Episode 268: Are You Investing Enough—or Just Following Outdated Financial Advice?

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Is saving 10% of your income really enough to create financial freedom and set you up for a comfortable retirement—or could that “responsible” rule leave you short?

Most people have heard the classic advice: pay yourself first, stay disciplined, and invest 10% of what you earn. But when you factor in inflation, lifestyle costs, taxes, time horizon, and the difference between gross and net income, that simple rule starts to look a lot less certain. In this episode, Kyle Pearce and Jon Orr unpack what actually happens when you follow the 10% rule over 10, 20, or 30 years—and why your personal retirement number may require a much more intentional plan.

You’ll walk away with:

• A clearer understanding of why saving 10% may not replace enough of your future income.
• A practical way to think about savings rates, inflation, investment returns, and retirement timelines.
• A better sense of how your current spending and investing habits affect how soon you can become financially free.

Press play now to find out whether your savings rate is truly aligned with the financial freedom you want.

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. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• 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.

For Canadians pursuing financial independence, the real question is whether your savings rate and retirement planning strategy can actually support the lifestyle you want after work. While the traditional 10% rule is often presented as a simple personal finance starting point, factors like inflation, compound interest, investment returns, taxes, and time horizon can dramatically affect your retirement savings and path to financial freedom Canada. A stronger Canadian wealth plan may include tax-efficient investing, RRSP optimization, optimizing RRSP room, investment bucket strategy, financial buckets, passive income planning, and smart investment strategies tailored to your income, lifestyle, and goals. For incorporated professionals and entrepreneurs, this can also involve corporate wealth planning, personal vs corporate tax planning, salary vs dividends Canada, corporation investment strategies, corporate structure optimization, and business owner tax savings. Building long-term wealth Canada may also require evaluating real estate investing Canada, real estate vs renting, financial diversification Canada, capital gains strategy, estate planning Canada, legacy planning Canada, and financial systems for entrepreneurs. Whether your goal is an early retirement strategy, modest lifestyle wealth, or a broader vision for financial independence Canada, the key is using practical retirement planning tools, clear financial vision setting, and intentional wealth building strategies Canada to create a plan that supports lasting financial freedom.

Transcript:

Jon Orr: Most Canadians have heard this common advice. Save ten percent of your income, pay yourself first, be disciplined. But the reality here is that almost nobody stops to ask, What happens if you actually follow that advice for thirty years? Will you hit your financial freedom numbers? Is ten percent enough? That’s what we’re talking about here today. Let’s get into it, Kyle.

Kyle Pearce: Awesome. You know what happens like when we start throwing around these questions. I like to make spreadsheets. So, you know, we’ll geek around in a little bit of a spreadsheet format here as we move along. Now, the interesting aspect here, when we think about like the 10% rule — I don’t know, I think you just reread this book, maybe it was over like the Christmas holidays or something like that, but the Richest Man in Babylon, I believe you were saying that you dug in.

Jon Orr: I just read that by the pool, when I was in Florida.

Kyle Pearce: Yeah, it’s a great book. I would say it’s like fairly basic in nature, but it’s an old, old idea. And it actually goes all the way back to just sort of this general idea of hey, listen, if you pay yourself first, and they use this 10% idea, that might be where why paying yourself 10% first makes sense. But at the end of the day, the real question we want to dig into here is is that enough, especially in today’s world?

Kyle Pearce: And I’m gonna argue like it could be enough, but it could also leave you coming up short, depending on so many different factors. And you know, the first one that I think is really important for us to recognize is like traditional retirement planning, traditional, we’ll call it financial freedom planning, really revolves around this idea that we’re all gonna work until probably 65, like you know, 30 year span, maybe more. And we’re gonna do this process the same way every single year from start to finish.

Kyle Pearce: But I don’t know about you, John. And actually, you know, Gabe from our team is a lot younger than John and I. And he was even saying today, it’s sort of like, you know, why would you need more money than blank? We were on a call together and he said, like, why would they need more money than blank? Well, when you’re younger and you know, you don’t necessarily maybe have dependents or you don’t know how you’re gonna feel down the road, and you’re just excited to get out into the workforce and do some great things. Like all of these things are sort of in my, I guess, perception of the whole thing, holding us back from the reality. Meaning, you know, if we’re gonna plan to invest for say a 30-year timeline, the problem is I don’t think I was actively saving 10% back when I was, say, 25.

Jon Orr: See, I’m gonna argue you did. You just didn’t know you were doing it.

