A reader recently asked me if she had saved enough for retirement. While it seems like a challenging question to answer, it can be roughly calculated via online calculators providing that you have fairly accurate inputs.
Generally, here’s what you’ll need for any online retirement calculator:
Some online calculators will take your expected retirement expenses as a percentage of your gross income. Many financial institutions will tell you that you need at least 80% of your income to live a comfortable retirement.
However, if you run your actual expenses, you’ll likely discover that you need much less than 80% of your pre-retirement income. From my research, 50-60% of your pre-retirement income is reasonable – but only if you are retiring with no debt which I think every retiree should be going for. When I ran the numbers for our family, 55% of our pre-retirement income was enough to maintain our lifestyle during retirement.
Canada Pension Plan (CPP) and Old Age Security (OAS)
Most people have no idea what they should receive for both CPP and OAS (me included!). To get an accurate amount, you can obtain your CPP statement online. Otherwise, there are calculators that can estimate your CPP based on your career income. The first calculator below is offered by the federal government and will help provide an estimate of both CPP and OAS.
Total of your Assets
If you regularly track your net worth, then you’ll have the totals of all of your assets. Most importantly, the total of your RRSP, TFSA, and non-registered accounts. You’ll need this info for pretty much any retirement income calculator.
5 Useful Retirement Income Calculators
In my search for a retirement income calculator, I had a hard time finding the perfect calculator.. at least perfect for me. Each had their merits but also some serious drawbacks.
1. Canadian Government Retirement Calculator (link)
In my search, this was the first retirement calculator that I came across and was actually surprised that it was created by the federal government. This calculator is pretty thorough with government benefits but lacks in some areas such as adding a spouse, non-registered assets and general taxation. The biggest weakness is for the extreme early retirement crowd, the earliest age for retirement in this calculator is age 50.
- Calculates OAS and CPP – with the ability to customize. Also provides average monthly amounts for Canadians (which can be helpful) and adjusts based on how early you start taking CPP
- I like how it graphically shows income by age and impact of CPP and OAS on retirement
- Neglects non-registered accounts, needs to account for taxation in retirement
- No ability to add spousal assets (I just used total family RRSP, TFSA etc)
- Earliest retirement age is 50
- Doesn’t show ending balance of accounts at death
2. ESPlanner Basic (Link)
I first discovered this calculator through MoneySense magazine and must admit that it has merit. I like how you can add spousal assets to get a better picture of retirement as a couple. It also uses a formula for consumption smoothing to figure out expenses.
The life-cycle model was originally proposed by Yale economist Irving Fisher, roughly a century ago. At its core, the model simply says something that is patently obvious — none of us wants to splurge today and starve tomorrow or starve today and splurge tomorrow. Instead, we want to have a smooth ride when it comes to our consumption — our spending on goods and services. Consumption smoothing –trying to have a stable living standard through time, accords with our physiology. We humans quickly get satiated when we try to consume everything at once.
Personally I would rather just input my own calculated expenses and move on – but to each their own. Another downside is that the earliest retirement is also 50.
- Separate accounts for you and spouse/partner
- Adds home as an asset
- Allows for business income
- Allows you to estimate CPP/OAS rather than make assumptions
- Calculates net worth at death
- Detailed income tables by year
- Earliest retirement age is 50
- Perhaps a bug in the software, but it would only allow me to start retirement withdrawals at age 62
- I would prefer to enter my own expenses
3. BMO Retirement Calculator (Link)
This calculator is what you can expect from a big bank. Very skimpy on details, but very pretty to look at. However, out of the big bank calculators that I used, I liked the BMO product the best. It was very easy to use, and allowed me to input spousal financial information.
What was also refreshing was that I was able to enter any retirement age – unlike the calculators above – and my own number for my expenses. The downside is as mentioned above, very little detail in the final report and no ability to customize CPP/OAS. As a side note, CPP will likely be much lower for an extremely early retiree due a high number of low contribution years before the age of 60.
