Using the 4% withdrawal rule in 2026: Is it putting your retirement savings at risk? Here’s what Canadians need to know now

The 2025 CPP Investments Retirement Survey shows Canadians’ anxiety around retirement is real: 59% of Canadians are afraid of running out of money in retirement — a fear that’s especially sharp among women (63%) and Canadians aged 18 to 24 (68%). Many people still don’t know if their money will last through retirement, and for good reason: the most popular withdrawal rule may not be holding up the same way it used to.

Where the 4% rule came from

Financial adviser William Bengen published the original 4% rule framework in the Journal of Financial Planning in October 1994. On a $1 million portfolio, a 4% first-year withdrawal works out to $40,000, with that amount adjusted for inflation each year after. Bengen built the model using U.S. market data from 1926 and a mix of stocks and bonds designed to survive any 30-year stretch in that record. It held up for the most part — but now, two of its main ideas are under strain.

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Why the original rule is showing cracks

Let’s start with bond yields. When Bengen ran his numbers, long-term government bonds paid close to 8%. Today, the 10-year Government of Canada bond yields approximately 3.4%. That matters because bonds used to provide a steady income cushion in the portfolio. Now that the yield is much lower, Canadians investing for their retirement face a harder choice: Take on more stocks — and volatility — or spend less every year.

The rate of inflation also factors in. According to Statistics Canada, the Consumer Price Index (CPI) rose 3.2% year-over-year in May 2026. The 4% rule assumes inflation stays relatively steady and manageable. But when inflation runs hotter, those annual adjustments pile up faster than Bengen’s model was built to handle.

“Let’s say we have two years of 7% inflation,” Dan Keady, a certified financial planner and senior director of financial planning at TIAA, told Kiplinger. Someone who started pulling $100,000 a year would be withdrawing $114,490 by year three. And because each increase becomes the new base for the next one, those higher withdrawals compound over time.

For Canadian retirees, there is a layer of protection: the Canada Pension Plan (CPP) and Old Age Security (OAS) government benefits supplement their savings, providing inflation-indexed income for life. If CPP and OAS together cover your essential spending, they lessen the pressure on your Registered Retirement Savings Plan (RRSP) or Registered Retirement Income Fund (RRIF), which can actually let you withdraw at a lower rate, and make the money last longer.

For 2026, the maximum monthly CPP amount for someone starting benefits at age 65 is $1,507.65, though the average new beneficiary receives $877.01 a month. Monthly OAS payments as of Q3 2026 are $751.97 for those aged 65-74 and $827.17 for those 75 and older. That combined pension income, even at average rates, can cover significant basic needs for many Canadians.

What Bengen is telling retirees now

Bengen himself has updated his thinking. In his 2025 book A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, Bengen says the new safe withdrawal rate for a well-diversified portfolio over a 30-year stretch is 4.7%. That’s the lowest withdrawal rate that survived in the worst market conditions his research covers.

But he also believes many retirees today may be able to withdraw more. “I believe a Safemax of 5.25% to 5.5% seems like a reasonable, conservative estimate for current retirees,” Bengen stated in his book.

The sequence-of-returns problem

The 4% rule has one big blind spot: it doesn’t account for what actually happens in the first few years of retirement.

That’s called sequence-of-returns risk. If the market drops early in retirement, you’re withdrawing money while your portfolio is already down, selling at low prices and locking in those losses. Those shares can’t recover for you when the market bounces back.

That’s why some advisers use the guardrail approach, developed by financial planner Jonathan Guyton and computer scientist William Klinger. Rather than taking the same amount every year, you check your portfolio against the rate of inflation once every year and adjust. If the market drops, you cut back. If it does well, you can spend a little more.

For Canadians, the RRIF minimum withdrawal rules add another layer. Once your Registered Retirement Savings Plan (RRSP) is converted to a Registered Retirement Income Fund (RRIF) — which must happen by December 31 of the year you turn 71 — the government sets minimum annual withdrawal percentages that increase with age. By age 85, you must withdraw 8.5% of your RRIF balance annually, regardless of market conditions. That forced income can work against a guardrail strategy in a downturn, which makes it even more important to hold a cash buffer and to plan your RRIF withdrawals in combination with your CPP, OAS and TFSA income strategically.

What this means for your money

The 4% rule isn’t wrong — but it doesn’t cover everything on its own. A few straightforward adjustments can make it work better for Canadians.