Retirement: Three magic numbers

How much will you need to retire?


From the Dec/Jan 2010 issue of the magazine.

Nothing is more frustrating than trying to figure out how much to save for retirement. You know the amount you’ll need to save depends on what kind of retirement lifestyle you want. But how can you decide that without having some idea of how much it will cost? Is dreaming of endless vacations and a 44-ft yacht realistic? Or should you be aiming for walks in the park and the occasional meal out? Many people have no idea what they’re aiming for—and after a lot of sweating and calculating, they end up right back where they started.

We can help. While many retirement plans use complex formulas to calculate what you’ll need, we find that many Canadians just want a ballpark to aim for. If your retirement is still quite a ways off, it’s often good enough just to know what you’ll need to save to achieve each of three levels of potential retirement: a bare-bones basic retirement; a middle-class retirement with two cars, some restaurant meals and vacations every year; and finally, a deluxe retirement complete with a vacation home or regular jaunts around the world. Interested to know what kind of dent each of these three scenarios will make on your nest egg? Read on and we’ll price them out for you.

No-frills retirement

This is the worst-case scenario, but it’s good to know what you’ll need if you just want to scrape by, if only because it gives you a starting point to build from. For this scenario, the costing has already been done for us in a recent study, called Basic Living Expenses for the Canadian Elderly, by three University of Waterloo researchers. The study describes a no-frills retirement as one in which a couple rents (rather than owns), has no vehicles (so they take public transit), and it doesn’t include spare cash for even minor indulgences such as cable TV or alcohol. This is not the stuff of most people’s retirement dreams, but the study does budget for three nutritious home-prepared meals a day, a one-bedroom apartment plus utilities, along with typical health-care costs and other essentials like clothing and personal-care products.

How much do you need?

The study’s authors conclude that the annual cost of such a retirement in five major Canadian cities ranges from $20,200 to $27,400. Here’s the good news: to achieve this bare-bones scenario you don’t have to save a penny. The combination of full Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) program for low-income seniors pretty much covers all your basic needs, at least outside the highest-rent cities. If you and your spouse are at least 65, those government programs would provide you with a combined $22,750 a year if you have no other income. “We’ve kind of made sure the Canadian elderly don’t live in poverty but we’ve given them, like, 50 cents more than the poverty line,” says study co-author Robert Brown.

Canadians who have worked most of their lives can also usually count on substantial Canada Pension Plan payouts in retirement. A couple which receives the average CPP payout, plus maximum OAS, and maybe a little bit of GIS, can expect to receive almost $30,000 a year. So you can relax about the worst-case scenario: Even if you don’t save at all, you’re not going to have to live off cat food.

Middle-class retirement

Most Canadians, of course, hope to do better than bare-bones. Bill VanGorder, 66, the Nova Scotia chair of CARP, a group representing older Canadians, says he wants the same level of comfort he enjoyed while he was working—maybe even a bit better. He finds that increasingly seniors want to travel, pursue sometimes pricey hobbies like golf, eat out at restaurants, and maintain cottages or second homes in warm places. For the most part, this lifestyle is about having experiences and being active, rather than having more possessions. In fact, some seniors are downsizing to smaller homes to help finance their active lifestyle, he says. Active senior couples with different interests are more likely to want to keep two cars to allow both spouses to stay mobile. And VanGorder himself aspires to do more traveling, including an Alaska cruise, seeing the British Isles, visiting his sister in Australia, and seeing the rest of Canada. He’s also interested in woodworking and was surprised to find the hobby is much more expensive than he anticipated.

According to Statistics Canada, median spending by a couple over 65 is about $40,000 a year, and average spending is about $51,000. But VanGorder says to enjoy the type of retirement he wants, you might spend as much as $60,000 a year.

How much do you need?

Assuming you receive about $30,000 a year from CPP and OAS and have no employer pension, you’ll need a nest egg that can support an additional $10,000 to $30,000 a year in extra spending, plus inflation adjustments. Financial planning research suggests that you need retirement savings that amount to 25 times your annual retirement spend (not including CPP and OAS) if you want to keep spending that much for the rest of your life. So for a typical middle-class retirement, you need a nest egg of $250,000 if you just want to spend the median amount, but if you want a higher-end retirement of the kind VanGorder describes, you’ll need to save up $750,000.

Retirement deluxe

Once you get beyond the typical middle-class retirement, costs tend to skyrocket. Norbert Schlenker, a fee-only financial planner with Libra Investment Management on Salt Spring Island, B.C., says that at this level the fundamentals don’t change—people still typically have a house, two cars, restaurant meals and vacations—it’s just that the house is bigger, the cars are fancier, the restaurants are more exclusive, and the vacations more exotic. Here you are more likely to find the trophy kitchen, memberships in a golf or boating club, professionally designed and maintained gardens, and, says Schlenker, perhaps “the boat their brother-in-law saw.” Such retirees are more likely to own a vacation home, and there is more money available for spoiling the kids and grandkids. There’s no hard and fast cutoff for the deluxe life, but if you’re spending $100,000 or more each year per couple, you’re well into the realm of truly disposable income.

