How to Use the Calculator
If you are looking to create a retirement plan, a great place to start is with a retirement calculator like this one. To use it, you will need to input the following information.
- Your current age.
- The age you want to retire.
- Your household income.
- A percentage of your income you plan to save for retirement.
- The total amount of money and investments (savings accounts, stocks, etc.) you have saved already.
- A percentage of how much you expect your income to increase.
- A percentage of your desired pre-retirement income in retirement.
- Your pension plan from your employer.
- Your monthly CPP/QPP pension plan and the age at which your CPP/QPP starts.
- The old age security pension (most Canadians over age 65 can receive this government benefit).
- Information about your investments, such as the rate of return and long-term inflation rate.
Once you input all of this information, the retirement planning calculator will show you what age your retirement savings will run out. The number will be based on your savings as well as the retirement income you will receive from investments and your pension plan. The calculator will subtract your estimated annual expenses and thus tell you how long the money will last.
Based on your results, the calculator will either say, “You may need to save more” or “Your plan is on track.” You can then adjust your retirement plan accordingly. You can try to save more, make more investments with a higher rate of return, or keep your plan as is if you are on track. If you’re not, you can use a debt consolidation calculator to help your achieve financial stability.
How to Get Retirement Ready
Open a Retirement Account
One of the best ways to start getting ready for retirement is to open savings accounts strictly for retirement savings. Opening a registered retirement savings plan (RRSP) is one of the most popular means of doing this. RRSPs were created by the Canadian government in 1957 to help Canadians save for retirement.
Any money contributed towards the best RRSPs can be deducted from your income taxes the year you contribute it. This provides you with a tax break that year. You won’t have to pay taxes on the money until you withdraw it, so you can withdraw it when your income is lower, and you’ll be paying fewer taxes anyway. An RRSP thus helps Canadians of any age save for their retirement. You can save even more using RRIF which has lower withdrawal taxes.
You should also contribute to a group retirement savings plan (GRSP) if you have access to one from your employer. Employers typically match a portion of your contribution, so you will end up saving even more.
For both plans, you can contribute up to 18% of your income or a maximum of $26,500, whichever is smaller. Get to saving early; don’t wait until your age 65!
Avoid Paying High Fees
Although paying fees for anything can be a pain, it is often unavoidable. Fees to maintain your savings accounts or investments, for example, take away from your retirement savings. It is important to avoid paying high fees.
If you want a high-interest savings account, for example, look for a bank that offers little to no fees with high rates of return. Online banks, such as Tangerine or EQ Bank, tend to offer the best rates of return with no fees.
Making smart investments to help raise your retirement savings could also be a good idea. Investing in low-risk investments, such as guaranteed investment certificates (GICs), is a great idea. There are no fees or commissions associated with GICs, so you will simply be investing your money and receiving a guaranteed rate of return.
If you are looking to make higher-risk investments, such as ETFs, mutual funds, stocks, or bonds, you typically will receive a higher rate of return. With the higher rate of return comes a bigger risk, especially if you don’t know what you’re doing. Hiring someone to manage your personal finance could be beneficial in this case. Just make sure you shop around to avoid paying high fees.
Make Smart Moves
If you are here reading this article, you are already making smart financial planning moves. No matter what your age, it’s never too late to start planning for retirement. Generally, the earlier, the better as you can make long-term investments that will provide higher rates of return as time goes on. You can then also take advantage of compound interest.
Compound interest is essentially when your interest earns interest. This means that if you have investments with a high rate of return, you can earn even more as that rate of return builds up.
Other than saving and making investments, budgeting is one of the smartest moves you can make financially. Using our retirement calculator is a good way to do this. It will take into account your entire personal financial situation, such as your income, investments, pension, inflation rate, and more. It will help you decide how much of your income you should be putting aside every month towards your retirement.
Your retirement income, such as your CPP/QPP or old age security, may not be enough. You should determine how much you need to save every month before you reach retirement age. No one wants to work longer than they have to. Avoid that by making smart moves as early as you can.
Frequently Asked Questions
What is the Retirement Age in Canada?
There is no mandatory retirement age in Canada, even though many believe it is age 65. This is because, at age 65 in Canada, eligible Canadians can start collecting old age security pension as well as the Canada Pension Plan (CPP). If you want to retire earlier, however, you can receive a reduced CPP from age 60.
How Much Money Do I Need To Retire?
There is no one set amount for how much you need to have in order to retire. If you plan to live a lavish life and travel, for example, you will need more than someone who wants to stay home with their family. Generally, a good rule of thumb is to save 70% to 80% of your pre-retirement income for every year you may be on retirement.
