The 4% Rule Just Dropped to 3.9% — But Your RRIF Doesn't Care
Published August 5, 2026
Morningstar's newest research says retirees can safely start withdrawing 3.9% a year. Ottawa's RRIF rules don't ask what's "safe" — they just tell you how much to take out, whether the math agrees or not.
For years, the shortcut retirees leaned on was simple: take out 4% of your portfolio in your first year of retirement, bump it up with inflation every year after, and your savings should last three decades. Morningstar's 2026 State of Retirement Income report just trimmed that number to 3.9%.
On its own, that's a small adjustment. On a $500,000 portfolio, it's the difference between withdrawing $19,500 or $20,000 in year one. But for Canadians, the number that actually controls the withdrawal isn't Morningstar's — it's the Canada Revenue Agency's. And once your RRSP becomes a Registered Retirement Income Fund, the CRA's required minimum can blow right past whatever a "safe" withdrawal rate is supposed to be.
Why Morningstar moved the number
Morningstar's research firm re-runs this calculation every year using forward-looking projections for stock and bond returns, rather than relying purely on historical data the way the original 4% rule did. The 3.9% figure represents what a new retiree with a balanced portfolio — roughly 30% to 50% in equities — could withdraw in year one, adjusted for inflation annually after that, with a 90% chance of the money lasting a full 30 years. It's up slightly from 3.7% in 2025, thanks to better return expectations for the year ahead, but still shy of the classic 4%.
One detail worth noting: loading up on more stocks doesn't buy you a higher safe withdrawal rate in this model. Bigger equity weightings bring bigger swings, and a rough patch early in retirement does far more damage to a portfolio than the same rough patch ten years in.
Where the CRA overrides the research
Once you hit 71, your RRSP must convert to a RRIF (or an annuity) by December 31 of that year. From there, the CRA sets a minimum percentage of your RRIF's January 1 balance that you're required to withdraw every year — regardless of how markets are doing, and regardless of what any retirement-income researcher recommends. That minimum starts at 5.28% at age 71 and only climbs from there.
Here's how the CRA's prescribed factors stack up against Morningstar's 3.9% "safe" baseline:
| Age (Jan. 1) | RRIF minimum | Minimum on a $500K RRIF |
|---|---|---|
| 71 | 5.28% | $26,400 |
| 75 | 5.82% | $29,100 |
| 80 | 6.82% | $34,100 |
| 85 | 8.51% | $42,550 |
| 90 | 11.92% | $59,600 |
| 95+ | 20.00% | $100,000 |
Source: CRA prescribed RRIF minimum withdrawal factors (Income Tax Regulations, Section 7308), applied to a $500,000 January 1 balance.
In other words: a 71-year-old following Morningstar's 3.9% guidance is already withdrawing below what the CRA legally requires. The gap only widens with age, since the RRIF factor keeps climbing every single year while a "sustainable" withdrawal rate, under most retirement-income models, does not.
The OAS clawback makes it more expensive than it looks
The forced withdrawal isn't just a drawdown-speed problem — it's a tax problem. RRIF income counts toward the net income test that determines whether your Old Age Security gets clawed back. For the benefit period running from July 2026 to June 2027, that recovery threshold sits at $93,454. Once your total net income crosses that line, you lose 15 cents of OAS for every additional dollar you earn.
That means a retiree whose RRIF minimum — stacked on top of CPP, OAS, and any other pension income — pushes them over that threshold ends up paying twice: once in regular income tax, and again through reduced OAS. And because the RRIF factor keeps rising with age, this isn't a one-time risk. It's a bill that tends to grow the longer you're retired, right around the years when CPP and OAS are already both fully flowing.
What you can actually do about it
- Recalculate against 3.9%, then check it against your RRIF minimum. If your RRIF minimum already exceeds 3.9% for your age, the "safe withdrawal rate" conversation is largely academic — the CRA has already decided for you.
- Model your OAS clawback exposure before the withdrawal year starts, not after you've filed your return. Once you know your minimum RRIF withdrawal for the year, add it to your other expected income and compare it against the $93,454 threshold.
- Ask about the spousal age election. If your spouse or common-law partner is younger, you can elect to calculate your RRIF minimum using their age instead of yours — which lowers the required withdrawal in the earlier years and buys your portfolio more time to grow tax-sheltered.
- Consider converting earlier and spreading withdrawals out. Some retirees convert an RRSP to a RRIF before 71 specifically to start drawing smaller amounts sooner, rather than facing a bigger mandatory minimum all at once at 71.
- Put excess withdrawals to work instead of just spending them. If your RRIF minimum forces out more than you actually need to live on, room in a TFSA is one place to redirect it — the growth from there on is tax-free instead of taxable.
None of this makes either number "wrong." A retiree with a solid workplace pension, or one who has delayed CPP and OAS to boost the guaranteed income floor, has more room to treat both figures as background context rather than a strict budget. But if a self-directed RRSP or RRIF is doing the heavy lifting for your retirement income, the number that actually governs your year isn't the one from the retirement-income research — it's the one printed in the CRA's regulations. Worth checking every year, not just once when you first convert.
This article is for general informational purposes and isn't personalized tax or financial advice. RRIF minimum factors and OAS thresholds are set by the CRA and Government of Canada and are subject to change. Speak with a financial planner or tax professional about your specific situation.
Comments
Post a Comment