Episode 129: Are You Saving/Investing Enough? How To Plan For Your Ideal Canadian Retirement Income

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Ever wondered how your current savings stack up against Canada’s surprisingly low average retirement income? Or maybe you’re shocked by Canada’s average retirement income, yet not sure if you’re on track to beat them?

If you’re worried your current savings won’t support your ideal lifestyle, you’re not alone. Many Canadians find themselves uncertain about whether they’re on track to meet their long-term financial goals. This episode explores why relying on average retirement income stats can be misleading and shows you a clearer path to determining what you really need.

By understanding how your savings rate shapes your future spending power, you’ll discover a practical framework to estimate your retirement income more accurately. No more guessing games—this conversation is packed with insights to help you confidently decide how much you’ll need and how to get there.

• Uncover how saving a specific percentage of your income changes your retirement target.
• See why your current lifestyle doesn’t necessarily dictate your future spending.
• Learn how to build a margin of safety into your plan for peace of mind.

Click “Play” now to hear real-life strategies that will help you gauge your retirement income needs and spark a more secure financial future!

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Dig into our Ultimate Investment Book List
• Read Lee Lowell’s book, Get Rich With Options.
• Interested in opening an Interactive Brokers Trading Account? Use our referral link here so you get a welcome bonus.
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX.
• Looking for a new mortgage, renewal, refinance, or HELOC? Reach out to Jon to share some options.

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Planning your retirement income requires a focused savings rate, sound financial planning, and effective retirement strategies that harness the power of compounding. By prioritizing personal finance fundamentals such as budgeting, investment strategies like active or passive investing, and wealth creation methods like options trading, you can build a strong margin of safety while mitigating tax implications and capital gains. Whether you’re a business owner or following the financial independence, retire early (F.I.R.E.) movement, consistent financial education and robust retirement planning foster net worth growth, passive income, and ongoing wealth building for greater financial security. A balanced approach to wealth optimization leverages compound interest and an appropriate rate of return, shaping a path to early retirement over your chosen time horizon.

Transcript:

Jon Orr: The average income in retirement right now in Canada, 2024 stats, Canada says a couple or a family. So these are seniors is 74,200. That is the average income for a family in retirement individuals. It’s 33,600. This is the average retirement income. And in this episode, we want to talk about this to answer some questions about

how much we think is enough. Also, how do we compare? But also for most of us listening, thinking about like, is what I’m planning for the right amount based off where my living expenses is? Because that sounds awfully low for the way I’ve probably been living. And therefore is like.

Hmm, maybe I’ve been overestimating. So we’re gonna talk about that. We wanna talk about how to think about this and really a mindset, but also kind of a framework to focus in on when you’re thinking about retirement income levels, because there’s lots of frameworks out there. There’s the 4 % rule. There’s like, hey, I’m gonna multiply by 25, which is really the, you know, your 4 % rule really, just phrased a different way. But then there’s, you know, there’s other kind of frameworks that people say follow.

the fire community, know, doing one thing versus another. So we’re gonna talk about that. Kyle, you know, what do you think right off the bat? What’s your take when I say 33,600 for an individual and 74,000 for a family or a couple in retirement?

Kyle Pearce: Yeah, I think what it is is I think a lot of people listening to this podcast are probably looking at that and feeling the same way you are. And I feel the same. Now, this is an average, right? So I mean, we’re talking about an average across a large span of households across Canada. So there’s every mix in there. And it doesn’t really help a whole lot because we’re living our own lifestyle.

And I think this is really what we want to be discussing today is like, how do you figure out what that might look like and sound like? back on our retirement series, we went on deep dives. We went over four episodes, went down the rabbit hole. We tried to share some scenarios if we had equity portfolios, like all of these things. But the reality is, is like, we actually have no clue what the future is going to look like and sound like, right?

this past year at a client reach out and said, you know, like I did blank percent, I think you said something like 30 % with his portfolio self managing. I’m like, that’s amazing. Like, that’s awesome. But like, are you going to do it again this year? You know, and and I don’t think he’ll have an answer for me on that, right? We don’t know what the future holds. And, you know, really, I think what we want to talk about today is really just trying to share a couple strategies that can help you at least get closer to

the end goal that you’re after through consistency, through simplification and allow things to happen as they may while putting yourself in a position where you, you know, if you follow some of these ideas, if you think about some of these basic ideas, you can get yourself structured in such a way that you can almost without thinking about it, know that you’ll likely be just fine.

