My retirement 10 min

How much should you save each year for retirement?

Tips on calculating your annual savings and achieving your goals.

By Dominique J. Favreau

Personal finance blogger

Financial obligations are becoming more and more important in the lives of Quebecers. As we juggle mortgage and car payments, children's education, and daily living, we come to wonder if we'll have saved enough money by the time we retire.

How much should we save each year for a comfortable retirement? When you're still 15, 20, or even 25 years away from retirement, it can be hard to estimate the amount to set aside annually.

By calculating the cost of retirement now, you can determine how much you need to save each year to make it easier and give yourself peace of mind!

Find out how much the retirement you want costs

Before you can determine how much you need to save each year for retirement, it's important to calculate the cost of the retirement you want and know what other income you can expect to receive.

Make a list of your various sources of retirement income

In the past, many people have been able to base their retirement income primarily on their employer's pension funds. Today the situation has changed significantly, and it's important to take advantage of all possible and available sources of income for retirement. This will make it easier to determine how much money to draw from your personal savings.

  1. Your employer's pension plan

    Employers still often cover a portion of retirement savings needs, whether through a group RRSP, a VRSP, or one of the various defined benefit or defined contribution pension plans. You can estimate the retirement income they will provide by consulting your annual statements.

  2. Public savings plans

    Sources of income from public savings plans should not be overlooked, as they can account for 30% to 50% of retirement income. These may include Old Age Security (OAS), Guaranteed Income Supplement (GIS), and Quebec Pension Plan (QPP) benefits. Together, they make a significant retirement savings contribution that you don't have to provide!

  3. Your own financial assets, other than savings

    Keep in mind the major assets you have accumulated throughout your life, such as your main residence or cottage, which can generate significant income. Once you retire, if the children have left home, it may be worthwhile to sell one of your homes or choose a smaller property when you need less room.

Choose when and how you want to retire

Each retirement plan is unique, and everyone experiences it differently. So, to be able to calculate the cost, you have to take the time to determine what you want to do with it. Some people want to keep on contributing to society by working in a different way while still generating a small income, while others prefer to stop altogether. The age at which you want to retire is also important, because stopping working at age 55 will require more savings than if you do it at age 65.

Calculate the cost of your retirement

Most people will need 60% to 80% of their current income to enjoy a comfortable retirement. Someone with an income of $55,000 will therefore have to rely on around $38,500, since they will have fewer expenses and will pay less in tax and contributions. However, their annual expenses will vary during retirement, while activities and travel in the early years will gradually give way to expenses for comfort and health care.

Save for your retirement

Once you've determined the cost of your retirement and calculated your various incomes, you can establish the amount you need to personally save to achieve your objectives. To help you determine an amount, check out our custom budget tool.

Calculate how much you need to save each year

Using savings simulators, such as the Fonds de solidarité FTQ or Retraite Québec simulators, will help you determine how much you need to save annually to achieve your retirement objective. The amount you save each year will vary greatly depending on the age you start saving, the return on your savings, and when you retire. For example, to reach a personal savings target of $200,000 at age 65, a 35-year-old worker will have to save nearly $4,500 annually if they receive a 5% return. However, a 45-year-old worker with the same goal will have to save more than $6,000 per year!

By creating several scenarios based on your current and projected ability to save each year, you can determine how to spread your efforts over time. It is recommended that you get support from a financial planner, who can develop different strategies to maximize your annual savings.

Maximize all strategies to save

As you have many financial obligations involving your home, car, and children, it can be hard to make room for retirement savings each year. The best way to do this is to review your budget and set aside about 10%, or more if possible, for retirement savings. Payroll deductions at source or direct debits can make things easier. The earlier you start, the less effort you have to make!

Opt for automatic savings

Automatic bank withdrawals allow you to adjust the amount you contribute to your RRSP as your financial situation and needs change. By adopting this strategy, you can start saving right away rather than waiting until you're able to put aside a larger sum. With regular withdrawals, you make your money work for you—without even having to think about it!

And if you contribute to the RRSP+ with the Fonds, automatic savings entitle you to an additional 30 percent in tax savings.1 That's a big advantage when you've got a retirement savings goal in mind.

It may be worthwhile to use unexpected or one-time income to achieve your savings goals each year. For example, tax refunds offer an excellent opportunity to save without too much effort. You can even use your refund for RRSP contributions from one year to finance your contribution for the following year, and so on.

If it's hard to save while your income is still low, it may make sense to fully reinvest each pay raise into retirement savings. This allows you to maintain your standard of living while increasing your savings.

While it may be tempting to pay off all debts before starting to save, it is not always the best option. It may be appropriate to compare the interest rate on the debt to the tax deduction rate or the estimated rate of return on the investment. In some cases, it may be beneficial to do both: contribute to your RRSP, for example, and apply the tax return on the debt repayment. All debts are different and you have to weigh the pros and cons of each.

Make the most of each year

When it comes to saving for retirement, every year counts and can make a big difference. By starting as soon as possible, you take advantage of the exponential return on your savings over time, thanks to compound interest. It's a simple way to reduce your effort and let time work for you.

For example, someone contributing $5,000 per year for 25 years will accumulate nearly $188,000 with a 3% ($63,000) return. However, by starting just five years later, they will accumulate $138,000 and just over half the return ($38,000).

In addition to saving each year for retirement, you must ensure that you earn a good return. For example, a 6% return (instead of 5%) on annual savings of $5,000 over 25 years can help you earn over $32,000 without any extra effort. A simple 1% increase can change everything! That's why it's important to avoid high management fees and compare the return on your savings to the annual inflation calculated by the Bank of Canada. This ensures that you're on the right track.

The best strategy to have the retirement you're dreaming of is to start saving for it as soon as you can. That way, you will know how much you need to save and make it part of your everyday financial life. Enjoying life now while saving money for your future is the best possible solution!

Legal notes
The Fonds de solidarité FTQ's shareholders will receive 15% in tax credits from the Québec government and 15% from the federal government. They are capped at $1,500 per fiscal year, which represents a $5,000 purchase of shares of the Fonds de solidarité FTQ.

Please read the prospectus before buying Fonds de solidarité FTQ shares. Copies of the prospectus may be obtained on the Website, from a local representative or at the offices of the Fonds de solidarité FTQ. The shares of the Fonds de solidarité FTQ are not guaranteed, their value changes and past performance may not be repeated.


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