Does the 4% rule actually work for Canadians in retirement?

There’s just one problem: The 4% rule was designed using American market data and assumes a very specific type of retirement. In Canada, we can also rely on government benefits like the CPP and OAS, and we have different tax rules, longer life expectancies and a different mix of savings and investment tools.

So armed with that knowledge, it’s time to ask, does the 4% rule work in Canada? And if it does, how can you use it to apply to your retirement to help maintain a comfortable lifestyle?

What is the 4% rule — and where did it come from?

The 4% withdrawal rule was developed by the American financial planner, William Bengen, in 1994. Bengen studied and analyzed about 80 years of market history to calculate a withdrawal rate that would allow retirees to avoid running out of money over a 30-year retirement period.

Bengen’s math is straightforward:

• Withdraw 4% of your portfolio in the first year of retirement
• Increase that dollar amount each year to keep up with inflation

Let’s look at a realistic example for a Canadian retiree:

A $1 million portfolio would produce an initial withdrawal of $40,000 in the first year of retirement. Increase that withdrawal amount each year to cover your retirement expenses.

In theory, the 4% withdrawal rule can be closely connected to another retirement rule: the Rule of 25. In this strategy, if you expect to spend about $60,000 per year, just multiply that by 25. This will give you a total of $1.5 million you will need to have saved for a comfortable retirement.

Bengen’s original research also made some important assumptions:

• A portfolio invested roughly 50% in stocks and 50% in bonds
• A retirement lasting 30 years
• Historical U.S. market returns remain intact

Those assumptions are why the rule works well as a starting point for retirement strategies, but also why many planners say it shouldn’t be treated as a universal formula.

Why the original 4% rule doesn’t translate perfectly to Canada

The biggest Canadian difference is government income benefits.

Bengen’s original rule assumed that American retirees would fund everything from their investment portfolio. In Canada, most retirees will receive the Canadian Pension Plan (CPP) and Old Age Security (OAS). These two benefits greatly reduce the amount that needs to come from savings and investments.

Consider a Canadian retiree who receives the following benefits:

• $12,000/year from CPP
• $8,500/year from OAS

That’s $20,500 each year in guaranteed income paid for by the Canadian government. If their target is to spend about $40,000 annually, they only need about $19,500 to supplement their benefits. From a $1 million portfolio, that is a withdrawal rate of just 1.95% and not the 4.0% Bengen suggested.

Here’s the real secret to optimizing your retirement benefits: delaying your CPP from age 65 to 70 can increase your monthly payments by up to 42% for the rest of your life. This means that your eventual withdrawals would be even smaller, and another reason why the 4.0% rule does not properly capture that tradeoff for Canadian retirees.

Taxes add another layer of complexity to this strategy:

• RRSP/RRIF withdrawals are fully taxable
• TFSA withdrawals are tax-free
• Non-registered investments may receive preferential tax treatment on capital gains

This is why RRSP and TFSA retirement withdrawal sequencing can be just as important as the withdrawal rate itself.

Higher-income retirees also need to watch the OAS recovery tax in Canada, often called the OAS Clawback. In 2025, OAS benefits begin to be clawed back once net income exceeds $93,454. A large RRIF withdrawal can unintentionally reduce OAS benefits by triggering the clawback, even if the retiree doesn’t actually need the cash.

In other words, two Canadians with the same $1 million portfolio can have very different retirement outcomes depending on CPP timing, account structure and taxes.

Is the 4% rule still safe given today’s market conditions?

This is where the debate gets interesting.

The original 4.0% rule was tested using historical returns of the U.S. stock market. Many investment firms now expect future stock and bond returns to be lower than the long-term averages that supported the classic 4.0% results founded by Bengen.

Even Bengen has updated his thinking. In his 2025 book A Richer Retirement, he suggested that a withdrawal rate closer to 4.7% may be sustainable for portfolios diversified across seven asset classes, including international stocks and other investments beyond the traditional stock-bond mix. The key point isn’t “withdraw more.” It’s that broader portfolio diversification that can change the math behind his original thesis.

In Canada, the larger risk for many retirees is something called the sequence-of-returns risk.

Imagine retiring just before a major market downturn or in the depths of a bear market. If you’re withdrawing money while your portfolio is falling, you’re selling investments at depressed prices. Even if markets recover later, the damage from those early withdrawals can be difficult to undo and can often take a long time to recover. When you are retired, the time to allow investments to grow is no longer on your side.

That’s why some Canadian planners prefer a flexible withdrawal range, often from about 3.5% to 4.5%, adjusted as markets change, rather than a rigid fixed percentage every year.

The better way to think about the rule is this: it’s a floor, not an exact formula.