- Asks straight up how much I need for retirement
- Includes spousal assets
- Allows for early retirement projections
- Intuitive graph and allows for revisions to inputs to model different scenarios
- Calculates net worth at death
- No table that shows income by year – lacks detail
- Cannot customize CPP/OAS
4. Retirement Advisor (Link)
This is a calculator that I discovered via a web search, and could very well be my favorite retirement calculator in this list. To start, it allows for early retirement projections (ie. earlier than age 50), and there is only one straight forward input page required before the calculations are made. Once the calculations are made, the results are very detailed with income and assets broken down by year.
On the downside, there is no input field for spousal assets but you can get around this by entering family totals for the asset fields. Where other calculators allow for early redemption of CPP, this one assumes that you start at age 65. Since this calculator provides so much detail in the results, I could pick it apart more than the other calculators. For one, it assumes that you want to spend your non-registered assets first, then TFSA, then RRSP. This may not be exactly what you desire. Also, another bug is that it doesn’t account for RRIF rules where your RRSP needs to be converted to an RRIF by the age of 71 which also means forced withdrawals.
And finally, a general weakness for all of these calculators is taxation. In this case, this calculator assumes that all non-registered withdrawals will be tax free. However in reality, the account will face taxation on dividends, capital gains, and possibly interest.
- My favorite of the bunch!
- Allows for early retirement projections
- Detailed income and asset tables by year
- Very simple (single) input page. Even though there is no input for a spouse, you can simply use combined asset values
- No ability to add spousal assets
- Assumes no taxation of non-registered account
- Customization of CPP/OAS amounts, but assumes age 65 to start benefits
- Assumes order of account depletion is: non-registered -> TFSA -> RRSP
5. DIY Rough Back of a Napkin Calculator
In the archives, I wrote about how to quickly calculate what you need for retirement:
- Work out a budget of expected expenses during retirement. Don’t forget to include income taxes, albeit reduced, as an expense. Here is an example budget.
- Calculate how much the Government will provide you during your retirement years. You can use the Canadian government calculator here.
- The difference between 1 and 2 is how much income from savings (and/or company pension) that you will need.
- Take the number calculated in step 3, and multiply by 25. That is the amount you will need to have saved (in todays dollars). If you have other sources of income, like from company pensions or rental properties, then reduce step 3 by the other income amounts, then multiply by 25.
This quick calculation is really for traditional retirement age (60+) where government programs can really pay for a significant portion of your retirement needs. Once you calculate your “number”, you can figure out how much you need to save today with the following table:
Monthly Savings Required to Reach Your Number (Assuming 4% real-return growth rate)
Required Savings Monthly Savings (retire in 25 yrs) Monthly Savings (30 years) Monthly Savings (35 yrs) Monthly Savings (40 yrs) $200,000 $389 $288 $219 $169 $300,000 $583 $432 $328 $254 $400,000 $778 $577 $438 $339 $500,000 $973 $721 $578 $423 $600,000 $1167 $865 $657 $508 $700,000 $1362 $1009 $766 $593 $800,000 $1556 $1153 $876 $677 $900,000 $1751 $1297 $985 $762 $1,000,000 $1945 $1441 $1095 $846
This is obviously a very quick and rough calculation. If you want the down and dirty details, you can read them in my article “how much do you need to save today to retire later” and discover that you may not need as much as you think.
The Perfect Calculator?
I’m sure that financial planners have access to powerful modelling tools for a variety of situations. However, I’ve yet to come by a calculator that handles everything that I need. My idea of a perfect retirement income calculator would have the ability to:
- Include partner/spouse assets in the calculation;
- Include contributions to RRSP, TFSA and non-registered accounts for both spouses;
- Have a field for anticipated monthly expenses during retirement;
- Include expected business/rental income during retirement;
- Choose your own retirement age;
- Include a field for estimated CPP/OAS during retirement and when you want to start taking it (for extremely early retirees, CPP will be lower due to a higher number of low income years);
- The ability to manipulate to choose which account to draw down first;
- Account for taxation of different accounts and ability to set tax rate for each account. When you start drawing down from your RRSP for example, it will be taxable at your marginal rate. When you draw from a TFSA, withdrawals are tax free. However, when you draw from a non-registered account, it’s tax free when you withdraw, but you may have to sell to generate the cash to withdraw.
There you have five of my favorite retirement calculators. None of of them are perfect, but the product from Retirement Advisor comes the closest. Give them all a try if you can and let me know what you think.If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).