Kyle Pearce: Ooh, tell me more about that. Now, I mean, by my nature, I’m saving, but I wasn’t like explicitly, you know, I didn’t explicitly pick a number. I just naturally am a bit of a saver. I don’t like to spend money, especially unnecessarily. So, maybe that’s a bit of an unfair piece here. But I would argue that for many young people, oftentimes you’re thinking in the now. Like, think of all the people that are like, I’m gonna go on a soul searching trip, backpacking in Europe for three months or nine months or a year or whatever it might be. Like, how many of those people are like, but I’m gonna make sure I save 10% while I’m doing that, right? Like a lot of times we’re thinking more in the now when we’re younger. And it’s after some time, and usually after we get a good solid job, when we start to potentially start thinking about saving for the future. Like now that there’s this extra money coming in, maybe I’ve got a better opportunity at saving versus maybe someone who’s just trying to scrimp and get by to make ends meet when they’re in an entry level position.

Jon Orr: Right. So I guess, are you saying that the ten percent rule would hold up if you’re young and you were disciplined and you were putting away ten percent of your gross income every single year into investment funds, that you would be fine?

Kyle Pearce: Well, and I would say in general, probably. And the reason I say probably is because one of the greatest aspects of compound interest, as we’ve explored on earlier episodes of this podcast, is the idea that the time is the greatest benefit when we’re compounding out investments, right? I actually saw something recently that I thought was really intriguing — Warren Buffett made the vast majority of his wealth after he was an investor for 30 years. So, like if you actually think about that, that’s the compounding or the time factor of compound interest really taking off because of that exponential growth. Like you’re just getting steeper and steeper up this curve. The first 10 years don’t feel as great as the last 10 years of a 30-year compounding period. And the longer we can go, the better off we’re gonna be.

Kyle Pearce: So what I’m kind of arguing is that like when people get super serious in general about financial freedom planning, most often they’re not looking with a 30-year time span. They’re usually looking with like — I’m gonna argue like 10 seems to be really popular when we hear people from this show. Like people are like, in 10 years, I want to be financially free. For some people, it’s even less. And as we shrink that time horizon down, it actually puts us in a much more challenging situation to set ourselves up in that way, unless we had already been taking advantage of all of the years of work previous to that, where we’ve built up a bit of a pile.

Jon Orr: Right. So I guess this is the details here — we’re talking about is putting ten percent away in savings, in an investment, is this enough to fund our retirement? And I think what we’re saying here is not likely. And that might be the shock, I think, because you’re told the ten percent rule is gonna work. But Kyle’s done the numbers here. Kyle, do you wanna get into the numbers here specifically to kind of unpack like — let’s say I’m looking ten years away from wanting to retire and I’ve got either I’m starting from zero or I’m starting from a nest egg. What does that look like for me if I wanna put ten percent away? Will I have what I need to have? I guess it depends on some variables.

Kyle Pearce: Absolutely. So up on the screen for those who are on YouTube here, you can kind of follow along. We’ll try to describe it as best for those who are listening. So you don’t have to run over there. But if you do want to see some of what we’ve done, we’ve got an ugly spreadsheet, you know, like all of these spreadsheets. We make them super ugly. We just try to get the job done here. And today, you know, if we start with the median household income for a family in Canada — this is from 2024, by the way — we’re looking at about $125,000. That’s median. That’s right in the middle. That means like half of the Canadian households are below that and half are above. Now, this is of an economic family. So there’s a mixture. Some people, it’s one income earner, some it’s two, whatever it is. None of that matters. We’re just gonna start with just an easy number here.

Kyle Pearce: So as we look at this spreadsheet here, we have us starting with $125,000 of household income, and we’re gonna inflate that out over time, and we’re gonna take 10% of that year’s income. And we’re going to invest it at 7% compounded out every year. So again, super basic, super simple. We’re starting with no money when we start. And we’re gonna do this for 30 years. And as you see from our little spreadsheet, after 30 years, we end up with about 1.7 million dollars. Now, yeah, on paper, you’re like 1.7 million dollars. If I do, you know, the 4% rule again, just as a starting point, and we say —

Jon Orr: Sounds pretty good.

Kyle Pearce: That’s about $70,000 of income. You’re like, I like that. That sounds pretty good. Like $70,000 compared to the $125,000 we are making for not actually working feels really good. But here’s the problem. The problem lies in the fact that we’ve actually been inflating our income for 30 straight years. And that $125,000 of household income is actually now sitting at just shy of $305,000 per year. And that number is what we’ve been sort of living on. The other 90% of it is going to tax and it’s going to all the other expenses of life. But we’re only going to live off of now $70,000 if we use the 4% rule as a starting point.

