Episode 235: Is the 4% Rule Failing Canadian Retirees?

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Is the 4% rule still a reliable path to financial freedom in Canada—or is it holding your retirement plan back?

You’ve heard it a hundred times: save 25x your annual expenses and withdraw 4% per year in retirement. But in 2026 and beyond, does that formula still stack up? Whether you’re 10 years out from retirement or already hitting your financial freedom number, rigidly following outdated rules could put your lifestyle—and peace of mind—at risk. This episode dives into how the 4% rule was built, why it may not fit today’s market realities, and how to think more flexibly about spending, investing, and enjoying your money without watching your net worth dwindle.

In this episode, you’ll discover:

• Why the original 4% rule was designed for failure avoidance, not lifestyle optimization

• How a flexible approach to withdrawals can empower smarter spending decisions year by year

• The mindset shift that can help you grow your net worth even in retirement

Press play now to rethink your retirement strategy and build a wealth plan that works for your real life—not just the spreadsheets.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
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• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Navigating retirement planning in Canada requires more than a rule of thumb—it demands a personalized, flexible strategy built around your lifestyle, goals, and financial structure. While the 4% rule offers a starting point for understanding retirement savings and withdrawal strategies, truly achieving financial freedom in Canada means factoring in inflation adjustments, tax-efficient investing, and dynamic investment strategies that evolve with you. Whether you’re a Canadian entrepreneur exploring salary vs dividends, optimizing RRSP contributions, or balancing real estate investing with corporate wealth planning, this episode unpacks how to align your financial vision with practical wealth-building strategies. From financial buckets and legacy planning to passive income and estate strategies, you’ll learn how to build long-term wealth through smart, diversified decisions that support both your modest lifestyle or early retirement ambitions. Get the financial advice you need to master corporate structure optimization, maximize tax savings, and confidently design your Canadian wealth plan.

Transcript:

Jon Orr:
In this episode, we are gonna talk 4 % rule. We’re gonna ask questions and answer questions like, is the 4 % rule accurate in 2026 and moving into our retirements if we’re retiring 10 years from now, 20 years from now? We’re gonna also answer questions and ask questions like, when it’s time, if I’m relying on 4 % as my pile grows, how do I actually pull the 4 % to fund my lifestyle? I’ve got RSPs, I’ve got tax-free savings accounts, I’ve got my corporation if I am an incorporated business owner. I have registered funds. Maybe I have alternate investments, maybe I have real estate. What do I do to live my life and pay my expenses and live the life I’ve always dreamed of in retirement if I’m relying on the 4 % rule? We’re talking about that here today, so let’s get into it.

Kyle Pearce:
All right here, John, this is a big one. it’s something that I’ll be honest, like I love it as a starting point. I love the 4 % rule as sort of a way for you to kind of get close to a goal. But there’s so many nuances to it. There’s so much that, you know, makes it I would argue something that could be fairly conservative as using for let’s say you’re you’re reaching your financial freedom number. But that’s I think what I love. about it, right? Is like, if we can reach this place, this place where, you know, if you save about 25 times your annual income, you are now at a place where that works out to be about 4 % of that income or 4 % of that pile that you can pull inflation adjusted for a 30 year period. So there’s some like, things we gotta talk about here because there’s a lot of things for us to consider. If you’re 25 year old individual, like the 4 % rule may not be a great starting point for you because you’ve got a lot longer than 30 years to live. We hope, of course. However, if you’re doing a traditional retirement, retiring somewhere around 65, then the 4 % rule is kind of a no brainer place to make sure that you feel like, we’re gonna be in a good spot. But it does depend on where we’re invested. how we’re invested and our lifestyle needs and wants. So let’s dig in and let’s chat a little bit more about the rules specifically.

