How to Retire Early in Canada

If you've ever wondered how to retire early in Canada, you've probably discovered that there isn't a magic number that tells you when you can stop working.

For one person, early retirement might mean leaving work at 55. For another, it might mean 60. Someone else might want to leave their career at 50 and work part-time for another decade.

The interesting thing is that early retirement in Canada is not just about having a large investment account.

It's about creating enough income, controlling your expenses, managing taxes, understanding CPP and OAS, dealing with the years before government benefits begin, and making sure your money can last for a very long retirement.

And that last part is easy to underestimate.

If you retire at 55 and live to 90, you're planning for 35 years without a traditional employment income. That's a very different problem from retiring at 65 and planning for 25 years.

So let's look at how to retire early in Canada in a practical way.

What Does Early Retirement Mean in Canada?

There is no single government definition of "early retirement."

From a personal planning perspective, though, early retirement generally means leaving your primary career before the age you originally expected to stop working.

That could mean retiring at 55 instead of 65.

It could mean leaving at 60 instead of 65.

Or it could mean stepping away from full-time work at 50 and gradually replacing employment income with investments, part-time work or a business.

This distinction matters because retiring early does not necessarily mean starting CPP early.

You can retire at 55, live from your savings for several years, start CPP at 65 or 70, and start OAS at 65 or later.

In fact, separating your retirement date from your government pension start dates can give you considerably more flexibility.

How to Retire Early in Canada: Start With Your Spending

The first step isn't calculating your investment balance.

It's figuring out what you actually spend.

This sounds boring.

It isn't.

Your spending level is one of the biggest variables in an early retirement plan because every dollar of annual spending has to be funded somehow.

Suppose one person needs $40,000 per year to maintain their retirement lifestyle and another needs $80,000.

They could have exactly the same investment portfolio and completely different retirement dates.

That's why the question "How much do I need to retire?" doesn't have a universal answer.

A better question is:

How much income will I need every year, and where will that income come from?

Our Retirement Budgeting article goes into more detail about the expenses that can easily get overlooked when building a retirement budget.

How Much Money Do You Need to Retire Early in Canada?

This is probably the question people ask most often.

And unfortunately, there is no magic number.

You might hear numbers such as $1 million, $2 million or $3 million thrown around.

Those numbers can be useful as examples, but they don't tell you whether you can retire.

Imagine two Canadians who both have $1 million invested.

The first person owns a mortgage-free home, has a defined benefit pension beginning at 60, expects substantial CPP and plans to spend $45,000 per year.

The second person rents, has no pension, wants to spend $80,000 per year and wants to retire at 50.

Calling both of them "millionaires who can retire" doesn't tell us much.

Their retirement plans are completely different.

This is why Retirementize looks at retirement as an income problem rather than simply a savings target.

Build Your Early Retirement Number Backwards

A useful way to approach early retirement is to work backwards.

Start with the lifestyle you want.

Then estimate your annual spending.

Then identify the income sources that will cover that spending.

Those income sources might include:

• RRSPs
• TFSAs
• non-registered investments
• defined benefit pensions
• defined contribution pensions
• CPP
• OAS
• rental income
• part-time employment
• business income
• home equity

Then look at when each source becomes available.

This creates a timeline rather than a single retirement number.

And that's exactly what you need for early retirement.

The Early Retirement Gap

One of the biggest challenges when figuring out how to retire early in Canada is the period between leaving work and receiving government pensions.

Let's say you retire at 55.

CPP can start as early as 60, but you don't have to start it immediately. OAS cannot start before 65.

That means your retirement plan needs to fund the years before those benefits begin.

This is sometimes called the retirement bridge.

For someone retiring at 55, that bridge could be:

• five years before CPP becomes available
• ten years or more before OAS begins
• even longer if the person chooses to delay CPP or OAS

This is one reason early retirement can require more planning than traditional retirement.

Don't Automatically Start CPP at 60

One of the biggest mistakes in early retirement planning is assuming that retiring early means taking CPP as soon as possible.

You can start CPP between ages 60 and 70.

Starting before 65 reduces the monthly amount. Starting after 65 increases it. The current CPP adjustment is a 0.6% reduction for each month before 65, up to a 36% reduction at age 60, while delaying CPP after 65 increases it by 0.7% per month, up to 42% at age 70.

That creates an interesting choice for an early retiree.

Suppose you retire at 55 with substantial savings.

You could use some of those savings from 55 to 70 and delay CPP, creating a larger guaranteed monthly income later in life.

Or you could start CPP at 60 and preserve more of your investment portfolio.

Neither approach is automatically right.

The important thing is to model both.

Our article 10 Reasons to Delay CPP explores some of the reasons a retiree might consider waiting.

