Jan 31, 2026
Bill Bengen, the famous retirement researcher who created the “4% rule,” has a surprising message for Canadians looking to leave the workforce early: You might be living a more restrictive life than necessary.
“I think they’re cheating themselves a little bit,” Bengen told CNBC’s Make It regarding retirees who follow his original advice too strictly (1).
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The problem isn’t that Bengen’s math was wrong. Instead, he argues that many people focus on a single, “set-it-and-forget-it” number — like 4%, or his updated 4.7% — without looking at the bigger picture. In Canada, shifting inflation and market changes play a huge role in whether you can safely spend more, or if you need to pull back.
For those aiming for FIRE (Financial Independence, Retire Early) in their 40s or 50s, this balance is vital. Managing a portfolio for 40 to 50 years is a marathon. You want to make sure your lifestyle is sustainable without missing out on the life you worked so hard to save for.
Beyond the simple percentage
First published in 1994, Bengen’s original 4% rule suggested a retiree withdraw 4% of their savings in the first year, based on having a portfolio that holds 50% stocks and 50% bonds (2). After that, they would adjust that dollar amount to account for inflation every year thereafter. The goal was to ensure the money lasted at least 30 years. His latest research suggests a 4.7% annual withdrawal if you’re planning for a 50-year stretch (3).
However, these numbers were calculated to protect people who retire right before a major economic crash.
“My research shows that if you endure a substantial bear market [a period when stock prices drop 20% or more] early in retirement, it drives down your withdrawal rates, because it sucks a lot out of the portfolio at the same time that you’re drawing from it,” Bengen told CNBC (4).
In Canada, this sequence of returns risk is a major concern (5). Because many Canadian portfolios are concentrated in only a few sectors like banks and energy, which often make up about half of the Canadian stock market, a global dip in those areas can have a huge impact (6). If you manage to avoid a crash within those first few years of retirement, you might actually be able to spend more.
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The contextual factors that matter
So, how can you tell if you’re being too careful with your savings? Bengen says there are four signs that should help you decide how much to withdraw:
1. Is the stock market “expensive”?
When stock market prices are high compared to company earnings, it’s a sign that future returns might be lower. Experts often use a tool called the Shiller CAPE (Cyclically Adjusted Price-to-Earning) ratio to measure this (7). It compares current prices to the last 10 years of earnings.
While the U.S. market (S&P 500) has recently seen elevated ratios — around 38 to 40, which is near the dot-com bubble levels of the late '90s — the Canadian market (TSX) is often more reasonably priced. However, since most Canadians hold a lot of U.S. stocks, an expensive American market still means you should be cautious.
2. Inflation trends
Inflation acts like a hidden tax on retirement. When the cost of groceries and fuel quickly rise, your money doesn’t stretch as far. In Canada, the Bank of Canada works to keep inflation at 2%. As of early 2026, inflation stabilized near this target, but anyone retiring now should watch it closely. If inflation stays high, you may need to withdraw less money to make your savings last.
3. Interest rates and bonds
Bengen’s research assumes you keep about a 50/50 split between bonds and cash. When bond yields (the interest that bonds pay you) are high, your portfolio generates more income. Currently, Canadian bond yields have moved up from the record lows witnessed a few years ago (8). This is good news for retirees since it means your safe investments are finally doing some heavy lifting.
4. Sequence of returns — the luck of the draw
The timing of your investment matters more than you think. If the market goes up during your first few years of retirement, you build a safety cushion. If the market crashes right after your career exit, it can create a hole in your portfolio that’s hard to fill. This is why it’s crucial to check your withdrawal rate every year instead of putting it on a “set-it-and-forget-it” default.
The power of staying flexible
Flexibility is one of the biggest advantages for those who retire early. Unlike older retirees who may have fixed costs and limited ability to work, retirees in their 40s or 50s might have more choices:
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- Spending cuts. You can skip expensive travel or major purchases during a year when the stock market is down.
- Side hustles. Many early retirees take on consulting work, part-time jobs or freelance projects. This semi-retirement can take some pressure off your savings.
- Downsizing. Where homeownership is a major part of individual wealth, moving to a smaller home or a less expensive city is a common way to free up cash.
The more options you keep open, the more money you can safely take out of your portfolio. If things get tough, you have a contingency plan in place.
Read more: The ultra-rich are bailing on volatile stocks right now — these 4 shockproof assets are their new safe havens
Are you being too careful? A checklist
If you’re worried that you aren’t spending enough of your hard-earned cash, use this framework to check your plan:
- What was the market doing when you retired? If you retired when Canadian or U.S. stocks were at a fair price, you probably have more room to spend than you might think.
- How did your first few years go? If your investment did well in the first three to five years, you might have a safety cushion. If so, you may be needlessly restricting yourself.
- Can you cut 20% of your spending? If there’s room in your budget for “wants” — like hobbies or dining out — that could easily be cut out during a market crash, you can afford to be more generous with your withdrawals.
- Could you still earn a living? If you have marketable skills that are still in demand in the job market, you may not need to be as scared of a market dip.
- How’s your health and family history? The average life expectancy in Canada is just over 81 years, but many people live well into their 90s. If your family tends to live a long time, you’d be wise to plan for a 40- to 50-year retirement.
Combined with this checklist, give yourself a flexibility audit to see what room you have in your retirement budget.
Look at your current retirement budget and identify which expenses are “needs” (such as housing, food and transportation), then sort out your “wants” (travelling, dining out). If your wants make up at least 20% of your budget, you can likely afford to start with a higher withdrawal rate — which is closer to Bengen’s updated 4.7% — knowing you have the room to cut back if the market goes down.
Bottom line
The 4% rule is a great starting point for setting up your retirement withdrawal plan, but it isn’t law. If you plan to retire early, sticking too strictly to a single number could mean missing out on your best years. On the other hand, being too aggressive without a backup plan could leave you short later in life.
The secret isn’t finding the perfect “magic number” — it’s staying flexible. By watching inflation, keeping an eye on market prices and being willing to adjust your spending when things get bumpy, you can enjoy a more comfortable retirement without the constant fear of running out of money.
— with files from Melanie Huddart
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
CNBC (1, 3, 4); RBC Wealth Management (2); Harvest Portfolios (5); CIBC (6); Commons Capital (7); Bank of Canada (8)
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Emma Caplan-Fisher has over a decade of experience writing and editing various content types and topics, including finance, business & tech, real estate & design, lifestyle, and health & wellness. Emma’s work has been featured in Real Estate Magazine, Cottage Life, Bob Vila, the Vancouver Real Estate Podcast, the Chicago Tribune, Narcity Media, Healthline, and other media outlets. She holds a Certificate in Editing from Simon Fraser University.
