Does the 4% safe withdraw rate still make any sense?

Does the 4% safe withdraw rate still make any sense?

A simple question without any simple answers…

Does the 4% safe withdrawal rate still make any sense?

To answer this question, I reached out to Certified Financial Planner (CFP®) Steve Bridge, from Vancouver. Steve works as an advice-only financial planner with Money Coaches Canada.

As a CFP® who helps clients directly with retirement and pension planning, I figured Steve would be an excellent subject matter expert to offer his take on this subject.

Steve, welcome to the site!

Thanks Mark! Happy to be talking with you. Love the work you do, and I know we’re on the same page with helping Canadians get advice that is actually in their best interests.

You bet Steve. I enjoy running the blog and interacting with folks about personal finance and investing. Before we get the heart of the 4% safe withdrawal rate discussion, I was wondering if we could recap what this “rule” actually says and what it is based on for readers?

Sure Mark.

In general terms, the “4% rule” says that you can withdraw 4% of your savings each year (and increase it every year by the rate of inflation) from the time you retire and have a very high probability you’ll never run out of money. I think this “rule” has gained so much traction over the years because it gave people comfort that if they followed this rule, they would never run out of money. We both know there are risks with this logic!

This ‘rule’ originated from a paper written in the 1990s by a financial planner in the USA who looked at rolling 30-year periods of a 50% equity/50% fixed income asset allocation.

For Mark’s readership, here is another way of looking at it, since I know Mark aspires to own a $1 million portfolio for semi-retirement:

  • If you grew your portfolio value to your goal, $1,000,000, then you could reasonably withdraw 4% of that or $40,000 per year almost without fail until death. (We will see why later on there some assumptions with the 4% rule to be mindful of!)
  • Depending upon your lifestyle, say you needed $60,000 per year in retirement or semi-retirement, then according to the 4% rule you would need $60,000/4% = $1,500,000 in portfolio value.

Great stuff Steve. 

As I approach (rather strive for) semi-retirement in the coming years, I’ve been doing more thinking about the 4% rule. Based on demographic shifts that I wrote about here in my top dividend ETFs post, I’m wondering if the 4% still makes any sense?

I’ll be honest, I’ve been preparing retirement plans for people for almost five years and I have never used the 4% rule or even mentioned it to any of my clients.There are just too many factors to consider when it comes to retirement planning to rely on just one rule or aspect. I think introducing this ‘rule’ could potentially confuse people, as they could maybe walk away thinking, “All we have to do is withdraw 4% of our money per year and we’ll be fine”.There are just so many other factors to add into an overall plan that using one idea isn’t advisable.

For example, you need to take into account:

  • How much Canada Pension Plan (CPP) and Old Age Security (OAS) will you receive?
  • Timing of taking CPP and OAS (Hint: later is almost always better)
  • Will you (or your spouse) have a defined benefit pension plan?
  • Do you expect to receive an inheritance?
  • Will you downsize your home?
  • Do you have a shortened life expectancy or health issues that should be considered?

Mark: here is a post on this very subject!

When to take your CPP benefit.

If you think about a somewhat extreme example, a couple with two defined benefit pension plans who are expected to receive 100% CPP and OAS and want to spend $70,000 per year in retirement could stop working with literally zero dollars in the bank and never have a worry. The 4% rule doesn’t come into play whatsoever! For most people the rule, in my opinion, is only moderately useful at best – there are just too many other factors to consider when it comes to putting together a complete retirement plan and drawdown strategy.

I can say this because you just had that case study on your site! (Mark: read on if $1.2 million is enough???)

Mark: here is a post on downsizing and those benefits (including financial ones):

Why should you consider downsizing.

Well put Steve. So, what about our low-yield interest rate environment Steve? Thoughts?

This is a really tough one. Some people are adding more equities, some like dividend stocks and others preferred shares. For me, I think that having a balanced portfolio that allows you to sleep well at night and not having too many eggs in one basket is the way to go. What the future holds with regard to returns for stocks and bonds is anybody’s guess.

I think your readers should be reminded that most research done on sustainable withdrawal rate, including the 4% rule, used historical data and, that research assumes there is an expected return on each asset class going-forward. Those are big assumptions.

What about another risk to the 4% rule – sequence of return risk. Can you explain to readers what the sequence of return risk really means and what harm that can cause to an investor’s portfolio?

Sequence of return risk means that a stock market correction, crash or widespread economic recession in the first few years of your retirement will reduce your savings and therefore reduce the amount you can spend each year going-forward. Put another way, without adjusting downward your annual spending, you could run out of money.

Mark:  I like to think of sequence of returns risk like dollar cost averaging in reverse. In my asset accumulation years, with dollar cost averaging, you invest regularly and buy more shares when investments are down.This means during these years, a negative sequence of returns works to your benefit – as you buy more shares, cheaper. When you’re in retirement, selling regularly, you need to have a plan in place to make sure you aren’t forced to sell too many shares when investments are down in a major way.

OK Steve, even though we haven’t seen another major correction, yet, how might investors combat a prolonged series of bad market returns in retirement Steve? What do you advise clients?

Ah yes, the next correction. It’s definitely coming (the next correction is always coming), but as you and I know, there is no one who can tell us when that will be or how bad it will be!

