{"id":16726,"date":"2025-07-23T00:46:07","date_gmt":"2025-07-23T00:46:07","guid":{"rendered":"https:\/\/www.newsbeep.com\/ca\/16726\/"},"modified":"2025-07-23T00:46:07","modified_gmt":"2025-07-23T00:46:07","slug":"the-more-you-earn-the-higher-your-retirement-savings-rate-needs-to-be","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ca\/16726\/","title":{"rendered":"The more you earn, the higher your retirement savings rate needs to be"},"content":{"rendered":"

Open this photo in gallery:<\/a><\/p>\n

An earlier retirement age requires a higher savings rate, while a later age lowers it.LaylaBird\/iStockPhoto \/ Getty Images<\/p>\n

It would be handy to have a single, simple rule for how much to save for retirement<\/a>. I used to think 10 per cent of pay was a good number, but the true savings rate varies enormously depending on pay level and on when one begins to save. <\/p>\n

The actual rate can vary between 7.8 per cent of pay and 22.5 per cent over and above contributions to the Canada Pension Plan\/Quebec Pension Plan. The main reason that the savings rate is higher for high-income people is that CPP\/QPP and Old Age Security pensions are geared for Canadians earning no more than the average national wage (about $70,000). <\/p>\n

The savings rates in the chart below are based on the following retirement income goals (including CPP\/QPP and OAS). If your final year\u2019s pre-tax income is $60,000, I have assumed a retirement income target of 70 per cent of the final five years\u2019 earnings. For $90,000, the target is 60 per cent, and for $180,000, it is 55 per cent.<\/p>\n<\/p>\n

While some readers may think these income goals are too low, they might in fact be a little too high. At least, that is what I concluded in a previous edition of Charting Retirement<\/a>. <\/p>\n

The assumed investment return also affects the saving rate. Here, I\u2019ve used 5 per cent a year, net of investment fees. Achieving even this return might be a challenge in the future if interest rates stay low and if price-to-earnings multiples on stocks drop back to their historical mean. <\/p>\n

Finally, retirement age is an important factor when setting the savings rate. Here, I have assumed age 64. An earlier retirement age would require a higher savings rate, and a later age would lower it. <\/p>\n

I also want to touch on the situation for lower-income Canadians. Someone earning $40,000 a year in today\u2019s dollars would have about $32,695 in take-home pay (after deducting federal and provincial income tax, employment insurance premiums and CPP contributions). Subtract another $1,700 for employment expenses (such as commuting and meals), and it brings net take-home pay down to $31,000 or $2,583 a month.<\/p>\n

This is almost exactly the same net after-tax income a 65-year-old retiree could expect, assuming the retiree receives $760 a month in CPP pension, $735 in OAS pension and $1,097 a month in GIS (Guaranteed Income Supplement). So someone who never earns more than $40,000 a year (in today\u2019s dollars) might not need to save at all. <\/p>\n

The main takeaway: Higher earners who are not covered by a workplace pension plan should probably be saving more than they thought, and people earning less than the average wage as they approach retirement can probably save less.<\/p>\n

Frederick Vettese is former chief actuary of Morneau Shepell and author of the PERC<\/a> retirement calculator (perc-pro.ca<\/a>).<\/p>\n","protected":false},"excerpt":{"rendered":"Open this photo in gallery: An earlier retirement age requires a higher savings rate, while a later age…\n","protected":false},"author":2,"featured_media":16727,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[45,49,48,14537,133,131,132,1705],"class_list":["post-16726","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-business","tag-ca","tag-canada","tag-chartoftheday","tag-finance","tag-personal-finance","tag-personalfinance","tag-retirement"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/16726","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/comments?post=16726"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/posts\/16726\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media\/16727"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/media?parent=16726"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/categories?post=16726"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ca\/wp-json\/wp\/v2\/tags?post=16726"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}