Jon Orr: Yeah, when you think about those numbers, in a way, doesn’t matter. Like you said, it’s not mattering how much the average is. It matters what you are currently spending as your lifestyle expenses and saying, this is what my life looks like. This is on my monthly budget. Like we were saying right before we started recording is that we treat our budgets differently. Whereas I’m a penny to penny

dollar to dollar tracker. I know, you know, I could, I could at any given moment, whip up exactly where we spent a dollar, you know, last month, and making sure that we’re following a budget that we set up front. Whereas you’re kind of like a lagging budget or you’re kind of saying like, I’m going to I have a number in mind of what we generally spend per month on our family expenses.

And at the end of the month, I look at to see, we hit it or were we under it? But I think, you know, when I think about those is both of us, and this is why it doesn’t matter about your retirement levels of what the income is. It matters on what the savings rate is. So both of us in, you know, me having a very specific dollar to dollar budget, there is a chunk and there’s a line item.

in that budget, there’s actually a few different line items in that budget that a tally for the future john the future or family money, which is like investments, retirement savings, RSP contributions, tax free savings account contributions, you know, real estate, like all of these things add up in sort of a category, which is really paying myself first.

in thinking about the future, which is in a way our savings rate, we are saving a certain amount of our income. You’re doing the exact same because you’re just saying at the end of the month, this is where I draw the line. And on the other side of the line, you also have a savings rate and you’re saying I’m contributing or I’m making sure I contribute X amount of dollars towards that same future. Pierce family. And I think when we think about how much retirement money we’re going to need,

we need to think about that number as well. Because I think a lot of times it’s like we put extra over here or we’re contributing this or we’re making sure we’re putting any of these dollars away. But I think, and you brought this to light recently, is that savings rate plays a huge role in a few different ways into what you’re doing now, but really what you’re doing later. And I think most of us forget about how much that savings rate really factors into today’s calculations on how much you’re gonna need.

Kyle Pearce: 100%. Now, in today’s discussion, we’re not going to factor inflation into the discussion. We want to keep this pretty easy to understand and really just visualize for yourself. Now, inflation is a factor. We do need to consider this. So as you get deeper into something like this and some of this planning, that will impact things. But let’s pretend for a second that there is no inflation. Like a dollar is a dollar, and same cost for milk now as it does in the future.

to keep things sort of apples to apples because today we’re going to be talking like and using sort of like a bit of like proportional thinking here in terms of how we do things. And I think in general, a lot of people definitely have thought about this before where they say, okay, well, like when I retire, I’m not going to have as many expenses. Like for example, I might not have kids at home, right? Now,

That’s actually not true for a lot of these early retirement sort of seekers, right? We have these fire seekers out there that sometimes they do have kids at home. So like that’s not that helpful. Some people it’s like, I’m not gonna have a mortgage, right? 100%, like that’s definitely something that we can factor in. But if we do this well, and if we really just wanna boil things down and we think about, okay, I’ve got 100 % of my income coming in each and every year right now, it’s probably

better to think about it after any taxes, okay, just because like this is the money that’s like flowing into your world for now. And you were to like, commit a certain amount of it towards your future self, right? And we’re talking about paying yourself, we can talk about call it investing, call it saving, call it whatever you want. But ultimately, it’s like if we can commit a certain percentage. Now, one thing I know for certain if I commit 0 %