To protect yourself in advance of a prolonged downturn, one option that I like is to set aside a total of four year’s worth of lifestyle spending in cash and GICs. For example, if someone wants to spend $50,000 per year in retirement, I would advise having the current year of spending in cash (i.e. $50,000), as well as $50,000 in each of a one, two and three-year GIC each. This would allow you to wait out most market corrections, crashes, and recessions and sleep well through the whole thing.

I recall you’re going to put about a year or so of expenses away in cash as well, as part of your cash wedge.  (Mark:  I am!)

Another consideration is that if you have a defined benefit pension plan (I think you do Mark?), you could reduce your annual savings by that amount. So, in our example above, if someone had a $30,000 per year defined benefit pension plan they would only need to keep $20,000 in cash (instead of $50,000) and purchase the GICs for $20,000 ($20,000 + $30,000 = $50,000).

I would advise your readership that retirement planning isn’t just about getting the best return bottom-line, it’s also about being worry and stress free and mitigating risks.

To provide your readership with some actionable ideas, here are my solutions for clients:

  1. Have a cash cushion and GIC ladder
  2. Know what your retirement needs are, so that you could adjust spending in a time of a severe prolonged downturn
  3. Never sell in a downturn. Have confidence that the markets will do what they have always done – recover! Preparing mentally for this will help you avoid panicking and doing something they will regret later, i.e. crystallizing losses.

Mark: I wrote about our “bucket approach” to earning and managing retirement income here.

Steve, most of the research that has been done on sustainable withdrawal rates including Bengen’s 4% rule has been based on an equal mix of stocks and bonds (specifically just large-company U.S. stocks and intermediate–term U.S. government bonds). When Bengen added a third asset class, small-company U.S. stocks, I recall he actually raised the acceptable withdrawal rate to 4.5%.  What are some of your thoughts adding more equities to your portfolio as you get older and/or using dividend-paying stocks in a retirement portfolio?

Great questions and observations Mark. Like we discussed above, every investor has a different set of goals and objectives. It’s vital to understand and clarify those before simply adding more equities as you get older.

I think international stocks can provide diversification to an investor’s portfolio. Meaning, diversification can reduce the volatility of a portfolio without sacrificing returns.

There is a lot of discussion these days around what an ideal asset allocation is during retirement. I’ve read some very convincing articles (with numbers and stats to back them up) that show a higher equity allocation post-retirement reduces the odds of running out of money. Again, numbers and math are one thing, but being able to sleep at night is also important. Having 80, 90 or 100% of your retirement savings in equities takes a very strong stomach and is definitely not for everyone. We talked about the volatility above. The tough part would be not selling when the market drops, because that’s when the real damage is done to your future.

Final questions Steve, what are the biggest challenges you see and coach clients on these days?  With that question in mind, what could all investors get better at to help them with their safe withdrawal plans?

The first challenge, which I mentioned above is, knowing how much you need or want to spend annually. Look at what you’re spending now and then figuring out what will be different in retirement. Forget the ‘70% of pre-retirement spending’ rule – look at your specific situation. I have seen cases where 50% of pre-retirement income is enough and others where they were going to spend more than they currently were! Without knowing how much you want (or need) to spend, you don’t have a starting point and can’t plan. You’re kind of ‘flying blind’ and hoping things will work out and not taking out too much and risking running out of money!

Another challenge is getting advice that is actually in their best interests. There is a lot of information out there, it’s more accessible than ever, and it may not be applicable or best for you. 

For example, many people don’t touch RRSPs until they’re forced to at age 72 (when the RRSP account has to be converted to a RRIF) because either they didn’t know they could or were told by someone (who may have a vested interest) not to touch it. Investors/Retirees can save a lot of money in tax by withdrawing from RRSPs and similar accounts in their 60s.

Finally, putting together a drawdown plan that looks at all of your accounts (including your spouse’s) as a whole, as well as pensions and tax brackets will help you get money out and pay the least amount of tax possible (and therefore the most money in your pocket).

So, suffice to say there are a lot of challenges and pitfalls when it comes to planning for retirement. Be careful what advice you take, who’s giving it and whether that advice is appropriate for your specific situation.

What a closing comment and some great insights from Steve.

I want to thank Steve Bridge, a CFP from Vancouver for his detailed thoughts on the 4% rule.  Steve works as an advice-only financial planner with Money Coaches Canada (no affiliation with My Own Advisor). You can find him on that site for his services and you can follow him often on Twitter like I do at @SteveMoneyCoach.

I hope to have Steve back on the site for more investing discussions in the future!  Thanks Steve!


Other reading material related to this post:

Facts about Old Age Security (OAS) investors and retirees need to know.

Using the 4% rule, this couple wants to spend $50,000 per year in retirement. Did they save enough?

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

82 Responses to "Does the 4% safe withdraw rate still make any sense?"

  1. @Mark
    “Re: Many, many takes. I guess if I were you I would keep your withdrawals around the 3-4% range (avg. is 3.2%) since that is working well and I have a life policy around things that if it ain’t broken, don’t try and fit it……”

    Thanks. Yes, many takes and ways to actually calculate. I think using traditional 4% rule (with inflation factored) our withdrawals are definitely under 3.2%. Fortunately its also been good markets overall since retirement began so this “static” plan is also definitely understated for now. Using my preferred dynamic method updated VPW considering all income sources withdrawals are way under – like under half. Since we’re very conservative on all of this, taking out less than income generated (like others on here) I don’t really pay a lot of attention to the market gyrations so far. A big swoon sure but my withdrawals to date are still way under what VPW (to age 99) suggests after a 50% market dump, without accounting for asset gains this good year. Room to spend way more (45k range avg.) … if desired. Enough said.

