Canadian Retirement Planning: A Beginner’s Guide
Retirement planning in Canada is about more than simply saving money.
A retirement plan needs to consider where your income will come from, how much you may need, how your savings will be invested, when you start government benefits, how taxes affect your income and how long your money may need to last.
For many Canadians, retirement income can come from several sources:
• Canada Pension Plan (CPP)
• Old Age Security (OAS)
• Guaranteed Income Supplement (GIS), if eligible
• Employer pensions
• RRSPs and RRIFs
• TFSAs
• Non-registered investments
• Cash and other savings
The goal is to build a system in which these different sources work together.
This guide explains the basics of retirement planning in Canada, including how to estimate your retirement needs, understand CPP and OAS, use RRSPs and TFSAs, build retirement savings and create an income plan.
WHAT DOES RETIREMENT PLANNING MEAN?
Retirement planning is the process of preparing financially for the period when employment income decreases or stops.
A retirement plan normally answers several questions:
• When do you want to retire?
• How much will you spend each year?
• How much income will you receive from government pensions?
• Do you have an employer pension?
• How much do you have invested?
• How much do you need to save?
• When should you start CPP?
• When should you start OAS?
• How will you manage taxes?
• How will you protect your savings from inflation?
• How will you handle unexpected expenses?
You do not need to know every answer immediately.
A useful retirement plan can start with a simple estimate and become more detailed over time.
HOW MUCH MONEY DO YOU NEED FOR RETIREMENT?
There is no universal retirement number.
Two people can retire at the same age and require very different amounts of money.
Your retirement spending could include:
• Housing
• Food
• Transportation
• Utilities
• Insurance
• Healthcare
• Travel
• Entertainment
• Hobbies
• Gifts
• Taxes
• Home repairs
• Emergency expenses
The first step is therefore to estimate your expected annual spending.
For example, suppose you believe you will need $45,000 per year after tax during retirement.
That does not necessarily mean you need a $1 million portfolio.
Your retirement income could come from several sources.
For example:
CPP: $15,000
OAS: $10,000
Employer pension: $8,000
Investment income: $12,000
Total:
$45,000
This is a simplified example rather than a prediction of actual benefits.
The point is that retirement planning should consider your entire income system rather than focusing only on your investment portfolio.
THE THREE MAIN PARTS OF A CANADIAN RETIREMENT PLAN
A Canadian retirement plan can be viewed as three broad layers.
Layer 1: Government benefits
CPP, OAS and potentially GIS.
Layer 2: Employer retirement benefits
This can include defined benefit pensions, defined contribution plans and other employer-sponsored retirement programs.
Layer 3: Personal savings and investments
This can include:
• RRSPs
• RRIFs
• TFSAs
• Non-registered investments
• GICs
• Bonds
• ETFs
• Stocks
• Cash savings
Your personal retirement plan is the combination of these sources.
CANADA PENSION PLAN (CPP)
The Canada Pension Plan is a government retirement pension based primarily on your CPP contributions and pensionable earnings.
The standard age to start CPP is 65.
You can generally start CPP as early as age 60 or delay it until age 70.
Starting before 65 results in a smaller monthly pension.
Starting after 65 increases the monthly pension.
If you start CPP before age 65, the pension is reduced by 0.6% for each month before 65, up to a maximum reduction of 36% at age 60.
If you delay CPP after 65, the pension increases by 0.7% for each month you delay, up to a maximum increase of 42% at age 70.
There is no additional increase for delaying CPP beyond age 70.
Your actual CPP amount depends on your contribution history and other factors.
The Government of Canada provides access to your CPP contribution record and estimates through My Service Canada Account. :chatgpt-content-reference{index=”1″}
WHEN SHOULD YOU START CPP?
There is no single CPP start age that applies to everyone.
The decision can depend on:
• Your health
• Your expected retirement length
• Other income
• Your investment savings
• Employment income
• Debt
• Spending needs
• Whether you have a pension
• Your tax situation
• Your need for guaranteed lifetime income
Starting earlier gives you income sooner but results in a smaller monthly pension.
