Concerned older man
Many would-be retirees assume that once they reach those precious golden years, their spending will naturally decline — but that’s not necessarily a given.
Those who have retired are seeing huge fluctuations in their annual spending — and it’s upending a lot of people’s budgets.
Whether you’ve got a sizable nest egg or not, it’s important to prepare for that possibility so you don’t end up scrambling.
Not only might your bills generally be higher than expected during retirement, but your spending might fluctuate more than you’d think, making it harder to stay on budget.
For Canadians, the average household spent $76,750 in 2023. For those aged 65 and over, they actually spent slightly more: $78,499.
A big reason for this increase is that retirees tend to encounter more spending shocks in larger amounts. This can be due to unpredictable costs like health care, as Canadian retirees face out-of-pocket costs due to not having work-sponsored health insurance, adding up to approximately $5,800 as of 2019, and projected to rise to at least $8,000 per year in 2035.
It’s suggested that retirees budget for an annual health care inflation rate of 6% to account for rising costs. The problem, of course, is that retirees’ portfolios aren’t necessarily generating a 6% annual return. So that extra money needs to come from retirement income.
Another issue is that retirees tend to have higher costs in certain key categories earlier in life — namely, travel, entertainment and transportation. This makes sense, since retirees are more likely to travel when they’re a bit younger and have better health and mobility.
It’s a good idea to try to estimate your yearly retirement costs before your career comes to an end. But it’s also a good idea to assume that your retirement will cost more than anticipated — and to plan accordingly.
One way to avoid scrambling later in life is to amass emergency savings for retirement.
Emergency savings are essential for households of all ages. But in retirement, it’s important to have extra cash set aside for unexpected costs you can’t simply cover by picking up an overtime shift.
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While working part-time in retirement may be feasible during the earlier stages, it becomes increasingly harder to hold down a job as you get older. So, it’s important to have emergency savings for the latter stage of retirement in particular.
While it’s typically recommended that retirees set aside three to six months of income, a good rule of thumb is to try to keep one to two years’ worth of living costs in cash. This also buys you protection in the event of a market downturn, giving you the option to leave your portfolio alone for a period of time if needed.
It’s also important to set yourself up with a portfolio that generates steady income. Of course, you’ll need to limit your risk in your portfolio given that you may be tapping it regularly. But focus on assets that pay you on a predictable basis, like bonds and dividend stocks. You may also want to consider buying an annuity ahead of retirement for the guaranteed income it could produce.
As of 2023, over 7.2 million Canadians were members of a defined benefit pension plan. However, only 59% of pre-retirement Canadians have a positive outlook on this stage of life, according to a Fidelity survey. A majority — 88%— of respondents felt that “retirement today is more complex than it was 20 years ago”. If you’re feeling the same, be sure to take extra care in your planning, including speaking to a financial advisor.
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1. Statistics Canada: Survey of Household Spending, 2023 (May 21, 2025)
2. Statistics Canada: Household spending by age of reference person (May 21, 2025)
3. Sharp Asset Management: Navigating Healthcare Costs in Retirement By Hilary M.K Poff (July 24, 2024)
4. Statistics Canada: Pension plans in Canada, as of January 1, 2024 (June 24, 2025)
5. Fidelity: Canadians preparing for retirement believe they need one million dollars to retire comfortably, double what they believed 20 years ago: Fidelity Canada Retirement Report (June 10, 2025)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.