If you need the income earlier, our article 10 Reasons to Take CPP Early looks at the other side of the decision.

What About OAS If You Retire Early?

OAS is different from CPP.

You cannot start OAS before age 65.

You can start OAS at 65 or defer it as late as age 70. Delaying OAS increases the monthly payment by 0.6% for every month of deferral, up to a maximum increase of 36% at age 70.

That means someone retiring at 55 has another important decision to make.

Do you use your investment portfolio to fund the first decade of retirement and then take larger government benefits later?

Or do you take CPP earlier and OAS at 65 to reduce withdrawals from your portfolio?

Again, there isn't one universal answer.

Your health, expected longevity, investment portfolio, tax situation, spending needs and other income sources all matter.

Use Your RRSP Strategically

RRSPs can be extremely useful for early retirement.

Many people think of an RRSP as something they shouldn't touch until they are 65.

That's not necessarily how it needs to work.

If you retire early, your income may actually be lower during the years before CPP, OAS and other pensions begin.

Those lower-income years can create an opportunity to withdraw some RRSP money before other taxable income sources become larger.

For example, imagine someone retires at 55 with a large RRSP and relatively little other taxable income.

They might gradually draw down the RRSP between 55 and 65 rather than leaving the entire account untouched until later.

This can potentially reduce the size of future RRIF withdrawals and spread taxable income over more years.

It can also provide money to bridge the gap before government benefits begin.

The right strategy depends on the numbers, but early retirement creates opportunities that may not exist for someone who continues working until 65.

Don't Forget the TFSA

The TFSA is another extremely useful tool for early retirement.

Unlike CPP, OAS and RRSP withdrawals, TFSA withdrawals are generally not taxable income.

That makes the TFSA particularly useful when you need flexibility in managing taxable income.

For example, you might withdraw taxable income from an RRSP during a low-income year and supplement it with tax-free TFSA withdrawals.

That can give you more control over your taxable income than simply withdrawing everything from one account.

It also gives you another source of funds for the years before CPP and OAS begin.

Consider a Non-Registered Investment Account

Early retirees sometimes focus so heavily on RRSPs and TFSAs that they overlook non-registered investments.

A taxable investment account can provide another source of retirement cash flow.

It doesn't have the same tax treatment as a TFSA or RRSP, but it can be valuable because there are no RRSP-style withdrawal restrictions and no requirement to convert the account into a RRIF.

Having several account types can also give you more flexibility when deciding where your retirement income should come from each year.

Defined Benefit Pensions Can Change Everything

If you have a defined benefit pension, early retirement may look very different.

A pension that begins at 55, 60 or 65 can provide a predictable foundation for your retirement income.

Some pension plans also offer early retirement provisions, bridge benefits or other features that affect the amount you receive.

This is one area where you need to read your specific pension plan carefully.

Don't assume that the pension amount shown at age 65 is the amount you'll receive if you leave work at 55.

The reduction for early retirement can be significant depending on the plan.

Our article on Defined Benefit vs. Defined Contribution Retirement explains some of the differences between these two pension approaches.

Housing Is a Major Part of Early Retirement

Your home can have an enormous effect on whether you can retire early.

A mortgage-free home can significantly reduce your required retirement income.

But owning a valuable home doesn't necessarily mean you can afford to retire.

You still have property taxes, insurance, utilities, maintenance and potentially significant repair costs.

On the other hand, downsizing can potentially free up capital and reduce ongoing expenses.

Some early retirees choose to move to a smaller home, a condo or a less expensive community.

Others decide to stay in their existing home because they value the space and lifestyle more than the potential financial savings.

There isn't a right answer here either.

The important thing is to include housing honestly in your retirement plan.

Paying Off the Mortgage Before Early Retirement

A mortgage can be one of the biggest obstacles to early retirement.

Imagine you need $50,000 per year for your lifestyle but your mortgage costs another $20,000.

Eliminating that payment could dramatically change the amount of investment income you need.

But paying off the mortgage isn't automatically the best use of every dollar.

You need to compare the mortgage interest rate, your investment options, your cash reserves and your overall financial plan.

Our article Pay Off the Mortgage or Save for Retirement explores this trade-off in more detail.

Healthcare Is Different for Early Retirees

Healthcare is sometimes overlooked when Canadians think about early retirement.

Canada's public healthcare system provides substantial coverage, but not everything is covered.

Dental care, prescriptions, vision care, travel insurance and other expenses can still create significant costs.

If you're retiring before your employer benefits disappear, find out exactly what you'll be losing.

You may need to replace coverage for prescriptions, dental care, travel and other services.

A retirement budget that ignores these costs isn't really a retirement budget.

