Conversations across Canada have recently focused on retirement and growing financial unease, especially among those nearing their golden years. With the ever-increasing cost of living and persistent inflation, day-to-day budgets have become a moving target.
Critical questions arise about minimum income adequacy just to cover basic necessities. Is there an exact price tag to achieve a desired lifestyle, even a truly comfortable retirement? Many Canadians are asking this today.
An imagined or real number?
Most people have a figure in mind, but the most recent BMO annual Retirement Survey says the average retirement savings target is $1,700,000. About 36% of the 1,500 adult Canadians surveyed feel this amount is out of reach, and 14% say they plan never to retire.
How much you save is a personal decision. While 10% is often considered the standard benchmark, only 21% of poll respondents save more than 10% of their income for retirement.
Margaret Leong, senior investment counsellor and portfolio manager at BMO Private Wealth, said that saving 10% of income for retirement is great for someone in their 20s and contributing to a Registered Retirement Savings Plan (RRSP). She added that as earnings increase in the prime working years, savings will grow as well.
Psychological yardstick
The $1,700,000 goal may seem daunting, but it isn’t a firm requirement. In reality, the required nest egg depends on several personal factors, including your saving capacity, desired lifestyle, and even life expectancy.
Moreover, most Canadians have a baseline foundation and lifetime income through the Canada Pension Plan (CPP) and Old Age Security (OAS). With these guaranteed benefits, you may need far less than the sentiment-based figure to retire comfortably.
Mind and fill the gap
Many financial planners target an annual retirement income of $50,000 to $60,000 for an individual retiree and $80,000 to $90,000 for a retired couple. Currently, the combined annual payout from average Canada Pension Plan (CPP) and maximum Old Age Security (OAS) benefits at age 65 is $19,450 per retiree, or $38,900 for a couple.
This leaves an annual shortfall of about $30,000 for an individual to $50,000 for a couple. Future retirees can build an income-generating portfolio to fill the income gap using the RRSP and Tax-Free Savings Account (TFSA). The key is selecting the right underlying assets, particularly blue-chip investments.
RRSP or TFSA income stock
To fill a $30,000 annual income gap, retirees need a strong anchor holding like Brookfield Renewable Partners (TSX: BEP.UN). At $39.89 per share, this top-tier utility stock pays an attractive 5.5% dividend backed by inflation-linked power purchase agreements (PPAs), with target annual distribution growth of 5% to 9%.
The nearly $14 billion company owns and operates renewable energy assets globally, including utility-scale solar, hydroelectric, and onshore/offshore wind. Brookfield Renewable generates steady revenue primarily through long-term PPAs with utilities and corporate buyers.
You would need roughly $545,000 in capital to generate $30,000 in passive income annually, significantly less than the unofficial $1.7 million yardstick. Also, an initial $30,000 position inside an RRSP or TFSA can grow to over $248,000 in 20 years, including dividend reinvestment (generating $18,700 annually). You’d have a self-funding engine to bridge the pension shortfall.
The takeaway
Canadians can set personal savings goals, but the challenge lies in turning those targets into reality. That is the real work of retirement planning and building a comfortable lifestyle. You can systematically fill the income gap without actually needing a multi-million-dollar nest egg.