How to Retire Early in Canada

What’s the point of saving all this money? You may have some vague thoughts meandering between paying off some debt or “It’s what Granddad always said!” Well, we are about to give you a real goal. A beautifully simple exit strategy from the 9-5 grind. Retire early in Canada and have mondays to look forward to!

retire early
Canada’s version of the palm tree

The Simple Plan to Retire Early in Canada

Retirement, financially speaking, is simply balancing our expenses with our income. Our future income depends on one thing: Our current savings rate. Conquering this one number today, will also have a huge effect on our expenses in retirement. The following chart details the relationship between our savings rate and years to retirement:

RetiRED. Look for the RED line to win.

Our savings rate is the percent of our take home pay that we save every month. This includes any pension or retirement savings that come off of our pay automatically. What can we learn from this chart?

First off, five or ten percent savings simply will not cut it. A Bye Boss’r needs to aim their sights somewhere south of the 50% mark. Second of all, Our Income level becomes almost irrelevant, if it is spent as fast as we make it.

If I make $250,000 a year and save 5% I’m in actuality worse off than one whom makes $50,000 a year and saves 65%, by 56! working! years! Not to mention the annual savings on ‘A Touch of Grey’ hair products.

This can really bring a sense of inner satisfaction, and perhaps some feelings of pity, as we stroll past the the poor sucker driving his LandRover off to the fuel pumps, on his way to another day of self-imposed work in the office.

This is why we want to stay away from financial advice that suggests to spend a certain percent of our income on any one item, for instance, thirty percent on housing or transportation. This allows our spending to creep up with our income, essentially relegating you to a life of slavery. This is not to our benefit.

Earn more or Burn Less?

Once its burnt it’s gone

While they say it takes money to make money, it can be far harder to save money when we slave for money. While the amount we can earn is limitless, the time we have is finite. When you trade your time for a bigger paycheck there comes a point when we have to start paying to save time; being alert to when we start paying to free up our time, is good indicator that we’ve reached that tipping point. Without the availability of time it becomes ever difficult to have the ability to analyze our spending, the most efficient way to early retirement.

Extra income helps us only while we are working, which will be increasingly shorter as we say Bye to Buying mindlessly. On the flip side, lowering expenses is valuable for your entire life, as it continues to provide benefits long after you’ve reached the point of becoming a King B.

How much will I need?

So, we know how long it will take us from the above chart. How much money will that take though? There is a very simple calculation for this: Your Annual Spending x 25. That’s it.

If you spend $50,000 a year you will need $1,250,000… That’s quite a bit. Doable for sure. But that’s a lot of working. What if we could cut our expenses down to $25,000, while still living a life as grand as the $50,000 a year folks? Then we’d only need $625,000. Much more doable. That’s the point of this blog.

The 4% Rule

This is based on the 4% withdrawal rule. Which means we can safely draw 4% from our savings each year and never touch the principal amount. There’s a bunch of math and studies behind this number, as you would expect.

The long and short of it is this: Even if you retired during the 1929 stock crash, or 2008 crash, you would still not run out of money with a 4% withdrawal rate. This also assumes that you never make another cent, which is entirely under your control.

You can stop reading here if you are sufficiently compelled to sit down and think about what the next few years can bring you. If you’d like to dig into this a little more continue…

Doggo says keep digging

What To Do With Your Money -Advanced Edition

So you are saving $2000 of your $4000 monthly paycheck. That’s $24,000 a year (If you are still spending $4000 a month keep reading this blog and we will soon rectify that). What we do next depends on a few numbers:
1. Your RRSP deduction available
2. Your TFSA Room
3. Your most efficient Tax Relief amount

RRSP and TFSA


Go to this website to find out the answers to 1 & 2 : https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html
You can log in with your banking information via the partner log-in to make this easy. Once you log-in scroll down and you will see a box like this, with your own RRSP and TFSA amounts:

The longer you’ve been working the higher these tend to be

Note these numbers then head to: https://www.canada.ca/en/revenue-agency/services/child-family-benefits.html
Here you can see what programs you are eligible for. You’ll notice many of them are based on your net-income. This chart, found in the above web page, gives a quick overview:

Are you telling me kids are good for my finances?

