If you are a Canadian citizen who is retired or planning to retire soon, you probably have some questions when it comes to your income prospects. Knowing more about your income potential in retirement could help you plan out your latter years with assurance and security. Of course, there will be scenarios or eventualities you may not be able to foresee, but having even a modest amount of control and planning can set you up for success as a retiree. Whether you’re planning to retire soon or are currently retired, learning about the average Canadian income and related expenses can help you create a better, more comprehensive plan for your golden years.
The Three Pillars of Retirement Income
For starters, it’s helpful to know the main sources of Canadian retirees’ incomes. According to the Government of Canada’s website, there are three “pillars” of retiree income in the country:
The Canada Pension Plan (CPP) or Quebec Pension Plan (QPP)
The Old Age Security (OAS)
Employer-sponsored pension plans and personal savings and investments
According to the site, the CPP or QPP, “[P]rovides monthly payments to people who contributed to the plans during their working years.” The amount of income you get every month depends on the length of time you contributed to the plan, how much you contributed, and the age you start receiving your retirement benefits.
You can elect to draw down your pension payments between 60 and 70 years of age. Waiting later to start getting your benefits means you’ll get a higher monthly payment. If you get your benefits earlier, then your monthly payment will be lower.
The OAS pension benefit is for Canadians age 65 or older. You are eligible for these benefits if you’re still working or have never worked. Also, you don’t need to contribute to receive benefits from this benefit category. As long as you’ve lived in Canada for the last 10 years, you are eligible to receive the OAS benefit.
Other possible sources of income include the Guaranteed Income Supplement (GIS), a monthly non-taxable benefit to Old Age Security (OAS) pension for low-income Canadians. There is also the Allowance benefit for spouses or common-law partners of a GIS recipient.
Also, there are employer-sponsored retirement and pension plans like a Group Registered Retirement Savings Plan (Group RRSP) or a Registered Pension Plan (RPP). Personal retirement income could come from RRSPs and Tax-Free Savings Accounts, both of which could be composed of different types of savings or investing products. You could also earn income from stocks, bonds, personal savings accounts, and other non-registered sources.
The average income of Canadian retirees
Now that you know all the possible sources of income for Canadian retirees, you might be interested in how much income, on average, retirees bring in per year. According to Statistics Canada, the median income (used instead of average to filter out effects of high-income earners) for senior households, where the highest income earner is 65 years old or more, is $65,300. This figure is pre-tax income. The after-tax median income is $61,200.
This income comes from a variety of sources, like the ones mentioned. Here is how that number breaks down:
Wages, salaries and commissions- 27%
Dividend and interest income- 3%
CPP- 11%
RRSP- 13%
Self employment income- 13%
OAS- 27%
Private Pension- 1%
Other- 6%
How to figure out retirement spending
You can create your own retirement budget by looking at your current spending along with spending averages for other Canadian retirees. If you aren’t yet retired, use your current spending as a baseline for your retirement budget. Common retirement expenses could include increased car insurance, household help, healthcare costs, income taxes, and insurance premiums. On the other side, you may not be paying as much money for expenses related to housing (your mortgage might be paid off) or raising children. So, in some areas, you will see expenses increase, while in others, you may see your expenses decrease.
According to a report on the Statistics Canada website, Consumption Patterns Among Aging Canadians, people in their early 70s spend roughly 43% of their income on housing needs, 28% on food clothing and care, 17% on transportation, and 12% in the “other” category. For those in their early 60s, the numbers are similar: 40% of income is spent on housing needs, 28% on food clothing and care, 17% on transportation, and 15% in the “other” category. Of course, retirement spending is dependent on a large number of factors for each individual. These estimates can, at minimum, give you a ballpark of what to expect in terms of spending for your retirement years.
If you are not yet retired but want to know what your budget might look like as a retiree, it might be helpful to speak with friends who are retired to see how they are spending money in retirement. You might be surprised how much you could spend on your grandchildren, traveling, hobbies, or home improvement projects as your time gets freed up in retirement. Finally, if you are concerned about having enough money in retirement, there’s still plenty you can do about getting on track for your retirement planning.
The best place to start is figuring out how much you’ll need to retire and what your expected sources of income might be. Then, take action to invest for your future with more intention than ever. This might include putting more money in your investment accounts each month, being a little more aggressive with your investing strategy or even diversifying your portfolio with different asset classes.
There are many roads to one place, but the key is starting somewhere. Do as much research as you can, then take action. Don’t let “analysis paralysis” make you put off important decisions about your retirement planning and savings. When it comes to investing, time is money. The clock is ticking, so it’s best to get started as soon as possible.