Taxes Matter More Than Most Early Retirees Expect

One of the interesting things about early retirement is that your taxable income can change dramatically over time.

You might have employment income today.

Then you retire and your taxable income drops.

Then you start CPP.

Then OAS begins.

Then RRIF minimum withdrawals become increasingly important.

Your tax situation can therefore look very different at 55, 60, 65, 70 and 75.

This is why early retirement planning should include taxes rather than simply calculating investment growth.

Our article Canadian Retirement Tax Hacks covers several tax considerations that Canadian retirees should understand.

Early Retirement and the OAS Clawback

The OAS recovery tax can also become relevant later in retirement if your income rises above the applicable threshold.

This is another reason to think about the entire retirement timeline.

You might have relatively low taxable income in your 50s, followed by higher taxable income later as CPP, OAS, RRIF withdrawals, pensions and investment income come together.

Strategic withdrawals earlier in retirement can potentially change how much taxable income you have later.

For more information, see our guide to the OAS Clawback.

How to Retire Early in Canada With Part-Time Work

Here's a secret about early retirement:

You don't necessarily have to stop working completely.

A part-time income of $15,000 or $20,000 per year can make an enormous difference to an early retirement plan.

Imagine your retirement spending is $50,000 per year.

If you earn $20,000 from part-time work, your investment portfolio only needs to provide the remaining $30,000 before taxes and other income sources are considered.

That's a completely different retirement problem.

Part-time work can also provide social interaction, structure and a gradual transition away from a full-time career.

And it doesn't have to be the same career you had before.

Some people teach.

Some consult.

Some work seasonally.

Some turn hobbies into small businesses.

Others simply work a few days a month.

Early retirement can be a spectrum rather than an on/off switch.

What Is FIRE in Canada?

If you've spent much time researching how to retire early in Canada, you've probably encountered the term FIRE.

FIRE stands for Financial Independence, Retire Early.

The basic idea is to build enough financial resources that employment becomes optional.

The Canadian version of FIRE needs to account for Canadian taxes, CPP, OAS, TFSAs, RRSPs, pensions and the cost of living in Canada.

Some people pursue an aggressive version of FIRE, saving a very large percentage of their income and aiming to retire in their 30s or 40s.

Others pursue a more moderate approach and aim for financial independence in their 50s.

Our FIRE Retirement Plan article explores the concept in more detail.

The Sequence of Returns Problem

Early retirees have another risk that can be easy to overlook.

You could have a perfectly reasonable long-term investment return and still experience a difficult retirement if poor market returns happen early in your retirement.

Why?

Because you're withdrawing money at the same time the portfolio is falling.

Suppose you retire at 50 with $1 million.

The market falls sharply during your first two years of retirement.

You're still withdrawing money to pay your bills.

Your portfolio now has fewer dollars available to participate in the eventual recovery.

This is why early retirement plans should be stress-tested rather than based on a single assumed investment return.

A plan that works beautifully at 6% annual growth may look very different if the first few years contain a major market decline.

Inflation Becomes a Bigger Deal in Early Retirement

Inflation matters for everyone, but it can be especially important for someone retiring early.

A 30-year retirement is long.

A 40-year retirement is even longer.

If your expenses rise over time, your retirement income needs to rise too.

That means an early retiree shouldn't simply calculate today's spending and assume it stays unchanged forever.

Food, housing, insurance, travel and other expenses can all change.

A good retirement plan should account for inflation throughout the projection.

Longevity Is One of the Biggest Early Retirement Risks

Here's an unusual problem:

Living longer is great.

But financially, it means your money has to work longer.

Someone retiring at 55 may need their portfolio to support them for 35, 40 or even more years.

That is a very long time for investment returns, inflation, taxes and spending changes to interact.

This is one reason government pensions can be valuable.

CPP and OAS can provide inflation-adjusted income for life, subject to their respective rules and eligibility requirements.

For CPP, delaying the start can increase the monthly amount up to age 70. OAS can similarly be delayed until age 70 for a higher monthly amount.

That can become part of a strategy for managing longevity risk.

Don't Forget Your Spouse

If you're married or in a common-law relationship, your early retirement plan needs to consider both people.

You might have different CPP amounts.

You might have different pensions.

One person might continue working while the other retires.

One person might have a large RRSP while the other has a large TFSA.

And eventually, one person may live longer than the other.

That last scenario deserves special attention.

A retirement plan that works while both spouses are alive may look very different after the first death.

Our article Retirement Calculators for Couples explores why couple planning needs to consider more than simply adding two individual retirement plans together.

How to Retire Early in Canada Without Running Out of Money

The goal isn't simply to accumulate enough money to retire.