Jon Orr:
Yeah, because I think like, want to be clear here. Like we’ve talked about the 4 % rule on previous episodes as a, you know, it’s a great for targets. It’s a great for like helping you estimate how much your actual investments need to accumulate too, so that you can continue to living the lifestyle that you want. But what you’re going to hear from us here today is I think what you’ve heard, if you listened to many of our episodes before is that we’d focus rather on a system. and continued thinking and strategizing and not just sticking to an actual number and holding yourself to be like, well, the 4 % roll, so I’ve got to follow that. We’re going to unpack that here today. So I think it’s a great starting point to get you rolling, but also to help think about is it 4 % this year? Is it a different number moving forward? So we do want to unpack all that here today. So let’s get into it because the 4 % rule actually was popular, is actually not popularized, but first came out in 1994 from a study by a financial advisor, William Bengan, and he asked an important question. He asked the question, well, what’s the highest I can withdraw from? What can a retiree draw? How much can they withdraw? What’s the maximum number they can draw and not run out of money? Now, assuming that you retired for 30 years, and also assuming that you had a 50-50. portfolio and this is where they made some assumptions and then they stress test. It went through different scenarios, they went through with different withdrawal rates, they went through what happens if the market tanks at the beginning of the process, what about the middle, what about the end, let’s look at the sequence of returns. We had a whole series a few episodes ago, I guess more than a few episodes ago, I think it was like a year ago where we put out a whole series of like the math behind retirement. And we went through sequence of returns and what that looked like for your portfolios and how to mitigate some of that. That’s what they did. Like they went through that heavily. And this is where the 4 % rule comes from. It’s basically with a bunch of back testing that you will rent out a money if you used 4 % withdrawal. And here’s the thing Kyle, like it doesn’t matter where you hit the 4 % in your 30s or in your. I think what you were saying earlier, it’s like if you’re in your 20s, your spending may be different than when you’re in your 50s. And therefore, using 4 % as a guideline when you’re in your 20s might not be appropriate because your spending might be much higher in your 50s, and that’s what you wanna live on versus your 20s. But 4 % is a great guideline because it’s basically saying you’re not gonna run out of money because of inflation and because of the way the markets are gonna move. that… That was where this 4 % come from. If you actually, they did studies on like 3%. Like if you pulled 3%, you have like a 99 % chance of never running out of money ever. But your 30 year period.

Kyle Pearce:
over a 30 year period, right? So that’s the key. So that’s the part that I think is important. I just want to clarify, you know, before we move away from it. So if like you were to retire when you’re 25, you’ve got a 30 year runway from then, if we utilize what this research is suggesting for us, right? So we have to be very cognizant of that. It doesn’t mean that you can’t go 60 years and it will never work. It’s just that from the data here, and from the success rates that we’re gonna discuss here, that’s a really important piece. So, you know, again, over that 30 year period, 3 % rule was pretty almost 100 % of the time you were gonna be successful, right?

Jon Orr:
Yeah, yeah. And and so then when you moved it to 4%, there was like a 90 % success rate, which was where this where where they were settling on is like looking at all the data. It’s like 4 % is a pretty good number that you can rely on for 30 years to make sure your portfolio and they said most times is that you have an abundance at the end of that time period as well as like you’re you’re you’re leaving a strong a strong foundation for the next, you know, your heirs after that it’s because the 4 % rule will make sure you get you get there. And so basically saying like you can withdraw 4 % in a year, which is where this idea came from, you it’s gonna you want to increase withdrawals with inflation. You want to invest in that diversified portfolio. This is where they tested 50-50 portfolio. So that’s where the 4 % really came from. And then many other financial advisors, many other financial authors, financial consultants popularized the 4%, which is why we hear about it today.

