important thing to consider when you are thinking about retirement planning is your monthly CPP payment and other “asset” incomes (such as rental income.)

CPP payments are different for everyone as things such as your income before retirement, type of income, and number of “low earning” years will have an effect on it.

According to StatCan, however, the average CPP payout for 2020 was about $710.41 per month.

CPP payments are different for everyone as things such as your income before retirement, type of income, and number of “low earning” years will have an effect on it.

According to StatCan, however, the average CPP payout for 2020 was about $710.41 per month.

How Much Money Does the Average Canadian Need to Retire?

Based on these three notions regarding your retirement age, retirement lifestyle and CPP income, you can do a quick calculation to figure out whether you can retire on $1 million in Canada.

For instance, let’s say that Adnan wants to retire at the age of 65. To be safe, he would like to plan his retirement until he’s 90 years old. That’s 25 years in retirement.

Adnan currently spends about $50,000 per year and plans to spend about the same during his retirement years (do note that this is about $10,000 less than the average expenditure for his age demographic.)

He expects that his monthly CPP payment will be around $700, which amounts to $210,000 over the course of his 25 years of retirement ($700 x 300 months in retirement.)

By simply calculating $50,000 x 25 – $210,000, he can find that $1,040,000 will be enough for his retirement years.

If this example is on par with the type of retirement you are planning to have, then, yes, you can retire on $1 million in Canada!

Do keep in mind that this is an incredibly basic calculation but can be a great starting point for you to figure out how much money you will need for your retirement.

Although it does not take things such as inflation, returns on investment (ROI), or costs of living into account, it can lead you in the direction of an accurate ballpark.

Want a much more accurate retirement calculation? Check out these two free retirement planners: the Wealthsimple Retirement Income Calculator and Sun Life Retirement Income Calculator.

Both of these tools can be really helpful in your retirement planning journey.

Can I Retire on $1 Million dollars in Canada?

Can I Retire on 1 Million Dollars in Canada?

It is certainly possible to retire on $1 million in Canada.

As I mentioned, this will highly depend on when you retire and how much you plan on spending each year. The later you retire and the less you spend per year, the easier it will be to live off of $1 million in Canada.

Can I Retire at 60 With 500k in Canada?

It may not be easy to retire at 60 years old with $500,000 in Canada. Why? Take this simple calculation:

If you retire at 60 and plan for 30 years in retirement, spending the average amount spent by seniors in Canada, you will need about $1,800,000 (30 years x $60,000 per year.)

Let’s say that you receive $700 each month as part of your CPP (though it may be less than that if you retire at 60). You will get about $252,000 throughout your retirement ($700 per month for 360 months.)

Even if you take returns on investment into account, you will need about $1,500,000 to retire at the age of 60 in Canada (spending the average amount until you are 90.)

But this isn’t to say that it can’t be done. I know that planning until 90 is generous (given that life expectancy in Canada is 82), and some seniors are comfortable living on about $40,000 or even less each year (especially if they’ve already paid off their mortgage!).

It really all depends on your lifestyle, investment returns, and years spent in retirement.

Conclusion

It is certainly possible to have a comfortable retirement in Canada with $1 million.

As I said, things such as lifestyle, retirement age, and pension payments make a big difference, so it’s best not to take the word of others and do your own calculations instead.

If you have a financial planner, they’ll be able to help you with this kind of thing. It never hurts to ask for assistance from a professional who can point you in the right direction and give you a good depiction of what your retirement might look like.

Want more tools to calculate how much you’ll need to retire? Check out this post!

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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