Weekend Reading: The Retirement Consumption Puzzle Edition

By Robb Engen | January 30, 2026 |

One of the strangest things about retirement is that it’s often not about whether you’ll have enough money to last a lifetime, but whether you’ll feel comfortable spending it.

Economists call this the retirement consumption puzzle.

In theory, retirees should draw down their savings over time and enjoy the money they spent decades accumulating. In real life, many do not. They underspend, sometimes dramatically, even when the plan clearly shows they can afford to spend more.

David Blanchett’s research helps explain why. Blanchett is one of the most respected retirement researchers in North America and has spent years studying how retirees actually behave once the paycheques stop. While much of his research is U.S. based, the behavioural lessons apply just as clearly to Canadian retirees dealing with CPP, OAS and investment portfolios.

What he's found is that retirees with more guaranteed income tend to spend more in retirement than those with similar net worth who rely mainly on investment accounts. Not because they are wealthier, but because income feels spendable in a way that savings often does not.

In fact, Blanchett’s research suggests retirees are roughly twice as likely to spend money that shows up as guaranteed income, like a pension or government benefits, than they are to withdraw the equivalent amount from their own savings.

That lines up perfectly with what I see in practice.

After thirty or forty years of saving, investing and being told not to touch your capital, switching into spending mode can feel foreign after a lifetime of doing the opposite.

Even when the math works, watching a portfolio decline in retirement can trigger the same fear you spent your entire working life trying to avoid.

This is why many retirees struggle with the very strategies that would actually help them spend more confidently.

Delaying CPP and OAS is a good example. On paper, it's one of the strongest longevity tools Canadians have. Higher lifetime income, inflation protection and no market risk. But emotionally, it often feels like giving something up today, even when it improves long term security.

Annuities tend to create the same reaction. Despite their reputation, using guaranteed income to cover basic expenses can reduce stress dramatically later in retirement. When the lights, groceries and property taxes are covered by predictable income, the investment portfolio no longer has to do all the heavy lifting. But handing over a lump sum is hard, even when the tradeoff makes sense.

So instead, many retirees sit on large portfolios and hesitate. They have the money, but not the confidence to use it.

For retirees without pensions in particular, those relying almost entirely on investments, this is where behaviour matters more than optimization. One practical tool I often recommend is holding a modest cash wedge, usually one to two years of planned withdrawals.

Yes, cash is sub-optimal from a pure return standpoint. It drags down long term growth and markets are up more than they are down. Every spreadsheet will tell you that staying fully invested should win over time.

Related: VEQT and chill

But retirement is not lived in a spreadsheet.

That cash buffer means withdrawals can continue during market downturns without panic selling. It reduces the urge to check portfolios daily and helps retirees avoid feeling trapped by market headlines. Most importantly, it supports healthier spending because the money being spent feels safe and available.

The goal in retirement is not to build the most mathematically efficient plan possible – it's to build a plan that actually gets used.

Guaranteed income, delayed government benefits, partial annuitization later in retirement or even a slightly inefficient cash reserve all serve the same purpose. They remove some of the hesitation that often shows up once withdrawals begin.

This Week's Month's Recap:

It has been a while since my last Weekend Reading.

Instead, I wrote about investment returns for 2025 – another banner year for global stocks.

I shared some out of the box RRSP ideas for retirement.

I explained why ETFs are no longer synonymous with low cost index funds in the age of investment slop.

And, my most popular post of the year by far – This is a Retirement Plan. I will aim to put out more of these so you can see how different scenarios play out.

Promo of the Week:

Wealthsimple is offering a cash match of up to 3% when you transfer an account worth at least $25,000 from another institution.

I’ve been pretty consistent about this. If you’re investing on your own, Wealthsimple is hard to beat, especially if you’re comfortable using a low-cost asset allocation ETF as a simple, one-fund solution across your accounts.

And, listen, if you’re still paying around 2% in bank mutual fund fees, switching to an equivalent asset allocation ETF can drop your costs to roughly 0.20%. That’s not a small improvement. It’s a permanent one that compounds over time.

And if you’ve been sitting on the sidelines waiting for the right promotion, ideally one that pays cash instead of handing you an iPhone, this latest offer is about as good a reason as any to finally make the move.

Here’s the straightforward version of the offer:

New customers open a new Wealthsimple account (here, use my referral link and get an extra $25).
New and existing customers: Register for the Unreal Deal promo before March 31st.
Transfer $25,000 or more from another financial institution.
Choose your match:
– 1% paid over 1 year
– 2% paid over 3 years
– 3% paid over 5 years
The bonus is paid monthly into your Wealthsimple chequing account.

It’s basically the adult version of the marshmallow test. Take a smaller payout sooner, or practice a bit of delayed gratification for the bigger one. I know which way I’d lean.

Most common account types qualify, including RRSPs, TFSAs, LIRAs, RRIFs, FHSAs, RESPs, non-registered accounts, and even corporate accounts. Cash deposits don’t count. Account transfers do.

One important detail that’s easy to miss:

During the bonus period, Wealthsimple allows you to withdraw up to 20% of what you transferred without reducing your bonus payments. If you withdraw more than that, future payments are reduced proportionally. There are no penalties or clawbacks, just smaller payments going forward.

That's important information, especially for RRIF and LIF holders. You can still withdraw regularly within some reasonable limits.

Weekend Reading:

Markus Muhs updated his investment return quilt – I like the way he puts this together with the actual investible funds and in Canadian dollars. Well done!

Jamie Golombek wrote a love letter to those who don't believe in RRSPs. Yes, RRSPs beat non-registered investments for tax efficient investing.

Are you sure you want dividends? Anita Bruinsma looks at the pros and cons of dividend investing.

Shareholder loans are often misunderstood by incorporated business owners. Jason Heath explains why it's important to consider the tax implications.

Private funds are gating withdrawals – preventing investors from pulling out their money to preserve the fund.

In this episode of The Wealthy Barber podcast, Dave talks to Shannon Lee Simmons about what real-world financial planning looks like for everyday Canadians: