Great ! After the 13the According to BMO Financial Group’s (Bank of Montreal) annual retirement survey, Canadians believe they need to save $1.7 million for retirement.
If they have to amass that mountain of money for retirement, let me tell you, very few Canadians will.
According to the survey, Canadians hold just $144,613 in equity in their RRSP on average. In Quebec, the average drops to just $125,751.
You will agree that we are far too far from the capital that is supposedly needed to allow us to retire with financial peace.
reality
The accumulation of $1.7 million in retirement capital is inaccessible to the vast majority of Canadians. According to BMO, Canadians only contribute an average of $7,058 a year towards their pension. In Quebec, the average annual fee is only $6,155.
Let’s assume that the annual contributions to the RRSP are spread over 35 years, i.e. from 30 to 65 years.
Here is the capital accrued per $1,000 of contribution depending on whether the return generated with our RRSP is 5% to 7%.
To achieve such a return over the very long term, you need to take risks, particularly by investing in a diversified portfolio.
With a 5% annual return, a $1,000 annual contribution to its RRSP will provide $90,320 in capital after 35 years. At 7%, capital reaches $138,240.
With his average RRSP contribution of $6,155, the Quebec worker can accumulate a grand total of $555,920 if he manages to grow his capital at a 5% annual rate. With an average annual return of 7%, the capital would reach $850,867.
As you can see, we’re a long way from the $1.7 million capital that Canadians believe they should ideally be able to retire with peace of mind.
I don’t want to discourage you, but to accumulate $1.7 million in RRSP capital 35 years from now, you would need to invest $18,822 annually if the return realized is 5% per year.
At a 7% annualized return, we would hit the $1.7 million threshold with an annual contribution of $12,297.
How much will you collect?
According to the BMO survey, how much would the ideal RRSP return of $1.7 million that Canadians feel they need?
Assuming you start paying out your RRSP at age 65 and the withdrawals are spread over 25 years (up to age 90), this is the annual amount you can withdraw up to when the RRSP fund is depleted is.
Assuming the capital continues to earn 5% per year, the retiree can redeem $7,095 annually for every $100,000 of RRSP capital.
At a 7% yield, the annual payout would be $8,581 per $100,000 of capital accumulated.
This means that a retiree with an RRSP capital of $500,000 could accumulate $35,475 to $42,905 over the 25 years of retirement.
Of course, with a capital of $1 million, it would be double that, namely from $70,950 to $85,810.
And with a capital of $1.7 million, we’re talking annual withdrawals ranging from $120,615 to $145,877.
The Treasurer’s Hand
Very important: These are gross withdrawals, i.e. before taxes are levied by the governments of Quebec and Ottawa.
Just to give you an idea of what’s left in our pockets after we’ve paid taxes, above, according to the firm Raymond Chabot Grant Thornton, is the amount of taxes and the effective rates (state + provincial) that are levied in 2023 on the taxable income of Quebecers. The tax data above only accounts for the deduction of personal base amounts (US$14,389 federal and US$16,143 provincial) and indexing of tax tables.
No fear! This is a first taste of what awaits us. Depending on the individual’s tax status (single, single parent, spouse, 65 or older, etc.), the final fee will be less than the amounts shown in the table.
For example, seniors are eligible for an old-age deduction of $8,396 at the federal level and $3,614 at the provincial level. There is also a retirement income deduction of $2,000 at the federal level and $3,614 at the provincial level. Quebec is also offering a $2,000 tax credit for assisting elders.
income of retirees
According to the latest tax data compiled by Revenu Québec, i.e. those for tax year 2019, the number of people aged 65 and older earning less than US$25,000 was 771,846 or 45.9% of this entire age group.
In the $25,000-$50,000 income bracket, the number reached 541,775 (32.2%).
That means 4 in 5 seniors (78.1%) live on less than $50,000 a year.
Seniors earning $50,000-$70,000, Revenu Québec numbered 199,504 (11.9%). About 95,487 (5.7%) reported income between $70,000 and $100,000.
And above $100,000, the over-65 population was capped at 74,154 (4.3%).