    Yep, if it aint broke….I’ll keep my plan of rising equity glide path and we’ll see where that takes us.

      1. Not sure. I could move one of 2 stocks in kind from LIF for 6K portion. I could put cash in from wedge. Have ~70k now. I could transfer in kind from unregistered and offset gain with a loss already. I could do cash contribution from rrsp. Will be doing large withdrawal for sure anyway (per my long term plan to get registered down and tax smooth), but often wait some to see how much I want in USD or CDN after we have some idea on travel. No travel ideas currently.

        Decisions decisions! LOL Haven’t really thought about it yet.

        VPW only gives me a suggested withdrawal amount. No account input!

  2. I’m sure you know this and only simplified it to be briefer but the 4% rule doesn’t mean pulling four percent each year. It means pulling 4% the first year and then adjusting that amount by the impact of inflation every subsequent year. After the first year 4% is never again used to calculate the withdrawal, it is simply last years withdrawal times inflation which could go up or down.

    1. Yes, good point and the article includes that very subtle point early on.

      I worry about that rate of inflation increase every year – just seems far too aggressive for me!


      1. No problem Steve. I listened to a couple of your interviews through your website and read a couple of the articles (G&M were behind the firewall so I couldn’t get to them). I like the practical and reasonableness of the information. Keeping on top of all the changes over time is something a good “coach” can provide guidance on. Sometimes, learning from family or even the multitude of blogs available might not always be the best path. Too often I see input from others and find myself doing the “ya, but” when important factors are either glossed over, not considered or wildly exaggerated.

        I look forward to seeing more from you.

          1. I can’t think of any off the top of my head. Looking at Steve’s 3 suggestions…I’m already waaay past his recommendations for the GICs. We’re comfortably sitting on over 400K laddered in the RRSPs with another dollop of GICs sitting in non-reg to cover contingencies and to be invested as time goes by (XIU).

            His second one is not really possible for us due to my wife’s health issues. Suffice to say I’m going to err on the side of caution and be prepared for higher expenses especially if something happens to moi.

            And for number three, I have no intention of selling the equity investments much other than re-distributing from time to time.

            As you know I’ve gotten the CPP numbers from Doug so I have a good handle on those numbers. Just have to decide when to apply. So far I’m leaning towards deferring for quite a while but options are open. My wife’s disability wage replacement runs for another six years and she’ll get changed to regular CPP from Disability CPP at the same time. Of course OAS kicks in then as well but I can see taking the CPP at 65 just for the heck of it. We’ll see. I will have to do more serious research on RRIFs as well but no panic on that.

            Probably do one more summer of farm stuff next year and then I think I’ll rent out the land after that. If that comes to pass, I can do increased RRSP withdrawals/transfer in kind based on tax bracket intrusion. This is flexible as well.

            All in all, it’s pretty laid back now.

            1. Lloyd, I think your plan is more than secure the reality is, the best plan is the one that meets your goals. Nothing else really matters.

              Rent out the land? I suspect you’ll get quite a bit for that, no?


          2. Good to have you back here Lloyd.
            You’re in a very comfortable position and looks like a low chance that will ever change. Very nice.
            Like you I’m probably a little (lol) over the recommendations considering, cash, gics, bonds here. If Mark keeps gnawing at me that will probably keep changing though. Just kidding..all good Mark.

          3. I doubt it, there isn’t a lot of acres. A family friend farms next to my fields and I actually helped out on his farm when his Dad farmed it. Now that his son is getting into farming I’ll just go with a small base rent and some kind of payment based on yield. I’d hate charging a high rent and then him having a poor crop. We’ll see, no panic in any event.

          4. Thanks RB, we basically have zero financial concerns now. As to “recommendations”, I tend to follow the Pirate’s Code in that they’re more like guidelines (apologies to Captain Barbossa).

          5. Totally agree. Doing what we’re doing now (conservative living) is pretty simple. But to change finding that allocation balance might not be as easy. It’s complicated because of us, since we don’t really know how much we want to spend. Goal was/is?? last cheque to bounce. Harder to actually do. LOL…….4% “rule” ? VPW ?

            We’ve averaged withdrawals of ~3.2% of initial retirement assets without figuring inflation so far closer to 6 yrs retired now. Calculating with inflation (4% rule plan) we have withdrawn less – 65% of what it suggests which is a bit under 2% avg. Using the original VPW spreadsheet interestingly we’ve also withdrawn ~65% of what is suggested- about 2% as well. Using the new VPW this yr that incorporates bridgeless part of work pension, and other future income sources (govt pensions) we’ve withdrawn ~44% of what is suggested in our biggest spending yr so far- (41% using actual work pension with bridge).
            If I’ve calculated these right our FI amount now is about 13x what we have been withdrawing from assets avg annually to date. It would be about 6X what VPW actually suggests for annual withdrawals this yr., based on an asset balance at end of 2018 after the Dec ’18 dump. (much higher now) FI = approx 33% of our investment assets currently.