And I do that for a very long time. That’s not going to attribute to a very good retirement income, right? Because like, I’m going to probably be stuck with CPP and eventually OAS. And you’ll probably have to work a whole lot longer. And you’re going to have to live potentially on a whole lot less. So the idea here is like, OK, we can use the rule of thumb and say every paycheck you take 10%. And I’m going to use net. I’m going to talk about after taxes, 10 % of your income.

goes to one of these buckets. That’s sort of like a rule of thumb. And I would argue it’s a good rule of thumb. If you started like the day you got your first job, you know, like if you if you did that back when you know, let’s say you were in your 20s or whatever, and you did that consistently until you were 65. That number would be pretty awesome. However, however, a lot of people are thinking like, first of all, a lot of times we start late,

Nobody wants to start late, but we do start late. And a lot of people don’t want to work as long either. I don’t know we’re just lazier in general or if we just recognize that, like working a really long time, there’s only so much time here. It’s my only finite asset. So I’m going to argue like we want more than 10 % in general per year, but here’s the nuance. Like the part that I think is really positively

uh, you know, impacting your mindset around this whole thing is the higher we can make that rate. So if I can push it to 20%, if I can push it higher, if I, you’re a high income earner and you can push your actual savings or investing rate to like 40, 50%, what you’re doing is two things. You’re not only giving yourself such a great opportunity to create more wealth, to create more

know, lifestyle opportunity later or maybe early retirement, but you’re also creating an opportunity where you only have to replace half of that after tax income that you’ve been earning because this whole time you’ve been taking half of it and chucking it into that later bucket. So it’s like you’re getting two wins. Yeah, like you’re getting two wins. It’s not just about setting yourself up.

Jon Orr: Right, because you’re not going to do it later.

Kyle Pearce: you know, for later and a lot of times that’s like the marshmallow test like, you know, some people just want to eat that marshmallow now instead of waiting for someone to come back to give you two marshmallows, you want to just deal with it now. But here you get this other win where it’s like you have less expenses to deal with later because you’ve almost forced yourself into a much more conservative or living below your means standard of living, which kind of gives you almost like a double compounding effect, so to speak.

Jon Orr: Totally. And I think most of us when we’re doing this planning, right? Like when you’re thinking about your 4 % rule, if you’re using that as a guideline, like you don’t factor that part in. I bet you you haven’t. And if you have, then give yourself a pat on the back. But I mean, like the fact that you’re like, okay, right now my budget is, let’s say I’m spending $10,000 a month to live and just make my numbers easier, you know? And going, okay, well, if…

you know, this chunk of money I’m putting into my savings rate, I’m taking 10 % of putting a thousand, you know, I’m putting that thousand dollars over there. Then actually you only have to account for $9,000 when you retire because, you know, because it’s like, you’re not going to keep contributing that, that thousand dollars. So, so, you know,

We don’t think about that. think, I have to replace $10,000. And so you maybe overestimated how much you actually need using the 4 % rule if you’re, multiplying your current expenses by 25 to get how much you need in that pot so that you can start safely withdrawing to account for all of your expenses. But I think you’ve raised this. You’ve kind of flipped this on its head a little bit for someone to think about because

you use 90%, 10 % savings rate as an example. So for example, if I’m putting 10 % away in my savings rate, then this is why time and the compounding rate plays a huge role in this. And this is what our, we are a four part series on the math behind early retirement. We went into like timing, we went into like the sequence of returns to figure out all of these very nuanced details. But in a way it’s like, this is the easy way to think about it because,

Time can help you here if you’re that, you gave that example of that person starting out. Why the person starting out can actually put 10 % away and it works is because time and compounding allow for the 10 % you’re saving has to account for 90 % of your expenses when you go to retire. So that 10 % over time will, you you have to do a little bit of, you know, extrapolation here to figure out was if I put 10 % away,

And then if I do this for blank number of years, will that withdrawal rate now be able to pull to account for the 90 % I need now? And so that’s why if you can push that up, if you can push your savings rate up, because if you’re starting later, you have to, like you have to figure that out. Like if I make it 40%, then if I’m putting 40 % away of my salary or my income now, then I only like that 40 % over time, stretch that out over time, stretch that out over your interest rate.

that 40 % has to account for 60 % withdrawal rate. Like that’s the account for that 60 % per year withdrawal rate. So the higher you can push, the better you are later in life. But when you start early, that’s why that number for most of us is a lot smaller because you’re accounting for the other half or the, I don’t wanna say half, the other section of your 100%. And that’s, think sometimes we don’t think of it like that.