Starting later means receiving a larger monthly pension, but you need another source of income during the period you delay CPP.
The Government of Canada specifically recommends considering your personal circumstances, financial situation and retirement plans when deciding when to start CPP. :chatgpt-content-reference{index=”2″}
You can also compare different CPP start dates using the Canadian Retirement Income Calculator.
OLD AGE SECURITY (OAS)
Old Age Security is another major source of Canadian retirement income.
Unlike CPP, OAS is not based on your employment contribution history in the same way CPP is.
Eligibility is primarily based on age, residence in Canada and other requirements.
OAS can generally begin at age 65.
You can choose to delay OAS until as late as age 70.
If you delay OAS after 65, your monthly payment increases by 0.6% for every month of deferral, up to a maximum increase of 36% at age 70.
There is no additional increase for delaying beyond age 70. :chatgpt-content-reference{index=”3″}
Your OAS amount can also be affected by factors such as your income and residence history.
Higher-income retirees may be subject to the OAS recovery tax, commonly called the OAS clawback.
This is one reason retirement tax planning matters.
GUARANTEED INCOME SUPPLEMENT (GIS)
The Guaranteed Income Supplement is an additional benefit available to certain low-income OAS recipients.
GIS is income-tested.
This means eligibility and payment amounts depend on your circumstances and income.
GIS can be an important part of retirement planning for Canadians with limited retirement income.
However, the rules are different from CPP and OAS.
For example, delaying OAS can also delay access to GIS because GIS requires receipt of OAS.
If you may qualify for GIS, understand how your other retirement income could affect your benefits. :chatgpt-content-reference{index=”4″}
EMPLOYER PENSIONS
Some Canadians have an employer-sponsored pension.
The two broad types are:
Defined benefit pension
A defined benefit pension generally provides a pension based on a formula involving factors such as salary and years of service.
Defined contribution pension
A defined contribution plan generally involves contributions being made to an investment account, with the eventual retirement income depending partly on investment performance and the amount accumulated.
If you have an employer pension, obtain an estimate of the income it may provide at different retirement ages.
This can significantly change how much additional personal savings you need.
RRSPs AND RETIREMENT PLANNING
The Registered Retirement Savings Plan is one of the primary retirement savings tools in Canada.
Eligible RRSP contributions can generally be deducted from income.
Investment income and growth inside the RRSP are generally not taxed annually while the money remains inside the account.
Withdrawals are generally taxable.
This makes an RRSP particularly relevant to long-term retirement planning.
During your working years, you may contribute to an RRSP and potentially receive a tax deduction.
During retirement, withdrawals can become part of your taxable income.
The objective is not to make the money permanently tax-free.
Instead, the RRSP provides tax deferral and allows investment income to accumulate within the registered account.
RRSP TO RRIF
An RRSP cannot remain an RRSP indefinitely.
By the end of the year in which you turn 71, you generally need to convert your RRSP to a retirement income option such as a Registered Retirement Income Fund (RRIF), purchase an annuity or otherwise deal with the account according to the applicable rules.
A RRIF allows you to withdraw retirement income from the registered account.
RRIF withdrawals are generally taxable.
There are minimum annual withdrawal requirements once a RRIF is established, based on the applicable rules and your age.
This means retirement planning needs to consider not only how much you accumulate but also how you will eventually draw the money down.
TFSA AND RETIREMENT PLANNING
The Tax-Free Savings Account can also play an important role in retirement.
Unlike an RRSP, TFSA contributions are not tax-deductible.
However, eligible investment growth and withdrawals are generally tax-free.
This can make the TFSA useful for:
• Retirement savings
• Emergency reserves
• Large future expenses
• Flexible retirement income
• Supplementing taxable retirement income
TFSA withdrawals generally do not increase your taxable income.
This can make the TFSA particularly useful when managing retirement income from multiple sources.
