Five tips to achieve early retirement in Canada

In Canada, the average retirement age is 65. If that sounds far away, you might plan a strategy that shaves years, maybe even decades, off the traditional timeline. Let’s look at how to put early retirement within reach.

How much money do you need to retire early?

How much you’ll need saved up depends on your lifestyle, goals and overall financial situation. Ask yourself, how much do you plan to spend annually in retirement? Will you receive a pension? Do you plan to keep working, maybe part time?

On the other side of the ledger: Do you have financial obligations, such as debts and dependents? Will you help your kids pay for school or a home? Have you factored in inflation? And don’t forget longevity risk. Canada’s life expectancy is about 82 years. Will you have enough savings to cover long-term care?

Based on your lifestyle, you may need more or less than the average retirement income in Canada. Still, most savers can benefit from making certain financial moves and the earlier, the better. Here’s what to consider if you want to retire early.

Tip #1: Maximize your tax-advantaged accounts

Canadians have access to several tax-advantaged registered accounts that can be used to save for retirement. The three key accounts for retirement savings are the Registered Retirement Savings Plan (RRSP), Tax-Free Savings Account (TFSA) and employee pension plan. Here’s how they work.

RRSP: Defer tax until you retire

The RRSP is a tax-deferred account, meaning investments held inside can grow without being taxed. When you eventually withdraw, that money will be taxed as regular income at your marginal tax rate. By then, assuming you receive less income in retirement, you may be in a lower tax bracket. Here are some tips to help you maximize your RRSP savings:

• When you contribute to your RRSP, you can reduce your taxable income through equal amount tax deductions. This can make a big difference financially, especially during your highest-earning years. The maximum contribution is the lesser of 18% of your previous year’s income or the government’s fixed contribution limit for the year, and you can carry forward any unused contribution room.
• If you’re married or in a common-law relationship, you might consider opening a spousal RRSP to boost your retirement savings as a couple. If you’re the higher earning partner, you can contribute to the account in your partner’s name (up to your personal RRSP contribution limit). You get a tax deduction, and when the money is eventually withdrawn (keeping in mind spousal attribution rules), it will be taxed at your partner’s lower tax rate, which helps lower your overall tax bill.
• Try to avoid early withdrawals from your RRSP. Not only will you lose RRSP contribution room, but you’ll pay withholding taxes ranging from 10% to 30%, depending on how much you withdraw and where in Canada you live. (In Quebec, the federal withholding tax is lower, but you face a provincial withholding tax, too.)
• By converting your RRSP to a Registered Retirement Income Fund (RRIF) before accessing your funds, you’ll avoid withholding tax on the minimum withdrawal. (There is still withholding tax on any amounts above the minimum.)

TFSA: A flexible way to save for retirement

If you’re looking to retire early, a TFSA gives you flexibility to access your savings before other retirement sources become available and without facing tax penalties. While you won’t receive tax deductions for TFSA contributions, growth inside the account and withdrawals are tax-free. You also won’t lose your TFSA contribution room when you take money out. And down the road, TFSA withdrawals won’t impact your eligibility for income-tested benefits, such as Old Age Security (OAS).

The federal government sets the TFSA contribution limit for each year; the amount is indexed to inflation and rounded to the nearest $500. Your contribution room starts to accumulate in the year you turn 18 and you can open an account once you reach the age of majority in your province. Contributing early gives your savings more time to grow, helping you fund your early retirement plans. 

Employer pensions: Maximize the value

If your workplace has an employer pension plan, try to opt in as soon as you’re eligible to take advantage of benefits, such as matched contributions. It’s important to understand whether the plan is “defined benefit” or “defined contribution.” With a defined benefit plan, you’ll know how much income you’ll receive in retirement. Whereas with a defined contribution plan, the value of the plan is tied to market returns, so you’ll know how much you contribute but not what you’ll receive.

If you’re looking to retire early, your monthly workplace pension payments will likely be smaller, as they’re stretched out for a longer time. Also, you may not get access to your money right away because there is typically a minimum age to start receiving payments. Plans calculate your payments based on age and years of service (or years of contribution to the plan), minus a percentage for retiring early. Some plans offer a bridge benefit between your early retirement date and your 65th birthday.

Make sure you understand the size of your pension payments and what options you may have. Also, remember that your other workplace benefits, such as extended health care and dental coverage, may end when you leave your job.

Tip #2: Get the most out of your government benefits

Payments from the Canada Pension Plan (CPP) and OAS program supplement your retirement savings for the rest of your life. In Quebec, you’ll receive Québec Pension Plan payments (QPP) instead of CPP. These pensions, which are all indexed to inflation, are considered taxable income. (OAS pensioners with low income also receive the Guaranteed Income Supplement (GIS), which isn’t taxable, starting at age 65.)

To receive CPP/QPP, you must have made at least one valid CPP/QPP contribution and be at least 60 years old. To receive at least partial OAS payments, you don’t need to have a work history in Canada, but you must be 65 or older and have lived in the country for at least 20 years since age 18.

You can receive substantially higher CPP/QPP and OAS cheques by starting payments later. If you start taking CPP payments at 70, you’ll receive up to 42% more than if you’d started at age 65; for QPP, if you start taking payments at 72, you’ll receive up to 58.8% more; for OAS, if you are start taking payments at age 70, you’ll receive up to 36% more. However, OAS does have an income threshold over which your benefit will be clawed back, so you’ll want to check with the government of Canada for the latest information.

Tip #3: Pay down and minimize your debt

No one wants to head into retirement carrying debt, especially if you’re looking to stop working early. Make a plan to pay off high-interest debt such as credit cards, lines of credit and personal loans. If you have a mortgage, consider accelerating your payments, making more lump-sum payments and/or renegotiating the terms.

Tip #4: Avoid lifestyle inflation

As your income rises, it’s common to also increase your spending. This is known as lifestyle inflation. For example, you get a job promotion and start treating yourself to a new wardrobe, lavish vacations or a high-end car.

While it’s important to treat yourself now and again, if you want to retire early, you’ll likely need to funnel more money into savings.

Tip #5: Develop a strong financial plan

Early retirement requires a clear-eyed financial plan. According to Fidelity’s 2025 Retirement Report, pre-retirees with a written plan in place feel more prepared for retirement than those without one.

To get started on a plan, assess your current financial situation, including your savings, assets and liabilities. Set retirement goals and draw up a budget to help you reach them, while leaving some funds to treat yourself now and then, as you work towards your goal.

Working with a financial advisor can help you create a realistic and achievable plan. Fidelity’s survey found that pre-retirees who work with a financial advisor are more likely to have started saving for retirement early and feel like they’re getting closer to achieving their financial goals. Your financial advisor can also offer ideas for structuring your savings and investments with an eye to retiring early, such as reducing investment risk, making tax-efficient withdrawals, deciding when to start CPP/QPP and OAS and more.