The goal is to create a plan that can withstand changes.

What if the market drops 30%?

What if inflation stays high?

What if you live to 95?

What if one spouse dies earlier?

What if you need a major home repair?

What if you decide to travel more during your first ten years of retirement?

What if you want to help your children financially?

What if you decide to return to part-time work?

Those are the kinds of questions that make an early retirement plan useful.

A Simple Early Retirement Example

Let's imagine a Canadian couple wants to retire at 55.

They own their home and have no mortgage.

They have $1.5 million spread across RRSPs, TFSAs and non-registered investments.

They estimate they need $60,000 per year after tax to maintain their lifestyle.

They also expect CPP later in retirement and OAS beginning at 65 or later.

At first glance, the plan might look straightforward.

But now consider the timeline.

From 55 to 60, the couple needs to fund their lifestyle primarily from savings and investments.

From 60 to 65, they have the option of starting CPP or continuing to draw from investments.

At 65, OAS becomes available, although they could choose to defer it.

Later, RRIF rules begin affecting their withdrawal requirements.

Taxes change at each stage.

Investment returns change.

Inflation changes the spending requirement.

And eventually, one spouse may die.

That's why a single "retirement number" doesn't tell the whole story.

How Retirementize Can Help You Model Early Retirement

This is exactly the type of problem Retirementize was designed to explore.

Instead of asking only how much you have saved, you can build a retirement income plan around your actual circumstances.

You can model:

• your desired retirement age
• your spouse's retirement age
• CPP start dates
• OAS start dates
• workplace pensions
• RRSPs
• TFSAs
• non-registered investments
• rental income
• mortgages and housing costs
• inflation
• investment growth
• taxes
• future spending changes
• survivor scenarios

You can then change one assumption and see what happens to the rest of the plan.

What happens if you retire at 55 instead of 60?

What happens if you delay CPP?

What happens if you work part-time for five years?

What happens if you downsize your home?

What happens if your spending is 10% higher than expected?

These are much more useful questions than simply asking whether $1 million is enough.

10 Steps for Retiring Early in Canada

If you want a simple checklist, here's a good place to start.

1. Determine your desired retirement lifestyle. Know what you actually want to spend.
2. Calculate your current expenses. Don't build the plan around guesses.
3. Estimate your future income sources. Include CPP, OAS, pensions, investments and other income.
4. Build the bridge to government benefits. Know how you will fund the years before CPP and OAS begin.
5. Use RRSPs, TFSAs and non-registered investments strategically. Different account types provide different tax characteristics.
6. Review your housing costs. A mortgage, property taxes and maintenance can have a major impact on early retirement.
7. Plan for taxes. Look at your income across the entire retirement rather than one year at a time.
8. Stress-test the plan. Model poor investment returns, higher inflation and longer life expectancy.
9. Plan for two lives and one life. Make sure the plan still works if one spouse dies first.
10. Revisit the plan regularly. Retirement isn't a one-time calculation. Your circumstances will change.

Fun Facts About Early Retirement in Canada

• You can retire before collecting CPP. Retirement and CPP are separate decisions. CPP can begin as early as 60, but you can choose to wait.
• OAS doesn't start until 65 at the earliest. Someone retiring at 50 or 55 needs a plan for several years before OAS becomes available.
• CPP can increase substantially when delayed. Waiting after 65 increases CPP by 0.7% per month, up to 42% at age 70.
• OAS can also be delayed. Delaying OAS after 65 increases the monthly amount by 0.6% per month, up to 36% at age 70.
• Part-time work can change the math dramatically. Even modest employment income can reduce the amount your investment portfolio needs to provide during the early years.
• Early retirement can last a very long time. Retiring at 50 and living to 95 means planning for 45 years of retirement.

Final Thoughts: How to Retire Early in Canada

Learning how to retire early in Canada isn't really about finding a magic savings number.

It's about building a financial system that can support the life you want.

You need enough savings and investments to bridge the early years. You need to understand CPP and OAS. You need to account for taxes. You need to consider housing, inflation and healthcare. And if you're part of a couple, you need to understand what happens when one spouse dies.

Most importantly, you need to think about retirement as a timeline.

Your income at 55 may look completely different from your income at 65.

Your income at 65 may look different again at 70.

And your spending at 80 may not look anything like your spending at 55.

That's why early retirement planning is more than a retirement calculator that gives you one number.

The best starting point is to build a realistic plan, test different retirement ages, and see what happens when you change the assumptions.

Maybe you can retire at 55.

Maybe 58 is the right number.

Maybe working part-time for a few years gives you the freedom you want without requiring you to build a massive portfolio.

The answer is personal.

But once you understand the numbers, you can make that decision with a lot more confidence.