The 4% rule in Canada: a starting point, tested against Canadian rules

What the rule actually says

The idea is simple. Take your portfolio's value on the day you retire, multiply by 4%, and that's your first year's withdrawal. Each following year, you raise the dollar amount by inflation, regardless of how markets have done.

For a hypothetical $800,000 portfolio, that means $32,000 in year one. If prices rise, year two's withdrawal rises by the same percentage, so the buying power of the withdrawal stays roughly level.

The rule is popular because it turns a complicated question into one line of arithmetic. But it's a rule of thumb, not a Canadian rule or a government guideline, and the assumptions behind it don't match every retiree's situation.

Another way to see 4% is as a ratio: a $32,000 first-year withdrawal is one twenty-fifth of $800,000. Turned around, that becomes the familiar shortcut of saving 25 times your yearly withdrawal, which carries the same assumptions and the same gaps.

What it leaves out for Canadians

Several Canadian features don't appear anywhere in the 4% shorthand, and each one can move the answer:

• Government pensions: CPP and OAS cover part of spending, so the portfolio only has to fill the gap. A full OAS pension is $762.50 a month for ages 65 to 74 in the October to December 2026 quarter.
• Income tax: a 4% withdrawal from an RRSP or RRIF is taxable, so the after-tax spending it supports is smaller. TFSA withdrawals aren't taxed.
• RRIF minimums: the prescribed factors rise with age, for example 5.82% at 75, 6.82% at 80 and 8.51% at 85, so required withdrawals can exceed 4% whether you need the cash or not.
• The OAS recovery tax: income above $95,323 in 2026 triggers a 15% recovery of OAS, which large withdrawals can affect.
• Investment costs: fees reduce the return a portfolio earns, and the rule doesn't say what level it assumes.
• Your timeline: retiring at 55 means a much longer stretch than retiring at 67.

Nadia's portfolio: the steady-return view

Suppose Nadia, 65, lives in Alberta and is retiring now with $800,000: $550,000 in her RRSP, $150,000 in her TFSA and $100,000 in a non-registered account. Her CPP estimate is $1,000 a month at 65, and she qualifies for full OAS. She'd like to spend $52,500 a year after tax, in today's dollars, to age 95.

With an illustrative 5% return and 2% inflation, the calculator has her draw about $32,008 from her non-registered account in year one, almost exactly 4% of the portfolio. Her tax that year is only about $658, because the calculator taxes non-registered growth along the way rather than when money is withdrawn.

Once the non-registered account runs out at 68, she switches to her RRSP. From 69, she withdraws about $41,220 a year, with about $9,870 of tax, to support the same spending. On this steady path the plan still lasts to 95, leaving about $81,805 after tax. The calculator estimates her highest steady spending to 95 at $54,000 a year.

The same plan with ups and downs

Real returns don't arrive in an even line. The calculator's simulation runs Nadia's plan through 500 market paths, each with the same average return but with year-to-year swings set by a volatility input of 10%.

At $52,500 a year, 46% of those paths keep her spending whole to 95. About 12% of paths run short before 85, about 33% before 90 and about 54% before 95. The median path still holds roughly $242,210 at 85, while the weakest 10% of paths are empty by then.

Lowering her spending to $47,000 raises the share of paths that last to 95 to 72%. That gap between the steady view and the simulated view is the core lesson: an average return doesn't tell you what happens when bad years arrive early.

Why the steady and simulated results differ

Withdrawals turn market losses into permanent ones. If the portfolio drops early in retirement and Nadia keeps withdrawing the same amount, she sells more of it at low prices, leaving less to recover. The guide on sequence of returns risk explains this in detail.

Taxes add a Canadian twist. Her draw climbs from about $32,000 to about $41,000 a year once her money comes from the RRSP rather than the non-registered account, which means a heavier pull on the portfolio during her 70s.

Return assumptions matter too. At a 4% return instead of 5%, the calculator's highest steady spending to 95 falls from $54,000 to $50,500. These inputs are illustrations, not expectations; the Monte Carlo guide covers how to read simulated results.

Ways people adapt the rule

Because a fixed inflation-adjusted withdrawal can be fragile, some retirees treat 4% as a starting point and build in flexibility. Common variations people consider include:

• Spending guardrails: trimming withdrawals after a poor year and allowing a raise after a strong one.
• Separating essentials from extras, so the flexible part of the budget absorbs market swings.
• Delaying CPP or OAS, which raises lifetime income and reduces how much the portfolio needs to supply later.
• Changing the withdrawal order between non-registered, RRSP or RRIF and TFSA accounts, which can change lifetime tax. The withdrawal order tool compares four approaches.
• Keeping some money in lower-volatility holdings to fund the next few years of spending.

Using the rule as a checkpoint

As a quick sense check, 4% can tell you whether a spending goal is in the right neighbourhood for a given portfolio. It can't tell you how CPP timing, RRIF minimums, taxes or your own health and family situation change the picture.

In Nadia's case, the rule pointed to a first-year draw of about $32,000, and the calculator's year-one figure matched it closely. What the rule couldn't show was the jump in gross withdrawals once her RRSP became the main source, or how much the outcome depended on the order of market returns.

A fuller picture comes from running your own accounts year by year in the retirement plan, then comparing withdrawal orders and testing a lower return or a higher spending case. The RRIF minimum guide covers the required withdrawals that shape later years.

Tax figures on this site don't include Quebec provincial income tax, so Quebec residents will see incomplete tax estimates.