Retiring Early in Canada: What You Need to Know Before You Quit

The idea of retiring before 60, or even before 55, is more popular than ever. The financial independence, retire early movement has brought early retirement into mainstream conversation, and many Canadians are actively working toward it. But retiring early in Canada is genuinely more complex than retiring at the traditional age of 65, and the decisions you make in the years leading up to it can make the difference between a financially secure early retirement and one that runs into serious trouble.

Here are the key things you need to understand before you leave work early.

The CPP and OAS Gap

One of the most significant challenges of early retirement in Canada is the gap between when you stop working and when government benefits begin. CPP can start as early as age 60, but at a significantly reduced amount, and OAS does not begin until 65 at the earliest.

If you retire at 52, you may face a 13-year gap before OAS begins and an 8-year gap before any CPP starts. During this time, your income must come entirely from your personal savings. That means your savings need to not only last longer overall but also carry more of the load in those early years.

Planning for this gap, knowing exactly how you will fund income from the day you retire until government benefits kick in, is one of the most important pieces of early retirement planning.

Your Savings Need to Last Much Longer

Conventional retirement planning often assumes a retirement of 20 to 25 years. If you retire at 52 and live to 90, your savings need to last 38 years. That is a significantly different challenge.

The longer the retirement, the greater the impact of inflation, the higher the risk of healthcare costs in later years, and the greater the probability of encountering multiple market downturns that affect your portfolio.

It also means your safe withdrawal rate, the percentage of your portfolio you can sustainably spend each year, needs to be more conservative than for someone retiring at 65. A withdrawal rate that works over a 20-year retirement may be too aggressive over a 40-year one.

Healthcare Before 65

Canada's public healthcare system covers most essential medical services, but there are significant costs that fall outside provincial coverage, dental care, vision care, prescription drugs, physiotherapy, and private paramedical services. When you leave employment, you lose access to group benefits that often cover many of these expenses.

If you retire early, you need a plan for healthcare costs. Some options include purchasing individual health and dental insurance, budgeting for out-of-pocket costs, or using a Health Spending Account if you have any self-employment income. These are not dramatic costs in your 50s, but they grow as you age and should be part of your planning.

Tax Planning Takes On Greater Importance

Early retirees have a unique opportunity that people who retire later often miss: years of relatively low income before CPP and OAS begin. These can be excellent years to make RRSP withdrawals at a lower tax rate, convert registered savings to a RRIF gradually, build up TFSA room, or realize capital gains at a lower tax cost.

Managing your income across the years between retirement and age 65 can significantly reduce your lifetime tax bill, but only if you are intentional about it.

Your Mortgage and Debt Situation

Most early retirement plans rest on the assumption that you enter retirement debt-free or close to it. Carrying a mortgage or consumer debt into an early retirement significantly increases the income you need every month and the savings required to generate it.

If early retirement is your goal, eliminating debt before you retire is almost always a prerequisite. The math of servicing debt from a portfolio that is also being drawn down for living expenses does not generally work in your favour.

The Lifestyle Reality Check

Early retirement sounds appealing, but it is worth spending time thinking concretely about what your days will actually look like. Many people find that the structure, purpose, and social connection that work provides is harder to replace than they anticipated.

This does not mean early retirement is a bad idea, for many people, it is the best decision they make. But the most successful early retirees tend to be those who are retiring toward something, a clear vision of how they want to spend their time, rather than simply away from work.

Getting the Plan Right Before You Go

The biggest mistake early retirees make is not running the numbers carefully enough before they quit. Retiring a year or two earlier than planned can have significant compounding effects on the size of the portfolio needed. Running detailed projections, including different market scenarios, inflation assumptions, and longevity estimates, is essential before you hand in your resignation.

This is not planning you want to do quickly or informally. Working through a detailed early retirement plan with a financial advisor who can stress-test your numbers is one of the most valuable investments you can make before making a decision you cannot easily reverse.

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Thinking About Your Next Step?

Nexus Financial Strategies works with a small, select group of clients across Canada to build financial plans designed around real lives and real goals. If early retirement is something you are working toward, we can help you understand what is realistic and what it will take to get there. You can connect with our team at nxsfinancial.ca. If it looks like a great fit, we will be in touch.