Can I retire at 55 in Canada?

How much money do I need to retire at 55 in Canada?

Will you have enough to retire? According to a recent BMO report, Canadians think they should aim for at least $1.7 million to retire, and yet only 44% are confident they will have the needed money for retirement.

A common rule of thumb is that you'll need about 80% of your pre-retirement income (though some experts suggest you’ll only need about 70% of your pre-retirement income) to maintain your standard of living in retirement. So, if you're presently making $100,000 per year, you'll need roughly $80,000 per year for a comfortable retirement.

Which brings us to a key factor to consider: How important is it to you to maintain your standard of living? Most Canadians likely want to maintain, at the very least, the same standard of living they had pre-retirement during their post-retirement. In fact, if you want to spend more time on expensive hobbies like travel or golfing regularly, you may even need to save more of your pre-retirement income. On the other hand, if you plan to downsize your home and live a simpler lifestyle, you might be able to get by with less than 70% or 80% of your pre-retirement income.

Keep in mind that when pondering the question “can I retire at 55 in Canada?” it’s essential to factor in how much income you can rely on, not just from an employment pension or your savings. Qualifying Canadians can also rely on several sources of government income during retirement. These usually include:

• Government pension plans: As long as you’ve paid into the Canada Pension Plan, you can start receiving payments as early as 60 (though you can also delay payments until your turn 70). CPP is a taxable benefit.
• Old Age Security (OAS): A taxable benefit that also starts at the age 65 but can likewise be put off until you turn 70. The amount receivable can be clawed back if your yearly income exceeds a government set benchmark. For example, in 2024 your OAS payment amount will be reduced if you earn $90,997.20 or more.
• Guaranteed Income Supplement (GIS): A non-taxable benefit designed to help OAS recipients who earn a lower-than-average income.

Overall, there is no one-size-fits-all figure for retirement savings that will work for everyone. How much you’ll require to retire successfully will depend on your unique circumstances, including things like:

• Lifestyle: Do you plan to pursue expensive hobbies or instead try to reduce your costs during retirement?
• Travel: If you plan to do lots of travel, you’ll need extra funds unless your travel centres mainly around camping
• Health: if you have a chronic condition such that you may need home visits from a healthcare worker or to renovate your home to make it more accessible, you may need a larger income in retirement
• The average cost of living in your area: You’ll likely need to save up more money if you live in a city (due to the cost of housing, for example) versus a rural area
• Mortgage: Having a paid-off mortgage can significantly reduce your retirement expenses, while ongoing monthly mortgage payments will need to be factored into your budget
• Estate plans: Do you have dependents you want to ensure are taken care of financially after you pass?
• Inflation: You'll also need to factor in inflation

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FIRE movement

The FIRE (Financial independence, retire early) movement is all about retiring as early as possible to enjoy life to the fullest. To reach this goal, adherents to the FIRE philosophy generally focus on maximizing their savings and minimizing their spending. The feasibility of this approach depends on things like your income (after all, if you’re making little over minimum wage in a city with expensive housing costs, you’re unlikely to be able to put significant savings aside no matter how disciplined you are), monthly expenses and investment strategy.

Phased or full retirement?

Do you want to jump straight into retirement at 55 or transition into it gradually? Phased retirement is when you reduce your work hours slowly over time, and it can be a good way to comfortably ease into retirement while still earning some income. It will also give you a chance to better assess what your standard of living may be like when not holding down a full-time job and more realistically understand what amount you’ll need to save to live comfortably.

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Work part-time after you retire?

If you want to retire at 55 in Canada, another option worth considering is to pursue part-time work. While it may at first seem like a burden to rely on part-time employment to have sufficient income, a job can provide many benefits aside from extra money,  including a sense of purpose, daily mental stimulation and social interaction.

Early vs. late retirement: Pros and cons

Whether or not you retire early or later will depend on your own unique circumstances and financial situation, but here are some pros and cons to consider:

Pros/Cons of early retirement

Pros: More time to reap the rewards of retirement and pursue your hobbies.

Cons: You won’t have as much time to save up money for retirement and may receive a reduced pension from your employer.

Pro/Cons of late retirement:

Pros: you’ll have more opportunity to build up a nest egg and max out your pension (if your employer offers one)

Cons: Less time to take advantage of retirement, which is an especially significant factor if you don’t like your job.

Sources

1. BMO: BMO Annual Retirement Study: Canadians Believe They Need $1.7M to Retire - Up 20 Per Cent from 2020