The 4% Rule for Canadians: Does It Still Work?

The rule is derived from the Trinity Study, which analysed historical US market data. While originally US-focused, subsequent research applying Canadian and global returns has shown similar results — a 4% withdrawal rate survives the vast majority of 30-year historical periods.

The 4% rule implies a simple formula: multiply your annual expenses by 25. If you spend $50,000 CAD/year, you need $1,250,000 invested. If you spend $70,000/year, you need $1,750,000. However, for Canadians, CPP and OAS significantly reduce the portfolio required — these government pensions can replace $15,000-$25,000/year of withdrawals.

Important caveat: someone retiring at 40 may need their money to last 50+ years, requiring a more conservative 3-3.5% rate. The original study assumed 30 years. Very early retirees in Canada should also consider that CPP and OAS do not begin until 60-65, creating a 'bridge period' that must be funded entirely from savings.

TFSA withdrawals are particularly valuable in retirement: they do not count as income, so they do not trigger OAS clawback (which begins at roughly $90,997 in net income). A strategic withdrawal order — drawing from TFSAs first, RRSPs/RRIFs later — can optimise lifetime tax efficiency.

Dynamic withdrawal strategies — adjusting spending based on portfolio performance and reducing withdrawals by 10-20% during bear markets — dramatically increase portfolio survival probability. The 4% rule is a useful starting framework, not a rigid prescription.