Weekend Reading: The Retirement Consumption Puzzle Edition
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.
Related: Why we stopped saving so much and started living
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:
Tim Cesnick explains why many estate plans fail before the will is ever prepared.
A Wealth of Common Sense blogger Ben Carlson asks, should you stop working when you become financially independent?
Finally, why do used cars feel shockingly expensive – is this the new normal?
Have a great weekend, everyone!
I think that the way taxation is structured is another reason for retirees with large RRSPs, CCPCs, non-reg and other investment accounts underspending.
The equation isn’t just about “Can I afford to spend another $10k safely”. The tax you pay on top of net expenditure can grow exponentially with every extra dollar, which reduces your safety cushion in case of major downturns and drains your net worth number faster. DB income ends up in your account net of tax which makes it easier to spend.
TFSA can help dealing with this problem, but TFSA accounts still tend to be comparatively small, and (anecdotally) people seem to be reluctant to spend them; instead they keep adding. That last one puzzles me.
Not enough attention is paid to the period between retirement and the inevitable collision of taxable income (uptake of government benefits and eventual forced RRIF minimums) that occurs around 70-72.
Early retirees don’t start drawing enough from their RRSPs, they’re afraid to trigger any taxation, if one spouse is still working they often decide to live off one income instead of tax efficiently drawing some income from the non-working spouse’s RRSP, etc.
I agree, the TFSA is a bit puzzling. Yes, it’s a powerful account, it should most likely be touched last, and if you have extra cash flow then of course it should go into the TFSA. But some treat it like an account that is never to be touched – as if they’re trying to grow the largest TFSA imaginable.
Meanwhile we’re on round three of filling up our TFSAs after draining them for house upgrades over the years. And I’m sure there will be a fourth round at some point (after we buy that Scottish castle!).
Yes, TFSAs can serve as a pressure relief valve to spread taxation and avoid peaks in case of one-offs.
We haven’t used them yet as we tend to have enough cash as a portion of our 30% fixed income allocation, and our one-offs don’t tend to be unplanned or castle-sized. And psychologically its nice to know that there is this small pot which is all yours.
…but I assume that the most tax effective way to spend once in retirement involves spending from this pot as well.
I like the idea of using the TFSA for one-off larger expenses (planned or unplanned), whether that’s a new vehicle, early gifts to kids, home renos, or a bucket list trip. If those expenses occur after the collision of income streams in your 70s then the TFSA is a logical place to pull funds tax-free without triggering income, capital gains, or OAS clawbacks – plus you get the contribution room back the next year.
I’m 100% onboard with this article and I know this will impact me. A lifetime of saving will be a very hard habit to break. It almost feels like fear mixed with a sense of pride. But if my wife can keep her pension, combined with CPP and OAS I will much more readily be able to let the purse strings go. I don’t think my wife will have the same problem spending as I will. 🙂
Hi Matt, it’s a nice balance to have one spouse with a pension and one with a larger portfolio (but no pension). You get the benefits of steady paycheques to build a guaranteed income floor, and then you’re not overly reliant on big withdrawals from your investments.
The ones I worry about have no pensions, big RRSPs and non-registered portfolios, and retire in their 50s with a long runway between retirement and their government benefits. Ok, worry is a bit of an exaggeration – they’ll be fine – but psychologically it will be more difficult to spend down their savings.
If you have a comprehensive financial plan that has calculated a sustainable annual spending, you can think of that annual spending as if it were a pension that is reliable . This helps us be more comfortable with selling investments.
Exactly, Craig – that’s the point of a retirement plan. I like to give a spending range (floor and ceiling) so you can comfortably budget somewhere in between.
There is always the basic maths problem of trying to draw a constant stream of money out of an inherently volatile and unpredictable bucket called stocks. You can plan and calculate based on assumptions but the risk never goes away if thats how you fund your pension.
Anyone who is considering using Wealthsimple to draw down their RRIF should be aware that the withdrawal cannot easily be moved into another Wealthsimple account. The only option available when setting the withdrawal is to deposit the amount into a linked, non Wealthsimple account.
This is a great point to bring up, Stuart. I was working with a client this week who was wondering why she had to withdraw from her RRIF to her external chequing account rather than to her WS chequing account. She inquired with Wealthsimple and they said they’re “working on it”…so hopefully that quirk will be resolved soon.
The quirk was the case with making RRSP withdrawals at Wealthsimple and they fixed it last year. If they’re already working on it, it shouldn’t take long.
It is weird though that making an external withdrawal is somehow technically easier to set up with them than an internal withdrawal…
FYI. I have started withdrawing from my RRIF in 2026 and have been able to transfer withdrawals directly to another Wealthsimple account. So far it has been seamless.
So I wouldn’t be able to withdraw monthly from my LIF (In Wealthsimple) into my Wealthsimple Checking account?
Hi Brent, I received this message from another client yesterday (Feb 2nd):
FYI – Wealthsimple are now supporting registered withdrawals directly into our Wealthsimple chequing account for both our RRIF and LIF accounts. They told me last week they are actively working on this for the Spousal RRIF.
Hi Robb,
I read & enjoy all your articles.
I was surprised to read Vanguard’s statement in December:
“ In its December 2025 outlook for 2026, Vanguard recommended a significant shift in portfolio construction, favouring a more defensive 40% stock / 60% bond mix over the traditional 60/40 approach”
What are your thoughts about this statement?
Thank you
Helen
Hi Helen, thanks for the kind words. The outlook from Vanguard mirrors what they (and other asset managers) have been saying for several years. That stocks are expensive right now relative to historical averages and that investors should expect lower returns from stocks in the future.
I agree with that statement.
