People already find it hard to understand how to save and invest for retirement in good economic times, so it’s not a surprise that a lot of people are worried about their financial futures right now. Everyday items are getting more expensive because of inflation, and mortgage and other loans are becoming more expensive because of rising interest rates. This has thrown budgets off, and portfolios are being affected by ongoing market volatility.
While it’s natural to feel some anxiety in tougher economic times, it’s critical to remember that saving for retirement is a multi-year journey that’s unique to your own circumstances, so don’t be too hard on yourself if you’re unsure of what to save. There are some general rules you can follow, whether you’re retired or still trying to reach your goal.
Fidelity’s retirement calculator can help you look at the bigger picture when it comes to retirement planning and give you an idea of how much you need to retire comfortably.
Thinking about ditching the 9-to-5 grind a decade early? You’re not alone! Many Canadians dream of early retirement, but the big question is always: how much money do I actually need? As someone who’s spent countless hours researching this topic (and dreaming about my own early escape from corporate life), I’m gonna break down everything you need to know about retiring at 55 in Canada.
The Magic Number: How Much You’ll Need
Let’s cut to the chase – most financial experts suggest you’ll need between $1 million and $2 million to retire comfortably at 55 in Canada. That might sound like a massive amount, but don’t panic just yet!
The exact figure depends on several factors
- Your desired lifestyle in retirement
- Where in Canada you plan to live
- Your expected lifespan
- Whether you own your home outright
- Your health and potential medical expenses
- If you have a partner to share expenses with
The 4% Rule and What It Means for You
Many retirement planners follow the “4% rule,” which suggests you can withdraw 4% of your portfolio in your first year of retirement, then adjust for inflation each subsequent year.
So what does this mean in practical terms?
People who have saved $1 million or more could safely take out $40,000 in the first year, according to the 4% rule. With this and government benefits (which I’ll talk about in a moment), you could make between $50,000 and $60,000 a year.
But here’s the catch – retiring at 55 means your savings need to last potentially 30+ years. That’s a long time! Traditional retirement planning assumes a 65-year-old retirement, so we need to adjust accordingly.
The Income Gap Challenge
When you retire at age 55, one of the hardest things is what I call the “income gap.” This is the time between age 55 and when your government benefits start:
- Canada Pension Plan (CPP): Can be taken as early as 60, but with a 36% reduction
- Old Age Security (OAS): Only available at 65
- Guaranteed Income Supplement (GIS): Also only available at 65
This means you’ll need extra savings to cover those 5-10 years before government benefits become available. Let’s call this your “bridge fund.”
My Calculations for Early Retirement in Canada
Let’s get into some real numbers. If we assume:
- Retirement at 55
- Life expectancy of 85 (30 years of retirement)
- Annual spending needs of $60,000
- Inflation at 2%
- Investment returns at 5%
Here’s what you might need:
| Desired Annual Income | Savings Required |
|---|---|
| $40,000 | $800,000 – $1,000,000 |
| $60,000 | $1,200,000 – $1,500,000 |
| $80,000 | $1,600,000 – $2,000,000 |
| $100,000 | $2,000,000 – $2,500,000 |
Remember, these figures assume you’ll have paid off your mortgage and have minimal debt.
Understanding Government Benefits in Your Retirement Plan
The Canadian Retirement Income Calculator (available on Canada.ca) is a fantastic resource to estimate your potential government benefits. It takes about 30 minutes to complete and gives you estimates from OAS, CPP and other sources.
Here’s what you should know about government benefits:
Canada Pension Plan (CPP)
- Maximum monthly payment (2025): $1,328.32 if started at age 65
- Reduced by 0.6% for each month before age 65 (up to 36% reduction at age 60)
- Enhanced by 0.7% for each month after age 65 (up to 42% increase at age 70)
If you retire at 55 but don’t start getting CPP until 60, the most you could get each month is about $850.