For example, someone could potentially use RRSP or RRIF withdrawals for part of their income and use TFSA withdrawals for additional spending without creating the same type of taxable income.
The appropriate strategy depends on your individual circumstances.
RRSP VS. TFSA FOR RETIREMENT
RRSP:
• Contributions are generally tax-deductible
• Investment income generally grows tax-deferred
• Withdrawals are generally taxable
• Primarily designed for retirement savings
• Can provide tax deductions during working years
TFSA:
• Contributions are not tax-deductible
• Investment growth is generally tax-free
• Withdrawals are generally tax-free
• Can be used for retirement and other goals
• Provides flexible tax-free withdrawals
Both accounts can be useful.
The important question is not simply which account is better.
The question is how each account fits into your overall financial system.
HOW MUCH SHOULD YOU SAVE FOR RETIREMENT?
There is no universal percentage that every Canadian should save.
Your required savings rate depends on:
• Current age
• Desired retirement age
• Current income
• Expected retirement spending
• Existing investments
• CPP entitlement
• OAS eligibility
• Employer pension
• Debt
• Housing costs
• Investment returns
• Inflation
• Expected lifespan
Starting earlier generally gives your investments more time to compound.
For example, someone who starts saving at 25 has more years for investment growth than someone who starts at 45.
However, starting later does not mean retirement planning is impossible.
It means the required savings rate may be different.
The most useful approach is to calculate your expected retirement income and then identify the gap between that amount and your expected expenses.
THE RETIREMENT INCOME GAP
Suppose you estimate that you will need:
$50,000 per year
Now suppose your estimated retirement income is:
CPP: $16,000
OAS: $10,000
Employer pension: $14,000
Total guaranteed or pension income:
$40,000
Your estimated gap would be:
$50,000 – $40,000 = $10,000
Your personal savings and investments would then need to help cover that gap.
This is a simplified example.
Actual retirement planning needs to account for taxes, inflation, investment returns, benefit eligibility and changing expenses.
The important concept is:
Retirement need
minus
expected retirement income
equals
potential savings requirement.
INFLATION AND RETIREMENT
Inflation is one of the most important long-term retirement risks.
If something costs $1,000 today, it may cost considerably more several decades from now.
For example, assuming 2% annual inflation:
$1,000 today
could cost approximately:
$1,220 after 10 years
$1,486 after 20 years
$1,811 after 30 years
This is why retirement planning should focus on future purchasing power rather than simply today’s dollar amount.
Government benefits are adjusted according to their respective rules, but your personal savings also need to account for rising costs.
A retirement portfolio that appears large today may have substantially less purchasing power decades from now.
HOW LONG COULD RETIREMENT LAST?
Retirement may last 20, 25, 30 years or longer.
That means someone retiring at 65 should not necessarily plan as though their retirement will end at 75 or 80.
A longer retirement increases the importance of:
• Sustainable withdrawals
• Diversification
• Inflation protection
• Emergency savings
• Healthcare planning
• Housing costs
• Tax planning
• Longevity planning
The Government of Canada notes that Canadians who reach age 65 can expect many additional years of life, which is one reason retirement savings may need to support a long period. :chatgpt-content-reference{index=”5″}
BUILDING A RETIREMENT PORTFOLIO
A retirement portfolio can contain several asset classes.
Common investments include:
• Stocks
• ETFs
• Bonds
• GICs
• Cash
• Mutual funds
• Real estate investments
• Other diversified assets
The appropriate allocation depends on factors such as:
• Time horizon
• Risk tolerance
• Financial situation
• Retirement income needs
• Other sources of guaranteed income
Someone decades away from retirement may have a different investment allocation from someone who expects to begin withdrawals within a few years.
As retirement approaches, sequence-of-returns risk becomes increasingly important.
A significant market decline early in retirement can have a larger effect when someone is simultaneously withdrawing money from their portfolio.
This is one reason retirement planning is about both accumulation and withdrawal strategy.
