Key Takeaway: The 4% rule is a powerful starting point, but Canadian retirees must also factor in CPP, OAS, and tax-advantaged accounts like TFSAs and RRSPs to build a truly robust plan.
Estimate Your Retirement Lifestyle
Before calculating your "magic number," you need a clear vision of your future. Will you travel the world or enjoy a quiet life at home? Consider these key expenses:
- Housing: Mortgage, rent, or paid-off home?
- Healthcare: Insurance premiums, prescriptions, and long-term care.
- Lifestyle: Travel, hobbies, and entertainment.
- Daily Living: Groceries, utilities, and transportation.
What is the 4% Rule?
The concept is simple: withdraw 4% of your total savings in year one, then adjust for inflation annually. Historically, this rate aims to make a balanced portfolio last for 30 years.
A Canadian Example
Total Savings: $1,000,000
Annual Withdrawal (4%): $40,000
+ Max CPP (approx): $15,600
+ Max OAS (approx): $8,400
Total Potential Income: $64,000 / year
Beyond the Rule: Canadian Context
Government benefits can significantly reduce the pressure on your personal savings:
Canada Pension Plan (CPP)
Taxable monthly benefit based on contributions. Available as early as age 60 or as late as 70.
Old Age Security (OAS)
Taxable monthly benefit for residents 65+. Subject to income-based clawback.
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Your Withdrawal Scenarios
Tips for Boosting Your Nest Egg
- Start Early: Leverage the power of compounding.
- Maximize RRSP: Defer taxes and grow savings.
- Utilize TFSA: Tax-free growth and withdrawals.
- Automate Savings: Set up auto-transfers to never miss a contribution.