The retirement withdrawal sustainability calculator tests whether a given portfolio can support a chosen annual withdrawal for a 30-year retirement. It models sequence-of-returns risk by applying historical return paths or Monte Carlo simulation to the portfolio, rather than assuming a constant annual return. Sustainability is measured by the probability of the portfolio running to zero before the end of the horizon.
Quick answer
A $1,000,000 balanced portfolio (60% equity, 40% bonds) withdrawing $40,000 in the first year and adjusting for inflation each year thereafter has historically sustained the full 30-year horizon in approximately 95% of simulated paths. The same portfolio withdrawing $55,000 per year sustains the horizon in approximately 65% of paths. The withdrawal rate at which historical success falls below 95% is often referred to as the 4% Rule, although the exact safe rate varies with portfolio composition, length of retirement, and tax treatment of withdrawals.
The 4% rule
The 4% rule originates from the 1998 Trinity Study, which examined rolling 30-year periods from 1925 to 1995 for US stock and bond portfolios. A 4% initial withdrawal rate, adjusted annually for inflation, sustained a 30-year horizon in the vast majority of historical paths for a 50/50 to 75/25 equity-bond portfolio. Later work extended the analysis through 2023 and across more markets, producing similar conclusions with caveats about longer horizons, bond yields near historical lows, and alternative income sources.
For a Canadian retiree, the 4% rule is a reference point rather than a prescription. Adjustments worth making:
- Include CPP and OAS as an income floor. A retiree with $25,000 per year from CPP and OAS needs to withdraw less from the portfolio to hit the same total spending target, lowering the effective withdrawal rate.
- Account for RRIF minimum withdrawals. CRA requires a minimum withdrawal from a RRIF each year starting the year after conversion. The minimum rate rises from approximately 5.28% at age 71 to 20% at age 95 and older. A retiree drawing above the 4% rate to satisfy the RRIF minimum is usually reinvesting the excess in a TFSA rather than spending it.
- Treat taxes as withdrawals. Withdrawals from an RRSP or RRIF are fully taxable. A $60,000 gross withdrawal at a 30% marginal rate produces $42,000 spendable. TFSA withdrawals are tax-free. The effective withdrawal rate is the gross amount divided by the portfolio; the sustainability rate should account for the post-tax spending it produces.
Sequence-of-returns risk
Sequence-of-returns risk is the risk that poor returns early in retirement permanently reduce portfolio longevity, even if the long-run average return matches the planning assumption. A portfolio with 5% average returns but 20% losses in each of the first three years ends at a much lower balance at year 30 than the same 5% average achieved by flat returns or by losses concentrated later. Withdrawals compound the effect because they reduce the base that can recover when markets rebound.
The calculator addresses sequence risk through two modes:
- Historical replay. Applies actual year-by-year returns from a chosen start year. This mode reveals what a retirement starting in 1966, 1972, 1994, or 2000 would have produced, including the large impact of the 1970s stagflation on early retirees.
- Monte Carlo. Generates 1,000 random return paths drawn from a distribution calibrated to the chosen equity-bond mix. The success rate is the fraction of paths that finish with a positive balance after 30 years.
Portfolio mix and sustainability
Higher equity allocation produces higher expected return and higher volatility. At the withdrawal stage, the tradeoff is between running out of money early (too conservative, returns insufficient) and the volatility of path outcomes (too aggressive, a bad sequence kills the plan).
| Portfolio mix | 30-year Monte Carlo success at 4% | 30-year Monte Carlo success at 5% |
|---|---|---|
| 100% bonds | ~70% | ~35% |
| 30% equity / 70% bonds | ~92% | ~60% |
| 50% equity / 50% bonds | ~97% | ~78% |
| 60% equity / 40% bonds | ~97% | ~82% |
| 70% equity / 30% bonds | ~96% | ~84% |
| 100% equity | ~90% | ~82% |
Figures are illustrative, based on long-run Canadian equity and bond return assumptions with standard deviations calibrated to post-1960 data. The 50/50 to 70/30 range produces the best success rates at moderate withdrawal rates. A 100% bond portfolio leaves no room for inflation adjustment when bond yields are low. A 100% equity portfolio recovers best over long horizons but suffers deep drawdowns early.
Dynamic withdrawal strategies
Fixed inflation-adjusted withdrawals (the 4% rule baseline) have been studied extensively but represent only one of several strategies. Common alternatives:
- Percentage of portfolio. Withdraw a fixed percentage of the current balance each year. Spending varies with market performance, which lowers the risk of depletion but creates income volatility.
- Guyton-Klinger guardrails. Set an initial rate and adjust spending up or down when the portfolio value crosses pre-set guardrails (typically plus or minus 20%). The rate can start higher (5% or more) because it reacts to depletion risk.
- Bucket strategy. Partition the portfolio into short (cash for 1 to 2 years of spending), medium (bonds for years 3 to 10), and long (equity for years 11 and beyond) buckets. Refill short from medium, medium from long, during the decade. This reduces behavioural pressure to sell equity in a downturn.
- RRIF/LIF-first. Draw registered accounts first to reduce the deemed disposition at death. Preserve the TFSA for the estate or for the final decade when RRIF minimums are steep.
Canadian tax interaction
Portfolio longevity depends on gross returns and withdrawal rate, but spending power depends on after-tax income. Three Canadian-specific tax considerations:
- RRSP/RRIF withdrawals are fully taxable. A retiree in the 30% marginal bracket loses 30% of each gross dollar withdrawn from an RRSP or RRIF to tax.
- TFSA withdrawals are tax-free and do not affect OAS clawback. A large TFSA balance in the final decade produces tax-free income that does not trigger the 15% OAS recovery above $90,997.
- Non-registered accounts. Interest income is fully taxable; eligible dividends carry the dividend tax credit; capital gains are 50% taxable when realized. Tax-loss harvesting and asset location across registered and non-registered accounts affect longevity.
Related calculators
- Retirement Savings Gap Calculator. Project savings against a required nest egg and identify the additional contribution needed.
- RRIF Minimum Withdrawal Calculator. CRA prescribed rate table applied to a RRIF balance.
- Canada Pension Projection Calculator. Combined CPP, OAS, and RRIF drawdown with clawback flagging.
- TFSA Growth Projection Calculator. Tax-free account compounding and drawdown.
- OAS Benefit Calculator. Residence-based OAS with 15% clawback above $90,997.
Verified against source
- Cooley, Hubbard, and Walz, Retirement savings: Choosing a withdrawal rate that is sustainable, American Association of Individual Investors Journal (Trinity Study, 1998 and subsequent updates).
- Canada Revenue Agency, RRIF minimum withdrawal rates.
- Employment and Social Development Canada, OAS Recovery Tax (clawback).
- FTSE Russell, FTSE Canada Universe Bond Index methodology.
- S&P Dow Jones Indices, S&P/TSX Composite Index.
Methodology
Sustainability is measured as the fraction of simulated 30-year paths in which the portfolio retains a positive balance at the end of the horizon. Withdrawals are applied at the start of each year and compounded by the return over the year. Inflation is modelled at 2.0% by default. Historical replay uses actual year-by-year returns from 1926 onward for the selected equity-bond mix, with mixing at the portfolio level. Monte Carlo uses 1,000 random paths drawn from a Normal distribution with mean matched to the long-run historical average for the mix and standard deviation calibrated to post-1960 data. Tax is not applied to simulated returns; the user reports gross withdrawal and interprets after-tax spending power externally. RRIF minimum withdrawal overrides the chosen rate when the minimum exceeds the user rate.