DIVERSIFICATION IN RETIREMENT
Diversification means spreading investments across different assets rather than depending heavily on one company, sector or investment.
For example, a diversified portfolio might contain exposure to:
• Canadian equities
• U.S. equities
• International equities
• Bonds
• GICs
• Cash
The exact allocation is a personal decision.
Diversification cannot eliminate investment losses, but it can reduce dependence on the performance of a single investment or market segment.
CREATING RETIREMENT INCOME
Accumulating investments is only one part of retirement planning.
Eventually, you need to turn those assets into income.
Potential retirement income sources include:
• CPP
• OAS
• GIS
• Employer pension
• RRIF withdrawals
• RRSP withdrawals before conversion
• TFSA withdrawals
• Non-registered investment income
• GIC interest
• Bond interest
• Dividend income
• Annuity income
• Part-time employment
The goal is to coordinate these sources rather than treating every account independently.
THE IMPORTANCE OF TAX PLANNING
Retirement income can come from both taxable and non-taxable sources.
For example:
RRSP/RRIF withdrawals are generally taxable.
CPP is taxable income.
OAS is taxable income.
TFSA withdrawals are generally tax-free.
This difference can affect how much money you actually have available to spend.
Tax planning may therefore involve deciding:
• How much to withdraw from an RRSP or RRIF
• When to use TFSA savings
• When to start CPP
• When to start OAS
• How much income to realize from investments
• How to manage taxable investment income
• How to minimize unnecessary tax
This is an area where professional tax advice may be useful, especially for larger retirement portfolios.
CPP AND OAS DO NOT HAVE TO START AT THE SAME TIME
An important planning point is that CPP and OAS are separate government pensions.
You do not necessarily have to start them at the same time.
For example, someone could potentially begin OAS at 65 and delay CPP until 70, or choose different timing based on their circumstances.
The Government of Canada specifically notes that Canadians can claim these pensions at different times. :chatgpt-content-reference{index=”6″}
The decision should be based on your overall retirement plan rather than simply choosing the same starting age for every benefit.
WORKING AFTER AGE 65
Retirement does not necessarily mean stopping work completely.
Some Canadians continue working part-time or full-time after 65.
Working longer can provide several potential benefits:
• More employment income
• Additional investment contributions
• More time for investments to grow
• Potentially delayed CPP or OAS
• More time to reduce debt
• More time to build retirement savings
If you work while receiving CPP and are under 70, you may continue making CPP contributions under the applicable rules and may qualify for a CPP Post-Retirement Benefit.
Once you are at least 65 but under 70, you may be able to elect to stop contributing to CPP while working. :chatgpt-content-reference{index=”7″}
The details depend on your employment circumstances.
A SIMPLE RETIREMENT PLAN FOR BEGINNERS
If retirement planning feels complicated, start with these steps.
Step 1: Choose a target retirement age
You do not need an exact date.
Start with a target such as:
60
65
67
70
You can change it later.
Step 2: Estimate your retirement spending
Create a simple annual estimate.
For example:
Housing: $18,000
Food: $7,000
Transportation: $4,000
Utilities: $4,000
Insurance: $3,000
Travel and entertainment: $5,000
Other: $4,000
Estimated total:
$45,000 per year
Step 3: Check your CPP estimate
Review your CPP contribution record through My Service Canada Account.
Step 4: Estimate OAS
Consider your expected OAS eligibility and residence history.
Step 5: List employer pensions
Include any defined benefit or defined contribution plans.
Step 6: Calculate your personal savings
List:
• RRSP
• TFSA
• Non-registered investments
• GICs
• Cash
• Other retirement assets
Step 7: Calculate the potential income gap
Compare your expected retirement expenses with expected pension and investment income.
Step 8: Increase savings gradually
If your retirement gap is large, consider increasing your savings rate over time.
Step 9: Review the plan annually
Your income, expenses, investments and retirement date can all change.
A RETIREMENT PLANNING EXAMPLE
Imagine David is 45.
He wants to retire at 65.
He estimates that he will need approximately $50,000 per year in retirement.
