Look, if you’ve Googled “how much money do I need to retire?” at 2am, you’ve definitely stumbled across the 4% rule.
It’s the retirement planning equivalent of “drink 8 glasses of water a day” – everyone knows it, most people quote it, but almost nobody knows where it actually came from or whether it still applies.
Here’s the pitch: Save up a big pile of money, withdraw 4% in your first year of retirement, increase that amount with inflation each year, and supposedly you’ll be fine for 30 years.
Need $100K a year? Save $2.5 million. Simple math. Clean formula.
Except retirement isn’t a math problem – it’s a life problem.
And if you’re a Canadian business owner with money sitting in multiple buckets (corporation, RRSP, TFSA, taxable accounts), treating the 4% rule like gospel is how you end up creating an expensive tax mess.
So let’s talk about what this rule actually means, where it breaks down, and what you should be thinking about instead.
Where The 4% Rule Came From
The 4% rule wasn’t invented by a finance bro on Twitter.
It came from a 1994 study by financial planner William Bengen, who asked a pretty specific question: “What’s the maximum someone could withdraw from their portfolio without running out of money?”
Notice what he didn’t ask: “What’s the best retirement strategy?”
Bengen back-tested a bunch of retirement scenarios – including the worst-case ones, like retiring right before a market crash – and found that 4% withdrawals worked most of the time over 30 years. Three percent was even safer. Five percent started getting dicey.
That’s it. That’s the whole origin story.It’s a failure-avoidance framework, not a lifestyle design tool.
The Problem with the 4% Rule? People Treat It Like a Law of Physics
Here’s where things get messy.
The 4% rule assumes:
- You’re retiring for about 30 years (so, around age 65)
- You’ve got a balanced portfolio (something like 50/50 or 60/40 stocks and bonds)
- Your spending is inflation-adjusted but otherwise pretty consistent
- You’re willing to adjust if things go sideways
But real life doesn’t work like that.
Maybe you want to retire at 55. Or 50. Suddenly you need that money to last 40+ years, and the math changes completely.
Your spending in your 60s (travel, hobbies, helping kids) looks nothing like your spending in your 80s (healthcare, staying closer to home).
And if you’re pulling from a corporation? The 4% rule doesn’t even begin to address the tax implications of how you extract that cash.
Does the 4% Rule Still Work in 2026?
Short answer: Sort of.
Recent analyses – including work highlighted by the Globe and Mail – show that when you back-test the 4% rule using Canadian data (Canadian stocks, bonds, real inflation rates), it’s actually been pretty conservative.
In a lot of historical scenarios, retirees could have safely withdrawn 5%, 6%, even 7% and still ended up with money left over.
But here’s what we tell clients: that doesn’t mean you should withdraw more.
It means you shouldn’t treat your plan like it’s set in stone.
The retirees who do best aren’t the ones following a rigid formula. They’re the ones who stay flexible:
- Spend a bit more in good years
- Pull back a bit when markets tank
- Adjust as life changes
That’s not deprivation. That’s just how retirement actually works when you’re planning for 30+ years of unknowns.
The Part of the 4% Rule Nobody Wants to Talk About: Watching Your Net Worth Shrink
Here’s something that almost never gets mentioned in retirement planning articles:
Even if the math says you’re fine, watching your portfolio slowly decline year after year is psychologically brutal.
Think about it. You’ve spent decades building wealth. You’ve hit your number. You retire.
And now, every year, you’re watching that number get smaller.
Even if you’re “safe,” it creates anxiety. You second-guess spending. You feel guilty about taking that trip. You panic during down years.
Most business owners we work with don’t want a plan where the goal is to “die with zero.” They want:
- Enough income to live well
- Enough cushion that they’re not constantly worried
- Ideally, enough growth that their spending comes from gains, not principal
For a lot of people, the 4% rule isn’t the finish line – it’s the bare minimum.
The real goal? Is it building a pile big enough that your lifestyle is funded by what the pile produces, not by steadily eating into it?
Not for us.
Rules Don’t Retire You. Systems Do.
We say this constantly: retirement isn’t a math problem, it’s a system problem.
The 4% rule is one tool. But it doesn’t answer:
- Where do I pull money from first – RRSP, TFSA, taxable, or corporate accounts?
- How do I minimize taxes while maximizing flexibility?
- What if I want to leave money to my kids?
- What if my spending changes dramatically in 10 years?
- How do I handle sequence-of-returns risk in early retirement?
For Canadian business owners, it gets even more complex because you’ve got corporate structure in the mix.
This is why the first step in any real retirement plan isn’t calculating a number – it’s getting clear on your vision:
- What does “enough” actually look like for you?
- Do you want to leave a legacy or spend it all?
- How much volatility can you stomach, both financially and emotionally?
- What tradeoffs are you willing to make?
If you don’t know what “winning” looks like, you can’t build a plan to get there.
Don’t Guess – Build the System
Not urgency.
If you’re a business owner or investor trying to figure out how to retire without overpaying the CRA or running out of money, this is literally what we do.
We help business owners design systems that protect:
- Your lifestyle
- Your tax bill
- Your family
- Your future options
If you want help building a plan that actually fits your reality (not just a rule of thumb from 1994), book a discovery call:
canadianwealthsecrets.com/discovery
Reminder:
This content is for informational purposes only and doesn’t constitute legal, tax, investment, or financial advice. Kyle Pearce is a licensed life and accident & sickness insurance agent and President of Corporate Wealth Management at Canadian Wealth Secrets.