Jon Orr: Right. The four percent rule saying you know, we should be safe to pull four percent, you know, and adjusting for inflation moving forward of that pot of money, the one point seven, to stretch that over another thirty years and be safe and not have any worries there. So seventy grand is what you’re saying you can pull safely from your pot. But yeah, like that’s a twenty two percent of your — think of it — today I may use three hundred and four thousand dollars to live my life in thirty years. You know, it’s like that’s how much I’m using because that’s my income. And I’ve been putting ten percent away and that built the three four. Now tomorrow, if I retire, my nest egg says I only get to have seventy thousand. So that’s twenty two percent. So it’s like I’ve got a seventy eight percent reduction in my revenue, my income that I can be safe. That doesn’t sound so great.

Kyle Pearce: Yeah. Exactly. Now, some people might argue with us and say, you know what, the four percent rule — some of the extra, you know, if I’m a hundred percent equity, the numbers shift or whatever. Hey, listen, you want to make it like six percent? Okay, let’s make it six percent and let’s look at that. Okay, I get a hundred and four thousand dollars out. Six percent of one point seven million, a hundred and four. We’re still just above thirty-three percent. We’re at thirty-four percent of that last year before quote unquote stopping to work because you don’t need to, you’re living on a significantly less amount.

Kyle Pearce: Now, I want to also pause and think about this for a second. So I’m gonna put four back just so we don’t lose track here. We wanna keep things basic. And here’s the other issue that we have: the reality is if you’re living on essentially 90% of your gross income because you’re investing the other 10%. Okay. The problem is that money is going somewhere. So that money is being spent. So even in that last year, if I’m only contributing 10% of my $300,000 — now it’s grown, you know, that salary has inflated over 30 years — I’m now investing $30,000 of my $300,000 into investments, which feels like a lot, but it’s still only 10%. The other 90% got spent because otherwise it would be saved, right? Like the reality is, what would we do? We would put it into our investments, we would grow it. So foundationally, it’s really important for us to recognize that even with a hard long time horizon, unless our rate of return increases dramatically —

Kyle Pearce: Which again, I don’t want to get people — in Dave Ramsey’s world, he says 12% per year. Okay, now we’re talking. Like if you do Dave Ramsey math for 30 straight years, earning 12% a year, now we’re at $172,000 compared to the $304,000, $305,000. Now we’re at 56% of that amount. But pause for a second. It’s like you’re still living on less. And most pensions tend to give you like 60-ish percent, assuming you do a 30-year or your 85 factor or whatever number they use to do a full career. They aim for you to get around 60% of the gross income, but it’s of your gross income of your last five. So here we’re still falling short, even though we’ve got 4.3 million dollars in our investments, and we’re taking a hundred and seventy two thousand dollars every year — we’re still a little short of what say a traditional pension might aim for you to have at the end of a thirty-ish year career.

Jon Orr: Yeah, and that’s at twelve percent, you know, yeah.

Kyle Pearce: And that’s at twelve percent rate of return, which again historically is not happening. And that’s very aggressive from a planning perspective. We don’t want to be overly aggressive in our planning.

Jon Orr: So right. Okay. Let’s let’s play with the numbers here. Let’s put the seven percent back as a rate of return, right? Like and we got inflation at three percent. So really you’re only growing at four percent more than inflation, right? So we’re gonna use a four percent rule to pull. So let’s play with the numbers. What number are we gonna put in there instead of a ten percent rule? What are we gonna put in there to say if I’m aiming for pension like returns, which means I want sixty percent or close to sixty percent of my bucket that I can pull at the four percent rule in thirty years — what should I be then? If I’m twenty five years old and I’m gonna retire at fifty five, I’ve got thirty years starting with nothing, how much should I be putting away then? Because that’s the natural question.

Kyle Pearce: Yeah, absolutely. And if we want to nail that 60% amount, like, and this is the hardest part for like anyone in their planning, is everybody has a different perspective of like what that should or could look like. Now, the interesting part is as I’m playing with numbers — those on YouTube can kind of see us playing around with this spreadsheet here — I hit the 60% mark by saving about 26.5% of my gross income each year. Now, again, we were using that initial $125,000 median household income. But again, the numbers, like the reality is doesn’t matter what that number is. If we’re using gross income, like the numbers are gonna stay fairly similar, right? Like we’re gonna be in the same spot. You may have less to spend after if you’re in a higher tax bracket, because remember, we got to pay tax after we’ve already done all of this investing. But in reality, like we’re looking at almost more than a quarter of your gross income should over a 30-year period be invested in order for us to hit that 60% of our final year’s gross income based on the three percent inflation number.

