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How much money do you need to retire in Canada, and what sources of income can you rely on to fund your retirement? Here’s how newcomers can make the most of their retirement planning options.
Once upon a time, most working Canadians could rely on a workplace pension as the cornerstone of their retirement plan. But pension coverage has declined; in 2021, only 38% of workers had a registered pension plan, leaving most of us to cobble together our own sources of retirement income.
The difficulties facing newcomers to Canada with respect to retirement planning are particularly acute. Given how Canada’s immigration points system works, economic immigrants are usually in their late 20s or early 30s—and they face unique challenges:
But there’s good news. As Toronto-based financial advisor Jason Pereira points out, “Canada’s retirement system does not discriminate against newcomers. The rules are the same for everybody.” So, with the right knowledge and expertise, you can work towards building a strong retirement plan.
To plan for retirement, you need to know:
This table illustrates the types of income you could have in retirement. The amounts used in the table are hypothetical estimates. (To estimate your retirement income, try the various tools linked to above.)
| Amount (today’s value) | Amount (inflation adjusted) | ||
|---|---|---|---|
| A | Amount needed | $52,500 | $127,400 |
| B | Government pension and aid payouts (CPP, OAS, GIS) |
$22,000 | $53,400 |
| C | Employer-sponsored pension plan (group RRSP) |
$8,000 | $19,400 |
| D | B + C | $30,000 | $72,800 |
| E | Shortfall (A – D) | $22,500 | $54,600 |
| F | Needed value of investments in the year of retirement (E divided by 4%, based on the 4% rule) | $562,500 | $1,365,000 |
| G | Needed flat/constant monthly investment amount from now to retirement | $969 |
In the example above, the person faces an annual shortfall of $22,500. In other words, this person needs to generate an additional $22,500 per year to meet their retirement income needs, after accounting for the typical government pension or aid payouts and their employer-sponsored retirement plan. To do this, they’d need to invest about $969 per month, assuming an 8% annual rate of return from now to retirement 30 years later. How could they fill this gap and meet their shortfall? Enter self-directed investments, real estate and small-business income.
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An obvious and tax-efficient way to cover your retirement income shortfall is to build your own investment portfolio from which to draw income in your retirement years. These investments can be held in registered or non-registered accounts. Registered accounts, such as the TFSA and RRSP, offer useful tax advantages—such as a tax deduction and/or tax-free or tax-sheltered gains, depending on the account—but the amount you can contribute to these accounts is limited. Non-registered accounts have no contribution limits but offer no tax advantages.
Newcomers often have lower TFSA and RRSP contribution room compared to their peers because they’ve lived and worked in Canada for a shorter period. “TFSA contribution room starts accruing the year of becoming a resident of Canada,” Forward explains. “RRSP contribution room is based on earned income in the previous year.”
Your TFSA and RRSP contribution room information is available on your Notice of Assessment from the Canada Revenue Agency, which you’ll receive after you file your tax return. To check your TFSA limit, you can also use a TFSA contribution room calculator.
Once you’ve covered any retirement income shortfall using registered and non-registered accounts, you could consider additional avenues of income, including rental or small-business income.
For newcomers to Canada, retirement planning is about taking advantage of all the sources of income available to you, including from the government, your employer and your investments. Equipped with the right knowledge, newcomers can do much to secure their financial well-being in retirement.
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