Aug 1, 2026
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Add us on GoogleFor decades, retirees leaned on a simple shortcut: Withdraw 4% of your portfolio in year one, adjust for inflation every year after, and your money should last 30 years. Morningstar’s newest retirement-income research trims that number to 3.9% for people retiring in 2026. This is a reminder that the safe starting point moves, and that Canadian retirees face a wrinkle Americans don’t: mandatory RRIF withdrawals that can force spending well above whatever rate the research recommends.
The change sounds small. On a $500,000 portfolio, it’s the difference between a $20,000 first-year withdrawal and $19,500. But the bigger issue for Canadians shows up a few years later, once the Canada Revenue Agency (CRA) takes over the math.
What changed in Morningstar’s withdrawal-rate math
Morningstar’s 2026 State of Retirement Income report puts the standard 'safe' starting withdrawal rate at 3.9% — meaning a retiree taking this baseline approach has a 90% chance their money lasts 30 years (assuming 30% to 50% in equities). That’s up slightly from 3.7% in 2025, thanks to improved return expectations for stocks and bonds — but it’s still below the classic 4% rule that generations of retirees grew up with.
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The number isn’t a law. It’s an estimate of how much a new retiree could withdraw in year one, then increase every year with inflation, without a high risk of running out of money over three decades. More equity-heavy portfolios don’t earn a higher number — Morningstar found the opposite, since bigger stock allocations bring wider year-to-year swings, and a bad stretch early in retirement does more damage than the same bad stretch later on.
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How this interacts with Canada’s mandatory RRIF minimums
Here’s where the math runs into Canadian rules. Once an RRSP converts to a Registered Retirement Income Fund (RRIF) — mandatory by the end of the year a person turns 71 — the CRA sets its own minimum withdrawal, unrelated to Morningstar’s guidance or market conditions. That minimum starts at 5.28% of the RRIF’s January 1 balance at age 71 and climbs every year after, regardless of how markets perform.
In other words, a 71-year-old following Morningstar’s 3.9% guidance would already be withdrawing below the CRA-required minimum — the rules simply override the research. The gap tends to widen with age, since the RRIF factor keeps climbing while a sustainable withdrawal rate, by most models, does not.
That forced withdrawal has tax consequences, too. RRIF income counts toward the net income test for Old Age Security (OAS) clawback, and for the period running from July 2026 to June 2027, that threshold sits at $93,454. A retiree whose RRIF minimum pushes total income above that line starts losing 15 cents of OAS for every additional dollar earned.
What retirees willing to flex spending can do instead
Retirement-planning coverage of Morningstar’s report suggests retirees comfortable adjusting spending in weaker years — cutting back after a bad market, spending a bit more after a good one — could start as high as 5.7%, above both the base-case figure and many early RRIF minimums. This flexible, or guardrails, approach won’t suit everyone, but for retirees whose RRIF minimum already exceeds the textbook safe rate, it may be a more realistic frame than chasing a fixed, inflation-adjusted paycheque.
None of this makes either number wrong for every household. A retiree with a defined-benefit pension, or one who has delayed CPP and OAS, has more room to treat both figures as background context rather than a budget. But for anyone drawing down a self-directed RRSP or RRIF as a primary income source, the lesson holds: check the math every year, not just once at retirement.
The 4% rule was never really a rule — it was a starting assumption. For Canadian retirees, the number that matters more day to day is the one the CRA sets, and increasingly, whether that number and the research still line up at all.
What to do now
- Recalculate your annual withdrawal using 3.9% as a starting point instead of 4%, then compare it against your RRIF’s CRA-mandated minimum for your age
- If your RRIF minimum already exceeds 3.9%, model how that affects your OAS clawback exposure before the withdrawal year begins
- Consider whether a flexible, guardrails-style withdrawal strategy fits your situation better than a fixed, inflation-adjusted plan
- Ask a financial planner about using a younger spouse’s age to calculate RRIF minimums, if that applies to you
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Colin Graves is a Winnipeg-based financial writer and editor whose work has been featured in publications such as Time, MoneySense, MapleMoney, Retire Happy, The College Investor, and more. Before becoming a full-time writer, Colin was a bank manager for over 15 years.
