The three variables that decide everything
Behind every retirement simulation there are only three parameters that really matter:
- Current capital: what you have already accumulated (TFSA + RRSP + non-registered)
- Monthly savings: what you add each month
- Expected annual return: your portfolio's growth rate
The target is always the same: 25 times your annual expenses (the 4% rule). With $50,000 of annual expenses, you are aiming at $1,250,000. The rest is arithmetic.
The effect of your savings rate — the most powerful variable
Market returns are outside your control. Your savings rate is entirely within it. And it is the savings rate that determines most of your retirement date.
These figures assume a 5% real return per year (after inflation) and start from zero. If you already have starting capital, the date moves significantly closer.
Concrete scenarios: $500 vs $1,000 vs $2,000/month
| Monthly savings | Capital after 20 years | Capital after 30 years | Possible annual income (4%) |
|---|---|---|---|
| $500/month | ~$205,000 | ~$470,000 | ~$19,000/yr |
| $1,000/month | ~$410,000 | ~$940,000 | ~$38,000/yr |
| $2,000/month | ~$820,000 | ~$1,880,000 | ~$75,000/yr |
| $3,000/month | ~$1,230,000 | ~$2,820,000 | ~$113,000/yr |
These projections assume a 7% nominal annual return (~5% real after 2% inflation), in line with historical averages for Canadian and U.S. equity markets.
The realistic return: 5% real, not 10%
Equity markets have delivered ~10% nominal return a year on average over 100 years in the United States. But that figure spans very different decades, and it ignores inflation. A prudent and realistic assumption for a diversified portfolio (a global ETF):
- 7% nominal: expected gross return on a global equity ETF
- 5% real: after deducting 2% annual inflation
- 4.5% net: after deducting management fees (~0.2-0.5% for ETFs)
Do not forget QPP and OAS
Unlike Americans, who only have Social Security, Canadians benefit from two public safety nets:
- QPP (Québec Pension Plan): up to ~$1,375/month at 65 if you contributed the maximum. Taking it at 60 means a reduced pension; at 70, a pension increased by 42%.
- OAS (Old Age Security): ~$727/month at 65, universal for long-term Canadian residents.
A couple can count on $40,000 to $50,000 a year in combined benefits at 65. Build that income into your simulation — it considerably reduces the capital you have to accumulate yourself.
The real question: your expenses in retirement
Most planning errors come from a poor estimate of future expenses. Key points to build in:
- Mortgage paid off → expenses often 20-30% lower
- Children independent → further significant savings
- Travel and leisure → can raise expenses in early retirement
- Health care → rises gradually after 75
Retirement is not a fixed number. It is a life project you refine as you go.