Top 5 Factors to Consider When Planning for Retirement in Canada

What if your retirement savings run out sooner than you expect?

Imagine Bill. At 58, just two years from his planned retirement, his company announces layoffs and he finds himself out of work.

With no paycheck coming in, he’s forced to rely on his savings to cover expenses until he can tap into his retirement funds.

To make matters worse, the stock market takes a sharp downturn, slashing the value of his portfolio at the worst possible time.

Many retirees face this harsh reality.

Around the world, retirees outlive their savings by 8 to 20 years.

But with the right retirement plan, you won’t have to.

You can take control of your future and enjoy the lifestyle you’ve worked so hard to achieve.

Thinking ahead for these 5 key factors when planning for retirement allows you to:

• Decide on the right retirement age based on your goals and financial readiness

• Estimate your future expenses so you don’t run out of money

• Account for inflation to protect your purchasing power over time

• Define where your income will come from: CPP, OAS, workplace pensions, and personal savings

Understand retirement terms so you can make confident, informed choices

Learn how to plan ahead so uncertainty won’t derail your retirement dreams.

Factor 1: Determining Your Retirement Income Needs

“How much income will I actually need to live comfortably?”

While many experts suggest aiming for about 70% of your pre-retirement income as a starting point, this isn’t enough to capture your full financial picture.

Your true retirement income needs depend on your life: your goals, lifestyle, health, debt, and your dreams.

Generic percentages won’t protect you from unexpected expenses or inflation.

A clear, personalized breakdown of what your retirement will actually cost will.

Steps for Estimating Retirement Funds

Step 1: Analyze Your Current Spending

Track your monthly expenses, including:

• Personal needs (food, clothing, grooming, leisure)

• Housing (rent/mortgage, utilities, repairs)

• Transportation (car, fuel, insurance, transit)

• Healthcare premiums

• Debt and savings contributions

Step 2: Project Expense Changes

Some expenses shrink, others grow:

• Likely to decrease: commuting, work costs, childcare, mortgage, RRSPs

• Likely to increase: travel, hobbies, private insurance, meds, home care

• Likely to stay the same: groceries, utilities, home insurance

Step 3: Factor in Lifestyle Goals

Be specific: Will you travel, pursue hobbies, or move? These affect your budget.

Step 4: Include Healthcare Costs

Budget for:

• Prescriptions

• Dental, vision

• Physiotherapy

• Hearing aids

• Long-term care

Step 5: Consider Taxes on Retirement Income

• RRSPs, RRIFs, CPP, OAS may be taxed

• OAS clawback starts ~ $86,912 (2023)

• TFSA withdrawals are tax-free

Step 6: Build a Contingency Buffer

Add 10–15% to cover inflation and emergencies.

After determining your target annual income, you can estimate the total savings needed.

A common guideline is the “4% Rule,” which suggests withdrawing 4% of your portfolio each year.

However, this rule has limitations, especially during market downturns early in retirement.

For a tailored plan, consider consulting a financial planner who can help refine your income targets based on your assets, income streams, and risk tolerance.

Factor 2: Choosing the Right Time to Retire

Your retirement age affects not only how long your savings need to last but also your government benefits and access to healthcare coverage. Making the right decision can help you maximize your income and protect your financial security.

Key Considerations for Retirement Age

1) Have You Saved Enough?

Check if your RRSPs, TFSAs, LIRAs, and other savings can support your lifestyle.

Retiring early means your savings must last longer. Delaying gives your investments more time to grow and allows longer contributions.

2) Canada Pension Plan (CPP) Timing

• Age 65: Full CPP benefit.

• Early (60–64): Reduced by 0.6% per month (up to 36%).

• Delayed (65–70): Increased by 0.7% per month (up to 42%).

Delaying offers higher, inflation-adjusted income for life.

3) Old Age Security (OAS) Options

• Age 65: Standard eligibility (based on residency).

• Delayed (65–70): Increases by 0.6% monthly (up to 36%).

4) Understand Your Workplace Pension

Know your DB or DC plan’s rules: retirement age, early penalties, bridging benefits, and survivor options, all of which affect timing and income.

5) Health Insurance Coverage Before 65

Retiring early may end employer-sponsored benefits. To bridge the gap, consider:

• Buying individual health insurance

• Joining a spouse’s plan

• Checking for retiree health plans from your employer

Factor 3: Planning for Healthcare Costs in Retirement

Many Canadians underestimate how much healthcare expenses can impact their retirement budget.

While provincial health plans cover essential medical services, there are numerous costs that retirees must plan for out of pocket.

Healthcare expenses tend to increase as we age, and many retirees face unexpected medical costs that can quickly erode their savings.

According to recent data, Canadian seniors spend on average around $5,800 annually on out-of-pocket health expenses, a figure expected to rise significantly in the coming years.

Being prepared for these expenses is key to maintaining your financial security and quality of life in retirement.