He currently has:
RRSP: $200,000
TFSA: $75,000
Non-registered investments: $25,000
Total investments:
$300,000
He also expects to receive CPP and OAS in retirement.
Instead of assuming that his current $300,000 is enough, David can build a retirement projection.
He could estimate:
• Future contributions
• Investment growth
• Inflation
• CPP
• OAS
• Retirement spending
• Retirement age
• CPP start age
• OAS start age
• RRSP/RRIF withdrawals
He can then identify whether there is a projected income gap.
This is much more useful than simply choosing an arbitrary retirement savings target.
THE CANADIAN RETIREMENT INCOME CALCULATOR
The Government of Canada provides a Canadian Retirement Income Calculator that allows you to estimate retirement income using information such as:
• CPP
• OAS
• Employer pensions
• RRSPs
• TFSAs
• Other savings and income
The calculator allows users to change assumptions such as retirement age, savings and pension start dates to compare different scenarios.
The results are estimates rather than guarantees.
It is a useful starting point for building a retirement plan. :chatgpt-content-reference{index=”8″}
COMMON RETIREMENT PLANNING MISTAKES
1. Waiting too long to start
Starting earlier generally gives your savings more time to compound.
2. Focusing only on the investment balance
A $1 million portfolio does not automatically tell you how much sustainable retirement income it can provide.
3. Ignoring inflation
Future expenses are likely to be higher than today’s expenses.
4. Forgetting taxes
RRSP and RRIF withdrawals are generally taxable.
5. Treating CPP and OAS as identical
They are separate government programs with different eligibility and timing rules.
6. Assuming CPP should automatically start at 65
CPP can generally start between 60 and 70.
7. Assuming OAS must start at 65
OAS can generally be delayed until age 70.
8. Ignoring healthcare and other unexpected costs
Retirement budgets need room for expenses that are difficult to predict.
9. Taking too much investment risk
Large losses near or during retirement can affect your ability to generate income.
10. Keeping too much money in cash for decades
Cash can provide stability, but inflation can reduce purchasing power over long periods.
11. Forgetting about RRIF conversion
RRSP planning eventually needs to account for the transition to a RRIF or another retirement income option.
12. Having no withdrawal strategy
Saving money is only half of the retirement problem.
You also need a plan for turning assets into income.
RETIREMENT PLANNING CHECKLIST
Use this checklist as a starting point.
□ Choose a target retirement age
□ Estimate annual retirement expenses
□ Review your CPP contribution record
□ Estimate your OAS
□ Check whether you may qualify for GIS
□ Review employer pension benefits
□ Calculate RRSP savings
□ Calculate TFSA savings
□ Calculate non-registered investments
□ Review your mortgage and other debt
□ Estimate future contributions
□ Consider inflation
□ Review your investment allocation
□ Consider when to start CPP
□ Consider when to start OAS
□ Plan for RRSP-to-RRIF conversion
□ Develop a retirement withdrawal strategy
□ Review your plan annually
RETIREMENT PLANNING FOR DIFFERENT AGES
In your 20s
Focus on:
• Building good financial habits
• Managing high-interest debt
• Establishing an emergency fund
• Taking advantage of employer plans
• Starting long-term investing
• Learning how registered accounts work
In your 30s
Focus on:
• Increasing savings
• Building investment assets
• Managing housing costs
• Using RRSPs and TFSAs strategically
• Protecting your income
• Reviewing retirement projections
In your 40s
Focus on:
• Increasing your retirement savings rate
• Reviewing your projected retirement income
• Paying down expensive debt
• Reviewing your investment allocation
• Estimating CPP and OAS
• Identifying retirement income gaps
In your 50s
Focus on:
• Refining your retirement target
• Increasing retirement savings where possible
• Reviewing investment risk
• Understanding CPP and OAS timing
• Planning for taxes
• Reviewing employer pension options
In your 60s
Focus on:
• Deciding when to retire
• Coordinating CPP and OAS
• Managing RRSP withdrawals
• Planning the RRSP-to-RRIF transition
• Creating a sustainable withdrawal strategy
• Maintaining appropriate emergency savings
FREQUENTLY ASKED QUESTIONS
What is the best age to retire in Canada?
