Start with the life you want to pay for, not a percentage of your salary. Your first retirement-income target should be the amount you need to spend each year after tax.
Here is a simple way to find that number.
1. Start with what you spend today
Look at your last three months of bank and credit-card statements, plus the past year’s occasional bills. Group spending into:
- Essentials: housing, groceries, utilities, transportation and insurance.
- Lifestyle: travel, hobbies, restaurants and gifts.
- Occasional costs: home repairs, a replacement vehicle, dental work and other large bills.
Count purchases once. Do not count a credit-card payment again if you already counted the purchases.
Remove retirement savings contributions and work costs that will stop. Keep mortgage or rent payments unless you genuinely expect them to disappear. Add costs your employer currently covers, such as health and dental benefits.
For couples, build one household spending budget. Keep each person’s pension and tax estimates separate before combining the cash available.
2. Turn the budget into an annual target
Here is an illustration, not a recommended income level:
| Item | Annual amount |
|---|---|
| Regular spending: $4,000 a month | $48,000 |
| Travel, repairs and other occasional costs | $6,000 |
| Spending before buffer | $54,000 |
| Illustrative 10% contingency buffer | $5,400 |
| After-tax annual target | $59,400 |
That is $4,950 a month after tax, in today’s dollars. Choose a buffer that fits your circumstances; 10% is only a starting assumption.
A rule such as “70% of salary” can be a quick cross-check, but it is not your budget. Someone retiring mortgage-free may need less than someone renting and travelling frequently.
3. Work out where the money will come from
List your estimated CPP or QPP, OAS and employer pension, including when each starts. Use your own benefit and pension statements, not advertised maximum payments.
Then estimate how much must come from savings.
For example, if pensions and benefits provide $30,000 after tax, a $59,400 spending target leaves $29,400 of after-tax cash to fund elsewhere. RRSP or RRIF withdrawals may need to be larger because they are taxable. TFSA withdrawals are tax-free; non-registered withdrawals can include both capital and taxable investment amounts.
Your spending target is not the same as your taxable-income target. There is no single gross income number that suits everyone: your province, income sources and tax credits matter.
Also budget for any years before government benefits begin. Do not include income before it actually starts.
4. Check inflation and whether the plan lasts
Keep your first budget in today’s dollars. If retirement is ten years away, $59,400 becomes roughly $72,400 at retirement with an assumed 2% annual inflation rate. That is the same purchasing-power target, not a lifestyle upgrade. Inflation may differ.
My suggested approach is simple: aim to cover essential bills with dependable income where possible, then plan flexible withdrawals for the rest. There is no universally best withdrawal order.
Use Retirement Horizon to explore whether your savings can support your goal. Use the Income Sequencer to explore withdrawal timing and taxes. These tools model an individual, so do not enter a couple’s combined taxable income as though it belongs to one person.
Try lower returns, higher inflation and a longer retirement. Allow for more travel early on and potentially higher care costs later. Review your target annually.
Download the simple Excel template
Prefer to work online? Use the Retirement Spending Plan, available in the Tools section, to build your spending target without downloading a spreadsheet.
Download the retirement-income planning template (.xlsx)
It has just two tabs:
- Budget: enter monthly spending, occasional annual costs, a buffer and an inflation assumption. It calculates your annual and monthly targets.
- Income check: enter annual income and withdrawals, plus your own estimated tax allowance. It shows the cash available and any shortfall against your budget, all in today’s dollars.
Zero entries are placeholders. Replace them with your amounts. The workbook does not calculate Canadian income tax or prove that withdrawals are sustainable. Save your completed copy on your own device; you do not need to upload it.
Bottom line: build your spending number first, check the tax second, and then ask whether your income and savings can support it.
For another reference, see the Government of Canada’s Canadian Retirement Income Calculator.
General education only, not personalized financial or tax advice. Consider a qualified planner for a plan tailored to you.