Kyle Pearce: Yeah, and I think when you think about, you know, as you explore this idea, right, I think one of the challenges and I am on calls all week long. I love chatting with folks from the podcast community as well as those who come in through our website and other means. And I have conversations and what I find, which is really interesting, is that it doesn’t actually matter how much income an individual earns, whether they earn it as a T for

whether they earn it inside a corporation because they’re a business owner or even a, you know, they, they might have a professional corporation, like a doctor and so forth. What I find is like, as this number goes higher, it’s the same challenge. Like, it’s like where, like how much should I be putting away? And, and just sort of like losing sight or losing sense of this idea that it’s like, I’m earning a lot of money now. So in your mind, I think

the almost like the more money you earn, I think the more you think you’ll be okay, right? Cause you’re like, I’ll be fine. Like I earn a lot of money and in re I think it’s the opposite. I think the more money you earn, it’s almost like the more, you know, maybe, you know, lackadaisical you are about it, right? Where you go like, well, I just keep working longer. I just, you know, all this or all that. And it’s like, it’s actually so much harder because like, if you only stick to say 10 %

And you know, you do start late, let’s pick a medical doctor, for example, they have big, you know, big debt to take care of, right, they take on a lot of debt and a lot of schooling, which means they start working later, which probably means they start saving later, they start investing later, which means they have less time to compound. But here’s the bigger issue is that they get used to that high income, and that high income just becomes a part of who they become.

and it becomes a harder and harder thing to deal with later. means that they’ll have to work for a very long time. And that’s awesome if they love doing what they do. I spoke to a doctor recently. He’s like, I’m probably never going to retire. And I was like, neither am I. Like, I don’t know why I care about this so much, because I love doing what I do, and I love engaging, and I love working. But I want to just know that I’m ready at any moment, because you know what? Life happens.

And things change really fast. know, like if something were to happen in my life to like change how I want to prioritize my time, right? And I don’t even want to talk about examples, but you you think about people you care about, or you think about, you know, other opportunities in life. I want to be able to do them, right? Cause I don’t know who I’m going to be 10 years from now, but the one thing I do know

is that boy boy, if I can save more of that monthly, weekly, bi-weekly, I don’t care how this money’s coming in, if I could save a higher percentage of that, what I do know is that it’s gonna take less time in order for me to replace the actual portion that I am utilizing. And here’s the interesting part, like you can keep it as simple as that, you can think of it this way and go, you know what?

I’m going to commit to a higher percentage and let it ride and do no more thinking. And you’re probably going to be in good shape. Now, mind you, you want to make sure you’re putting it into assets, right? You want to make sure that, you know, maybe you have some guidance there, whether it’s, you know, your, your financial advisor, whether you want to get on a call with us and chat with us about things, whatever you choose to do, just make sure that you’re confident in what you’re putting that money into. But here’s the other nuance is that if

we do this, the higher the percentages, the less risk I need to take on or the net less risk that I, you know, when I say need like need is a really, a really tough word, but it’s like, I might just choose not to go as risk on or maybe I only have to be risk on with half of my portfolio, because here’s the thing that, you know, is really hard to predict. It’s hard to predict how you’re going to feel when an asset goes wrong, right? When an investment

goes wrong. When you’re upfront and you think about all the upside, even if you consider the risk, you don’t know how you’re truly going to feel unless it actually happens. So for me, I think that’s a big piece. And if you want to go deeper, you can go deeper and you can say, well, you know what? By this year, I shouldn’t have a mortgage anymore. I shouldn’t have these other expenses. Feel free to do that. I personally

don’t even want to do that. You know why? Because I want that to be bonus. You know, like I look at it from like a bonus perspective and say, if I could replace what I’m spending now and it’s like, it’s only going to get better down the road because like my kids aren’t going to have, you know, all their sports and this and school and all those things. And I won’t have a mortgage potentially. Like I just want to prepare. So it’s like, I would just rather be in a position where I don’t have to worry about it. I don’t have to consider it. And hopefully I’m looking at a lot more than maybe I ever needed to have available so that I can do whatever it is I want with my time.

