RRSP Centre

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RRSP Centre

How Much Will I Need to Save?
Most of us want to retire in comfort, yet few take the time to examine what it really means and, more importantly, what it will cost.

The 2% Difference
One critical success factor for investing is to get the best return on your investment while remaining within your risk comfort level. Very often, you can increase your return by one or two percentage points with only a marginal increase in risk.

Those extra percentage points can make a significant difference to the value of your RRSP. The table to the right illustrates how a $5,000 annual contribution grows through compounding at different rates. Notice how, after 35 years, an investment earning 6 per cent rather than 4 per cent is worth 54 per cent more money. This is a result of just a 2 per cent improvement in the rate of return.

How Much Will I Need to Save?

This chart shows how much you will need to save to retire at age 65 with 70 per cent of your pre-retirement income, if you are a member of a company pension plan. Locate your age on the left-hand column and then go to the horizontal column which corresponds to your current income.

For example, a 45-year-old with a $75,000 annual income, who is a member of a company pension plan, will need approximately $857,000 in savings at retirement to supplement the government and company pension plans. If you are not a member of a company pension plan, your required savings will be substantially higher.

The chart uses several assumptions which may or may not mirror your specific situation. The chart is provided for informational purposes only, and should not be relied upon to reflect your personal situation.

If you would like a personalized retirement plan, a BMO Nesbitt Burns Investment Advisor would be pleased to develop one with you. Contact an Investment Advisor at a BMO Nesbitt Burns branch near you.

If you would like a BMO Nesbitt Burns Investment Advisor to contact you, simply complete this brief contact form.

* This chart is based on the following assumptions:
1. The savings requirements will provide 70 per cent of current income shown in the bold headings.
2. Inflation rate is 3 per cent and after-tax return on savings is 5 per cent.
3. Employment income increases at 3 per cent until retirement.
4. Assumes maximum CPP/QPP and OAS payments are received and payments are indexed to inflation.
5. Company Pension Plan Calculation: Years of service is assumed to be the final 20 years, the pension is not indexed to inflation and benefits are not integrated with CPP/QPP. The formula is as follows:

2% x 20 yrs x Average of the Final Five Years' Earnings = Annual Pension*
* Since the legislated limit for registered pension plan payments will not increase for several years, pensions have been capped at $34,440 (the annual $2,000 maximum x 20 years).

6. The income needed after retirement is indexed to inflation and the funds will be depleted at age 90.

Note: Using borrowed money to finance the purchase of securities involves greater risk than a purchase using cash resources only. If you borrow money to purchase securities, your responsibility to repay the loan and pay interest as required by its terms remains the same even if the value of the securities purchased declines.