            Ha, so what is the right number for FI? 4-5X what we do spend annually, or could spend, or something else like a % of assets. Many takes on this!!!

            1. Many, many takes. I guess if I were you I would keep your withdrawals around the 3-4% range (avg. is 3.2%) since that is working well and I have a life policy around things that if it ain’t broken, don’t try and fit it.

              We’ve had a VERY big market year (nobody saw 20%+ coming) and you can consider spending a bit more in 2020 (>3.2%) knowing that things will eventually revert to the mean and returns in 2020 or 2021 are very, very likely (never know??) going to be lower than 20%.

              FI (fixed income) about 33%? That’s very good for retirement. I suspect if you can get eventually get that down to 20% or so (mix of cash, GICs, etc. that covers up to ~3 years of basic expenses with CPP, OAS coming online) and the rest in broad equity (e.g., some VTI), dividend ETFs (e.g., VYM), ~ 20 CDN stocks (the usual suspects) I don’t see any reason why your portfolio won’t grow MORE over time and you can actually spend more too. Pretty incredible if you think about it…

          6. You’re waaayyyy into the numbers much further than I am RB. I just look at what we have coming in now and aim for that to continue as things develop. With two moderate DB pensions (both lose some bridging at 65), and loss of wage replacement, and decrease from disability CPP to regular CPP, I have to sort of guess but I think I can ballpark it close enough. I don’t even worry about inflation much. First off, *the* basket of goods is not *my* basket of goods. I’ve found that since I retired and the other major change in my life, my costs/spending has plummeted. The other issue is that our pensions are fully indexed, CPP will be indexed and we each have health care coverage for the prescriptions.

            I was late to the game to focus on generated income versus net worth of the portfolios. It wasn’t until I started reading MOA a few years ago that I even tracked the income generated. Now that I do, that’s what I focus mostly on. Ya, there is still some growth potential (BAM.A, XIU, etc) but as long as there is substantial income from dividends, distributions and interest in all the portfolios, the net worth will look after itself.

            One thing I have to keep reminding myself (and I really should amend the spreadsheet to break it down better) is that the income from the RRSPs and non-reg *will* be taxable. Not that I’m overly concerned about paying taxes (I’m not), it’s just that I should be looking at “take home” if I am looking to replace lost “take home”.

            As to the fixed income, I just ball parked $40K/year as a figure we might need per year (over and above our pensions) and multiplied that by ten years (number out of a hat). $400K total, laddered so that $40K (plus interest) comes up every year. If we need it, it’s there, if we don’t, it’s there.

            1. Absolutely growth potential with BAM.A and XIU – we’ll see what next year brings though!

              That said, nice to hear I’ve inspired others (at least a bit) to focus on what their portfolio income could be vs. just portfolio value.

              Ultimately whether you plan to “live off dividends” to a degree like I do or not, I feel knowing what your portfolio can safely deliver as income is the key to retirement cash flow worries – in that, you won’t have any sleepless nights if you know a mix of withdrawals, dividends, interest, growth, other will always meet your needs.

          7. Thanks for your insight Lloyd. Same deal here on the focus change on income since coming on Marks site just over 5 yrs ago.

            Ha on the numbers thing. Sounds all complicated but its extremely simple. I am into this stuff for interests sake. At the end of the day have a basic plan but am pretty much loosey goosey since I know like lots of others on here we’re way fine on what we spend vs income generated let alone capital, per these other withdrawal methods. Recommendations ya- same take. Just throwing my stuff out there for whoever might possibly care and to comment on.

            I get it on your lifestyle now. Our vice is on the travel and thats been making up over 1/3 of our total spending so far. Discretionary so if things got really bad easy to drop/cut, but unless we really ramped things up I can’t ever seeing that being necessary. I know you’re like that too and probably far more set than we are. Otherwise in retirement we too have a fairly simple inexpensive lifestyle.

  3. @ not so Purrfect – Just by you having to go to Garth Turner for advice – tells me all I need to know about your lack of investing knowledge. There is a difference between YOU and Buffett – as you know. Warren is holding cash to buy valued assets. Your holding cash because it makes you somewhat feel secure and your worried about a correction (LOL).

    Just telling us you have 4 years of expenses in cash explains your investment knowledge to a tee! Try getting a LOC in place for the rainy days and do something with that pile of cash you look at everyday. If you need some help – don’t call on Garth – he says you don’t listen.
    Did you buy some ENB?

    1. Mike it will be nice when ENB gets back to what it was 6 years ago. Unfortunately my son had to sell at a loss last month. It was the “sure fire totally great Canadian stock” for young people to start out with at that time.
      I think perhaps you are quite young and do not have much experience?
      I have a lot of cash right now and feel good about it. I also have one particular stock that gained in one day two weeks ago, what my daughter’s annual salary is…it is still going up. Hindsight is always perfect.

      1. Hi Barb, what is a lot of cash? and why is it just sitting there? I hope you own more than just that one stock & hope your kid makes more than 150K yearly. As for ENB – why the heck did your son sell at a loss? Did you not teach him anything?
        Did he calculate all those ENB divs? Did he Drip? ENB today is not ENB from 6 years ago. They are now self funding their growth :). Please pass along a big Thank-You to your son for me – I bought those shares he dumped!