How much do you need?

If you don’t have an employer pension, you’ll need to be a millionaire to afford it. Assuming you get $30,000 a year from CPP and OAS, you’ll need retirement savings that can provide you with an additional $70,000 a year, which means a $1.75-million nest egg. If that sounds outrageously high, welcome to the club. Schlenker says that when he does similar calculations for his clients, invariably they’re “just shocked.”

There’s an interesting exception here though. If you and your spouse both had long careers as public employees, your public sector indexed pensions might be the ticket to the high life. For instance if you and your spouse earned an annual salary of $63,000 each working in the public sector, and you both retired at age 65 after working for 35 years, you can expect to live like royalty when you retire. Your combined pensions plus OAS will typically pay about $100,000 a year plus inflation adjustments—the equivalent to saving up a $1.75 million nest egg. That’s why many public sector workers discover that they actually have a much higher standard of living in retirement than they did when they were working.

Keep the dream alive

In the end you have to match wants to means. If you’re no millionaire, there’s no need to give up on your retirement dreams, says Schlenker. Instead try to find a lower-cost version of what you’re looking for that fits your budget. For example, if you planned on owning a luxury beach front condo in a swanky part of Florida, but you’re worried you won’t be able to afford it, you could try renting a condo away from the beach in a less sought-after locale. Or you could do what VanGorder is doing. After retiring he decided to go back to work for three days a week as business development manager for HiringSmart, a systems software and services provider. The extra cash is helping him live the good life, and he loves the work too. “I’m meeting a financial need in a way that, fortunately, turns out to be very enjoyable for me.”

101 comments on “Retirement: Three magic numbers

  1. Many thanks and I really appreciate the time you have taken to deal with the questions. In a sense I feel they are so fundamental to the core issues of the Magazine that I hope you are onside with my probing. Maybe a follow-up article would be helpful, and you have a solid growing base with past web accessible issues.

    Thank you for dealing so specifically with the points. In response to the last issue here is a helpful web site based on UC Berkeley's Extension site.

    Here are two facts worth noting from there:
    Nearly one third of terminally ill patients with insurance used up most or all of their savings to cover uninsured medical expenses such as home care.
    27 to 30 percent of Medicare payments cover the cost of care for people in the last year of life.

    This is a massive issue coming up for health care as no one knows what their own attitude will really be in their last year–but it seems that most people naturally want to hang on.So they might spend what it takes and what they have. What a great opportunity for Continuing Education and Extension Programs! Helping people find useful things to do and think about in these last years so they can perhaps serve as helpful elders as they opt to stay on. I am thinking of people like Noam Chomsky, Joseph Campbell and many others who have modeled making a contribution from a place of wisdom and humility. I have a little Course for Executives thinking about their next stage in life and the response has been heartening. And there are sources in literature, movies etc. that can really help frame thinking and feeling about what must be a key issue.

    But all of this assumes that people will have the foundation of a relatively anxiety-free financial base. So your material is absolutely foundational.

    Thank you so much for your response.

    David Cawood.



    Excellent article, the best I have seen on this topic, thanks!!

    But, how are housing costs/values handled in the spending/savings estimates?

    For example, if a couple is renting (or perhaps paying off a mortgage), these costs might run up to $20-30,000 or so. Were these costs included in the 'middle-class' spending estimates?

    On the other hand, if a couple enters retirement with a paid-off home, their costs might be only $5,000/year or so. But these low costs are only because they have 'saved up' hundreds of thousands of dollars as equity in their paid-off house. Were these 'savings' included in the 'nest egg' estimates?



  3. Can you provide any information for those looking to retire before 65? How does this affect the calculations.



  4. An excellent article. I have seen younger people living for less than $20,000 per year by growing own garden etc. However, in our maturing years, the body does not want to keep up with the mind, and requires health related expense – which can be significant for some. This is the great unknown. Any way to protect oneself without the expensive insurance policies??? Oh yes, the needs are few, but wants many! Overall, many maturing people enjoy a great life, company, health, and family. In Canada, we are blessed with many good things. Only our imagination and social skills are stopping us from enjoying life. I am positive all Canadians will have a great retirement!


  5. Many articles seem to always focus on couples. The reality is that many people are single for various reasons and must go at it alone. I know you can't just split all the amounts listed in the article in half, but does one person assume the same numbers as given for a couple apply to a single person? As for pensions, I live in Alberta and no one ,except public employees, receives company sponsored pensions here. So if you are a single retired individual here here you need to factor in that you will not have a pension plan.


    • Many readers have contacted MoneySense to request information on financial planning for single people. We are running a story on this subject in our September 2010 issue so please check it out!


  6. I would like to know if when you state that you should have $750,000.00 saved for your retirement , what should it be for a single person. All articles that I read about how much to save for retirement is targeting couples.

    I would appreciate a comment regarding singles investments.

