Episode 268: Are You Investing Enough—or Just Following Outdated Financial Advice?

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

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 10% of your income, pay yourself first, be disciplined. But almost nobody stops to ask — what happens if you actually follow that advice for 30 years? Will you hit your financial freedom numbers? Is 10% enough? That’s what we’re talking about here today.

Kyle Pearce: You know what happens when we start throwing around these kinds of questions — I like to make spreadsheets. So we’ll geek out in a bit of a spreadsheet format as we move along. The interesting thing when we think about the 10% rule — Jon, you were just rereading The Richest Man in Babylon, right?

Jon Orr: I read it by the pool in Florida.

Kyle Pearce: It’s a great book. Fairly basic in nature, but it’s an old, old idea — and that’s probably where the “pay yourself 10% first” concept comes from. But the real question we want to dig into is: is that enough, especially in today’s world? I’m going to argue it could be enough, but it could also leave you coming up short depending on so many different factors. Traditional retirement planning revolves around this idea that we’re all going to work until roughly 65, over a 30-year span, doing this the same way every single year from start to finish.

Kyle Pearce: But I don’t know about you, Jon — when you’re younger and you don’t necessarily have dependents, you don’t know how you’re going to feel down the road, and you’re just excited to get into the workforce and do great things. All of those realities hold us back from the truth about what we actually need. If we’re planning to invest over a 30-year timeline, the problem is I don’t think I was actively saving 10% when I was 25.

Jon Orr: I’m going to argue you were — you just didn’t know you were doing it.

Kyle Pearce: Tell me more. I mean, by nature I’m a saver, but I wasn’t explicitly picking a number. I just naturally don’t like spending money unnecessarily. But for many young people, you’re thinking in the now. Think of all the people who go backpacking in Europe for three months or a year — how many of those people are making sure they save 10% while doing that? Usually it’s after getting a good solid job that you start thinking about saving for the future, when there’s actual extra money coming in.

Jon Orr: Right. So are you saying the 10% rule would hold up if someone was young, disciplined, and consistently putting away 10% of their gross income into investment funds every single year?

Kyle Pearce: In general, probably — and the reason I say probably is because one of the greatest aspects of compound interest is that time is the greatest benefit when we’re compounding investments. Warren Buffett made the vast majority of his wealth after he’d been investing for 30 years. The first 10 years of a 30-year compounding period don’t feel as great as the last 10, because you’re just getting steeper and steeper up that exponential curve. The longer you can go, the better off you’re going to be.

Kyle Pearce: But here’s the thing — when people get super serious about financial freedom planning, most often they’re not looking at a 30-year time span. They’re usually looking at something like 10 years. And as we shrink that time horizon, it puts us in a much more challenging situation unless we’ve already been building a pile over all the previous years.

Jon Orr: Right. So the details here: is putting 10% away in savings and investments enough to fund retirement? I think what we’re saying is — not likely. And that might be the shock, because you’re told the 10% rule is going to work. But Kyle, let’s get into the actual numbers to unpack what this looks like. Let’s say I’m 10 years away from wanting to retire — either starting from zero or with a nest egg. What does that look like if I’m putting away 10%?

Kyle Pearce: So for those watching on YouTube, we’ve got a spreadsheet on screen — we’ll try to describe it for those listening. We start with the median household income for a Canadian family from 2024 data, which is about $125,000. That’s right in the middle — half of Canadian households are below that, half above. We’re going to inflate that income by 3% per year, take 10% of each year’s income, invest it at 7% compounded annually, starting with zero, and do this for 30 years. After 30 years, we end up with about $1.7 million.

Jon Orr: Sounds pretty good.

Kyle Pearce: Right — $1.7 million sounds great. If we apply the 4% rule as a starting point, that gives us about $70,000 of annual income. You’re like, I’ll take $70,000 for not working, that sounds good. But here’s the problem: we’ve been inflating our income for 30 straight years. That $125,000 household income is now sitting at just shy of $305,000 per year in year 30. That’s what we’ve been living on — the other 90% going to tax and life expenses. And now we’re only going to pull $70,000 from the portfolio using the 4% rule.

Jon Orr: Right — because the 4% rule says you can safely pull 4% of the pot, adjusted for inflation, and stretch that over another 30 years without running out. So $70,000 from a $1.7 million portfolio. But $70,000 is only about 22% of the $305,000 we’d been living on in year 30. So retiring on 10% savings is essentially a 78% income cut. That doesn’t sound so great.