        Your question “I think perhaps you are quite young and do not have much experience?” Well this may answer your question. I hold a couple dozen stocks – with 5 Mill in ENB. (I hope I qualify for being experienced – but you be the judge)

        1. A lot of cash….is a lot of cash. I really do not want to see 30-40 percent drops in portfolio value at this stage of life, btdt, so I am happy waiting for the right opportunities to deploy it. Or not. Maybe I will just spend it, lol.
          My son is having to give up his Canadian residency, so at that point you have to sell your stocks or else just have a deemed disposition and pay the capital gains anyhow. The USA also has a very long arm on taxation, the system there is pretty awful for those used to Canada. With dividends he may have come out even, but not really the result you want from a stock purchase.
          Yes, on that one relatively small stock purchase I have made close to $150000 on paper, although all experienced investors know that they cannot always pick winners. Of course we all want winners, but being so concentrated in one company certainly isn’t what most experienced investors would choose. So, by that metric I don’t consider you experienced, but then I don’t know you.

  4. @Bob. Well done. That’s Good – just not Great! If your happy with ending how you got there – then great! Sit back and enjoy what you have.
    I bet the journey was a long process – like for so many.

  5. Maybe be you should learn – that one can make MONEY in any market! and there is no need to sit on that much cash and allow inflation to eat into it. Do you have anything else to contribute?

    1. I have 3-4 years of expenses in cash which represents less than 5% of my net worth. Warren Buffett is sitting on 20% cash right now. Please tell me how wrong I am (without plagiarizing Garth Turner as you have done in the past)

  6. @BOB – I disagree with you! MONEY does not buy a piece of mind! or as you say ” a lower return is in effect buying us piece-of-mind”.
    Most people do not understand MONEY. In fact they only think of money to pay the bills or to buy stuff they want. That’s why most are not going to retire as millionaires. So many comments on finance blogs are from people who think middle class. (because that’s where you are today)
    Change your thoughts on money and think like the rich do and you will leave middle class behind. That’s the problem with people talking about some 4% rule and GIC’s and always playing it safe. If you continue on this path you will never be rich! Keep talking and doing the same and you will always get the same results! Buy ENB before it hits $55 – $60.

    1. @Mike: Money buys me significant piece of mind, and you can’t say otherwise because you are not me.

      Why are you ranting at me about what most people think about money? I suspect that the majority of the people following this blog are already taking a different path to the majority of the population.

      You said: “So many comments on finance blogs are from people who think middle class. (because that’s where you are today)”. Why did you say that? Is it supposed to be an insult or a demonstration of your belief in your significantly superior position on this planet?

      “Change your thoughts on money and think like the rich do and you will leave middle class behind.” Again, you don’t know me, and you don’t know my thoughts on money – just one tiny aspect that seems to have sent you into a frenzy.

      “If you continue on this path you will never be rich!” By most measures, we are rich in both money and in our relationship. I will stop working very soon and join my wife in retirement, and by design, our disposable income will increase by 65% per annum.

      Constantly putting “money” in all caps suggests you feel very strongly about your views, perhaps even defensive and/or closed minded, it’s a distraction. Are you my first troll?

      1. Good points Bob and I’ve warned Mike on this site before. Unfortunately, it seems, some folks don’t heed any warnings.

        I’ve found over my years of being on this earth, folks that usually react very defensively for anything are either a) immature or b) very insecure. Either one is unfortunate for an adult.

  7. Unfortunately my withdrawal rate @ 70 years of wisdom will be 5%, @ 71 it will be 5.28%. @72 5.4%
    I have written to the CRA several times referencing articles similar to this and asking why they want more than what is counselled by people much smarter than me. The CRA does not seem to understand????
    Pretty sure this applies to pretty well everyone that converts to a RRIF at whatever age they feel appropriate. You will have to do something when you turn 71
    All this to bring up the point that I have yet to see an article that takes in to account RRSP/RRIF accounts.
    Toting up your sources of income should include the RRSP or RRIF income. In the USA it would be the 401K.
    So income would be CPP/QPP; OAS; any company pension. If you have a combination of these then in all likelihood you will not qualify for the income supplement. If you are a couple than you may be pulling double on all of these. Needless to say that can make one hell of a difference. Then you get to add in the mandated withdrawals from your RRIF(s)
    After considering those potential income sources then you look at your non-registered portfolio(s) and access if you need to top up your income and to what, if any, extent. It might be 0% in some years and 8% in others if you plan an extensive vacation. SO IMHO, the 4% rule is a bunch of Cr@p. You need to access what is coming in, guaranteed CCP/QPP. OAS, Company pension, plus mandated if you have an RRSP/RRIF from 71 yrs of wisdom, and then figure out what, if an, you need to do what you want to do.
    If all you have are non-registered portfolios than then the discussion about withdrawal rates is more valid.
    I would think that the majority of people have an RRSP/401K
    If this is not discussed then you are missing what can in theory be the biggest contributor to you post retirement income.
    Yet no one seems to take this in to account.