Old Age Security (OAS)
- Available from age 65
- Maximum monthly payment (2025): $698.75
- Subject to a “clawback” if your annual income exceeds $86,912
Creating Your Early Retirement Roadmap
I’ve broken down the path to retiring at 55 into manageable steps:
-
Calculate your retirement income needs
- Track current expenses
- Adjust for retirement lifestyle changes
- Account for inflation
-
Assess your current financial situation
- Total all retirement accounts (RRSPs, TFSAs, non-registered investments)
- Calculate equity in your home
- List other assets that could generate income
-
Maximize tax-advantaged accounts
- RRSP: Consider contribution room and tax advantages
- TFSA: Use for tax-free growth and withdrawals
- Non-registered accounts: For amounts beyond RRSP/TFSA limits
-
Create a withdrawal strategy
- Plan which accounts to draw from first
- Consider tax implications of different withdrawal sequences
- Create your “bridge fund” to cover years until CPP/OAS eligibility
The Bridge Fund: Your Secret Weapon
If you’re serious about retiring at 55, you’ll need a specific strategy for the gap years between 55 and when government benefits start. Here’s my approach:
- Calculate your annual expenses during the bridge period
- Multiply by the number of years until CPP/OAS (5-10 years)
- Add a 10-15% buffer for unexpected expenses
For example, if you need $60,000 annually and plan to take CPP at 60, you’d need:
$60,000 × 5 years × 1.15 (15% buffer) = $345,000 in your bridge fund
This should be kept in more conservative investments since you’ll need this money sooner.
Making Your Money Last: The Withdrawal Sequence
Not all retirement accounts are created equal when it comes to withdrawals. Here’s my suggested withdrawal sequence for maximum tax efficiency:
- Non-registered accounts first (especially those generating taxable income)
- RRSP/RRIF accounts next
- TFSA accounts last (since they grow tax-free)
This sequence isn’t set in stone – you might want to withdraw from different accounts in different years to manage your tax bracket.
Where You Live Matters – A LOT!
Your retirement dollars will stretch differently depending on where in Canada you choose to live:
Most Expensive Cities:
- Vancouver
- Toronto
- Victoria
More Affordable Options:
- Halifax
- Quebec City
- Winnipeg
- Smaller communities in Ontario, Quebec, and the Atlantic provinces
Because you’ll be living in a smaller town instead of Toronto, you might need to save 25 to 30 percent less for retirement!
Healthcare Considerations for Early Retirement
One advantage of retiring in Canada versus some other countries is our universal healthcare system. However, there are still expenses to consider:
- Provincial health insurance covers most basic medical needs
- Supplemental insurance for prescription drugs, dental, vision care (~$2,000-$3,500 annually)
- Long-term care costs (potentially $3,000-$6,000 monthly if needed)
Budget at least $3,000-$5,000 annually for healthcare costs not covered by provincial plans.
The Psychology of Early Retirement
I’ve talked to many early retirees, and they all say the same thing: the financial part is only half the battle. You need to prepare for:
- Loss of work identity
- Filling 40+ extra hours per week
- Maintaining social connections
- Finding purpose and meaning
Consider a “trial retirement” by taking a sabbatical or extended vacation before making the permanent leap.
What If You Don’t Have Enough?
If your calculations show you’re falling short of your early retirement goal, don’t worry! You have options:
- Semi-retirement: Work part-time or as a consultant in your field
- Side gigs: Develop passive income streams
- Downsize: Consider a smaller home or moving to a less expensive area
- Delay slightly: Each additional year of saving can significantly increase your retirement readiness
Real-Life Example: Meet James and Sarah
James and Sarah are 45, have a household income of $180,000, and want to retire at 55. They’ve saved $600,000 combined in their RRSPs and TFSAs, and their house is worth $750,000 with $300,000 left on the mortgage.
Their retirement plan:
- Pay off mortgage by 55 ($5,000 extra payments annually)
- Max out TFSA contributions ($12,000 combined annually)
- Contribute $30,000 annually to RRSPs
- Downsize home at retirement, freeing up $200,000
- Target retirement income: $72,000 annually
By following this plan, they’ll have approximately:
- $1.2 million in RRSPs
- $300,000 in TFSAs
- $200,000 from home downsizing
- Total: $1.7 million, sufficient for their target income
Using the Canadian Retirement Income Calculator
The Canadian Retirement Income Calculator on the Canada.ca website is an amazing free tool that helps estimate your retirement income. It takes about 30 minutes to complete and provides valuable insights.
Before using it, gather:
- Your CPP Statement of Contributions
- Information about your residence history in Canada (for OAS)
- Details about employer pensions (if applicable)
- Statements for RRSPs and TFSAs
- Information about other income sources
The calculator allows you to adjust variables like:
- Planned RRSP contributions
- When you’ll start receiving pensions
- Retirement age
This lets you see how different decisions affect your retirement income.
My Final Thoughts
Retiring at 55 in Canada is definitely possible with careful planning and disciplined saving. The key is starting early and being realistic about your needs.