Jon Orr: Yeah. So that’s like way much more like ten percent — twenty six percent. We’re talking bigger number, big time.

Kyle Pearce: Yeah. Now as you see, I’m adjusting inflation. If I go down to two percent inflation, all of a sudden, you know, we see that our percentage goes up to 72%. That means I can actually put away less. I can put like 20%, 22% in instead of 26.5%. And that’s because the spread between inflation and our rate of return has actually increased, right? So you can imagine like inflation matters here. And these are things that we can’t accurately predict. You know, anybody can say, hey, historically, what has inflation done? But we don’t know what it’s going to be like moving forward. We can say the same thing about rate of return. We can get more aggressive and say, hey, if I’m at a hundred percent S&P 500, I can go like more like nine percent returns. But it’s like, do we know what’s gonna happen moving forward? So we tend to try to plan with a more conservative lens so that hopefully you can meet these goals a whole lot earlier. But the one thing that I think we’re recognizing here is that unless we are being extremely aggressive in our numbers, we certainly want to make sure that we are saving more than 10% of our gross income every year in order to prepare ourselves for a more financially free future.

Jon Orr: Right. Yeah. Okay, let’s do one more scenario. Okay, so this was like, hey, if I have nothing to start with and I’m stretching it over thirty years, we’ve got the case here we need to at least look at twenty percent or more to invest to get to pension like safety. Okay. But let’s say I’m in my late forties. I’m coming up on fifty and I’m going to retire in 10 years. Or I want to retire, you know, somewhere around there. But I’m also not starting with nothing. I’ve got some parts stocked away. Let’s say, you know, you have four hundred thousand dollars sitting in the bank account because you’ve got RSPs that you’ve contributed, or maybe you’re converting a pension, kind of like what we did. And I’m looking to retire in a ten year period. What does that look like for me? And therefore, let’s say I have that, what should I be then socking away? Like what percent should I still look at as putting away for the next ten years in gross income to make sure that I get to that type of safety?

Kyle Pearce: I love it. And you know, I’ve kind of zoomed out or I guess moved up in this spreadsheet to the first 10 years. Doesn’t really matter what the age is here. So it’s like if we just have a 10-year horizon, we’ll just look at the first 10 rows. And then in the 11th year, we’re gonna look at pulling 4% of that gross amount. And again, we’re not telling you 4% is the quote unquote rule, even though that’s the nickname for it. It’s just a good starting point, it’s a good basis for us to kind of do some initial planning around.

Kyle Pearce: Now, if we look here and we say, hey, if I have nothing in that bucket, like John had said, and we just start taking 10% of that gross income, gross income’s inflating for the next 10 years, I’m gonna look at only getting about 12 and a quarter percent of my retiring year’s gross income. That’s certainly not enough, or I would argue, not going to be enough for someone. That is assuming that we had 22% of our pay. If I go down to 10% of our gross pay, it’s even worse. We’re down to like under 6% of our gross. So that’s not going to be very helpful at all.

Kyle Pearce: So if we say, hey, if we’re only taking 10%, and then we start with a number, like let’s say we start with $500,000, you can see that just taking 10% of this gross income for the next 10 years is going to put us at about 30% of our gross income inflated over those 10 years, which is actually not too bad. Like that puts you in a over a 10-year period — sure, it’s not too bad. What I suppose I mean is over a 10-year period and only saving 10% a year. But if we pop that up to say 20% a year.

Jon Orr: Well, you’re still saying a seventy percent pay cut.

Kyle Pearce: All of a sudden now we’re at 35%. I would argue for most people, if I’m only saving 20% over the last 10 years, that means I need more than 35% of my gross income to survive on because I’ve been spending 80% of it, right? I’ve been spending it on tax and lifestyle. So let’s keep creeping this thing up to try to get it closer to 60%, like a pension might provide us. And you’ll notice that we’re gonna have to contribute almost sixty, sixty-four percent, sixty-five percent of our gross income in order to retire in ten years.

Jon Orr: Well, think of it like this though. If you — if you — I like the way you spun that last statement because if you’re saying if you’re contributing sixty five percent of your gross income now, then you’ve been living on thirty five percent. Then you don’t need to have sixty five percent anymore in retirement.