      1. Just saying that most articles on withdrawal rates never mention the mandatory withdrawal rates of RRIF’s. In the USA it would be the 401K/Roth
        Quite often the RRSP/RRIF is not even taken in to account for income which obviously skews the whole calculation.
        CPP/QPP; OAS; company pension (if you have one); RRSP/RRIF. After that you get to play with your TFSA and/or non-registered portfolio(s)
        Unless you have never contributed to an RRSP the whole 4% discussion is not really relevant.
        I would venture that the majority of readers have an RRSP or have already converted to an RRIF.
        Obviously your withdrawal amount will vary with the net (Jan 1st) value of the portfolio so everyone would be different as to the amount withdrawn because two factors are relevant here, 1) age (mandatory withdrawal rate) and 2) portfolio value
        You can play with a TFSA or non-registered portfolio to your hearts content to make up any shortfall, or not, in the above.
        At the very least these articles should state that the income from registered plans has not been taken in to account.


        1. Gotcha re: mandatory withdrawal rates.

          I think for us, we are absolutely thinking about RRSP/RRIF withdrawals. It’s a huge factor in our semi-retirement plan. It’s something I’ll write more about eventually, just not today 🙂

          I do know some readers that have converted their RRSP to RRIF. In fact, I have and will continue to help my parents with this since they are also at that age – forced to convert RRSP to RRIF.

          They have workplace pensions. I felt an annuity was not a good call for them!

          Good comments.

          1. I would be interested in the rrsp withdrawal strategy. My husband and I will be retiring around 55 with defined benefit pensions so our lowest income year will be from 55 to 60 when we take cpp. I am thinking that we withdraw then rather than waiting…but my husband think we should continue letting the rrsp grow tax free…either way the Taxman Cometh…but not sure which is less painful!

            1. One strategy I have heard a few couples take LHM is just that – one RRSP continues to grow tax-deferred and the other is slowly collapsed.

              I know for my parents, I advised them to slowly wind down their RRSP to avoid RRSP to RRIF creation but my dad has some money (not much) in RRSP and he is forced to convert. I think a much better strategy is to wind down RRSP on your own terms, move any money not needed/to be spent to TFSA and then spend whatever else. This way, you can get rid of the tax liability on your own terms vs. RRIF forced withdrawal schedule. That’s just me but everyone is different and in my 40s, I’m a long ways away from thinking about any RRIF.

              Here is a post about my considerations FWIW:

              I hope that offers some considerations?

  8. Mike: “Keeping 4 years of spending in cash – is the worst advice I have heard this year!” With hindsight, I agree, but it could have been a very different story. Over the long-term, yes, stocks have beaten cash, but if your needs are immediate, let’s say the next 3 to 4 years, then surly it’s prudent to have it tucked away, safe and sound. Also, if you can safely meet you retirement income goals and legacy targets with every single penny in cash if you want, then why not! If you don’t need more, and not all of us want more when we have enough, then that lower return is in effect buying us piece-of-mind. So, what price ‘piece-of-mind’.

  9. Barbara: good on you for trying.

    Pose the question “have you thought about how you could perhaps have a bigger pension by doing it a different way?” Then see where it goes. You really want them chasing you for more information rather than you trying to force it on them. Good luck!

    As Stan Laurel said: “you can lead a donkey to water, but a pencil has to be lead”

  10. I don’t think 4% makes sense as a withdrawal plan. But it makes sense when you want to roughly calculate whether or not you have enough money to retire, but your estimated annual expense needs to have enough buffer.

    Anyway, I am using the 4% rule for my target of ready to retire. How to withdraw the money when retirement actually happens is another story. Also, I am quite confident the annual expense I am using to apply the 4% rule can be easily reduced.

  11. Keeping 4 years of spending in cash – is the worst advice I have heard this year! IT’S OVERKILL!
    GIC’s are the worst investments these days. Why would you even suggest GIC’s? I know a reader on this board that invested in laddered GIC’s a couple years ago. Look what he has missed out on. Gains that are ten times plus what his GICs paid him. (MISTAKE)
    As for the 4% rule – why even bother talking about it! Doesn’t work – never did!
    So many Rookie mistakes in investing. Its not a one glove fits all!
    Tip: ENB is starting to break out and when line 3 is complete expect another climb up. Investor day is just around the corner and expect a 10-12% Div increase. (Now that’s some better advice – over GIC’s, and holding 4 years of expenses in cash). {your welcome} 🙂

    1. @MIKE
      Rather than hold cash as a back up I would prefer to “ladder” GIC’s so that monthly necessities were covered over a complete year. I once had $4K coming due each month for a whole year ($48K) so while I may have made more in the stock market I was assured that any life surprises could be covered and still made a bit of money. Maybe I should say that I did not lose as much as just letting it sit there as inflation always eats some and the tax man also wants a bite of interest income.
      At any rate I have evolved form holding cash to holding stocks for the simple reason that the dividends meet my monthly cash requirements, This just took time to build up the portfolios to a level where they can cover any surprises.
      Always good to have a little loose cash.


    2. Mike, I’m probably with you on this. That’s because my plan, flawed (?), is to keep ~ 1-year of expenses as an emergency fund. I figure our basic expenses (condo fee, utilities, property taxes, food, etc.) should be ~ $50k per year.

      I’m not yet convinced I need 1-3 years in GICs but I could be convinced if markets go south for a very long period of time. I suspect anything is possible!?

      I like the 4% rule as it applies to my ~ yield of dividends and distribution income and not spending the capital until I please. I don’t like it as part of a 50/50 stock/bond mix. That makes no sense to me in 2019.