I believe the most important factors are:
- Paying off all debt, especially your mortgage
- Building a substantial nest egg in tax-advantaged accounts
- Creating a specific plan for the “bridge period” before government benefits
- Being flexible with your retirement vision
Remember, retirement planning isn’t just about hitting a magic number—it’s about creating the lifestyle you want for your next chapter. And if you’re married or have a common-law partner, make sure to do these calculations separately and then combine your results for a complete picture.
So, how much do you need to retire at 55 in Canada? Somewhere between $1-2 million for most people, but your personal number could be higher or lower depending on your circumstances and dreams.
What’s your retirement vision? Have you started planning yet? The best time to start was yesterday—the second best time is today!
How much do you need to save?
There used to be an idea that you had to save $1 million to live a comfortable retirement. As the financial planning world has evolved and become more nuanced, striving for some universal savings number could become a counterproductive goal – some people need more, while others can live quite comfortably on less.
Rather than target a dollar figure, think about your retirement needs in terms of your current lifestyle. As a starting point, you will need 20% of your income from working years to maintain about the same standard of living in retirement. This is assuming you don’t have to support children, pay a mortgage, pay for transportation to work, or save for retirement. Of course, your reality will affect that figure. In individual cases, it could also be higher or lower depending on your family status, tax bracket, real estate ownership, lifestyle and health.
The problem is that%2070% must be changed to account for inflation from now until the time you retire and thereafter for the remainder of your life, and possibly that of a surviving spouse. Calculating the size of nest egg needed to meet that cost can get complicated. There are many variables, including average rates of inflation and investment returns in the future. It requires making assumptions that may in time prove to be false.
The 20% may still be a good number to remember, but it’s also a good idea to think about saving money at every stage of your working life.
Saving through the ages
Those in their 20s are just starting out on their financial journey. Now’s the time to focus on eliminating student loans and consumer debt and to get into the habit of creating a budget that sets aside some of your income for future purposes, whether for retirement, a down payment on a home or something else. The next decade can get expensive, so the less money you owe, the better off you’ll be.
Many 30-somethings will have family, first homes and new jobs on their minds, but now’s also the time to start thinking about saving for the future. Aspire to have a year’s worth of employment income set aside as emergency savings, or as part of your investments, by age 30, and two year’s worth of employment by 35. No matter what, though, you have enough time for your investments to grow before you retire that even saving $250 a month can put you ahead of the game.
In your 40s, you’re now well into your career and will have become accustomed to a certain standard of living. This will help bring your future retirement needs into focus. Ideally you should aspire to have three times your (now probably more substantial) employment income saved by age 40, and four times by 45, to meet your retirement goals.
Your 50s are your peak earning years, and expenses for children and housing may now start to drop. This is your opportunity to play catch-up on your savings goals if you’ve fallen behind. Aim to accumulate six times your annual employment income by age 50, and seven times by age 55. As your nest egg will grow faster on its own because of compounding investment returns, reaching those goals may not be as hard as you think.
You’re now in the home stretch. You may be planning your retirement date, or may have already retired or semi-retired. Before you do, you should have nine times your working income by 60, and ten times by 65. But your individual savings requirement and optimal retirement date will depend in large part on your lifestyle once your working days are done. If you plan on travelling and eating out more than when your nose was to the grindstone, for instance, you’ll need to save more.
Can You Really Retire at 55 in Canada? Here’s What Most People Miss
FAQ
How much money do you need to retire at 55 in Canada?
According to this rule, you’ll need 70% of your pre-retirement household income each year in retirement for 25 years. For instance, if your family makes $150,000 the year before you retire, you’ll need $105,000 every year. Multiply that by 25 years and your retirement savings goal would be: $2,625,000.
How much money should I have when I retire at 55?
Retiring at 55: How Much You’ll Need The benchmark reflects the longer time savings must last and the delay in Social Security eligibility. For someone expecting to spend $60,000 annually in retirement, that would mean accumulating roughly $2 million in savings by age 55.
Is $500,000 enough to retire on in Canada?
Can you live off of $500,000 in Canada? Let’s use these rules to figure out how much money you would need in retirement. The average retirement age in Canada is 65. Estimating that the $500,000 is to last you 25 years, your yearly retirement income would be $20,000.
What is a good monthly retirement income in Canada?
Statistics Canada’s 2024 Canadian Income Survey says that the average amount of money that senior families made after taxes in 2022 was $74,200, or $6,183 a month. For individual seniors, it was $33,600, or $2,800 per month.