Kyle Pearce:
Yeah, 100%. And, you know, this is one of those pieces that like why I like it as a starting point is it really gives you a sense of kind of what size you want to get your pile to right before you start pulling. And the key piece here, and I like you had mentioned this, but I’m just going to sort of reiterate it as this idea that, you know, we’re, taking 4 % of the pile amount in the first withdrawal year. and then that number is gonna be adjusted up for inflation. So there’s a little bit of work to be done by the actual retiree here. Like you have to actually pay attention to like what inflation is, right? Now in a perfect world though, like you take 4 % in the first year, know, inflation may go up. I’m gonna argue it probably goes up almost every single year, probably more so than what’s reported. But if let’s say you didn’t actually require to take more, the next year, then obviously you’re gonna just be putting yourself in a much better spot, right? So if we can plan with the 4 % rule in mind, because again, we’re calling it a 4 % rule, but it’s not a rule because there’s no guarantees here. It’s just a starting point. It’s kind of like a place that we get to kind of play around with. And then the nuance is, is that we also wanna make sure that we’re thinking about this and going like, maybe you’re not in a 50-50 portfolio. And maybe that 50 50 portfolio actually doesn’t perform, you know, the same way it historically did in the past. Like these are all variables that are going to allow you to either take more or take less. So for example, for someone who’s very risk adverse and doesn’t want any money in growth or equities or real estate or any other type of asset that has any type of volatility, you know, you’re probably going to have to lean lower than four. right? So you’re going to want to, you know, definitely be on the side of caution there. But if you’re in a higher risk adjusted portfolio, or a higher risk portfolio, then it’s likely that you might actually be able to go higher than 4%. But once again, we don’t want to necessarily plan for the stars, right? We want to make sure that we’re getting ourselves at a ground level, kind of looking around and going like, am I getting close? So like, we get a lot of calls, people come in, They do a discovery call and they’re sort of trying to figure out like, will I be able to retire by blank? And it really comes down to at least using this as a very back of the napkin sort of starting point to go, okay, well, how much am I spending? How much do you plan to spend when you do quote unquote retire? And then finally, is that pile going to be able to produce that four ish percent? And is that going to be enough? And in a lot of times, like we can very quickly kind of come to a conclusion where it’s like, we either just need to keep doing what we’re doing, or we need to make some modifications to the amount that we want to contribute in order to get that pile to a place where you go, I feel fairly confident that I’m going to have a really comfortable retirement if I utilize this 4 % mentality.

Jon Orr:
Yeah, yeah, like it was designed to be like failure avoidance, right? Like it’s, that’s where this number comes from. It’s not like your lifestyle strategy. Don’t think of it that way. Just think of it as like, it’s not, my portfolio isn’t going to break if I have that for those 30 years. So it’s not like, what’s the optimal case here? But that’s not what it’s answering. saying it won’t break at 4%. Or it has a 99 % chance.

Kyle Pearce:
Right. So what I think I hear you saying too is like, let’s say we had a mega year and if you, you know, took more out in that mega year, it’s likely that things are going to be okay, but I might have to also adjust down in a down year, right? Like, so again, it’s like, if you want to stick to the rule, you know, it’s a little bit more maybe rigid, but at least it’s like, you don’t have to do much thinking and you don’t have to like worry about the behavioral, you know, aspect of it. But in reality, it’s like, if you’ve got a great sequence of returns in the first, say, 10 years of retirement, it might position you to actually be able to take out substantially more than 4%. But then, of course, on the other side of things as well, if we have a significant downturn or sideways market for the first 10 years of retirement, then obviously we need to adjust from there as well.

Jon Orr:
Right. Yeah, that’s. Well, that brings up the question, you know, like this, this 4 % rule was studied in 94, 1994, and like came up with this then it’s like, well, now it’s 2026. Like, does it still hold true? Is it still the right number? Is it does it actually depend on like the history of the market up to that point? Because if you think about the history of the market up to 94, versus from 94 onwards, because we’re like, there in another, you know, there’s a lot of years here where we didn’t test these numbers. And so, even the Globe and Mail recently has published a number of articles that say, is the 4 % rule right? They came up with some of the study and referenced a study that basically was saying they use the 60-40 portfolio, Canadian-US equities, that split, they looked at, hey, the 4 % rule still holds true, but it’s on the low end. And I think that’s some of the recommendations right now is that you could have or could start thinking about 5%, 6 % or 7 % and still see significant, your assets in 25 years to 30 years. here’s the thing, just don’t actually throw out the 4 % and go like, can just withdraw more. I think the message here is what you’ve already stated, Kyle, is that flexibility is king. and what you wanna be able to do is go like, I’m not gonna just stick to a number, what I wanna do is be flexible to go, hey, in good years, I wanna make sure that I pull what I need to pull. But if I wanna be able to pivot in down years so that I only really need to pull what I really need to pull, like, hey, this year, 4 % actually pulls, or 5 % actually pulls way more, I could go on a vacation. I could pay for my whole family to go on vacation. Maybe you do it this year, but in a down year, you’re like, no vacation this year. You know, like, you gotta be able to be flexible to be like, I wanna be able to do what I wanna do, but also know that I’m gonna be safe in the.

