How much money do you REALLY need to retire?

It all depends on your lifestyle expectations. The short answer is that a Canadian with very modest needs can get by without saving a penny. The catch is you’ll have to wait till age 65, at which quite generous Government pensions like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) kick in.

The bad news is that if you have expensive tastes and have no employer pension, you’ll need to be a millionaire, or even a multi-millionaire to retire with the kind of lifestyle you enjoyed when working.

Those who have toiled at one or two employers with Defined Benefit pension plans can enjoy a more lavish middle-class lifestyle strictly on those pensions, CPP and perhaps some OAS. Again, if you don’t want to travel in luxury or eat out in expensive restaurants, you may not need to save much extra, although of course the more you sock away in an RRSP and ideally a TFSA, the better.

If you’re reading this, odds are you’re still working, have expectations for a more lavish retirement lifestyle and perhaps are not fortunate enough to have a DB pension, or switched jobs too often for a single one to really “take.” If you earned a decent salary along the way hopefully you maxed out your RRSP throughout, as well as your TFSA since 2009.

Marie Engen, the fee-only financial planner who is the “Boomer” half of the Boomer & Echo website [www.] devoted a recent blog to the three lifestyle categories described above: the barebones low-budget scenario, a middle-class retirement, and finally a “Deluxe” Retirement that (in the absence of DB pensions) could require upwards of $2.2 million.

Barebones Retirement

Canada is quite generous to those who have been unable to save for their old age (and I know a few people like this). If you’re a couple both aged 65, together you would get just over $32,000 a year from the Canada Pension Plan ($640.23 a month), Old Age Security and the Guaranteed Income Supplement, Engen estimates. A single 65-year-old would get slightly over $19,000. To be sure, this is a frugal lifestyle: perhaps renting an apartment, running no vehicles, eating in, traveling rarely and frequenting libraries and absorbing whatever “free” culture you can find.

Middle-class Retirement

If you want to live in your own home, drive nice cars, travel occasionally and eat out and imbibe culture, odds are you’ll want a little more than the barebones Retirement allows. BMO estimates median spending by a couple over 65 is around $57,600 a year, while average spending is between $42,000 and $72,000, assuming no consumer or mortgage debt. Subtracting the $32,000 from CPP and OAS, and assuming no employer pension, Engen calculates you’d need to save (RRSPs/TFSAs ideally) about $250,000 for each extra $10,000 in annual spending. So if you wanted $20,000 more than the government pensions provide, for a total $52,000 income, you’d need a $500,000 nest egg. For $40,000 more, for a total $72,000 income, you’d need a cool million dollars. A single retiree would need between $275,000 and $775,000.

Deluxe Retirement

Not lavish enough for you? Perhaps you want luxury cars and a vacation property, and more frequent travel to more exotic destinations. Welcome to the Deluxe Retirement, which clearly will need a large nest egg to generate, again assuming no employer pension plans. If you want to generate the $100,000 a year that many dual-income professional couples enjoyed in their full-time working years, then you’re going to need a nest egg of well over a million, and possibly two or three times that much. The problem here is that the more you earn, the less the Government will be chipping in: not only won’t middle-class retirees qualify for the GIS, but in the Deluxe bracket, many will also find their OAS benefits clawed back partly or completely.

There’s no escaping the fact that in the deluxe retirement model, one of your biggest expenses will be taxes. If that seems unfair and you want to maximize your leisure time, try living on a lot less and emulating the frugal barebones or middle-class retirees.

Jonathan Chevreau founded the Financial Independence Hub and can be reached at