Canadians with $357,000 saved at 65 face a monthly shortfall — here's how to turn savings into income

To help, here’s how to turn yours into a monthly income you can count on.

Comparing your savings to an ‘average’ doesn’t work

According to Statistics Canada, the average Canadian 65 or older had an average of $248,700 saved in RRSPs, RRIFs, and LIRAs. Average retirement savings increased to $436,600 once employer pensions were factored in.

The problem with averages is that they flatten enormous differences by age, region and whether a household has an employer pension. Treating any single Statistics Canada figure as a pass or fail line for your own retirement is more likely to mislead than help. Even if a pre-retiree Canadian had just over $350K saved and no workplace pension plan, they could still be in a good spot if they hold no mortgage and can keep ongoing living costs to a minimum.

Turn your savings into a monthly income

A more useful and helpful exercise to estimate how much monthly income, on average, your savings nest egg can produce. Using this calculation, you can compare your retirement income with your retirement expenses — and get a more accurate picture as to whether you can retire comfortably.

One simple way to calculate your monthly income is to use the 4% rule.

The 4% rule is a rule-of-thumb guideline for how much you can withdraw from a retirement portfolio each year without running out of money over a typical retirement.

To illustrate, let’s assume John withdraws 4% from his total portfolio in the first year of retirement. Every year after that, he withdraws that same dollar amount, adjusted upward for inflation — not 4% of the new balance, but the original 4% figure escalated over time.

Using John’s nest egg, here are the calculations:

• 4% of $357,000 is $14,280 in year one, for a monthly income of $1,190 (before adding in CPP and OAS)
• If inflation runs 3% the next year, John would withdraw $14,708 (and that was calculated by multiplying the original 4% sum of $14,280 by 1.03 (representing the 3% inflation) for a sum of $14,708)
• Repeat for each year

That means John would run this calculation for each annual withdrawal sum, regardless of how the portfolio performed.

Compare against the average household expenditure

But the real question is whether John — or any pre-retiree — will have enough monthly income to cover expenses?

For context, Statistics Canada shows that Canadian households with residents aged 65 or older spent an average of $40,630 per year on core necessities — food, shelter, household operations (utilities/communications), transportation and health care — or about $3,386 a month.

In John’s case, he would be in a shortfall of $2,196 per month if he relied just on income produced by his retirement savings.

If he were to add in CPP and OAS, based on the average monthly disbursement according to Statistics Canada, he could expect another $1,677 per month — reducing his monthly shortfall to $519.

In this scenario, John still falls short of covering his core monthly expenses, even after his retirement withdrawals and government benefits are combined. That gap doesn’t mean $357,000 is the wrong number to retire on — it means he’ll have to do a bit more work on how to retire and live comfortably without running out of money.

Thankfully, he has two options to consider:

• When to start CPP and OAS
• How much he spends in retirement

Calculating what matters most in retirement

Two factors matter almost as much as how much you’ve managed to save for retirement: what age you start to collect government retirement income and how much you spend each month in retirement.

Delaying CPP past 65 increases the payment by 8.4% for every year you wait, up to age 70. Delaying OAS adds 7.2% a year over the same window.

For a retiree who doesn’t need the income right away, waiting even two or three years can permanently raise a guaranteed, inflation-indexed income stream — something no market portfolio promises.

To help delay when you take CPP and OAS, retirees can examine the spending side of the equation, with three obvious options: (1) downsize; (2) cut spending; (3) continue earning income (from part-time or contract work).

How these calculations impact your retirement

Based on John’s $519 per month shortfall, here is the impact of each factor. Keep in mind that all figures are illustrative and are meant only as a way to help explain how and why these factors can impact retirement earnings and savings.

Option 1: Downsize

In this hypothetical, John sells his paid-off home for $650,000 and buys a smaller condo for $450,000, freeing up $200,000 in home equity.

Based on this decision, two things happen to his monthly budget:

1. The freed-up $200,000, invested and drawn down using the same 4% guideline, adds roughly $667 a month in income ($200,000 × 4% ÷ 12)
2. Shelter costs drop, too — lower property tax, insurance and maintenance on a smaller condo could plausibly save another $200 to $300 a month, since shelter is the single largest necessity category in the StatsCan data at $15,703 per year for the average 65+ household

The combined effect of these savings would produce roughly $867 to $967 per month of extra income, enough to erase the shortfall and leave John a decent spending cushion.

Option 2: Cut spending