Kyle Pearce:
Well, and something that’s really interesting as well to consider is that I find for many people, it’s like if you can get yourself to a place where you’re able to pull, 4 % a year, maybe it’s 5 % a year, maybe it’s 6 % a year, but here’s the caveat. And your portfolio actually is continuing to grow when you do those things. That positions you… in order to like feel really strong and really confident in retirement, right? Like meaning, you know, I know what I don’t wanna do. I don’t wanna do what you just described. Like I don’t want my vacation, you know, my ability to go do what, you know, many retirees love doing, which is like, hey, there’s a great opportunity. There’s maybe a deal on an amazing trip, you know, to go and do the safari in Africa or whatever it is. and I look and I go shoot, not this year because you know, the portfolio is not doing so hot. Like ideally, if we use this as a rule, typically what I think people want to do is get to a place where you know that you’re well above like your 4 % of your portfolio is like well above what you actually anticipate requiring for lifestyle. You know, like that to me is going to be and I’ve never had a call. I’ve said it on the podcast before we have hundreds of discovery calls and as we do these discovery calls like never once have I had someone say you know I really want to get this right so that I have just amount just the right amount of income for retirement and and then when I pass away it’s like I have nothing left in the account like never once have we heard that now some people don’t need to leave a legacy or they don’t want to necessarily leave it the legacy but most people do want to actually have what they need but then also not see their net worth like dwindling significantly. So this is something that you have to be cautious of if we’re gonna use the 4 % rule as sort of like the low hanging fruit of like the goal, you have to recognize though that there is a possibility that by doing that and hitting that goal and then following the typical standard 4 % rule that over time your net worth will slowly be falling over time, right? This is something that doesn’t come up in the research. Nobody talks about it behaviorally, but I know for me that doesn’t work. I know that I won’t wanna go on the vacation, even if the market does well, but if the vacation’s gonna cost me enough where I’m actually visibly seeing my net worth slowly decline every year, I know it’s not gonna put me in a great mental state. And I’m sure for many of you, maybe you’ve never thought about this before, but if you actually like zoom out a little bit and think about it and you go, You know, every day as we’re older, like we’re, you know, we’re getting closer to our last day. Like that’s kind of sad and depressing. But then if you’re also looking at your pile and your pile is slowly dwindling on you as well, it’s like, you know, you’re kind of looking around going like, my gosh, like this is the true definition of over the hill, right? It’s like my health is going down. My assets are going down. Potentially my income’s going down in a down year, right? So. When we’re talking about the 4 % rule, typically what I feel like those listening to this podcast want to be doing is like, that’s like your bare minimum. But then you also want to be building your assets to a point where like, hey, when I’m pulling from these assets that I’m actually not seeing a significant change in my overall net worth over time. And that’s a really important aspect. And it’s hard for people to grapple with and sometimes difficult to plan for. But we can get to a place where it’s like, hey, The actual amount I’m going to pull every year is actually going to be at less than 4 % a year of that pile. Like you, know psychologically you’re going to feel a whole lot better when you hit that point in the road.

Jon Orr:
Yeah, yeah. So for you personally, this is not maybe for everyone else, it’s like you’re like, I don’t wanna see my net worth decrease ever. So now what do I do? If I’m like 4%, like what do I, in a down year, where am I pulling this money from?

