Retirement at 65 with only $500K saved? How to generate an additional $2K/month on top of OAS and CPP

Financial experts generally suggest most Canadians will need around 60% to 80% of their pre-retirement income to maintain a similar standard of living once they exit the workforce (3). In Darren’s case, that works out to about $4,667 a month.

Darren believes he can make do with less. He’s debt-free, lives modestly, is relatively healthy and expects to receive nearly $1,700 a month from Old Age Security (OAS) and Canada Pension Plan (CPP). He plans to supplement his government benefits with roughly $2,000 from his savings each month, which should be sufficient for a comfortable retirement.

The issue is where that additional $2,000 will come from. Using the 4% rule, a commonly applied guideline for retirement withdrawals, Darren’s $500,000 savings would provide him with about $1,667 a month. That’s not enough, so he needs to find alternatives.

Here are four options he could consider.

Option 1: Delay retirement

If Darren can work longer, he should think seriously about doing so. Canadian data shows that more older workers are delaying retirement, either by choice or out of necessity. For example, in 2023, approximately 15% of people aged 65 and older were still in the workforce — an all-time high (4).

It isn’t always a popular choice, but working longer can reduce the amount you need to save.

Additionally, if you max out your workplace retirement account contributions, it’ll make a huge difference, especially if your employer matches them. Typical employer contribution-matching can range between 3% and 7% of an employee’s salary. In 2025, Canadians can contribute as much as 18% of their income to an RRSP up to $33,810.

If Darren’s employer offers a group RRSP, he could potentially double part of his savings. Or, he could open a no-fee RRSP high-interest savings account with EQ Bank. Since both his contributions and investment growth would be tax-deferred, he could reduce his taxable income now, grow his savings and only pay tax when he withdraws at his retirement. If this seems like a good option for you as well, you can get up to $200 cash when you add new deposits to your EQ Bank RRSP account, but only for a limited time.

Additionally, he could contribute up to $7,000 into a Tax-Free Savings Account (TFSA) for tax-free growth on his deposits. The combined accounts can significantly boost his retirement savings over time, even more so if he consistently invests through his final working years and takes full advantage of his employer contribution match.

Working longer also means larger government benefits. Both OAS and CPP will reward you with higher monthly income the longer you wait to claim. So, if Darren delays receiving his OAS, his payments will increase 0.6% for every month — or 7.2% every year — he waits past age 65, up to a maximum of 36% more at age 70.

Likewise, CPP benefits increase 0.7% every month — or 8.4% each year — he delays after 65, up to a maximum of 42% more if he waits until he’s 70.

Option 2: Income investing

One alternative to gradually drawing down retirement savings is leaving the balance invested in income-generating assets while drawing only a part of it. The beauty of this strategy is that you can keep your money fully invested and receive payments. But there are trade-offs.

For example, if Darren has $500,000 invested and wants to receive $2,000 monthly, he’ll need an annual yield of 4.8% to maintain the balance. The safest way to do this is through government bonds, which yield far less and don’t keep up with inflation.

However, higher-yield options exist. Some Canadian dividend stocks yield up to 4.5% — but they come with higher risk and payout volatility.

If Darren wants to do some trading himself, he might want to consider Questrade, one of Canada’s largest independent brokerages. Questrade has long been one of the top choices for DIY investors, particularly now that it has announced commission-free trades on stocks and ETFs, as well as a $0 minimum to open an account. Even better, if you sign up today using code MONEY26, you can get $50 in cash back.

A less all-in strategy would be to use a hybrid approach: aim for a moderate investment yield and use savings, such as those from a high-interest savings account, to bridge any gaps.

However, many banks offer you a high promotional rate that expires after a short period, typically after 90 days. Neo Financial takes the opposite approach: they reward you for staying committed to your goals.

With a Neo Savings account, your money works harder as your balance grows.✢

Unlock a very competitive 3% interest rate once your combined balance hits $20,000. But even before you reach that milestone, you’ll earn a solid 2.25% right out of the gate. You can even open a joint account to combine balances to earn the higher rate.

With no monthly fees to eat into your earnings and with your deposits eligible for CDIC protection, it’s an account designed to help you reach your next financial milestone faster, not just provide a temporary perk.

For more details, including how interest is calculated, see here.

By following this strategy, Darren keeps more money invested, accepts a slightly lower yield and adjusts his withdrawals over time in tandem with cost-of-living and inflation changes to sustain his retirement nest egg over time — especially since new research suggests 3.9% as the safe withdrawal rate for new Canadian retirees in 2025 (5).