Workers Income Benefit

Look over the following charts to get an idea of the net income level you will be aiming for to maximize your tax credits and refunds:

15,000 for single and 25,000 for married are nice returns

The above is the Workers Benefit program. You can see there are some nice advantages as your net income lowers. Check out the Canada Child Benefit if it applies to you along with the GST credit, and other provincial programs. For a married couple somewhere near the $33,000 level of net income is very advantageous.

With the knowledge gained from poking around the various benefits programs head to this calculator and put in some numbers for yourself, to get an idea of the net income that is best for you:
https://www.canada.ca/en/revenue-agency/services/child-family-benefits/child-family-benefits-calculator.html
Enter in the information as requested, and select yes when prompted here:

click ‘Yes’

The Al Bundy Maneuver Returns

You’ll find it is very advantageous to have children, and a low net income. While we can’t directly impact the number of children you have, we’ll leave that to Budweiser, we can directly influence our net income amount, via RRSP contributions.

You’ll want to have a self-directed RRSP and TFSA account opened at your bank. At the end of the process above you should end up with a screen something like this:

Summary of Benefits Available to you

Depending on your income you should receive somewhere around 30% tax refund on your RRSP contribution. So the first year $24,000×30%= $7200. Not too bad of a return! But it gets better when you add in the other benefits as seen above calculated for a $70,000 income married with 2 children, another 13,932.16 is added for a total refund of $21,132.16. This is the secret to being able to retire early in Canada.

The Freight Train Keeps on Rollin’ on its Way to Retire Early in Canada

Jimi Hendrix would be proud

We are quickly approaching 100% returns on our money, when we add in a 7% return from an ETF, when invested, tax free, in the market via our TFSA! Now your first instinct might be to run out and spend that on a new car, to which you’d receive a Triple B patented Roundhouse Kick to the Head!

Thinking like a Bye Boss’r that $21,000 is added to the $24,000 we will save the following year. Giving us $45,000 that can be again applied to RRSP contributions, up to the most effective amount, given contribution room is available. In ten years that compounds to $650,000. Nice, eh! This is one of the most effective ways to retire early in Canada.

Well I hope this has given you some impetus to start saving. Housing, transportation, utility costs, living expenses, food costs, and even cell bills can be optimized to bring this to fruition. I’ve done it. Can you?

All aboard the train retire early in Canada!

Photo Credits:
Les Anderson 
Jp Valery
Triple B
Janusz Maniak 
Denis Chick 

7 Replies to “How to Retire Early in Canada”

  1. For a high income family (who doesn’t qualify for any of the benefits above) would you recommend maximizing RRSP or investing in TFSA?

    1. If it’s not feasible to lower your net income down to the ~$30,000 level then I’d suggest something like the following example:
      2019 -max out TFSA(s)
      2020 tax season (before march) fill up RRSP, from your TFSA if needed. The amount you contribute will depend on your marginal tax rate and availability of funds.
      2020 tax return deposit into TFSA and max out TFSA again. Continue this cycle.
      The reason for this is when you reach retirement you can pull out ~$15,000 (x2 for a couple) tax free from rrsp each year. Any excess on top of this is taxed, so it is beneficial to be able to pull from TFSA to top up your income. Everything you pull from TFSA is tax free.

      So TFSA first to maximize tax free income in retirement. RRSP second as a general rule with higher incomes.

        1. Yes you pay a withholding tax similar to your income tax on your paycheck. It comes out in the wash at the end of the year when you file taxes, so it’s only really a consideration the first year of retirement, if you are only pulling out your basic tax free amount.

  2. Nice article. So maybe a silly question, when using my RRSP to get into a lower tax bracket does my calculation include tax and deductions I’ve already paid? IE $60,000 – $12,000 tax – $15,000 rrsp = $33,000 tax bracket? Or $45,000 tax bracket?

    1. Rrsp contributions directly lower net income, along with pension contributions, childcare expenses, union dues, employment expenses and other deductions. Taxes do not. So it will be somewhere between your two figures depending on other deductions.

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