Kyle Pearce: I love it. I love it. That is so awesome. And I might even argue, too, that if that’s the case, where you have more money coming in — this is like the perfect example where people in their minds they do retirement planning, assuming you’re gonna earn less money in retirement than while you’re working. And that would be true in this case. Like if someone’s saving 50% of their gross income, they would in this particular case by year 11, they would be able to live off of 52 percent of their — they just got a raise. And they’re actually getting a tax cut because they don’t actually have to pull all of that money. So even if it was all in the RSP, they would be in a position where they’re actually still gonna pay less tax because they’re only going to pull about half the amount that they were earning gross.

Jon Orr: Got a pay raise.

Kyle Pearce: Pay from their employer or where they were employed. So where this gets a little bit more problematic is when let’s say we’re earning more money, we’re in a higher tax bracket, and we need more of that income in order to survive over the longer term. The real question for everyone comes down to how much are we starting with? How much are we able or willing to save of the income we’re earning each year? And then we can backmap from there to really decide on what is a realistic timeline for me in order to be quote unquote financially free.

Kyle Pearce: And for me, I think I’ve more recently defined my definition of financially free for me in my household is getting to a place where I am able to fully support all of the spending we currently do without modifying anything. And it would allow me to continue working, but not have to worry about actually saving more from the additional income that I produce. So we’re in this spot where it’s like I actually don’t have to sock any of that extra money away, and that I’m actually still potentially earning some income through my businesses and the things that we do because we want to, and that I actually don’t have to save any of those dollars any longer.

Jon Orr: Because you want to.

Kyle Pearce: Because I now have the bucket over to the left there that if and when I’m ready, I could turn on and allow it to completely make up all of the cash flow requirements that I would need with or without my business in place.

Jon Orr: So I think, you know, big big takeaway here today is that you know, we first — you know, the ten percent rule is kinda thrown around. If you’re talking with your kids and you’re talking about maybe saying a good starting point is ten percent — you’re not gonna like what I tell my kids, but they have to put seventy five percent of their income into investments. But —

Kyle Pearce: That’s because mom and dad are funding the rest. So you know what I mean? You’re like, listen, yeah.

Jon Orr: Right. It’s like you’re a kid, you live here with us, you have no expenses. What are you spending your money on? You need to save it. So but I think the big picture here is that we need to save more if we’ve been thinking about the ten percent rule. If you think that that’s going to sustain you in your retirement years, we need to be dedicating — the numbers here suggest at least twenty percent or more of your gross income into investments so that you can somewhat maintain the same lifestyle you currently have going into retirement, which I think everyone wants to do. So no matter where you are, you know, if you have to look at those numbers, you have to look at those numbers, but it’s likely you’re going to be looking at a 20% savings rate.

Kyle Pearce: Well, and I would say too, time horizon’s gonna factor in massively here, right? So it’s like if we have a 30-year time horizon, then like twenty percent is probably a good place to start. And then hey, hopefully you get there sooner than you’re anticipating. Hopefully rate of return’s better. Hopefully inflation’s not as bad. But if you’re looking at a shorter time horizon, we’ve got to get really serious about what we’re spending now and what I’m gonna need in order to replace that spending.

Kyle Pearce: So the higher your savings rate, the higher your investment rate that you have with your current income, the quicker you’re going to get there, not only because of compounding, but because you need less to live on. So these are two things that are kind of like competing. And basically every person’s number is going to look a little bit different. And everyone’s assumptions should look very different depending on their portfolio and what we anticipate moving forward.

Kyle Pearce: So hopefully this gives you an idea as to what this might look like. I know today we spoke generally in terms of T4 income employees. What we find with successful business owners is that the success came later. And therefore, it means we’re usually a little quote unquote behind in terms of our investment buckets. So now is the time that we make sure that we’re analyzing where we are, what we project moving forward, and when we want to hit that version of financial independence, as you define it, not as I define it, not as John defines it, so that we can help you reach that goal even sooner. So if that sounds like you, you should reach out to us. We’ve got a link down in the description so you can book a discovery call. Go ahead and give it a click, grab yourself a spot. And there’ll be some other links and goodies in the description as well, should you want to do our assessment or if you’d like to jump into our incorporated business owners master class. Overall, hopefully you’ve gained something from it. And if you have, leave us a comment — a rating and a review always go a long way to make sure that we can get this content in front of more amazing Canadian wealth builders just like you.

Jon Orr: Just a reminder, the content you heard here today is for informational purposes only. You should not consider this information as 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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