Will Average Savings Be Enough for Retirement?
Introduction
Linda and David, both recently turned 65, are lifelong residents of Cambridge, Ontario. They’re now settling into retirement with a mix of anticipation and uncertainty.
They bought their home 39 years ago, just a year after getting married. It’s where they raised their two children and where they hope to spend many more years together. Their mortgage was paid off nearly two decades ago.
Though they know it would have been wise to do this earlier, Linda and David want to assess whether their income and savings will be enough to meet their retirement needs. They’ve learned that average household spending for retirees aged 65–69 in 2025 is estimated at $82,094/year.
II. Linda and David’s Financial Snapshot
Assets (excluding their home)
The first thing they had to do was to figure out how much they had. They worked up the following details. Both have Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), and small Defined Contribution (DC) Registered Pension Plans from former employers where they worked for a few years.
Note: RRSP and TFSA figures are estimates for 2025 of average figures for those at or around age 65.
Income Streams
Both Linda and David had been working pretty well all their lives since graduating from university at age 22. Since they both chose to work in the non-profit and charitable sectors for a good chunk of their careers, they seldom reached, let alone exceeded, the (YMPE), but they contributed consistently throughout, so they expect a little over the average Canada Pension Plan (CPP) monthly payout beginning next month.
As lifelong residents of Canada, they are eligible for the maximum Old Age Security (OAS), which in the July to September quarter of 2025 is $735 per month.
Both Linda and David worked for a business for a dozen years that provided a Defined Benefit (DB) Registered Pension Plan for its employees. Next month, they are each expecting about $859, which will continue for each of them as long as they live. And if one of them dies before the other, the survivor (they both expect Linda to outlive David) will receive 66.67% of the deceased spouse’s pension.
Note: As their DB pensions are not adjusted for inflation, the purchasing power from this income source will decline over time.
Investment Return Assumptions
- Portfolio: 60% equity / 40% fixed income
- Gross long-term return: 5.4%
- Net return after fees: 4.6%
- Net return after fees and 2.1% inflation: 3.23%
- All investment income streams assumed to be fully reinvested until withdrawals begin.
Longevity Assumptions
While it is generally a safe assumption that women outlive men, it does not apply to all cases. We will assume that one of David and Linda will live to age 98 (2058). For that reason, the financial projections must account for 33 years of retirement.
Retirement Spending Target
Based on the Statistics Canada average for 65–69-year-old households (from 2023 but estimated for 2025), David and Linda believe that they need to be able to receive an inflation-adjusted net income of $82,094/year to cover their expenses, including taxes. This figure is assumed to grow at 2.1% annual inflation.
They own their home mortgage-free, so this figure includes typical retiree shelter costs such as property taxes, maintenance, and utilities, but not mortgage or rental costs.
Guaranteed Income Sources: CPP, OAS, and DB Pension
Annual Combined Total in 2025
- CPP + OAS + DB Pension = $20,568 + $17,640 + $20,612 = $58,820
Shortfall vs. Spending Needs
I assume that David and Linda end their employment as of July 31, 2025. Therefore, they have seven months of income from employment followed by five months in 2025 when they begin to live off the income sources and retirement savings. For the sake of convenience, I assume that they both turn 65 in July 2025.
For these reasons, their shortfall of $9,698 in 2025 is made up by withdrawing the annual minimum payment of $9,933 from their RRIF accounts. This leaves a small surplus of $235, which they deposit into their TFSAs.
In 2026, however, they must begin to withdraw from their TFSAs to meet their spending obligations. Unfortunately, if they want to meet the spending target, they will find their TFSAs exhausted by 2034, the year they turn 74, and falling farther behind every year thereafter.
What can Linda and David do instead? At one level, perhaps they do not need to panic just yet. It is often said that the “go-go” years of retirement last until approximately age 75, at which point most retirees enter the “slow-go” years, when spending generally declines.
Another option they could consider is to sell their home. Most likely, a couple like Linda and David would not like to do that. They’d prefer to continue living in it. In that case, they could consider a reverse mortgage. This is also an option, although the rates on reverse mortgages tend to be typically about 2% higher than regular mortgages used to buy a home. Borrowing money this way can quickly erode the equity in your home, and if your goal is to leave your home as an inheritance for your children, this option may again be the last choice available.
Bridging the Gap
What’s an alternative, then? Live on less than projected. While $82,094 is considered the average spending for a retiree household between ages 65 to 69, many Canadians are living on less. While the shortfall in the table below increases over time, if David and Linda are willing to live on less, especially in their later years, they can make this work.
Stress Testing the Plan
These projections indicate that “average spending” may be too much. What happens if returns fall below average, though, or if the average is achieved over 33 years but there is a string of poor returns over the early years of retirement? Those years of poor returns might require even less spending, although that might only be temporary.
Another concern might be unexpected medical expenses. While we have universal healthcare in Canada, not all aspects of healthcare are covered. Included in this might be long-term care services. Although not inevitable, selling the home that Linda, David, and many other retirees have may be the only choice left if more cash flow is required.
Assessment
Will Linda and David run out of money? It’s not certain, frankly. It depends on whether they are willing and able to cut back if required. Even if cutting back, the second large table doesn’t leave much of a cushion. The TFSA is not held in reserve at all. Instead, it is used very soon after entering retirement.
If there is a risk, and hopefully this is done sooner than the month of retirement, CPP can be deferred, spending can be reduced, retirement can be delayed, or part-time work can be taken up. There are options.
Final Thoughts
Linda and David, while not affluent, are reasonably well-positioned thanks to having three income pillars, public pensions, DB pensions, and modest personal savings. With careful planning, they should be able to maintain a comfortable standard of living well into their late senior years.
This is the 296th blog post for Russ Writes, first published on 2025-07-21.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.