Feb 20, 2026
The 4% rule has been a standard go-to guideline for retirement planners for decades. The math behind it is simple: Take your yearly spending, multiply it by 25 and you should be set for retirement.
And if you want to live on $10,000 a month? That’s $120,000 annually, or about $3 million in savings, which should last you approximately 25 years.
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Straightforward, sure — but also potentially risky. That’s because the 4% rule assumes steady, long-term stock market returns and overlooks a hidden trap called sequence of returns risk.
In other words, if your retirement strategy relies on this basic calculation, you could be vulnerable to sudden market swings. A bad market downturn in your first few years of retirement could throw off your entire plan.
Here’s what you need to know.
Sequence of returns risk
Raymond James Financial Inc. in Victoria, B.C. describes sequence of returns risk as one of the biggest threats to retirement income planning (1).
Simply put, if the market crashes early in retirement while you're actively pulling money from your accounts, the combined impact of withdrawing from a beaten-down portfolio leaves you with permanently less for the duration of your golden years.
Let’s say you retire with precisely $3 million and want to withdraw 4% each year. But your portfolio is fully invested in stocks, which drop 20% in the first year. By year’s end, your nest egg would have shrunk to $2.4 million.
You’ve also withdrawn $120,000 during that same year, so your portfolio drops further to $2.28 million.
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This first-year loss leaves a permanent mark. Even if the market bounces back and delivers a steady 7% annual after that, your portfolio would be worth only $2.75 million by year 10 — still below where you started. Plus, you’ve broken the 4% rule every year during this period. This is why sequence of returns risk can be such a sneaky problem.
The good news is there are ways to protect yourself if you plan ahead.
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3 ways to avoid risk
If you want to spend $10,000 a month without worrying about stock market crashes, there are three strategies to reduce sequence of returns risk.
Maximize guaranteed income
For many Canadian retirees, this means their Canada Pension Plan (CPP) and Old Age Security (OAS) benefits. According to ATB FInancial, the average Canadian receives about $18,553 yearly from the two sources combined (2).
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As of January 2026, the average monthly CPP payment is $804 (3), while the maximum monthly payment for OAS is $742 for those aged 65 to 74 and earned less than $148,451 in 2024 (4).
In other words, this guaranteed income should cover a portion of your $10,000 monthly budget without any market risk.
Plan with a margin of safety
If you expect to collect $1,500 a month from CPP and OAS and need $8,500 from your portfolio, the 4% rule suggests you’d need $2.55 million saved. Aiming for 15% more — about $2.93 million — gives you a comfortable cushion to weather market turbulence and unexpected costs.
In other words, staying below the 4% withdrawal rate means less stress about market crashes if you save slightly more than you think you need.
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Organize your retirement money into buckets instead of treating your portfolio as one big pile
Recommended by RBC Royal Bank, this is probably the most effective way to minimize sequence of returns risk (5).
For example, keep some cash in highly liquid money market funds or high-interest savings accounts for daily spending. Invest in solid bonds, Guaranteed Investment Certificates (GICs) and fixed-income assets to cover spending needs for the next four to five years. The rest can go into stocks for long-term needs, giving your money time to recover from any downturns without being interrupted by withdrawals.
Using all three strategies together should help you spend $10,000 a month in retirement without losing sleep over the TSX performance or economic recessions.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Herlaar Wealth Management (1); ATB (2); Government of Canada (3, 4); RBC (5)
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He is the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms His work has appeared in Money.ca, Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine, National Post, Financial Post and Piggybank. He frequently covers subjects ranging from retirement planning and stock market strategy to private credit and real estate, blending data-driven insights with practical advice for individuals and families.
