Many Canadians ask if $500,000 in savings is enough to retire. The answer depends on several key factors, including your spending needs, how your savings are invested, and how you draw income in retirement.
In this post, we will walk through an example based on Mr. and Mrs. Baker to see what retiring on $500,000 could look like.
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Their Situation
Mr. and Mrs. Baker are both 65 and retired. Together they have:
- $150,000 each in their RRIFs
- $100,000 each in their TFSAs
That gives them $500,000 in personal savings. They also own their home, which is worth $450,000 with no debt.
Their total net worth is $950,000.
Retirement Assumptions
For this analysis, we assume:
- Both expect to live to age 90
- Home value grows at 3 percent annually
- Investments grow at 5 percent annually
- Inflation is 4 percent annually
They have already started CPP at age 65. Mr. Baker is receiving about $1,000 per month and Mrs. Baker about $1,100 per month. They are also both receiving full OAS, $686 per month each.
Scenario 1: Level Spending Throughout Retirement
In the first scenario, Mr. and Mrs. Baker spend a consistent amount throughout retirement.
They could spend about $4,775 per month (in today’s dollars), adjusted for inflation, from age 65 to 90. By age 90, their investment accounts would be depleted, but their home would be worth about $960,000.
If this spending level fits their lifestyle, then yes, they can retire comfortably on $500,000.
Scenario 2: Spending More in Early Retirement
Many retirees choose to spend more in their early retirement years while they are active and healthy.
In this scenario, the Bakers spend:
- $5,300 per month from age 65 to 75
- $4,600 per month from age 75 to 83
- $4,100 per month from age 83 to 90
Again, they would deplete their investment accounts by age 90 and still have their home worth about $960,000.
Adjusting for Renters
If you are renting, you can still use these numbers as a guide. For example, if rent is $2,000 per month, subtract that from the available monthly spending in each phase.
Withdrawal Strategies Matter
How you withdraw money from your accounts can also impact your long-term results.
In Scenario 1, the Bakers withdraw minimums from their RRIFs and top up from their TFSAs. In an alternative approach, they withdraw more from their RRIFs first, preserving their TFSAs to grow tax-free.
This second strategy can improve the estate value if they pass away earlier than planned. It also helps reduce large tax bills later by drawing down taxable accounts sooner.
Using Home Equity
Some retirees may want to use home equity to enhance their lifestyle. For example, the Bakers could spend $6,500 per month from age 65 to 77, then sell their home and continue spending about $5,300 per month until age 90.
If renting after selling the home, part of this spending would go toward housing costs.
Final Thoughts
Retiring on $500,000 is possible. The key is knowing how much you plan to spend, how your withdrawals are structured, and how long you want your savings to last.
For some, this amount provides a comfortable lifestyle. For others, it may feel tight depending on goals, health, or unexpected expenses.
It is important to test different scenarios and adjust for your own situation. Even small changes in spending, investment growth, or life expectancy can make a big difference.
If you want help building a personalized retirement plan, visit our website and book and appointment with us.