      By the way, I do hope ENB increases their dividend again in early 2020. Thoughts?

      1. @Bob, there is a long history here. It is unfortunate.

        Thanks very much for your comments. From what you have shared before you definitely have a great financial plan and soon to be retirement.

      2. We’ll soon have the announcement from Enbridge. I believe it was Dec 11 last year with a 10% raise. Their guidance for 2020 was also 10%, but nothing is forecast beyond that I’m aware of. I think we can count on this.

        As it happens ENB is my largest CDN holding.

          1. Yes, very high. About 40% higher than avg. and payout ratios very high too, lots of debt but I know they’ve been working a bit on this.
            I wrote I think we can count on it because the company seems determined to reward shareholders. At some point I agree something likely has to give.

            1. Indeed…re: something has to give. I would like to see lower dividend guidance. No point in continuing to raise a divi if you cut it eventually. Not smart nor shareholder friendly.

    3. Of course you can get better returns than cash and GICS. lol. The point of keeping cash and GICs in retirement is not to increase the value of your portfolio, the point is to get through the next correction without having to sell when equities are at lows. Financial planning is about more than returns, it’s also about being able to sleep at night.

  12. Anyone interested in how much they should save for retirement may be interested in the 6 part series on the Blunt Bean counter’s website.
    Along with Mark’s great site here, it is the only one I look at, even though most of his stuff doesn’t apply to me (it is aimed at much higher net worth and business people). He gives a good look at the 4 percent rule and you can make up your own mind.

    I was just walking my dog and met up with a neighbour with her dog, she said she had to hurry as was off to a meeting with their financial advisor. She said she didn’t care how much of her money that he took as long as her total was going up each year, and it was way too much work to think about managing their money on their own (don’t think they have very much). I did mention a fee only planner and the possibility of a couch potato strategy, but was met with hostility. Oh well, I feel a duty to at least mention things to help out people.

    How do others bring up the subject with those who could obviously benefit?

    1. Mark Goodfield’s article/series was very good. I recall his conclusion was – there are too many factors to call this a hard and fast rule, which I agree with.

      That said Barbara, I do feel withdrawing 4% of my portfolio or more specifically, living off the dividends and distributions that currently averages about 4.1% of my portfolio is smart for my early retirement years. I won’t have to touch the capital at all. At least that’s my plan until about year 5 or so of retirement.

      As for your neighbour – good on you. 🙂 Not sure there is anything else you can do. Folks need to have the desire to change or learn. It’s not something that can be taught or told – my experience.

    2. Hi Barbara,
      You tried to be a good neighbour, good on you. It’s strange for me that people are quite happy to kiss tens or hundreds of thousands of dollars goodbye (in this case, in the form of fees and probably a sub-optimal drawdown strategy). It takes minimal effort to save significant amounts of money, but as I’ve learned, you can’t care more about someone’s money than they do! I think often people are not aware of how much they are losing.
      As far as starting a conversation, one possible idea is, “Did you know there are financial planners that don’t sell products or collect commissions?”

      1. Thanks for your comment Steve. Yes I told her about fee based planners that don’t collect a portion of your savings year after year. Maybe I left a little spark?? Given the hostility I will wait for someone to ask me next time. This person seemed to like the face to face contact in our BC city. I know they don’t have a lot of money as she said she had to draw down her TFSA to pay for a great family trip earlier this year.
        A long time ago I thought about a second career in financial planning. I am an economist by training and have always managed money (there was a story told at my wedding about me collecting and taking charge of all the kids sunday school collection envelopes). So when I was at home with 3 little kids and meeting a lot of other moms, I was a bit appalled at so many women’s lack of knowledge about anything financial. Even not knowing whether their husband had any life insurance! Due to all my kids’ health problems I never had time to pursue it, though. Just tried to help informally.

  13. Mark/RBull, it doesn’t have to be complicated. I’ve looked at co’s and their dividend history, listened to quarterly conference calls and am choosing only dividend paying investments (eg. BMO, FTS, T, TRP, RY, SLF, CSCO, INTC, SRU.un, SMU.un, WM and a few others – on average the yield is close to 4% BUT each year each of these co’s raise their dividends). At retirement, the plan will be to only live off dividends (no need for laddered GICs or keep 4 yrs of spending in cash/GIC because I’m never selling). It doesn’t have to be more complicated than that. (no ETF’s or bond funds or bonds). CPP/OAS will be a bonus.

    1. Jim, I’m largely with you. Have you seen my “Dividends” page? I own many of those stocks too!

      I do believe keeping ~ 1-year of cash for us is prudent. Maybe too conservative as a dividend investor but you never know.

      I think you’re super smart to keep CPP and/or OAS a bonus money. I hope I’m in a financial position to do the same eventually!

    2. Thank Jim. I appreciate the comments but my opinion is each of us will need to choose what works for ourselves individually based on many factors, and decide what might be too complicated. What we’re doing isn’t complicated for me and we are pleased with the results.

      We too collect dividends/distributions from all of our equity investments. The difference may be we also choose to include fixed income instruments and to date our plan more than meets our needs. I expect it to stay that way. Yes, CPP and OAS will be a nice bonus whenever we choose to take it.

  14. Great interview. Excellent information Steve.

    No the 4% withdrawal rule does not make sense. Rather than a rule its a rough guide at best and a flawed one at that.

