It’s always interesting to see how much savings individuals and households have when they are close to retirement. This information can tell us whether the savings are enough for retirees to lead comfortable lives.
The average retirement age in Canada is 65, and according to a Ratehub report, the average 65-year-old has around $129,000 in their RRSP (Registered Retirement Savings Plan). The figure rises to $160,000 if you include the TFSA (Tax-Free Savings Account), while total savings are close to $319,000.
It’s mandatory to start withdrawing your balance from the RRSP by the age of 71. While there is no data for the average RRSP balance for this age cohort, a report from Statistics Canada estimates the average retirement savings for those over the age of 65 is $272,000.
As most Canadians are retired by the age of 65, they would likely start withdrawing their savings from registered accounts such as the RRSP and the TFSA, which means the retirement savings for 71-year-old Canadians would be lower than $272,000.
Is $272,000 enough for Canadians to retire?
In 2024, several Guaranteed Investment Certificates (GICs) offer Canadians a generous yield of 5% due to interest rate hikes. GICs are similar to fixed deposits, where you deposit a certain sum of money with a bank or financial institution and earn interest on these loans. Given an annual interest rate of 5%, an investment of $272,000 in GICs would help you earn $13,600 in annual interest.
Now, the average monthly CPP (Canada Pension Plan) payout in 2024 is close to $831.92, indicating an annual payment of $9,983. This suggests that Canadians can earn around $23,500 every year just by holding their retirement funds in GICs and receiving a monthly average pension.
If you no longer have a mortgage payment, an income of $2,000 every month might be enough to cover basic expenses for most retirees. However, while GICs offer you a tasty yield right now, the Bank of Canada is likely to lower interest rates over the next 12 months, especially if inflation is brought under control. In this case, retirees can consider allocating funds to blue-chip dividend stocks and benefit from regular dividend payouts and long-term capital gains.
Brookfield Infrastructure is a top dividend stock
One quality dividend-growth stock is Brookfield Infrastructure Partners (TSX:BIP.UN), which offers you a forward yield of 5.9%. Down 34% from all-time highs, BIP stock has returned over 1,100% to shareholders since its IPO (initial public offering) in 2008, easily outpacing the TSX index and peers.
In the first quarter (Q1) of 2024, BIP reported a funds flow from operations of US$615 million or US$0.78 per share, compared to US$554 million or US$0.72 per share in the year-ago period. Comparatively, it pays shareholders a quarterly dividend of US$0.405 per share, indicating a payout ratio of just 52%.
BIP’s capital-recycling plan allowed it to secure US$1.2 billion in proceeds in Q1, and it is on track to sell legacy assets totalling US$2 billion in 2024, a majority of which will be reinvested in higher-growth projects.
Analysts covering BIP stock remain bullish and expect it to surge over 35% in the next 12 months. After adjusting for dividends, cumulative returns may be closer to 41%.
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It's mandatory to start withdrawing your balance from the RRSP by the age of 71. While there is no data for the average RRSP balance for this age cohort, a report from Statistics Canada estimates the average retirement savings for those over the age of 65 is $272,000.
The average retirement age in Canada is 65, and according to a Ratehub report, the average 65-year-old has around $129,000 in their RRSP (Registered Retirement Savings Plan). The figure rises to $160,000 if you include the TFSA (Tax-Free Savings Account), while total savings are close to $319,000.
The Federal Reserve also measures median and mean (average) savings across other types of financial assets. According to the data, the average 70-year-old has approximately: $60,000 in transaction accounts (including checking and savings)$127,000 in certificate of deposit (CD) accounts.
Financial experts generally recommend saving anywhere from $1 million to $2 million for retirement. If you consider an average retirement savings of $426,000 for those in the 65 to 74-year-old range, the numbers obviously don't match up.
There is no minimum annual withdrawal for RRSP accounts. However, by the end of the year that you turn 71, you must close your RRSP. One option when closing your RRSP is to convert it to a registered retirement income fund (RRIF). You must start withdrawing money from your RRIF in the year after you open it.
Based on some of these rules let's calculate what the retirement income would be. The average retirement age in Canada is 65, estimating the $500,000 is to last you 25 years your yearly retirement income would be $20,000.
In the year you turn 71 years old, you have to choose one of the following options for your RRSPs: withdraw them. transfer them to a RRIF. use them to purchase an annuity.
According to estimates based on the Federal Reserve Survey of Consumer Finances, only 3.2% of retirees have over $1 million in their retirement accounts. This percentage drops even further when considering those with $5 million or more, accounting for a mere 0.1% of retirees.
According to estimates based on the Federal Reserve Survey of Consumer Finances, a mere 3.2% of retirees have over $1 million in their retirement accounts. The number of those with $2 million or more is even smaller, falling somewhere between this 3.2% and the 0.1% who have $5 million or more saved.
Summary. It is possible to retire with $600,000 if you plan and budget accordingly. With an annual withdrawal of $40,000, you will have enough savings to last for over 20 years. Social Security retirement benefits can increase your monthly income by approximately $1,900.
Moving to the 90th percentile, retirees have a net worth of approximately $1.9 million. Those in this category can consider luxury vacations, set up college funds for grandchildren and make significant charitable donations. Their financial situation allows for greater comfort and less concern about daily expenses.
Retiring with $500,000 could sustain you for about 30 years if you follow the 4% withdrawal rule, which allows you to use approximately $20,000 per year. However, retiring at a younger age will likely reduce the amount you receive from Social Security benefits.
If you have an RRSP and you move out of Canada permanently, you can either choose to: Make a lump sum withdrawal and deregister your RRSP. You'll have to pay withholding tax and income tax on the amount withdrawn. Keep your RRSP and have your investments grow tax-deferred for Canadian tax purposes.
You can choose to withdraw all the funds in your RRSP as a lump sum, but the withdrawn amount will be subject to withholding tax. The withholding tax gets taken out of your withdrawal immediately and paid to the government. Additionally, this amount must be added to your income when filing your taxes.
You can convert your RRSP holdings to a RRIF at any time. However, an RRSP must be converted to a RRIF or annuity, or paid out in a lump sum by the end of the calendar year in which you turn age 71.
Generally speaking, you should aim to contribute at least 10% of your gross income each year to your retirement savings. Start contributing in your early 20s, and that 10% per year could add up to a sizeable savings and a comfortable retirement. Start later in life—say, your late 30s—and 10% a year may not cut it.
Average RRSP account holdings in 2023 were $113,070 compared to $144,613 last year and $112,295 in 2020, according to BMO. However, average RRSP contributions increased to $6,512 in 2023, up from $5,753 in 2022, and 62% of respondents said they intended to contribute to RRSPs this year despite economic headwinds.
Introduction: My name is Annamae Dooley, I am a witty, quaint, lovely, clever, rich, sparkling, powerful person who loves writing and wants to share my knowledge and understanding with you.
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