Illustrative Example Scenario Annual Spending CPP + OAS Portfolio Gap Required Portfolio (4%) Modest single $35,000 $18,000 $17,000 $425,000 Comfortable single $50,000 $20,000 $30,000 $750,000 Comfortable couple $70,000 $40,000 $30,000 $750,000 Affluent couple $100,000 $40,000 $60,000 $1,500,000 Is 4% Still Right in 2025?

The 4% Rule for Canadian Retirees 2025

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Updated: March 2025 · 10 min read

The 4% rule is the most widely cited guideline in retirement planning: withdraw 4% of your portfolio in the first year of retirement, then adjust for inflation annually. The original research (by William Bengen, 1994) suggested this rate had a high historical probability of surviving a 30-year retirement using a 50/50 U.S. stock/bond portfolio. But how well does it translate to Canadian retirees in 2025, with our unique government income sources and different equity markets?

Key Insight: For most Canadian retirees, CPP and OAS significantly reduce the amount that must come from your portfolio — making a strict 4% rule less important and often too conservative. The 4% rule is a portfolio withdrawal rate, not a total income guideline.

What the 4% Rule Actually Says

The 4% rule was derived from U.S. historical data and assumes:

A 30-year retirement horizon
A balanced portfolio (roughly 50–60% equities, 40–50% bonds)
Annual withdrawals adjusted for inflation each year
Worst-case historical market sequences (like 1929, 1966)

Bengen found that a 4% initial withdrawal rate had never failed in U.S. history over a 30-year period, even for investors who retired just before major market crashes. The "rule" has since been updated and debated extensively, with some researchers suggesting 3.3–3.5% is safer for today's low-yield environment.

The 4% Rule in a Canadian Context

Canadian equity markets have historically had somewhat different return characteristics than the U.S. market. Research on Canadian historical data generally supports a slightly lower "safe" withdrawal rate — perhaps 3.5–4% — though the range of outcomes is similar. Key Canadian differences:

Canadian equity market is more concentrated in financials, energy, and materials
Canadian bond yields have been lower on average in some periods
Canadian portfolio returns have been reasonable but somewhat below U.S. long-run averages

How CPP and OAS Change the Calculation

This is where Canadian retirement differs fundamentally from the American context. Americans have Social Security, but CPP and OAS together are often more substantial for typical middle-income Canadians than Social Security for comparable Americans. More importantly, CPP and OAS are:

Indexed to inflation annually (CPI)
Guaranteed for life (no longevity risk)
Not subject to market volatility

If your CPP and OAS provide $18,000–$25,000/year per person, and your annual spending goal is $45,000, you only need your portfolio to generate $20,000–$27,000/year. Applying the 4% rule to your portfolio balance is appropriate only for the gap between your guaranteed income and your spending target — not to your total spending.

Illustrative Example

Scenario	Annual Spending	CPP + OAS	Portfolio Gap	Required Portfolio (4%)
Modest single	$35,000	$18,000	$17,000	$425,000
Comfortable single	$50,000	$20,000	$30,000	$750,000
Comfortable couple	$70,000	$40,000	$30,000	$750,000
Affluent couple	$100,000	$40,000	$60,000	$1,500,000

Is 4% Still Right in 2025?

Opinions among financial researchers and planners vary. Arguments for a lower rate (3–3.5%):

Bond yields have been structurally lower since 2008 (though rising since 2022)
Current equity valuations are historically elevated
Retirement horizons may extend to 35–40 years for early retirees

Arguments that 4% remains reasonable for Canadians:

CPP and OAS inflation-indexed income substantially reduces portfolio dependency
Most retirees reduce spending naturally in their 80s+
Flexibility (spending cuts in bad years) dramatically improves success rates
The rule was designed for worst-case historical sequences; average outcomes are much better

Dynamic Withdrawal Alternatives

Rather than a rigid 4% rule, many Canadian planners recommend dynamic strategies:

Guardrail strategy — Set upper and lower spending guardrails; adjust spending if portfolio falls or rises beyond thresholds.
Floor-and-upside — Cover essential spending with guaranteed income (CPP, OAS, annuity); use portfolio only for discretionary spending.
RRIF minimum approach — Let the government's RRIF minimum percentage guide withdrawals rather than a fixed rate.

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Bottom Line

The 4% rule is a useful starting point and a helpful mental model for estimating required retirement savings. For Canadians, CPP and OAS reduce the portfolio withdrawal burden significantly — making a 4% rule on the portfolio "gap" reasonable for most middle-income retirees. Flexibility — willingness to reduce spending in bad markets — is the single most powerful way to increase the safety of any withdrawal rate.