Ever find yourself Googling ‘how to retire at 50’? Financial independence and the ability to retire early may seem like a dream for many Canadians today. But with the right planning and dedicated effort, the dream can come true — even in these challenging times.
How to retire early in Canada is a big question. Let’s look at some of the key factors involved in getting to this big milestone.
Table of contents
- What is considered ‘early retirement’ in Canada?
- What do you need to do to retire early?
- How to retire at 50 in Canada
- What are the pitfalls to early retirement?
- How can I advance early retirement?
- How much money do I need to retire early in Canada?
- Are there options for full early retirement?
- Retirement Calculators
- Ask an Advisor
What is considered ‘early retirement’ in Canada?
Ask someone what the average retirement age is in Canada and they would probably guess around 65. That’s because, for many years, workplaces traditionally set compulsory retirement at 65. Government pension programs still reflect this, with Old Age Security (OAS) and Canadian Pension Plan (CPP) payments beginning at this point.
But, as the saying goes, times have changed. Now, the average retirement age in Canada is 63.5 years according to Statistics Canada. Of course, early retirement can be anything below this average, but it typically means retirement around the age of 50.
While retirement age has dropped slightly, the expected lifespan of the average Canadian has increased over time. The anticipated average lifetime is now 82.5 years. This means our retirement years are a longer part of our lives than in the past. Planning for retirement is more important than ever, whether you retire at 50 or years later.
What do you need to do to retire early?
In order to retire early, you need to assess two things. First, what you need your retirement savings to do. Necessary funds include those that cover your basic living expenses. Second, what you want your money to do — factoring in personal choices and what kind of lifestyle you want. For example, do you want a life of travel, to relocate elsewhere in Canada, or do you want to downsize to a waterside cottage close to kids/grandkids?
Here’s the kicker: early retirement can be a viable option as long as you earn more than you spend, year over year, consistently. Retiring early will come down to how willing you are to be disciplined over time so you can save money towards retirement. Ideally, this saving would start as early as possible in your life to maximize savings and benefit from compound interest.
It also requires making sound decisions in line with your plan to retire early. That includes deferring spending on luxury items, keeping cars longer to avoid payments, and staying within a budget. Of course, there will always be high earners who, with the help of a financial professional, be able to retire early with minimal issues. The truth is, saving for early retirement will likely require a more austere lifestyle than your peers, combined with aggressive saving and investing. For both high and average earners, planning will always be a part of the equation!
Take advantage of good opportunities
If you are fortunate enough to make career advances and get a raise, move to a better-paying job, or even receive a bonus or inheritance, you have the opportunity to save more. Instead of upping your lifestyle to match current earnings, put at least some of these extra funds into your retirement savings. And if your company has a program to match your RRSP contributions be sure to enroll.
Setting up automated deposits into your retirement savings can help make the process easier. Figured out what you can afford to save monthly? Try a ‘set it and forget it’ approach with your contributions. Just make sure you keep contribution limits in mind for specific accounts!
Prioritizing retirement savings – whether from your regular earnings, side-hustles, or even an inheritance or lottery win – means short-term pain for long-term gain.
How to retire at 50 in Canada
London Life (now part of Canada Life) ran an incredibly impactful ad campaign over 30 years ago that touted “Freedom 55.” For many Canadians who resonated with the desire to retire early, it made us think that retiring at 55 was the new normal. The slogan made it sound easy to achieve financial independence.
To reiterate, the truth of the matter is that retiring at 50 takes advance planning, financial self-discipline, and a consistent, reliable salary. The least painful way to achieve the goal is to start investing early, contributing significantly to retirement funds every year. That way, the magic of compound interest will help build your nest egg for retirement.
For example, if your money earns an average of 7% annually and you start setting aside $20,000 annually at the age of 25, you’ll have $1.38 million by the time you are 50 years old. Even if you start saving that $20,000 per year at 35, you will have amassed over a half-million dollars by the time you are 50.
Ultimately, being able to retire at 50 in Canada means looking at the road ahead, planning, saving, and reducing spending. By the time you are looking in the rearview mirror, it will be too late.
What are the pitfalls to early retirement?
If over-spending puts you behind and you accumulate consumer debt like credit card interest and car loans, that will undermine your goals. Trading in cars frequently and constantly carrying a car loan rather than driving a simple, reliable car for more years is costly. Interest paid on credit cards is often at high rates and detracts from your expendable income and possible savings.