Kyle Pearce: Exactly. Now, some people might push back and say the 4% rule is conservative — what if we use 6%? Okay, 6% of $1.7 million gives us about $104,000. We’re now at about 34% of that final year’s gross income. Still significantly less than what we were spending. And that’s assuming we’ve been living on essentially 90% of gross income because we’ve been investing the other 10%. That money got spent — it has to have, because otherwise we would have saved it.

Kyle Pearce: Even in Dave Ramsey’s world where he uses 12% returns — after 30 years at 12%, we’d have about $4.3 million and could pull about $172,000 per year. That gets us to about 56% of that final year’s gross income. Pensions typically aim for around 60% of gross income from your last few years of work. So even at a very aggressive 12% return assumption — which historically is not realistic — we’re still falling short of what a traditional pension would provide.

Jon Orr: And that’s at 12% returns. So let’s put 7% back in and ask: what savings rate would actually get us to pension-like security? If I’m 25 years old, starting with nothing, and want to retire at 55 — 30-year horizon — how much should I be saving to hit roughly 60% of that final year’s gross income at the 4% withdrawal rule?

Kyle Pearce: Hitting the 60% mark at 7% returns and 3% inflation requires saving about 26.5% of gross income every year. That’s more than a quarter of your gross income, over 30 years. And importantly — the proportions are fairly consistent regardless of what that gross income actually is, so this math applies broadly. If we drop inflation to 2%, the required savings rate goes down to about 20 to 22% — because the spread between your return and inflation increases. But we can’t accurately predict either of those. We tend to plan conservatively so you have the best chance of hitting your goals.

Jon Orr: Right. So 10% just doesn’t get you there. Even on a 30-year horizon, you’re looking at something closer to 20% or more to get to pension-like safety. Now let’s look at a shorter timeline — someone in their late 40s coming up on 50, wants to retire in 10 years, and isn’t starting from zero. Let’s say they have $400,000 saved — maybe from RRSPs or converting a pension, like we did. What does that 10-year window look like and what savings rate do they need?

Kyle Pearce: So if we zoom to just the first 10 rows of the spreadsheet — a 10-year horizon — and start with nothing, saving just 10% of gross income, we end up being able to pull about 6% of our retiring year’s gross income under the 4% rule. That is not going to work. Not even close. But if we bump savings to 22% of gross with no starting amount, we get to about 12 to 13% — still not great.

Kyle Pearce: Now, if we add that $400,000 to $500,000 starting nest egg and save 10% for the next 10 years, we can get to about 30% of gross income under the 4% rule. That’s not terrible for a 10-year window saving only 10%. But if we bump it up to 20% per year with that same starting amount, we can get closer to 50% — which is starting to feel like real income replacement.

Kyle Pearce: Here’s the twist though. If you’re saving 50 to 65% of your gross income now, you’ve been living on the remainder. So in retirement, you don’t actually need 65% of your gross anymore — you’ve already been living on 35 to 50%. You actually might be getting a pay raise when you retire, because you stop saving that large chunk and you can live on less than you were earning.

Jon Orr: Exactly. And then there’s also a tax benefit — if you’re only pulling half of what you were earning gross, you’re in a lower tax bracket. So you get both a lifestyle income that works and lower taxes.

Kyle Pearce: Yes. And that’s where the real question for everyone becomes: how much are you starting with, how much are you able or willing to save of your current income each year, and what does your timeline look like? From there we can back-map to a realistic target.

Kyle Pearce: My personal definition of financial freedom has evolved. For me, it’s getting to a place where I can fully support all of our current spending without modifying anything — and still potentially earn income from the things I love, without needing to save any of those dollars because the investment flywheel is already spinning on its own.

Jon Orr: So the big takeaway here: the 10% rule is a starting point — a good conversation to have with younger people just getting started. But the numbers tell us that 10% likely won’t sustain the lifestyle you’re used to in retirement. If you’re looking at a 30-year horizon, you want to be closer to 20 to 27% of gross income. If your horizon is shorter, you need either a meaningful starting nest egg or a higher savings rate — or ideally both. The higher your savings rate, the sooner you get there, not only because compounding works faster, but because you need less to live on in retirement.

Kyle Pearce: And for business owners specifically — success often came later, which means the investment buckets may be behind. Now is the time to analyze where you are, what you project moving forward, and when you want to hit your version of financial independence. If that sounds like you, reach out to us — we’ve got a link in the description to book a discovery call. There are also links to our assessment and our incorporated business owners masterclass if you want to dive deeper on your own.

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.

OPTIMIZE YOUR FINANCIAL FUTURE