Determine a retirement budget
Having a clear spending plan in place is key now that your ‘accumulation years’ are over. Taking the time to assess your expenses can help ease your fears.
One simple task you can do right now is to track every penny you spend, and on what. That way, you can see how much money you might need for the basics and anticipate any costs that might go down or up.
For example, you plan to downsize in a few years, so your housing costs will go down. Or, you don’t travel much now, but want to in the future, so that cost will go up.
Having a better understanding of what you’ll spend during retirement will help you to see how you can safely withdraw from your retirement accounts.
Using the 4% rule — where you withdraw 4% of your portfolio in your first year of retirement, then adjust the amount for inflation in the years that follow — can be a useful guideline. However, it might not be the best strategy for you.
Instead, finding a way to get a steady source of income to cover the essentials may be the way to go.
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The 2024 MassMutual Retirement Happiness Study found that the longer someone is retired, the less fear they have about financial uncertainty.
While there weren’t indicators as to why this may be, having a solid financial plan could help you feel more comfortable spending more.
You can do so by establishing your essential costs and making sure you have fixed income sources to cover them. Then, you look at what you have leftover to spend as your fun money.
You have several options to choose from when it comes to fixed income sources. Most Canadians will qualify for the Canada Pension Plan (CPP) and/or Old Age Secuirty (OAS). There are also fixed-income securities, such as municipal bonds, whereby you’re paid interest at regular intervals.
Annuities are another popular option. You invest in or purchase a contract backed by an insurance company. You’re paid regularly, for a specified amount of time, based on premiums paid or a lump sum payment you’ve made.
Once you’ve figured out your baseline spending — what you need to pay for housing, transportation, health care and food — you can make a plan on getting it from fixed income sources. Then, determine the amount you can withdraw safely from other sources to spend on extras, like travel.
Work with a fee-only advisor
A financial advisor can help you to assess your needs and to figure how much you can safely spend during retirement.
As you plan for retirement, consider consulting a fee-only advisor — you pay a set rate for their services but not commissions on products they sell you. Then, meeting with them once or twice a year after retiring may be enough to make sure you’re still on track.
Sources
1. Spring Financial: The Average Savings by Age in Canada - How Do You Compare? (May 5, 2025)
2. BMO: BMO Retirement Survey: Over Three Quarters of Canadians Worry They Will Not Have Enough Retirement Savings Amid Inflation (Feb 12, 2025)
3. MassMutual: 2024 MassMutual Retirement Happiness Study
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