Healthcare Costs You Should Expect Beyond Provincial Coverage

1) Prescription Drugs

Coverage for prescription medications varies by province. Many public drug plans, such as Ontario’s Drug Benefit or BC’s Fair PharmaCare, are income-tested or age-based and often require deductibles and co-pays. Here are some key considerations:

• Deductibles and Co-pays: Expect to pay a portion of your prescription costs.

• Limited Coverage: Not all medications are covered, potentially leading to significant out-of-pocket expenses.

• Age and Income-Based Plans: Eligibility and coverage can change depending on your age and income level.

2) Dental Care

Regular dental services-including checkups, cleanings, fillings, crowns, bridges, and dentures-are generally not covered by provincial health plans. This often means:

• Out-of-Pocket Expenses: Most retirees must budget to pay for dental care from their own savings.

• Private Insurance: Consider supplemental dental insurance to help cover these costs.

3) Vision Care

Some provinces partially cover eye exams for seniors, but glasses and contact lenses typically must be paid for privately or through supplemental insurance.

4) Other Health Services

Some services often have limited or no coverage under provincial plans. These include:

• physiotherapy

• massage therapy

• chiropractic care

• podiatry

• hearing aids
• medical equipment

These costs usually require private insurance or direct payment.

5) Long-Term Care (LTC)

Costs for home care, assisted living, or nursing homes vary widely across Canada and depend on the level of care needed. Factors that affect LTC costs include:

• Level of Care Needed: The more intensive the care, the higher the expenses.

• Location: Costs vary significantly across different provinces and territories.

• Type of Facility: Home care, assisted living, and nursing homes have different costs.

Factor 4: Budgeting for Your Ideal Retirement Lifestyle

How you envision your retirement will directly shape your financial plan.

The choices you make about how and where to live, travel, and what to do in your retirement years will directly impact your financial needs.

Research shows that lifestyle planning is a stronger predictor of retirement satisfaction than financial planning alone.

Setting clear goals for how you want to spend your time and money can help you avoid overspending, reduce stress, and get the most out of your retirement years.

Lifestyle Choices Canadians Should Consider

1) Where You’ll Live

Your housing decision has a major impact on your retirement budget:

• Will you stay in your current home, downsize, or relocate?

• Moving to a different city or province can affect your cost of living, taxes, and access to services.

• Some retirees split time between locations, adding travel and seasonal housing expenses.

2) Travel and Leisure

How you plan to travel will shape your yearly spending:

• Will you take international vacations, explore Canada, or enjoy day trips close to home?

• Frequent travel or “snowbird” winters abroad can significantly increase your costs.

• Don’t forget to account for transportation, accommodation, insurance, and activity fees.

3) Hobbies and Activities

Retirement is your time to pursue passions and new experiences:

• Think about hobbies like golf, skiing, boating, gardening, or volunteering.

• Estimate the cost of equipment, memberships, lessons, and supplies.

• You may also pick up new hobbies, so leave room in your budget for the unexpected.

4) Family Support

Many retirees continue to support family members in different ways:

• Will you help with education, housing, or special events for children or grandchildren?

• Some retirees set aside money for gifts, family vacations, or caregiving responsibilities.

Factor 5: Preparing for Unforeseen Events

A strong retirement plan must account for risks you can’t control: inflation, longer lifespans, market volatility, and surprise expenses. These factors can quietly chip away at your financial security if ignored.

Why Inflation Matters

Over time, inflation reduces your purchasing power.

If you need $50,000/year today, in 20 years you may need:

• $74,300 with 2% average inflation

• $90,500 with 3% inflation

Without adjustments, your income may not keep up with rising costs.

Key Risks to Plan For:

1) Inflation

Prices for essentials like food, housing, and healthcare go up over time. Your retirement income should be designed to grow with inflation.

2) Longevity

Canadians are living well into their 80s or 90s. That means your retirement could last 25 years or more, so your savings need to last just as long.

3) Market Volatility

Investment values fluctuate. A market downturn early in retirement can have a lasting impact on your portfolio. A strategy that balances growth and protection is essential.

4) Unexpected Expenses

Health issues, major home repairs, or family emergencies can create unplanned costs. Without a buffer, you may be forced to dip into your long-term savings.

How to Protect Your Retirement Plan:

• Diversify your investments across asset classes to spread risk

• Maintain a reserve of cash or low-risk assets for short-term needs

• Consider income products that adjust for inflation

• Build a contingency fund for surprise expenses

• Plan your retirement horizon assuming you’ll live into your 90s or beyond

As we've explored, these top five factors are deeply interconnected and deserve careful, personalized planning.

The truth is, you can’t predict every twist and turn.

Going back to Bill, he never expected to be laid off at 58.

He thought he had time to save a little more, time to ride out market swings, time to prepare.

But life doesn’t always wait for us to be ready.

And the truth is, many Canadians will face a moment like Bill’s.

A layoff. A health scare. A sudden expense. A market crash. A longer life than expected.

But you can prepare.

Start planning now, because your future self deserves peace of mind, purpose, and the freedom to live the retirement you’ve earned.