Why Millennials Can't Count on CPP Alone: Building Your Own Pension with XEQT

My dad retired at 60 with a full defined benefit pension from a telecom company. He gets a cheque every month, indexed to inflation, for the rest of his life. He never once had to think about asset allocation, withdrawal rates, or whether the market was up or down. He just… retired.

I will not have that luxury. Neither will most of you reading this.

If you were born between 1981 and 1996 – roughly 30 to 45 years old right now – you are part of the generation that will largely need to fund its own retirement. The defined benefit pension has all but disappeared from the private sector. What we have instead is CPP, OAS, and whatever we manage to build on our own.

This post is about facing that reality honestly, running the actual numbers, and building a plan using XEQT – iShares Core Equity ETF Portfolio – as the foundation of your own personal pension.

1. The Retirement Reality for Canadian Millennials

Here is the truth that nobody at your bank wants to tell you: the government safety net is real, but it is thin.

Canada Pension Plan (CPP)

CPP replaces roughly 25% to 33% of your average working earnings, up to a maximum. In 2026, the maximum monthly CPP retirement pension at age 65 is approximately $1,365. But most people do not get the maximum – you need to have contributed at or above the Year’s Maximum Pensionable Earnings for essentially your entire career. The average CPP payment is closer to $800-$900 per month.

The enhanced CPP (CPP2), which started phasing in from 2024, will eventually boost benefits. But “eventually” means decades from now, and the additional benefit for mid-career millennials will be modest.

Old Age Security (OAS)

OAS is simpler: if you have lived in Canada for at least 40 years after age 18, you get the full amount. In 2026, that is approximately $700 per month at age 65. OAS is clawed back if your income exceeds roughly $90,000 per year, but for most retirees, you will get the full amount.

Total Government Benefits

Try living on $18,600 to $24,780 per year. In 2026 dollars, that is below the poverty line in most Canadian cities. Even in a small town with a paid-off house, you are looking at a very modest existence – no travel, no helping your kids, no buffer for unexpected expenses.

The Disappearance of Defined Benefit Pensions

In the 1980s, roughly 40% of Canadian private sector workers had a defined benefit (DB) pension. Today, that number is under 10%. Public sector workers – teachers, nurses, government employees, police – still largely have DB pensions, and they are the lucky ones. For the rest of us, the employer pension has been replaced by… nothing. Or at best, a group RRSP with modest matching.

This is not a subtle shift. It is a massive transfer of retirement risk from employers to individuals. Your parents’ generation had someone else managing and guaranteeing their retirement income. You are on your own.

The Cost of Living Problem

On top of the pension gap, millennials face pressures previous generations did not: housing prices have roughly tripled since 2005, childcare costs $1,500 to $2,500 per child per month in many cities, student debt loads are higher, and real wages have barely kept pace with inflation.

The result: less money available to save, at a time when you need to save more than any previous generation.

2. How Much You Actually Need to Retire Comfortably in Canada

Let’s get specific. The most commonly used retirement planning framework is the 4% rule: you can safely withdraw 4% of your portfolio each year (adjusted for inflation) and have a high probability of not running out of money over 30 years.

The 4% rule is imperfect – some researchers argue 3.5% is safer for longer retirements. But it is a reasonable starting point.

First, determine your desired annual retirement income. Then subtract your expected government benefits. Let’s use $22,000 as a realistic middle estimate for CPP + OAS combined.

The gap:

Those numbers might look intimidating. A million-dollar portfolio sounds like something only rich people have. But here is the thing: with enough time and consistent investing, it is remarkably achievable. That is where XEQT comes in.

Step 4: How much you need to invest monthly in XEQT

Assuming a 7% average annual return (which is conservative for an all-equity portfolio like XEQT over long time periods, after inflation adjustment and fees), here is what monthly contributions look like:

Look at the difference between starting at 25 versus starting at 40. Starting at 25, you need $360/month to build a $950K portfolio. Starting at 40, you need $1,180/month for the same goal. That is the cost of waiting – and it is brutal.

If you are 30 years old and want a $60,000/year retirement income, you need to invest roughly $520 per month in XEQT starting now. That is about $17 per day. Difficult? Yes. Impossible? No. And certainly less impossible than trying to live on $22,000 per year from the government.

3. Why XEQT Is the Perfect “Personal Pension” Vehicle

You might wonder: why XEQT specifically? Why not individual stocks, or a robo-advisor, or the mutual fund your bank keeps pushing?

The answer is that XEQT behaves like a pension fund in all the ways that matter, without the parts you do not need.

What pension funds actually do

Canada’s largest pension funds – CPPIB, Ontario Teachers’, Caisse de depot – hold globally diversified portfolios across thousands of companies and multiple asset classes. They rebalance regularly, keep costs low (relative to what they manage), and take a long-term view measured in decades, not quarters.

