How much do you REALLY need to retire?

Marie Engen, Boomer & Echo

By Marie Engen, Boomer & Echo

Special to the Financial Independence Hub

I’ve given you the challenge of thinking about what sort of retirement lifestyle you want to have. You’ve also determined, as well as you can, what income you may be likely to receive when you retire.

It’s quite frustrating to try to figure out how much money you will need for your desired retirement. How can you decide without having some idea of how much it will cost? Is dreaming of exotic vacations and travelling around the world on a 13-m yacht realistic? Or should you be thinking about reading a book on your deck? Many people have no idea what they’re even aiming for.

Since we all like to compare ourselves to others to see where we stand, here’s what the average retiree spends for three different levels of retirement lifestyles:

(Sources: BMO retirement survey and the Government of Canada).

Basic – Low Budget

Canada makes sure that seniors don’t live in extreme poverty. A 65-year-old couple who each receive average CPP payments ($640.23 per month) as well as Old Age Security and Guaranteed Income Supplement would receive a little over $32,000 per year. A single 65-year-old would get just over $19,000.

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This amount covers bare-bones basic needs: a modest paid-for house or rent for a one-bedroom apartment in a smaller city or town, one older vehicle or public transit, home-prepared meals, typical health and dental costs and low-cost entertainment and recreation – and not much spare cash for indulgences.

Many seniors live this frugally and it doesn’t have to be dreary. Not everyone has the desire to travel or play golf. Low-and no-cost recreation includes hiking, walks in the park or beach, puttering around the house and yard. There are organizations, clubs and guilds for every conceivable interest that welcome new members and have little or no cost. Or, you can even take in pricey entertainment if you volunteer at certain venues.

You don’t need any savings at all for this lifestyle, but this modest budget does require careful planning and prioritizing (especially for singles).

Middle-class retirement

Most Canadians desire more than just the basics. Many retirees want to spend time doing such things as a moderate amount of travel, pursuing pricey hobbies, eating out at restaurants, and other entertainment. Many maintain vacation cottages or winter homes in warm places. Senior couples who enjoy different activities are more likely to own two cars.

According to BMO, median spending by a couple over 65 is about $57,600 a year, and average spending is about $42,000 – $72,000, assuming no debt and a paid-for home.

Related: A financial assessment for your retirement

Assuming a couple receives about $32,000 a year from CPP and OAS and have no employer pension, they’ll need a nest egg that can support an additional $10,000 to $40,000 a year in extra spending, plus inflation adjustments. Financial planners suggest that you need retirement savings that amount to 25 times your desired retirement income (excluding CPP and OAS) if you want to keep spending that much for the rest of your life. So for a middle-class retirement, you need a nest egg of $250,000 to $1-million.

A single retiree doesn’t just cut that amount in half. S/he needs about $30,000 to $50,000 for a middle class lifestyle and savings of $275,000 – $775,000.

Deluxe retirement

Here, the fundamentals are the same – paid-for house, two cars, vacations, restaurant meals, etc. – but the house is higher-end, the cars are luxury, and the vacations more exotic. These retirees are more likely to own a vacation or winter home, and there’s more money available for spoiling the kids and grandkids and giving to charity. You are leading a deluxe life if you are spending $100,000 or more a year.

If you don’t have an employer pension, you’ll have to be a millionaire to afford it. An additional $70,000 (to top up CPP; OAS is likely to be clawed back at this income) means you need a $2.2 million-plus nest egg.

(An exception here is if you and your spouse had long careers as public employees. Your combined public sector indexed pensions when you retire will probably pay about $100,000 a year plus inflation adjustment.)

Retirement scenario What you’ll get Annual cost per couple Annual cost for single       What you need to save
Basic no-frills -Rent 1-bedroom apt-Public transit

-home-cooked meals

-typical health/dental costs

-few extras

$32,000 $19,000 Nothing
Middle-class -own average house/condo-one or two cars

-annual vacation

-occasional dining out

-active hobbies

$42,000 –$72,000 $30,000 –$50,000 $250K-$1M (c)

$275K-$775K (s)

Deluxe -large house/luxury condo-2 luxury cars

-regular exotic travel

-fine dining

-upscale memberships

$100,000 + $75,000 $2.2 million + (c)

$1.4 million + (s)


*All savings amounts assume retirement at 65 and no private pension.

Marie Engen is the “Boomer” half of Boomer & Echo. In addition to being co-author of the website, Marie is a fee-only financial planner based in Kelowna, B.C. This article originally ran at the Boomer & Echo site on Dec. 29, 2015 and is republished here with permission.

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