Pre-retirement income is how much you were making before tax at work before your retirement. So, if you were making $100,000, you should expect to have $700,000 to $800,000 every year in retirement. If your investments or pension plans don’t equate to this amount, you will need to ensure your retirement savings makes up for it.
Our retirement planning calculator will show you if your retirement income will suffice or whether you need to save more before you can retire. It is best to start saving early on as you don’t want to have to keep working past the age of retirement.
How to Calculate Retirement if You Are Married?
Our retirement planner calculator can still be used to calculate your retirement savings if you’re married. To do so, you will need to add your income and savings to your spouse’s income and savings before inputting it into the calculator. This includes the following things.
- Your joint, household income.
- The percentage of your income you both plan to save.
- The current retirement savings you both have.
- An estimated percentage of an income increase for both of you. Adjust accordingly. For example, if yours is 3% and your spouse is 1%, enter 2%.
- The percentage of your pre-retirement income you both want to have in retirement.
- How many years you both plan to use your retirement.
- The amount of the pension you both plan to receive from the government (CPP, QPP, OAS, etc.) and your employer.
- Information about both of your investments. This includes the rates of return before and after retirement as well as the average long-term inflation rate.
Once you input all of you and your spouse’s information, the calculator will show you if your joint retirement savings and retirement income is enough. If it’s not, you can adjust the percent of the income you are saving to see how much more you both must put towards your retirement savings.
How Much Should My Salary Increase Each Year?
You may be thrown off by the question on the retirement calculator, asking you what your expected income increase is. It may be impossible to know exactly what your salary increase each year is if there is one, but you can try to create an estimate.
For example, look back at your past salary increases. Did you receive one every year? Every other year? Was the amount consistent, such as receiving a 1% increase every year? Based on your salary increase history, hazard a guess at a percentage for your potential income increase.
What Should the Life Expectancy be Set To?
On our calculator, you need to input what you believe your life expectancy will be. It is under the section “Years of retirement income.” This is solely to help with your retirement financial planning. The calculator cannot give you an accurate answer if it does not have a timeline to consider.
Unfortunately, it can be a morbid thing to think about for most people. It is also impossible to know how long your life expectancy is, so you will need to create an estimate. As of 2017, the life expectancy of someone in Canada is 82.25 years old. You can set your years of retirement income to 20 for an average answer. You can, however, select up to 100 years on this calculator.
It is always better to overestimate, so you could even put a higher number than 20. Any extra savings you do have can be passed down to your beneficiaries; it won’t go to waste. Alternatively, you could put it lower as well if you or your spouse are ill or your family has a history of low life expectancy. Either way, whatever number you put into the years of retirement income section is completely up to you. Of course, it does not determine how long you will actually live.
Planning to Retire Early
If you are planning to retire early, you can still use our retirement calculator! The second question asks you what age you will be at retirement, and it allows you to enter an age as low as 10 up to 90 years old. Thankfully, there is no mandatory age of retirement in Canada, so while retiring at age ten may not be realistic, you don’t need to wait until you’re 65. If you do want to retire early, here are some of the ways you can do so.
- Make smart investments. Many people tend to go for small, low-risk investments because they are safe. Unfortunately, the likely won’t make you rich. You can earn much more from higher-risk investments; you just have to be aware of the risk and not put all of your savings into it.
- Increase your income. This may be easier said than done, but earning more money while you’re working is what will allow you to retire earlier. You may want to consider a second job if you’re not working too much. Or, try to negotiate pay raises or promotions at your current job to earn more.
- Start saving early on. Many people put off saving for their retirement because it seems far away. Even if you just turned 18 and got your first job, it’s never too early to start saving. Depositing even a small amount into your retirement savings will add up in the end.
- Access your home’s equity. If you have a home, you have likely spent years paying it off and putting money into the mortgage. Many people will then take that money out so they can retire earlier. You could also consider downsizing your home when you retire. This will save you more money so you can retire earlier. Similarly, moving to a cheaper area will have the same impact. You don’t need to worry about living close to work when you no longer work!
The Bottom Line
Even if you are only 18 years old, it is never too early to start planning for your retirement. You likely don’t want to spend your entire life working, even if you love your career. To stop that from happening, you will need enough savings to be able to live comfortably without working.
One of the best ways to determine how much you should be saving is by using our retirement calculator. This calculator will take into consideration your income, savings, investments, and the expected growth of all of them. With this information, the calculator will show you how long your savings and retirement income will likely last. If the number is not to your liking, you will need to adjust your retirement savings plan.
It is better to know earlier whether you need to start saving or earning more. Don’t wait until the last minute when you are just about to retire to figure out if you can afford to retire or not.