    Yes, develop your retirement cash flow plan from your forecasted retirement spending rather than a percent of pre retirement income.

    Yes, have a drawdown plan that considers and incorporates all income sources and tax.

    Yes, invest in a way that lets you sleep at night, that you can stay true to, and that has a very high degree of assuring you meet your goals.

    1. Very well said. However…I do believe in some elements of the 4% rule, as long as you’re only focused on income from your portfolio and not a mix of stocks and bonds like Bengen studied.

      I definitely think my plan to have ~ 1-year in cash + dividend payers + dividend ETFs should do the trick – to only live off dividends but as I always say, time will tell!

      Smart call on tax. Cannot be emphasized enough in any drawdown plan.

      1. Thanks.

        Yes, 4% might work for equity only dividend investors. But for the overwhelming majority of retirement investors income from portfolio won’t be all they rely on. Capital will be part of their plan. IMHO, VPW is far superior to the 4% (rule??). I agree 3% is probably closer to reality especially for earlier retirees.

        Your plan will absolutely work and you’ll also have some PT employment income as a bonus and backstop, and work pension(s) to also layer in at a later time. My guess is you’ll also choose to live on more than just dividends, unless you’re one of the people choosing to leave a large legacy to someone or something.

        I’m also very confident my plan with a balanced portfolio, mix of stocks/etf index & dividend payers, FI, work pension, future govt pensions and sensible adjustable withdrawals will work.

        1. I think so….I recall the average yield of my portfolio (although it changes…) is about 4.1%. So, if dividend income + distribution income from $1 M portfolio is about $41,000 per year, that’s pretty darn good I think.

          That’s with 100% equities.

          My goal is to spend only the dividends and distributions in early retirement years (say first 5 years) and keep all capital intact otherwise.

          Once I figure out how that is doing, if portfolio is growing, other; then I will likely start drawing down assets in the following order of accounts:
          1. RRSPs first
          2. non-reg. second.
          3. TFSAs “until the end”.

          VPW is likely, since you have used it, me not yet….a far superior methodology. Basically, spend more in “good years” and cut back a bit in “bad years”. Seems to make sense to me.

          “Your plan will absolutely work and you’ll also have some PT employment income as a bonus and backstop, and work pension(s) to also layer in at a later time.”

          Absolutely correct.

          I’ve told my wife we can consider part-time work once the mortgage/debt is dead and we reach our $1 M goal. They probably won’t happen at the same time, but that’s my criteria based on our spending needs.

          Pension will kick-in without penalties at age 65. CPP + OAS should be “gravy”. I hope to have part-time work from age 50 or so until age 60-65.

          Just so many factors.

          The ability for dividends + distributions to cover most basic expenses (condo fees, taxes, utilities, food, etc.) will be essential for our plan. And we’re getting close. 🙂

          1. Awesome to read. I think your plan is as solid as they come including criteria for work transition and eventual cessation. Keep up the great job!

            It wasn’t really my plan but we seem to be doing exactly what you’re describing…dividends, distributions, interest only 5.5 years into retirement now.

            1. I must say, I feel very happy for retirees that had “enough” AND had a plan to hold many dividend paying equities or ETFs since 2012. This bull market has been absolutely crazy.

              Makes me wonder what’s on the other side though….!

          2. I should clarify what I meant. Living on distributions, dividends, intersest only (less actually) – not capital.

            In hindsight even more equities for us would have been better. However at some point I’m sure we’ll be be rewarded to some degree and move more towards that as CPP/OAS get closer to.

            Yes, what’s on the other side??

  15. The main problem with all these scenarios are that one is dependent upon the market. As mentioned there are just too many variables which no one can predict or foresee. The solution is to have a portfolio of at least a million dollars or more, else No it’s very likely one will run out of money following the 4% withdrawal rate.
    Check my blog to see how one would have done over the past 19 years.

    1. Planning on it cannew. Re: plan to have $1 M invested in the coming years.

      I need to visit your site soon! I think the new normal is honestly “3% rule” for a mix of stocks and bonds.

      1. Hi Mark:
        I have always thought the 4% rule was just a ploy by investment advisers to retain control of as much of your portfolio as possible. After an investment adviser lost $300,000 of my money, I took what was left and self-managed it. My objective was to build a stock scoring program that would give me a dividend income of 6% annually, while increasing my portfolio every year by about 9% (my background was building commercial risk scores for the banks and others). I succeeded. I developed that program for myself but used it to help an elderly lady who had had a catastrophic loss, thanks to her investment adviser. Much of her loss has now been recovered and her income has doubled. She said that I should help others like her by writing a book. I wrote that book. It is called, “Income and Wealth from Self-Directed Investing”. I include the stock scoring program with the book and at the back of the book are a hundred pages of charts listing all the companies traded on the TSX that pay a dividend of 3.5% or more. The data is sorted by score, stock price, dividend percent and by company name. It certainly speeds up the identifying and weighing of which stocks to add to my portfolio. You might find it interesting. It is available at ….Ian Duncan MacDonald

        1. Great stuff Ian and sounds like you have some insights that would be of great benefits to others…

          If you wish, I would be happy to interview you for the site and giveaway a copy of your book to readers. Let me know. My Contact page is at the top-right of my site.

          Congrats on helping others.


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