OCTOBER 5, 2021
By Sun Life Staff

Read time: 6 minutes

If you’re saving for retirement, it’s likely in a registered retirement savings plan (RRSP) or employee pension plan. But, the question is, what is the cost of retirement in Canada? And how much should you save to retire? Unfortunately there isn’t a simple answer.

There’s a debate in financial planning about what percentage of income Canadians need to save for a comfortable retirement. Recommendations run all the way from 40% up to 70% of what you earned before you left the workforce. But, is it useful to think about retirement planning in these terms? Maybe not.

Since everyone's situation is different, estimating a percentage isn't the best strategy. You need to look at: 

  • what retirement means for you, and 
  • what your expenses might be. 

An advisor can help you figure out how much you need for retirement and how much you must save. In the meantime, start by answering these 10 questions to get a rough idea.

1. When did you start saving for retirement? 

“The older you are when you start saving for retirement, the higher the percentage of income you must put aside. That’s because you’ve lost years of compounding,” says Gordon Pape, author of RRSPs: The Ultimate Wealth Builder. “A 25-year-old might only need to save 8% to 10% of income each year. However, a 45-year-old might have to save as much as 25%.”

In short, the longer you save, the more you’ll likely have in your nest egg. Investment income can also build your account balance.

Are you on track to meet your retirement savings goal?

Find out by using our Retirement savings calculator.

2. When do you plan to retire? 

Are you considering retiring at 60 instead of 65? You’ll need to save more because you’re losing five prime contribution years. And, your savings will have to last longer.

On the other hand, maybe you need to delay your retirement date? If so, you’re not alone. In fact, 21% of respondents to a 2020 survey said they plan to retire later due to the COVID-19 pandemic.* In this case, strategizing your savings, income and care options will be key to your eventual, happy retirement. 

*Source: CPA Canada’s Canadian Finance Study 2020.

3. How long are you going to live? 

No one can predict their date of death. However, Canadians are generally living longer. According to the most recent census from Statistics Canada, Canadian children born that year expect to live to 82. Not to mention, those who are 100+ are the fastest-growing age group in Canada. 

Given this, it’s wise to factor longevity in your retirement plan, especially if:

  • your relatives lived to 95, and 
  • you’re in good health.

Curious what your approximate life expectancy is?

Try our Life expectancy calculator.

4. What are your plans for retirement? 

How do you picture spending time in retirement? A modest retirement may only require 50% of your pre-retirement income. But if you’re planning an active retirement with travel, for example, you may need 70% or more of your previous earnings. 

Rest assured: you will generally spend less in retirement than you did when you worked full-time. There are a lot of expenses that will start to go away. For example, you won’t have the cost of commuting, buying lunch, or updating your wardrobe. 

Despite these savings, retirees spend differently as they grow older. When planning for your retirement income needs, it's useful to think about your retirement in three stages:

  1. The first stage comes immediately following work. You may be in good health and you’ll have money to spend on travel and other leisure activities. 
  2. Next comes a quieter stage. Your energy may start to dip, and you may become more comfortable with a slower pace. 
  3. Finally, as health issues become more prominent, you may pay significant sums on health care as you age. These costs may include long-term care.

All of this is very personal. No two retirement experiences are alike. To help plan for these scenarios, consider various retirement income options.

5. Do you have a workplace pension? 

If your employer sponsors a workplace RRSP or Pension plan and matches some or all of your contributions, this annual tax-deferred bonus will reduce the amount you have to save on your own.

6. How much will you earn on your investments? 

To calculate how much you need to reach your retirement savings goals, you’ll need to assume a rate of return on your investments. While there’s no predicting exactly how steady your returns will be, diversifying your portfolio can help. 

An advisor can help you diversify your portfolio and select a realistic number for your investment projections.

Need help with your retirement savings plan? 

A Sun Life advisor can help. Find one near you. 

7. What assets do you have? 

One of the first places you’re likely saving is in a registered plan. And you can save up to 18% of your earned income in: 

  • an RRSP, or 
  • an employer-sponsored defined contribution (DC) plan. 

You’ll get a tax deduction for your contributions, and your investments will grow on a tax-deferred basis. Contributions to your defined benefit plan will very likely reduce your RRSP contribution room. Unused RRSP contribution room can be carried forward to future years.

“I strongly encourage people to max out their RRSP contributions every year. This can be an enormous challenge. But in future, you’ll be glad that you did it,” says Bruce Sellery, author of The Moolala Guide to Rockin’ Your RRSP.

Beyond your RRSP, you may have assets such as: 

Depending on the value of these assets, you may not need to save as much in a workplace pension or RRSP.

8. Will you make early withdrawals from your RRSP? 

When you withdraw money from your RRSP, you pay tax on the withdrawal at your marginal rate. You also lose the contribution room and the benefit of compound interest over time. Saving up an emergency fund in a TFSA is a better option, since contribution room is restored in the next year.

9. How much do you want to leave for loved ones? 

Do you want to spend all your money when you’re alive? Or do you want to leave a legacy for your children or favourite charity? This decision will play a role in how much you need to save for—and spend in—retirement.

Want to leave a legacy with life insurance?

Get a free life insurance quote.

10. How often should you review your retirement savings plan? 

It’s a good idea to review your retirement savings plan with an advisor: 

  • at least once every three years, or 
  • in connection with a major life event (i.e. birth of a child, a divorce, or the loss of a spouse). 

Wherever you are in your retirement savings, it’s likely a good time to have a conversation with your advisor. If you don’t have an advisor, find one to work with. A Sun Life advisor can help with your retirement savings options. 


Need help figuring out what’s right for you?

An advisor can help put together a solid plan that suits your goals.

This article is meant to only provide general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation