I’m 58 years old and finally an RRSP millionaire: Do I need a bigger nest egg or can I ease off the gas?

How long will your money last?

The popular 4% withdrawal rule suggests withdrawing 4% in your first year of retirement and, in subsequent years, withdrawing that amount adjusted for inflation. With a portfolio of $1 million, that would work out to about $40,000 in the first year — so this 58-year-old will need to make up the difference from other sources of retirement income to reach $64,000.

But there are many other withdrawal approaches. For example, the Bogleheads variable percentage withdrawal strategy determines your withdrawal percentage based on age, asset allocation and portfolio balance. You can also estimate withdrawal amounts with an RRSP withdrawal calculator or work with a financial advisor.

This 58-year-old will also have to consider how much they’ll bring in with Old Age Security (OAS) and the Canada Pension Plan (CPP) — the two federal public pensions in Canada — along with their workplace pension.

If you’re eligible for CPP, the maximum monthly amount you could receive in 2025 if you start your pension at age 65 is $1,364.60. However, the average monthly amount (at age 65) was $815 (as of July 2024), according to the Government of Canada. For OAS, the maximum monthly payment is $727.67 for those aged 65 to 74 and $800.44 for those 74 and older. If you take your pension early (as early as age 60), your monthly cheque will be lower; you can delay up until the age of 70 and receive a permanent bump in your benefit. You can plug the numbers into the government’s Canadian Retirement Income Calculator to estimate your CPP and OAS.

Once you add up all the sources of your retirement income, you’ll get a better sense of how much you’ll have to live on in retirement — and if you need to work longer to meet your goals.

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Don’t forget about inflation

Even if our 58-year-old feels that they has a decent nest egg, they should also consider the impact of inflation. While inflation has been coming down, the past few years have demonstrated how high inflation can impact our cost of living — from the grocery store to the gas pump.

Using the Bank of Canada’s investment calculator, consider an investment of $1 million over 30 years (assuming an annual interest rate of 3.3% and an annual rate of inflation of 2%). The good news? Your nest egg will keep growing: to $1,462,192.30. But the effect of inflation on the value of the initial investment would be $552,070.89.

It’s quite an accomplishment to save $1 million, but our 58-year-old will also want to consider when they plan to retire — if they're retiring early, they'll need to stretch their nest egg over a longer period of time. If they plans to work (and save) longer, they’ll not only have a larger nest egg, but they’ll have a larger monthly CPP cheque.

But there does come a point when you will stop saving for retirement and … retire. Eventually, you can ease off the gas as you head into your golden years. Doing the math, and perhaps consulting with a financial advisor, can help you figure out the best way to stretch your nest egg — whether you’ve reached that $1 million milestone or not.

Sources

1. TaxTips.ca: RRSP/RRIF Withdrawal Calculator

2. Canada.ca: CPP Retirement pension: How much you could receive

3. Canada.ca: Old Age Security: How much you could receive

4. Canada.ca: Canadian Retirement Income Calculator

5. Bank of Canada: Monetary Policy Report (October 2024)

6. Bank of Canada: Investment calculator