Jon Orr: What you’re talking about is creating a margin of safety and creating that margin of safety around your future self is padding the ends or padding the worst case scenarios, but also padding the best case scenarios and going, I’m fine with this scenario because I’m planning for that margin of safety. And when you plan, is what we do when we invest in real estate. This is what we do when we…

invest in, in say any of the equities that we’re managing is how do we plan for that margin of safety and what is that plan? This is what we’re doing in our, you know, for planning for retirement and thinking about those numbers. And, and I think today the two big things, right, is to think about the savings rate and savings percentage of like what you can get away with and what you can plan for, which really is, is you planning for a margin of safety, which is the other thing. It’s like, how can you build a margin of safety into your planning?

And then how do you make sure that you are really considering how much expenses you’re going to need and how much you’re actually, you know, stocking away for right now, because a lot of times we hope for the best and we haven’t really planned. And what you want to do is do that planning is to go, what is that number that I’m looking to do? like what Kyle said, the margin of safety is planned for the expenses right now. And then you’re factoring in a little bit of margin of safety along the way.

Kyle Pearce: I love it. And you know, as you move along, you know, I’m in my early forties, you know, John, you’re in your early mid forties now, I believe it is. And you know, when we, when we think about these things too, I think the other piece that, you know, you want to just be aware of, like first and foremost, it’s, it’s getting that routine under control. So like get on a routine and get it sent off. and honestly, again,

I’m not going to sit here and say, listen, if you send it and put it into mutual funds that have high fees, guess what? It’s still better than not doing something. You can always address that. That’s something you can always address, but you need to do something. So don’t allow analysis paralysis as to where it should go. Stop you from getting yourself going. Now, of course, getting support and starting to think about, you know, how you want to diversify is a really important piece here. I’m going to admit, you know, I was

all in on real estate for the past decade or so. guess what? Looking back on it, I don’t regret doing any of that. However, looking back, I now recognize that that wasn’t really a super safe approach, even though it felt really, really good at the time. And it still is something that we have. But we’re now kind of focusing on other asset classes.

Also some safety buckets as well, right? So you’ve heard us talking about insurance and you’ve talked, you know, we’ve talked about these whole life policies and such. you know, regardless of what your asset mix is, the key right now is making sure you get on that routine. And over time, you will be maybe shuffling some things around. But if you can get yourself wrapped around, get your head wrapped around this idea that you don’t have to.

get a super high return in order to make sure that you’re going to be in a great spot. That gives you an opportunity to do real thinking instead of sort of panicked thinking along the way. And of course, we encourage you to reach out at any point. If you are an incorporated business owner, for example, and you have a lot of retained earnings there each and every year because you’re being smart.

Jon Orr: Hey, got a, right, got a savings rate.

Kyle Pearce: Right? You’re being smart about how much you’re saving. Like if you’re an incorporated business owner and every dollar that you earn comes out of the corporation for lifestyle, there’s not a whole lot we can do from a tax planning perspective. However, if you’re taking out what you need for lifestyle and there’s still money sort of left there, it doesn’t matter if it’s a small amount or a large amount, there are some creative structures that we can utilize in order to help you over the long term save a boatload in taxation.

So reach out to us over at CanadianWealthSecrets.com forward slash discovery. And hey, if you haven’t yet hop into our free masterclass that’s designed specifically for incorporated business owners over at CanadianWealthSecrets.com forward slash masterclass. If you’re a T4 employee, we haven’t forgot about you. Head on over to the website and check out how we can help you as well over at CanadianWealthSecrets.com.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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