FP Answers: Eleanor, 45, aims to invest $2,200 monthly to retire at 55

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Q. I have just had my 45th birthday. I am single and earn $110,000 a year, and am debt-free. I just finished paying off my townhouse, worth $625,000, and I would like to continue to put away my mortgage payment of $2,200 a month (or $26,400) annually) as savings. The question is, what should I do with that money? I have never invested before because everything went to debt repayment, but I do have $20,000 in my registered retirement savings plan (RRSP) and $10,000 in my tax-free savings account (TFSA). I will receive an employee pension at retirement but since I plan to retire early, I will take a hefty deduction. It will amount to about $12,000 annually if I take it at age 55. I will need about $45,000 net to live comfortably and do some travelling. What should I do with my $26,400 in annual disposable income? Any suggestions would be appreciated. — Eleanor

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FP Answers: Eleanor, congratulations on your debt-free status. That’s a goal that many aspire to. A great way to save is by continuing to put away a former expense amount (in your case, your mortgage payment) and repurpose it for retirement savings.

I recommend that you break down your money goals a little more by looking ahead about 10 years to retirement and see what other expenses might arise. Maybe a new car, travel expenses, or unexpected home repairs? Or perhaps saving for other non-retirement goals?

Realistically, I suggest keeping some short-term savings or cash available for emergencies and then investing the remainder for a long-term goal, such as retirement.

For instance, my projection shows that investing $1,750 monthly in an RRSP for 10 years compounding at four per cent annually would amount to $256,000. If you withdrew from the $256,000 in even amounts from age 55 to age 90, it could provide about $12,800 annually before tax. Add that to your annual defined benefit reduced pension of $12,000 (before tax). The average Canada Pension Plan (CPP) payment (as of 2024) for a 65-year-old is $808 monthly, or $9,696 yearly (and the maximum in 2025 is $1,433 monthly), but would be less for you due to the fact you wouldn’t be making any CPP contributions after age 55.

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Also, Old Age Security (OAS) payments are available starting at age 65 for a maximum payment of $727.67 monthly, or $8,732.04 annually (as of January 2025) if you have lived in Canada for 40 years by age 65. This will be prorated to a lower amount if you have lived in Canada for less than 40 years after the age of 18.

Because you plan to retire at age 55, you would need to supplement your income to bring it to a desired $45,000 after-tax amount (tax brackets in Ontario require a gross amount of $58,000 to net $45,000). The above sources alone would not be sufficient.

To decide whether to save within an RRSP or TFSA, consider if you are in a higher tax bracket now than you will be in retirement when you withdraw the money. If you are, like for many people, an RRSP makes sense. You can withdraw from your RRSP for the 10 years between age 55 and 65 before your OAS payments start. You may also want to wait and take CPP at age 65 for an increased benefit, rather than taking it at age 60 because your CPP will be reduced by 36 per cent annually for life if you do so.

Contributing to your RRSP during your working years at your current income also provides the benefit of a tax deduction. But remember, it will be taxed later at withdrawal, but likely at a lower income and tax rate. The amount you could save in your RRSP also depends on how much RRSP contribution room you have. People with defined benefit pension plans don’t always have large contribution room available. Check with Canada Revenue Agency (CRA) or on last year’s tax return to find out what your cumulative total RRSP contribution room is.

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A TFSA works differently from an RRSP. It allows for tax-free withdrawals, which will help keep your retirement taxes low. TFSAs also have contribution limits. With a current TFSA of $10,000, you should have about $92,000 in unused TFSA room (as of 2025) but again, confirm this number with the CRA or your tax accountant to be sure. The TFSA would accommodate about 3.8 years of current savings. If you run out of RRSP and TFSA room, you could invest in a non-registered investment account that you could open online. Here, you could hold cash, guaranteed investment certificates (GICs), exchange-traded funds (ETFs) or individual stocks that pay dividends.

Other options to consider in order to reach your goal are to work for a longer time before you retire fully with some part-time or seasonal work, to save more while working, to plan to spend less in retirement, or to earn more on your investments while still investing within your risk tolerance. A fee-for-service financial planner could help you set up a simple investment plan with low fees if you decide to go this route.

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And finally, you may be able to use the equity in your home to augment your income in retirement through a home equity loan, a home equity line of credit (HELOC), or through cash-out refinancing to access the value of it, often while you continue to live there.

Eleanor, you are close to where you want to be. Keep moving ahead. You are on the right track.

Janet Gray is an advice-only certified financial planner at Money Coaches Canada in Ottawa.

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