Burning through a $3 million nest egg too fast? Here’s how Canadian retirees make savings last

Robert's $3 million puts him well ahead of most Canadians approaching retirement — for context, even total net worth (including home equity) for near-retirees with a pension and a home sat at a median of $1.4 million in 2023, according to the Survey of Financial Security. Still, having a large portfolio doesn’t guarantee it will last throughout your sunset years. What matters just as much is the withdrawal rate — how much comes out of the accounts every year. Spend too fast, and even several million dollars can run out well before retirement does.

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Take stock of where the money went

Before making any changes, the first step is figuring out exactly where the first $1 million went. One-time costs — paying off a mortgage, buying a vehicle outright, a major renovation or helping a child with a down payment — don’t repeat every year and shouldn’t be confused with your ongoing spending. If most of that money went to one-time expenses, the situation may be less alarming than it first appears. If it was mostly daily lifestyle spending, that’s a sign the withdrawal rate needs to come down before the remaining $2 million disappears just as quickly.

Set a sustainable withdrawal rate — and watch the RRIF and OAS traps

With $2 million left, Robert can’t keep spending at the pace he started with. A common starting point is the 4% rule, which suggests withdrawing 4% of the portfolio balance in the first year of retirement, then adjusting the dollar amount for inflation every year thereafter. Applied to $2 million, that works out to about $80,000 in year one — a steep drop from the roughly $333,000 a year Robert has been taking out.

Canadian retirees must make mandatory withdrawals. An RRSP must be converted into a Registered Retirement Income Fund (RRIF), or an annuity, by December 31 of the year the account holder turns 71. After that, the Canada Revenue Agency (CRA) sets a minimum percentage of the RRIF balance that must come out every year — regardless of how the markets are doing. That minimum starts at 5.28% at age 71 and rises steadily after that, reaching 6.82% by 80 and 8.51% by 85. For a retiree with a large RRIF, those mandatory withdrawals can eventually push well past a comfortable 4% rate on their own.

Larger RRIF withdrawals can also trigger another cost: the Old Age Security (OAS) clawback. In 2026, Canadians who collect the government pension start losing 15 cents of it for every dollar of net income above $95,323, with the pension fully clawed back once income passes $155,109 for someone 65 to 74.

Because of this, a fixed 4% isn’t necessarily the right number for every Canadian retiree. Reviewing your withdrawal rate every year — spending less after a weak year in the markets and allowing a bit more room after a strong one — tends to work better than locking in one percentage and never revisiting it. Keeping one to two years of living expenses in a high-interest savings account or a short-term investment, like a GIC, can also help you avoid selling investments at a loss during a downturn. Drawing down non-registered accounts first, RRSPs or RRIFs next and a Tax-Free Savings Account (TFSA) last can help manage both taxes and the OAS clawback over the course of retirement.

Invest the money wisely

Finally, Robert needs to make sure the $2 million that’s left is invested in a way that matches how much risk he’s comfortable taking. A mix of equities and fixed-income investments is standard advice for retirees who need both growth and stability. Some retirees also look at an annuity to lock in a guaranteed stream of income that doesn’t depend on how markets perform.

What Canadian retirees can learn from this

• Separate one-time expenses from regular spending before assuming your withdrawal rate is too high
• Revisit the withdrawal rate every year instead of setting one percentage and leaving it alone
• Know when an RRSP must convert to a RRIF, and how the minimum withdrawal grows with age
• Watch the OAS clawback threshold before taking large RRIF withdrawals
• Keep one to two years of expenses outside the market in a high-interest savings account or a short-term GIC
• Talk to a fee-only Certified Financial Planner (CFP) about a withdrawal order and rate that fits your accounts

Bottom line

A portfolio that shrinks faster than expected isn’t always a sign of reckless spending — but it’s a sign that the plan needs a closer look. For Robert, and for any Canadian retiree watching their savings disappear, the most important questions are the same: where did the money actually go? Is the withdrawal rate sustainable? And are mandatory RRIF withdrawals or the OAS clawback making things worse?