XEQT does essentially the same thing for the equity portion of your portfolio:

The two things a DB pension has that XEQT does not: guaranteed income and employer contributions. Both are genuinely valuable. But XEQT gives you things a DB pension does not: complete portability, full control over your retirement timeline, and the ability to pass your entire portfolio to your heirs.

The cost advantage is enormous

If your bank is suggesting a “pension-like” balanced mutual fund, look at the MER. It is probably 1.5% to 2.5%. Over 30 years, the difference between XEQT’s 0.20% MER and a 2.0% mutual fund fee can cost you hundreds of thousands of dollars. On a $1,000,000 portfolio, that is $18,000 per year in extra fees – itself a decent salary, and every dollar paid in fees is a dollar that is not compounding in your portfolio.

For a deeper dive, see our comparison of XEQT versus Canadian pension funds.

4. The XEQT Pension Plan: A Simple Framework

Here is the actual plan. Five steps. No jargon. No financial advisor required (though getting one is fine if you want to).

Step 1: Calculate your retirement gap

Take your desired annual retirement income and subtract your expected government benefits. Use $22,000 as a conservative estimate for CPP + OAS, or be more specific based on your CPP Statement of Contributions (you can check this on your My Service Canada account).

Your gap = Desired annual income - Expected CPP - Expected OAS

If you want $60,000 per year and expect $22,000 from the government, your gap is $38,000 per year.

Step 2: Determine your portfolio target

Divide your annual gap by 0.04 (the 4% rule).

Portfolio target = Annual gap / 0.04

$38,000 / 0.04 = $950,000. That is your number. Write it down. Put it on your fridge. Make it your phone wallpaper. This is what you are building toward.

Step 3: Set up automatic XEQT purchases

This is where dollar-cost averaging becomes your best friend. Set up an automatic recurring purchase of XEQT through your brokerage – weekly, biweekly (aligned with your paycheque), or monthly.

Use the table in Section 2 to find your required monthly contribution based on your age and target. Then set it and forget it. Literally. The entire point of this strategy is that you do not need to think about it. You do not need to check the market. You do not need to time your purchases.

If you are new to XEQT and want a walkthrough on getting started, our XEQT for beginners guide covers everything from opening an account to placing your first trade.

Step 4: Increase contributions with every raise

This is the secret weapon that most people overlook. Every time you get a raise, increase your XEQT contribution by at least half the raise amount. Got a $200/month raise? Bump your XEQT contribution by $100/month. You will barely notice the difference in your daily spending, but your portfolio will notice enormously.

This approach fights lifestyle creep – the tendency to spend more as you earn more. If you are investing in your 30s, this is the decade where raises tend to be largest. Capturing a portion of each one for your XEQT pension plan can shave years off your timeline.

Step 5: Start your glide path at 50-55

XEQT is a 100% equity fund. That is perfect for your accumulation phase – your 30s and 40s, when you have decades until retirement and can ride out market downturns. But as you approach retirement, you will want to gradually shift some of your portfolio into bonds or a more conservative allocation.

This is called a glide path strategy, and the simplest version looks like this:

You do not need to think about this until you are at least 50. For anyone in their 30s reading this, your only job right now is to buy XEQT consistently and increase your contributions over time.

5. “But I Can’t Afford to Invest!” – Addressing Common Millennial Objections

I hear you. I am not going to pretend investing is easy when you are paying $2,200/month rent and watching grocery bills climb. The challenges are real. But the biggest risk is not investing too little – it is not investing at all.

“I can only afford $50 a month – what’s the point?”

The point is $50/month at a 7% average return becomes:

$50/month for 30 years becomes nearly $59,000. That is not retirement money on its own, but it is infinitely more than $0. And almost nobody stays at $50/month forever – as your income grows, so do your contributions. The habit matters more than the amount.

“The latte factor is a myth – my real problem is housing costs”

You are right. Cutting lattes will not solve a $2,500/month rent problem. But even if you cannot control the big expenses right now, you can control whether you invest something. If $50/month is genuinely what you can manage, start there. Waiting costs more than starting small, every single time.

“I’ll start investing when I make more money”

This is the most expensive sentence in personal finance. Person A invests $200/month from age 25 to 35, then stops. Person B invests $200/month from age 35 to 65. At 7% returns, Person A ends up with roughly $525,000 at 65. Person B ends up with roughly $235,600.

Person A invested $24,000 total. Person B invested $72,000. Person A ends up with more than double, despite contributing one-third as much. That is the power of starting early.

If the idea of building toward financial independence before traditional retirement appeals to you, look into the concept of coast FIRE – reaching a portfolio size where you could stop contributing entirely and still have enough at retirement age thanks to compound growth.

6. Where to Put Your XEQT Pension: TFSA, RRSP, and FHSA

You have decided to build your XEQT pension. Now, which account should you use? This matters because the right account can save you thousands in taxes over your lifetime. For a full breakdown, see our detailed guide on TFSA vs RRSP for XEQT, but here is the summary.