For those striving to retire early, things given up along the way can provide for the future. It may mean giving up expensive holidays, opting instead to ‘staycationing’ or enjoying local attractions. Day-to-day spending on alcohol, take-out food, and other conveniences need to be within a balanced budget if you want to retire early. (Sorry, Tim Horton’s and Uber!)
How can I advance early retirement?
The ability to retire early will depend on factors such as your employment, how many dependents you have, and other obligations. You may be saving for your children’s education in tandem with saving for your own future. To stay on track, be sure to take advantage of government programs like Registered Education Savings Plans (RESPs). Use contributions to RRSPs and Tax-Free Savings Accounts (TFSAs) to build your savings and reduce your tax load. If you aren’t familiar with all your options, a financial advisor can help you take advantage of these programs.
Along with eliminating credit card and car payment debt, reducing the cost of housing also frees up more money to enable retiring at 50. With mortgage rates at super-low levels, consider refinancing so you can leave more money in your savings account.
Including retirement savings as a regular ‘expense’ in your personal budget will ensure that you make your future a priority. If you need to adjust along the way, it’s OK to contribute less for a period of time and make it up when you can. The key is to save regularly over as long a period of time as possible.
If cutting back isn’t cutting it, consider increasing your earnings with a second job or side-hustle. There are really only two ways of increasing expendable income: spending less and/or earning more. It’s certainly not for everyone, but consider if it would be right for you to turn your hobby into a business.
How much money do I need to retire early in Canada?
Lots of theories and formulas try to predict what you will need. Ultimately, however, a lot depends on you. First, you need to be realistic about what your retirement will look like. Are you planning to continue your existing lifestyle with no changes? Do you plan on continuing to generate income by picking your own projects or working part-time, or will you be giving up work entirely? Assessing your expectations and desires will help you shape what’s needed to retire early.
It’s difficult to arrive at an exact figure for how much you need for retirement — regardless of age.
The new FIRE philosophy
FIRE or ‘Financial Independence, Retire Early,’ is a new slogan that perhaps now supersedes Freedom 55. The FIRE philosophy relies on setting aside almost all your income for several years, self-managing your investments for lucrative returns, and retiring once you’ve achieved your goals.
While this is an interesting tactic, it may not be realistic for everyone for a few reasons. First, at a time when the financial markets are impacted by world events including the COVID-19 pandemic, it can be tough to make the right calls on DIY investing. It’s especially difficult not to react emotionally to market dips!
As well, you may not be able to set aside earnings if your job is impacted. The increased cost of living, combined with the reality of unexpected expenses may also hit your bottom line.
That said, whether you have been saving regularly over time or you are making an all-hands-on-deck FIRE effort, there is no hard and fast rule as to how much money you need to retire early in Canada. A very general estimate is that retirees will need 50-60% of their current income to sustain their lifestyle in retirement.
For a more customized view, there are resources that can help you estimate your requirements such as retirement calculators. As well, an experienced financial advisor can help assess your situation based on an informed view of trends, giving you a better idea of whether you can retire at 50 or not.
Are there options for full early retirement?
If you aren’t quite able to get your early retirement over the finish line, there are options for semi-retirement. Early retirement doesn’t have to be an all-or-nothing situation given changing times.
Some people are working longer than they expected to make up for setbacks along the way. Others who want to retire early may keep a hand in consulting, part-time teaching, or working in retail for example.
Hybrid retirement is a new term that refers to those who find another job or part-time work after leaving their primary career. Working an additional 5 years is estimated to boost retirement income by 56%, making it well worth the effort for the long term.
As mentioned earlier, there are tools available to help you assess what you will need to retire early. For starters, we have three great retirement-related tools that can help you.
- What age you will reach your retirement goal: Retirement Age calculator.
- How much you need to save each month to reach your retirement goal: Retirement Savings calculator.
- The value of your future retirement nest egg (based on current and future monthly investments): Retirement Nest Egg calculator.
We’ve also laid out some additional picks for the best retirement calculators, so you have lots of choices!
Ask an Advisor
Planning for retirement can be daunting especially in changeable times. You may understand financial planning conceptually but have trouble applying it to your own situation. You no doubt want to maximize returns on your investments, but not everyone is in the position of DIY-ing it.
Financial advisors can help assess your situation and create a plan to achieve early retirement in Canada. Advisorsavvy can connect you with reputable advisors in your area to make financial independence and early retirement dreams possible.