There is no single retirement age that works for everyone. The appropriate age depends on your financial resources, desired lifestyle, health, employment situation and expected retirement income.
When can I start CPP?
CPP can generally begin as early as age 60 or as late as age 70. The standard age is 65. Starting earlier reduces the monthly payment, while delaying after 65 increases it. :chatgpt-content-reference{index=”9″}
When can I start OAS?
OAS can generally begin at age 65 and can be delayed until age 70. Delaying increases the monthly payment by 0.6% per month, up to 36% at age 70. :chatgpt-content-reference{index=”10″}
Should I take CPP at 60 or 65?
There is no universal answer. Starting at 60 provides income earlier but results in a permanently smaller monthly pension. Waiting increases the monthly payment. Your financial circumstances and retirement plan should determine the decision.
Should I delay CPP until 70?
Delaying CPP increases the monthly pension, but you need sufficient income from other sources while waiting. The appropriate choice depends on your circumstances.
Is OAS taxable?
Yes. OAS is taxable income.
Can I receive CPP and OAS at the same time?
Yes. CPP and OAS are separate government pensions and can be received at the same time.
Can I work after starting CPP?
Yes. Canadians can work while receiving CPP. If you are under 70 and continue making CPP contributions, you may qualify for a CPP Post-Retirement Benefit. :chatgpt-content-reference{index=”11″}
Is a TFSA useful for retirement?
Yes. TFSA investment growth and qualifying withdrawals are generally tax-free, making the account useful for retirement savings and flexible retirement income.
Is an RRSP useful for retirement?
Yes. Eligible contributions can generally be deducted from income, while investment growth is generally tax-deferred inside the account. Withdrawals are generally taxable.
What happens to an RRSP at age 71?
An RRSP generally must mature by the end of the year you turn 71. Common options include converting it to a RRIF or using the proceeds to purchase an annuity, subject to the applicable rules.
How much money do I need to retire?
There is no universal number. Your required amount depends on your retirement spending, pension income, investment assets, retirement age, taxes, inflation and expected lifespan.
How often should I review my retirement plan?
At least annually is a reasonable starting point. You should also review it when there is a major change in income, expenses, investments, employment, family circumstances or retirement timing.
FINAL THOUGHTS
Retirement planning in Canada is a long-term process.
You do not need to have a perfect plan today.
Start by understanding the major pieces:
CPP
OAS
GIS
Employer pensions
RRSPs
RRIFs
TFSAs
Personal investments
Cash savings
Then estimate how much you expect to spend in retirement.
Once you understand your expected income and expenses, you can identify the gap that your personal savings may need to cover.
The earlier you begin, the more time you have to save and invest.
But even if retirement is relatively close, a structured plan can help you make better decisions about savings, investments, government pensions and withdrawals.
The most important step is to turn retirement from a vague future goal into a measurable financial plan.
GOVERNMENT RESOURCES
Canadian Retirement Income Calculator:
https://www.canada.ca/en/services/benefits/publicpensions/cpp/retirement-income-calculator.html
Canada Pension Plan — When to start:
https://www.canada.ca/en/services/benefits/publicpensions/cpp/when-start.html
Old Age Security — When to start:
https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/when-start.html
Government of Canada — Learn and plan for your retirement:
https://www.canada.ca/en/services/life-events/retirement.html
FINANCIAL DISCLAIMER
This article is provided for general educational and informational purposes only. It is not financial, investment, tax, legal or accounting advice and does not take into account your individual circumstances.
Canadian tax rules, government benefit programs, contribution limits and retirement regulations can change. Government benefit amounts may also change over time.
Always verify current information with the Government of Canada, the Canada Revenue Agency, your financial institution or a qualified professional before making financial decisions.