Does the 4% rule work in Canada?

The 4% rule is a simple answer to a hard question: how much can you spend from your savings each year without running out? It says to withdraw 4% of your portfolio in the first year of retirement, then give yourself a raise for inflation every year after — regardless of what markets are doing.

It comes from US research in the 1990s — financial planner William Bengen and, later, the "Trinity study." They tested every 30-year retirement window in market history and found that a 4% starting rate, with a balanced stock-and-bond portfolio, survived even the worst of them. The rule was never meant to be a guarantee. It is a rule of thumb built to survive bad luck.

Say you retire with a $1,000,000 portfolio. In year one you withdraw 4% — $40,000. The next year, if inflation was 3%, you do not take 4% again; you take last year's $40,000 plus 3%, or $41,200. You keep raising the dollar amount with inflation each year so your spending power stays flat.

The flip side is just as useful for planning. Because 4% is one twenty-fifth, you can size a portfolio by multiplying the income you want by 25. Want $40,000 a year from investments? You need about $1,000,000. Want $60,000? About $1,500,000. Run your own numbers through the calculator above to see the income and the longevity side by side.

Mostly — but it deserves a Canadian discount. The original studies assumed US market returns, a 30-year retirement, and very low costs. Three things make a Canadian retiree's situation a little tighter:

• Higher fees. Canadian fund fees have historically been among the highest in the world. A 2% MER quietly turns a 4% withdrawal into something far riskier.
• Tax on withdrawals. Money pulled from an RRSP or RRIF is fully taxable, so $40,000 withdrawn is not $40,000 spent. Your withdrawal order changes how much you keep.
• Longer, earlier retirements. A retirement that runs 35 or 40 years needs a lower rate than the classic 30.

For those reasons many Canadian planners treat 3.5% to 4% as a sensible starting band rather than a hard 4%. The bright side: you are not on your own. CPP and OAS are inflation-linked income for life, so your portfolio usually only has to cover the gap between those benefits and your spending — not the whole bill.

The withdrawal rate is a dial between income today and security later. Turn it up and you spend more now but lean harder on the portfolio; turn it down and you trade income for a bigger safety margin.

• 3% — cautious. Very durable, and close to what research suggests for very long or early retirements (the 45-year horizons in our FIRE in Canada guide). The cost is noticeably less income.
• 4% — the classic. The historical middle ground for a roughly 30-year retirement. Still the most common starting point.
• 5% — aggressive. Workable with a short horizon, a flexible budget, or a pension covering essentials — but it raises the odds of running short if markets disappoint early.

The comparison bars in the calculator show exactly what each rate pays in year one, so you can weigh the extra income against the extra risk for your own portfolio.

The 4% figure is tied to a 30-year retirement. Shorten the horizon and you can safely take more; lengthen it and you must take less. Someone retiring at 65 is planning for roughly 30 years. Someone retiring at 50 might need their money to last 45 — and research generally points to something closer to 3.25% to 3.5% for those very long runs. Drag the retirement-length slider to watch the projection flip from "lasts" to "runs short."

Averages hide the real threat. Two retirees can earn the same average return over 30 years and end up worlds apart — because the order of those returns matters when you are withdrawing. A steep loss in the first few years, while you are still selling to fund spending, does damage that a later recovery cannot fully undo. This is sequence-of-returns risk, and it is why the safe rate is well below the portfolio's average return. The calculator here uses a steady return, so it cannot show this directly — treat its "lasts" verdict as a best case and keep a margin.

You do not have to pick one rate and hold it through every market. A few common adjustments let you spend a little more while protecting against a bad start:

• The bucket strategy. Hold one to three years of spending in cash or GICs so you never have to sell stocks in a downturn, letting the rest of the portfolio recover.
• Flexible spending. Trim discretionary spending in down years and spend more in good ones. Even small, willing cuts after a bad year dramatically improve the odds.
• Guardrails. Set a ceiling and floor — give yourself a raise after strong years, ease off after weak ones — instead of blindly indexing to inflation.
• Lean on guaranteed income. Delaying CPP and OAS toward 70 boosts inflation-linked income for life and shrinks how much the portfolio must carry. See taking CPP and OAS together.

This guide and calculator are for educational purposes only and are not financial advice. The calculator uses a simplified constant-return projection and does not model market volatility, sequence-of-returns risk, taxes, or fees. Figures reflect 2026 rules and common planning assumptions. Confirm your own plan with a qualified advisor before acting. See our withdrawal order guide and OAS clawback guide for related planning.