How much money do you really need to retire in Toronto? Here's what to consider

A lack of affordable housing paired with soaring costs of living can make saving for retirement seem a daunting task for any Canadian – but that stress can become exacerbated in one of the most expensive cities in the country.

Kurt Rosentreter, Senior Financial Advisor at Manulife Securities, said he routinely sees Toronto area retirees faced with "tight and immediate" budgets.

“It becomes a trade-off between geography and expendable income," Rosentreter told CTV News Toronto in an interview Friday.

While a comfortable retirement in the Toronto area may require years of planning, it's not an impossible goal, according to Rosentreter. CTV News Toronto asked the financial advisor for his tips on saving for retirement, and how much money you can expect to need:

HOW DO I SAVE FOR RETIREMENT?

For those who want to begin planning for their retirement and might not know where to start, Rosentreter recommends a three-pronged approach.

The first step is to write down your goals, he says – whether on a piece of paper or digitally. Once that is done, you need to make a budget.

“If you want to start saving, you’ve got to have a sense of what you make and everything you spend on,” the advisor said.

Next, you’re going to want to open a savings account – likely a Registered Retirement Savings Plan, or RRSP, Rosentreter said.

An RRSP is a government-registered retirement savings account in which any income you earn from the account is usually exempt from tax until it’s withdrawn.

According to an April 2023 survey by H&R Block, 56 per cent of Canadians report having an RRSP, and six per cent reported an intention to set one up in the future.

If you’re employed, you should check with your employer to see if they are contributing to an RRSP on your behalf, and if so, for how much, Rosentreter added.

“You’ve got to take advantage of that – to the point where it should factor into where you work,” he said “If your employer doesn’t [contribute to an RRSP], go find one that does.”

If you have the capacity for further savings, Rosentreter said a tax-free savings account is also a great option. The tax-free savings account, or TFSA, is also a good option for shorter-term savings goals, he added.

Tax-free savings accounts were introduced in Canada in 2009, and, as of 2019, there were over 15.3 million total TFSA holders across the country, according to the Canada Revenue Agency.

• Read more: How to get more out of your TFSA

Ultimately, financial planning can be challenging and you should try to be flexible in your expectations, Rosentreter said

“We don't even know what gasoline will cost us tomorrow, so trying to figure out what retirement will look like 40 years away is pretty tough,” he said.

An accredited financial advisor and introductory courses can help you organize a plan to save, Rosentreter added. Although they charge a fee, a financial advisor can help provide clarity on a topic on which there is an overwhelming amount of advice online, he said.

HOW MUCH MONEY DO YOU NEED TO RETIRE IN TORONTO?

To help his clients plan, Rosentreter says his general rule is, “you should not spend more than five per cent of your savings in each year of your retirement.”

“Say you’ve got a million dollars,” he said. “Five per cent makes $50,000 a year, pre-tax.”

The average retirement income in Canada in 2020 was approximately $66,000, according to Statistics Canada.

You then have to ask yourself, ‘could I live on $50,000 a year?’ he said, and, if the answer is no, you will either need to save more than a million dollars, or reduce your costs.

When you factor in the cost of living in the Toronto area, where the living wage is more than $23.00 an hour – about $45,000 if paid as a yearly salary – the answer is often: “I need more than [$50,000 a year] or I’ve got to get those costs down,” Rosentreter said.

Another general rule of thumb, provided by Toronto insurance provider Dundas Life, is to save enough to replace 70 to 80 per cent of your pre-retirement salary.

For example, if you currently make $80,000 a year, the company recommends you should save for around $60,000 of annual income in retirement.

A recent survey conducted by BMO found that Canadians now believe they need $1.7 million in savings in order to retire, a 20 per cent increase from 2020. However, that figure says more about the economic mood of the country than it does about real-life retirement necessities, according to Caroline Dabu, head of wealth distribution and advisory services for BMO Financial Group.

"When we're working with clients, we find that many overestimate the number that they need to retire," she said. "It really does have to be taken at an individual level [...] But $1.7 million, I would say, is high.”

If you follow Rosentreter’s advice, a total savings of $1.7 million would leave you with about $85,000 a year in retirement.

IS IT WORTH IT TO STAY IN TORONTO FOR RETIREMENT?

Rosentreter said that, ultimately, many of his clients are faced with a tough choice when they run the numbers of retiring in the Greater Toronto Area.

“Routinely, the numbers are tight and immediate,” he said, adding that his clients are often left with a lack of expendable income

“They may have enough money for food and have enough money for shelter and utility building, but they may not have enough money to update their iPhone every four years,” he said. “It becomes a trade-off between geography and expendable income.”

“Why would you stay? Why not move to New Brunswick or Manitoba, where you can live on a fraction and really get your cost answers you get back?” Rosentreter continued.

However, the financial advisor says that maybe one out of ten of his clients make a move out of the city.

“Nine out of 10 ain't going anywhere,” he said. According to Rosentreter, most want to stay near their families, or they’ve grown up in the city and don’t know anything else.

“The vast majority of them would rather live with less in an environment they're familiar with,” Rosentreter said.

A retirement in the Toronto area isn’t impossible, he says – but it requires intentional saving, careful planning, and often, a sacrifice on costs.

“Trading off a portion of discretionary income is just a decision they have to be comfortable with.”

With files from CTVNews.ca’s Hayatullah Amanat and Christopher Liew, and The Canadian Press.