TFSA – Best for most millennials, especially if you earn under $100,000/year. All growth and withdrawals are completely tax-free, and withdrawals do not count as income in retirement, which protects your OAS and GIS. Contribution room is ~$7,000/year in 2026.

RRSP – Best for higher earners (over $100,000/year) who expect a lower tax bracket in retirement. Contributions are tax-deductible now, but withdrawals are taxed as income later. Contribution room is 18% of prior year income, up to ~$32,490 in 2026.

FHSA – Best for millennials who have not yet bought a first home. You get an RRSP-like tax deduction going in and TFSA-like tax-free growth coming out. $8,000 annual room, $40,000 lifetime limit. If you do not buy a home within 15 years, funds transfer to your RRSP.

Priority order for most millennials:

1. Employer RRSP match (free money – always take it)
2. FHSA (if eligible – best tax treatment available)
3. TFSA (tax-free growth, flexible withdrawals, no retirement income impact)
4. RRSP (for higher earners or once TFSA is full)
5. Non-registered account (if you have maxed all registered accounts)

7. A Real Example: Sarah, Age 32

Sarah earns $72,000/year, has $15,000 in a TFSA savings account, no workplace pension, and wants $55,000/year in retirement at 65.

• Her gap: $55,000 - $14,000 (CPP estimate from My Service Canada) - $8,400 (OAS) = $32,600/year
• Portfolio target: $32,600 / 0.04 = $815,000
• Existing savings growth: Her $15,000 at 7% grows to ~$144,000 by 65
• Remaining target: $815,000 - $144,000 = $671,000
• Monthly contribution needed: approximately $460/month over 33 years

Sarah’s plan: move the $15,000 into XEQT in her TFSA, set up automatic biweekly $230 purchases, overflow into her RRSP once the TFSA is full, increase contributions with each raise, and revisit her glide path at age 50.

One fund, one automatic contribution, one annual check-in. The framework is sound, the math is reasonable, and the alternative – hoping CPP and OAS will be enough – is demonstrably inadequate.

8. The One Advantage Millennials Have

The challenges are real. But our generation has one massive advantage: access. Commission-free trading (our parents paid $29 per trade), all-in-one ETFs like XEQT (which did not exist before 2019), fractional shares starting at $1, automatic recurring investments, and free financial education online. The pension is gone, but the tools to build our own are better than anything previous generations had.

FAQ: CPP, Retirement Gaps, and Building Your XEQT Pension

Is CPP going to run out of money before millennials retire?

No. The CPP is actuarially sound for at least the next 75 years according to the Chief Actuary of Canada. The fund holds over $600 billion and is designed to be sustainable. The issue is not that CPP will disappear – it is that CPP was never designed to be your full retirement income. It was meant to be one leg of a three-legged stool: CPP, employer pension, and personal savings. For most millennials, the employer pension leg is gone.

Can I just delay CPP to age 70 and get a bigger payment?

Yes, and this is actually a smart strategy for many people. Delaying CPP from 65 to 70 increases your payment by 42% (0.7% per month). If your maximum CPP at 65 would be $1,365/month, at 70 it would be roughly $1,938/month. The trade-off is five years of no CPP payments. Whether this makes sense depends on your health, other income sources, and whether your XEQT portfolio can bridge the gap from 65 to 70. For many people with a solid XEQT pension, delaying CPP is worth considering.

Is 7% a realistic return assumption for XEQT?

Over long periods (20+ years), global equity markets have historically returned 7-10% per year including reinvested dividends. Using 7% nominal is moderate – you might earn more or less, but any reasonable assumption between 6% and 8% leads to the same conclusion: consistent investing over decades builds substantial wealth. If you want to be conservative, use 6% and invest a bit more per month. See our XEQT retirement planning guide for detailed return scenarios.

What if I am already 40 and have nothing saved?

Today is the best day you have left to start. At 40, you have 25 years until 65. Investing $800/month at 7% gives you roughly $512,000 – enough to generate about $20,000/year in withdrawals, which combined with CPP and OAS puts you at approximately $42,000/year. That is infinitely better than $22,000 from government benefits alone.

Should I use XEQT or XGRO for my personal pension?

If you are more than 15 years from retirement, XEQT is generally the better choice – 100% equities means maximum growth potential. XGRO includes 20% bonds, which reduces volatility but also reduces expected returns. For millennials with decades to go, XEQT’s all-equity approach is worth the short-term volatility. Transition to a more conservative allocation later using the glide path in Section 4.

The Bottom Line

Our parents had pensions. We have XEQT. That is not a lament – it is a statement of fact and an action plan.

CPP and OAS will provide a floor of roughly $18,000 to $25,000 per year. For most people, that is not enough. The gap is real, and it is your responsibility to fill it.

The good news: filling that gap is not complicated. Buy XEQT regularly, automatically, and increase the amount when you can. Do this for 25 to 35 years and you will have built something that looks remarkably like the pension your parents had – except you own it, you control it, and you can pass it on to your kids.

Your pension is not going to build itself. But you can build it, starting today, one XEQT purchase at a time.