Kyle Pearce:
Yeah, well, and here’s the nuance is like a guy like me and I’m a different guy. Okay, like, let’s be honest here. You know, I know I’m very different than you, John, in terms of how I anticipate this. But I am at a place where I go, okay, I have enough assets. Now where I go, my spending, the 4 % rule would work for if I was to like stop earning income today. But I’m not done doing that. You know, and I do, I don’t want to stop because to me there’s still a chance, you know, that that over time I’ll see that pile slowly dwindle. So for me, it’s like little milestones. Like to me it’s, that’s the first milestone. I’m definitely not a fire person. Like I’m not one of these people that are out there and they’re, you know, 30 years old and they’re like, they want to stop working as soon as possible. I’m not that guy. I, that does not intrigue me at all, but I do want to knock. off these little notches off my list, these little to-dos. And one to-do was, hey, at 4%, do I have enough to survive if I was to just live off assets? Check, perfect. The next one is, how do I get to a place where it’s like I’m able to actually live my lifestyle and continue to see my assets growing? That’s the category I put myself in. And I also like to leave in there a little bit of, we’ll call it, buffer zone where it’s like I can freely spend and it not actually impact my net worth in a negative manner. Now I suppose any spending you do affects your net worth. It would be bigger if you kept it. But what I mean by this is where it’s like it’s actually not going to like hinder the continual growth of those assets. And I think for me that’s who I am. That’s kind of what I strive for from a financial perspective. And again, totally respect those who are like my time on this earth is limited. I don’t want to work a nine to five job and I want to be, you know, retired by 35 or 40 or whatever the number is, like totally respect it. Just a very different, you know, sort of mindset for me. you know, tell us a little bit about yours. Like when you look at your financial goals and objectives, where, like, where does your head land? Is it sort of like, Hey, as long as I got the 4 % rule down, I’m good to go. Or like, is there something, you know, kind of in the background that’s also on your list?

Jon Orr:
Yeah, no, think you’ve got, the way that I think you phrased your strategy is that you want to live the life in the principle of finance that you’re living already, which means like, want my spending to always be below my income because that will always make my net worth go up. And in your retirement or when you’re, yeah, when you hit your financially free number if the 4 % rule holds there, You still want that to be the case. You still wanna spend less than your income. Then if your income is now pulling from your portfolio, you’re like, I wanna pull less than I could because that keeps my net worth going up every year. that’s an important principle you wanna live by. I think my mindset is still, that’s probably that very entrepreneurial mindset. And I think I’m still not. there with you yet. And I’m sure, you know, I tried to be because I think I’m still the pension mindset. If I know that this is going to actually have the 99 % success to live with that flat income year to year, then my mathematically minded brain goes, I can make that happen. And that when I hit that number, which is probably the 4 % rule, you know, check, hey, I can do it, check, I’m okay. and we can make, I can live off the pile and I know that I can be 100 % okay with my pile going down every year. Knowing that the math and my habits and my projections say I’m good until I’m 99 or 100 because I know that in my 70s to 90s I’m gonna spend a lot less than I spend from my 50s to 60s, my 60s to 70s. And when I think about my buckets, I can pull in different bucket strategies. And it’s likely that what we’ll do is, because we’re going to talk about that today, is what we’ll do is we’ll talk about that on the next episode. Where do I pull the money from? RSPs, tax free savings accounts, my corporation. We’ll get more specific because we’re getting into like philosophically who we are right now.

