How much income will you need in retirement?

You've worked long and hard, you're healthy and active, eager to pursue new interests, learn new things, and keep doing what you love most.

But are you really ready to retire?

A secure, enjoyable retirement depends on having enough income to maintain your lifestyle, probably for much longer than you think.

An important step in retirement planning is to calculate your “income replacement rate” — the proportion of your pre-retirement income you will have to replace to maintain your lifestyle.

If you are like most Canadians, you spend your money in four basic ways:

  • consumption (i.e. personal spending)
  • taxes
  • public benefit plans (such as employment insurance and Canada/Quebec Pension Plan)
  • personal savings (such as contributions to an RRSP)

At retirement, this picture will change. You may reduce personal spending - on clothing and transportation, for example - and your tax bill may be less. Instead of contributing to a public pension, you will take benefits. Rather than being a saver, you will be a spender.

Financial planners have long believed you should aim at replacing 60% to 70% of your pre-retirement income. But people retiring today are likely to live longer and be more active. Based on our research, we believe that Canadians should plan on replacing 75% to 85% of their pre-retirement income. The exact amount will vary, depending on factors such as your plans, your living situation and what part of the country you live in. The bottom line is that you will need to assess your own personal situation in order to come up with a replacement rate value that is right for you.

The more you know, the better prepared you will be to ensure that your retirement income matches your goals.