I’m 60 with $1.2M saved and want my retirement to run on dividends so I never have to sell. Is that really riskier than a total return strategy?

Now what?

It’s a question that many working Canadians have to face at some point. They’ve already done the hardest part — saved for retirement — but they’ve still got to make those assets last for decades.

It’s got a lot of Canadians worried.

A 2026 CPP Investments survey (2) found that 56% of Canadians were afraid of running out of money during their retirement. However, although three-quarters (75%) said they had set aside money for retirement, less than half (42%) had a financial plan to live off those savings.

Without a plan in place, they could be missing a big chunk of the retirement equation.

“Putting money aside is an important start,” says Michel Leduc, a senior managing director at CPP Investments. “But planning also means thinking about how long retirement could last, the sources of income you may have ... and how those pieces fit together.”

A major piece of that equation is your income strategy.

When it comes to drawing an income from your portfolio, you have a lot of options. You could try to keep the $1.2 million by living off stock dividends, bond yields and interest alone, or you could sell off some of your portfolio each year and fund living expenses that way.

With a portfolio of that size, you do have some margin for error. But it’s still important to plan ahead so that your portfolio stands the test of time.

Here’s a look at some of the pros and cons of these two strategies.

Living off investment income

The nice thing about living off investment income in retirement is that you aren’t touching the principal investment portfolio — meaning your $1.2 million. Instead, you rely on stock dividends, bond yields or interest to cover living expenses.

The idea behind this approach is that you can keep the principal, or even grow it, without selling off any of your portfolio to fund your retirement. You also don’t have to worry about having to sell shares during a bear market, when prices dip.

At least, that’s the theory.

In reality, it takes a lot of principal to generate sufficient income from dividends. For instance, if you want $50,000 a year in income from a $1.2 million portfolio, you’d need to be earning an average dividend yield of 4.16%.

Whether this is realistic depends on how you pick your dividend-paying companies. As of November 2026, some dividend-paying companies on the TSX and TSXV report yields as high as 4,000%, which may seem attractive at first, but they could be a signal of falling share prices or a coming dividend cut (3).

That’s why there are resources like Morningstar’s list of 10 top-performing stocks, which take into consideration dividend-paying companies that also have “healthy balance sheets with hefty yields” — but just one of the stocks on the list reported yields above 4%.

If you want to avoid risk, your choices could be limited.

Do your own research

The lesson is clear: When it comes to finding dividend-paying stocks, it helps to do your own research. You could use online lists of stock tips, look at the company financials yourself or use online trading platforms to keep on top of things.

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Consider your options

Of course, you don’t have to rely solely on dividend-paying stocks.

You could mix in some bonds, which typically offer more security and regular payments at fixed interest rates. In particular, bonds guaranteed by governments have less risk, but their returns are also lower (4). Currently, yields on long-term Government of Canada bonds are hovering around 4%, with shorter-term bonds even lower (5).

That’s right around the 4% target, but it doesn’t give much margin for error.

There are other caveats as well: Although living off your investment income lets you preserve the principal, neither growth of the portfolio nor income generated from it are guaranteed. Market volatility means your stocks could fall in price as well, eroding the value of your portfolio.

Likewise, dividend-paying companies aren’t immune to market shocks, and they can cut or stop paying dividends if profits fall.

You can also run into unexpected tax pitfalls if you don’t plan ahead (6).

Finally, you could lose purchasing power over time due to inflation, driving up living costs. Assuming you keep earning $50,000 a year from investment income, you might be comfortable at first, but find it doesn’t stretch far enough a decade or two into retirement.

Taking the ‘total return’ approach

Another strategy is to live off both the investment income and principal of your portfolio — the “total return” approach. That way, you can whittle down your principal investment portfolio while receiving stock dividends.

This is a more flexible approach. It lets you sell portfolio assets and take advantage of market gains. And if your portfolio keeps growing, a total return approach could also give you access to more annual income, making it easier to keep up with inflation.

Here’s how that might work. Say you follow the 4% rule on your $1.2 million, drawing down 4% of your principal annually to ensure your savings last 30 years. In the first year of retirement, you’d receive $48,000 of annual income. If inflation then rises 2% the next year, you’d withdraw $48,000 plus another 2%, or $960, for a total of $48,960.

Theoretically, you can keep adjusting your withdrawals for inflation as your portfolio gains value, making it simpler to keep up with the cost of living.

The 4% rule is, however, just a guideline. It has even attracted pushback pointing out that other factors such as market conditions, investment mix and life expectancy, can change your withdrawal rate (7).

For instance, Morningstar’s annual research has found that a 3.3% withdrawal rate for a 30-year retirement was optimal in 2021, while it was 3.8% in 2022, 4.0% in 2023, 3.7% in 2024 and 3.9% in 2025 (8).

Get some outside help

That kind of variability means that although the total return approach offers more flexibility, it can require you to make regular adjustments to changing market conditions or personal needs. Since this process is complicated, it’s always a good idea to enlist the help of professionals who can help you adjust your withdrawals when necessary.

Whether you’re five or 15 years away from retirement, Wealthsimple Portfolios makes it easy to build a nest egg that can help reduce your reliance on government benefits later on.

Their pre-built portfolios are tailored to your retirement goals, risk tolerance and investment horizon, so whether you’re planning for a comfortable early retirement or steady growth over the long term, there’s a portfolio designed for you.