    Thank you


  7. Great site. I was interested in Jacqueline's question on her single vs. couple amount ($750,000?). My spouse and I have been very fortunate in our careers, and I'd like to think that we're on the right track, but we both do not have pensions as such. I'm 54 years old and my spouse is 45. Our house is debt-free ($450,000) and only 5 years old, so no maintenance is required in the short-medium term. We have a joint investment portfolio (approximately $700,000 as of today…but depending on market conditions could be lower/higher) and thankfully, no debt whatsoever. We have 1 more year on our contract in the middle east and will be heading back to Canada. My question is this. Since I have at least another 5 years to work before drawing my Canada pension, at this point, would a part-time job paying $30,000 be out of the question until I retire in 5 years time?


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  74. This makes no sense. To retire on an income of $25k, outside of income from CPP and OAS, requires a much bigger nest egg than the $250k you suggest – closer to $1.4MM to age 95. . . . what am I missing? $250k would last, obviously, less than 10 years if inflation and interest are a wash . . .


  75. Hi there, I think this is a great article and very well written. One question though, did I miss the reference to taxes? Are these dollars after tax? Thanks.


  76. 1.) I'd like to know how the heck Where did you get the number $30,000/year for CPP & OAS?
    According to the Service Canada website the current (=2012)

    Max rate for CPP is $986.67/month
    (average is $529.09)

    for OAS:
    Max rate is $544.98
    (average: $514.74)

    So for the CPP & OAS it gives me Just $18,379.80 MAX! per Person.

    Unless, of course you have 2 persons getting the MAX, then it would be over $36,000. But how many Normal working people will get that? Check the above AVERAGE numbers.

    2.) I don't understand what is all this fuss of "not having enough money for retirement" about? What do you people have 2 stomachs or what?
    When we came to Canada 22 yrs ago we were able to live on around $1100/m both of us. And from that $650 was for rent.
    If you own your home and don't have a mortgage you don't need all that bloated amount of $$ all these "retirement planners" are trying to push on you.
    Why would you f.e. live in a big city when you are on Retirement?

    We have friends who live here in a Niagara region, own their own mortage-free small house with 1 SUV car, and are comfortable living from around $1200-1300/m, going on vacation every year and considering to buy a condo somewhere in Florida so they can stand for couple of month there, or, maybe moving to Equador, Panama or other such an inexpensive country with an excellent health care.

    And for me That is completely reasonable. So anything we will have above will actually be even a "luxury bonus".


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  78. I think it will be incumbent upon all of us to consider pooling our resources with others (friends and other like-minded seniors) at retirement. That could mean shared living arrangements, shared resources (car, hobby tools, etc). The independence we all demand today will be sacrificed in the name of mutual benefit. I always saw women as naturals for this lifestyle, but men..not so sure


  79. Many of the retirement numbers are for couples. Can you give the 3 magic numbers for a single person.


  80. as a guide line I think it is excellent!


  81. $1.75M really doesn’t sound that outrageous to me for a life of luxury in your golden years. It’s a completely attainable target if you spend your working career continually saving for retirement. A working couple who is starting at 25yr old and retiring at 65 who saves $5000/yr and earns an average of 6% will have that amount saved, easily.

    Public pensions are not the golden ticket that people say. They offer similar security as a 5% RRSP matching plan, but have the added risk of being vulnerable to politics. Any disciplined planner can out perform an indexed public pension with simple RRSP and TFSA contributions, and likely retire 10-15 years earlier than their public counterparts. It just takes a little will power, which can be in short supply these days.

    The quality of your retirement is your responsibility. Make it a real priority and you’ll be rich some day.


  82. Your report is good for today’s environment. However … Right now I am 52. Our Retirement will not be until I am 67. With the huge difficulty’s in health care MOST Canadians do not save for MEDICAL problems. In Alberta you better watch out. Even thou you do not see it, most health care is Private For Profit under the covers which can be switched on in a matter of seconds. Also, Seniors Homes are to double by 2040 which means over $60,000.00 per year. Like it or not .. people have seen mom and dad that SAVED for retirement and were RESPONSIBLE … STUCK in a room with a person that lived the high life .. went on Vacations had lots of fun … and now are broke so they can not pay 1580 per month on 24/7 care .. so … they get it FREE. Many of us believe the Government will Crack Down … so all this talk of even if you do not save a dime you will be fine? I hope is WRONG. Some of us are tired of watching people get away with SPENDING SPENDING HAVING FUN and then demanding the same quality care of those of us that SAVED.


  83. I found your 2010 artical a little out of date for 2016 but still informative. Y only question would be how you calculate CPP and OAS as 30000. I currently get a whopping 502 a month CPP. Retirement in Canada is only for those who don’t make minimum wage. The rest of us support the system until we die.


  84. Those numbers are nuts. $1750000 to support and extra $70000 in income for the rest of you life. If you were to keep the money in a sock drawer ok you could make that money last for 25 years of retirement taking $70000 per year. At a modest 4% interest per year though, that would generate $70000 per year for ever without even touching the capitol. A little better teturn on investments and taking some capitol and some interest you need far less than 1.75 mill to last 25 -35 years


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