Kyle Pearce:
Yeah, well, I was going to say like I didn’t I didn’t recognize before we hit record that we’d spend this is first stage of the four stages that we talked about, right? Like the first stage is vision. And you’ll never be done that process. I don’t think anyway, I don’t think we can ever get to the place where it’s completely 100 % clear or that it’s set in stone. Like you might maybe be clear for a while, but then maybe it changes or it modifies, right? Like I always say, The person I was 10 years ago, had no idea I’d be who I am today, and I’m pretty positive that 10 years from now, I’m gonna be a person that I can’t really predict from today as well, right? So it’s very difficult. Things change over time. We learn. Things in life change in terms of their relevance and importance. So these are really important aspects. Everyone’s different. And interestingly enough, a lot of people that we work with here at Canadian Well Secrets, and I had met with someone in person yesterday, fascinating individual has had a really interesting story, has grown a massive real estate portfolio, over $50 million in real estate assets. And he just feels like he’s not at a place where he can slow down. And it really comes down to, in my opinion, comes down to him needing to spend more time in the vision stage and really trying to understand like what’s keeping him going. And I would argue he and I are very similar in that, you know, if we can get him to better understand like why he’s motivated to do those things, there’s like part of it is like, you know, the thrill of the hunt, right? There’s the, Hey, I want to go find the deal. I want to go negotiate a great deal. Like those are all great things, fun things. But then with that comes all the work. especially in real estate, right? Like we’ve got financing issues, we’ve got cashflow shortfalls, we’ve got capex, we’ve got all these things, rents. And in reality, I think if he gets more clear in terms of what he needs to sort of scratch that itch for himself, he can then consider slowing down if he chooses or carrying on. but like not feeling as though he’s just constantly grinding. Cause that was the word that he had used with me yesterday. It’s like, he feels like he’s constantly grinding to find the next deal. And in a lot of ways, you know, I think when we get like that, it’s like, we’re, just not sure if we’re quote unquote there yet. Well, we’ll never get there if we don’t know where that place is, right? You know, it’s like, doesn’t matter what direction you go in, you’re never going to find what you’re looking for because you haven’t spent enough time recognizing what it is that you’re doing and what your specific goals are. So it doesn’t matter if you’re the fire mindset person, I just want to hang up the job as soon as possible. Fantastic. Or if you’re someone like myself or like this individual who I had met with yesterday where, you know, we keep on, you know, kind of on the pursuit of the next thing. As long as you get clear on like, are we on the right path towards that end goal, that’s gonna help you at least feel comfortable and confident with the work that you’re doing and the investments you’re making so that you can feel safe and secure given the plan that you’ve set out. And again, that all comes down to stage one, which is all around vision planning. So when we talk today about the 4 % rule, I think this is a really important sort of segue into getting you to look at that stage a little more closely to go, if you use the 4 % rule as a very, very basic starting point here, what do you want if you were to quote unquote hit that place? Like, do you want the 4 % rule to be like just enough? Are you like, I want that 4 % rule to be the money that I need for my own spending, but my… other income we’re generating from my assets are actually growing my net worth. Like, is it somewhere in between? This is a really important work that I think, as we start 2026, I think is a really important thing for all listeners to kind of do and start contemplating. Otherwise, you’re going to continue trying to move the pawn pieces around the chessboard, but you’re like not going to know like which direction you should be heading and you’re not going to understand. When have we actually won the game that we’re after here when it comes to wealth building and investing?

Jon Orr:
Yeah, well said, well said. So I think we’re so glad you listened to me today because I think what we talked about was the idea of the 4 % rule, where it came from, is it useful, how is it useful, is it going to be okay for us personally, and that’s where we got into our vision planning work of a healthy wealth planning system. And then what we’ll do in our next episode, so come back, what we’ll do is we’ll talk about how do I… start withdrawing from my policy? What are the strategies I could be using if I have taxable accounts, I accounts? How do I use these accounts strategically when it’s time to start using that 4 % or whatever the number is that I’m going to be aiming for? So thanks for that and thanks for listening in today and we’ll see you in the next episode. Just as a reminder, if… If you would like us to help you with some of the vision work and the strategy work, we do this. As Kyle mentioned that we meet with investors, business owners every single day. We help them with their planning and their structure of their financial systems. You can do that. Head on over to CanadianWellSecrets.com, force.discovery, and maybe we’ll be talking with you about how we can help you structure your healthy financial system. Another reminder here is that the content you heard today is just for informational purposes only. It’s not concerning the information, legal tax investment or financial advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management here at Canadian Wealth Secrets.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

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