Where I disagree is what to do with that information. We should expect lower returns in the future, but it’s still important to hold stocks – and we shouldn’t change our investment strategy based on current market conditions. International stocks might be a better diversifier than bonds, anyway, so sticking with a global balanced fund like VBAL or XBAL (rather than switching to a more conservative fund) is still a perfectly sensible strategy.
The hesitancy to spend savings in retirement fundamentally comes from a sense of insecurity; no one wants to ever run out of money in retirement – or “stiff” heirs with a big tax bill. Likewise, not many are comfortable handing over a large lump sum to guarantee monthly payments (ie. annuity) or defer CPP/OAS, because we’ve all lost friends or family “before their time” to some unforeseen calamity. For those without pensions, this longevity risk is all the more worrisome.
But, even with vast internet resources and planners-for-hire to draw up multiple scenarios, complete information for specific circumstances can still be frustratingly hard to find or overwhelming to digest.
Example: Almost every resource I have searched about RRSP to RRIF conversion states the same well-known extremes: Conversion must take place in the year you turn 71 (ie. maximum age) and disbursements must start a year later (ie. at some minimum prescribed rate). Often, there is some mention that earlier conversion is possible, but rarely is there any information about whether the conversion needs to be a one-time transaction or whether the RRSP can be “melted” into the RRIF; that might be an important consideration for some.
Finally, life is flat-out unpredictable. In any case, anyone with DB pensions or even just retirement savings to draw from is already very fortunate. Having to figure out the mechanics to support one’s life-style, and do so tax-efficiently, is obviously a good problem to have.
Hi Peter, thanks for your thoughtful reply. You’ve eloquently captured why retirees struggle to spend, even with seemingly ample resources and an stress-tested plan.
The Chart of the Month was fascinating to see. Remarkable to see how poorly oil has done the past decade. Only reason it did well in ’21/22 was because of the bath it took peak covid in 20. Surprising there isn’t more M&A happening in Canada given it’s so oil heavy and fragmented.
I love these historic asset return charts because it clearly shows how last year’s winners so often become the next year’s losers. That’s why performance chasing based on recent past returns is such a bad idea.
Thanks again Robb for another great article.
I’m guilty as charged by the way 🙂 .
I have a question though. As far as annuities are concerned, has there been a good time in the past when these were considered a solid retirement option for most retirees? I’m guessing when interest rates were higher such as the late 70’s (?) Just trying to figure out if there’s a point when these become too attractive to ignore.
Hi James, I don’t think there has ever been wide adoption for annuities – maybe in the 70s and early 80s when interest rates were much higher, but folks were probably getting double-digits on their GICs at that time and thinking that was good enough.
I just think they require some foresight. The lack of indexing is not appealing, but if spending no longer keeps up with inflation in your slow-go / no-go phase then that might not be too bad.
It’s just one of those counterintuitive things where if you find that you’re the type of person that has trouble selling shares from your portfolio for spending, an annuity will solve that problem by giving you a monthly paycheque. But if you have trouble selling shares, you’ll have even more trouble writing a big cheque to an insurance company in exchange for that lifetime monthly income.
Puzzling indeed.
Re annuities
I have a friend who purchased two annuities in 1987. They were $150,000 each and were last to die meaning the spouse received it when he passed away. Each of them paid about $30k per year. He passed away in 2010 so he received $30k x 23 years or $690k from each of them. His spouse then received the annuities and got the same payment. She has now received them for an additional 15 years or $450k.Total payments to date $1,140,000 per annuity! It worked very well for them. I just checked the 10 year bond rate for 1987 and it was 9.95%
Personally, I invested in 3 “strip” bonds in my RRSP at about the same time that came due around my age 65. They paid 10.8% annually for about 30 years. One of them cost me about $30k and matured at $180 which became the foundation of my rrsp. My only regret was that I did not layer them more for a longer time after age 65. I thought 65 was “ancient” when I bought them…..little did I know.
For context in this discussion I just checked what $150,000 would buy now for an annuity and it is about $700 (versus 2,500 in 1987).
Don’t forget to factor in inflation. $150,000 from 1987 is close to $425,000 in today’s purchasing power, and a $700 payout today is about the same as $2,000 back then. You still end up with less payout today (~20% less, comparing $2,500 to $2000), but interest rates are WAY less than then as well.
I look at Annuities as a non-indexed DB. Many folks would love a DB pension, even if it is non-indexed, but few actually want to buy one.
Do you think Buffet loses sleep that he’s not spending his fortune before he passes? Large #s spit off large #s even at smaller growth rates. If a portfolio is providing more than is needed expense wise, why wouldn’t one just allow this to keep running as a well oiled machine? No need to worry about how high it could get when it’s more than covering one’s needs and wants. Should that person just begin buying stuff they don’t need or that provides temporary satisfaction? I think passing with a high account value is fine especially when it can help kids and grand kids get along easier in life as well. Hopefully it sets things up nicely for generations.
I would never use an annuity when I know my investment account can provide the same benefit. If I pass early, it’s not lost as it might be in an annuity. Goes to my heirs. Happy with that.
Buffett has pledged to give away 99% of his fortune.
“Spending” doesn’t have to mean mindless consumption of stuff. It’s early giving to kids, grandkids, nieces and nephews. It’s travel, entertainment, hobbies. It’s charitable giving.
Someone is going to spend your money – it can either be you, your beneficiaries, or the government.
Yes that’s what I’m trying to say. I’m ok with a high account value that spins off more than I need for my spending needs inclusive of travel, entertainment and hobbies and continues to grow. I’ll definitely be taking care of my beneficiaries while I’m still around.
Why are you moving all your accounts from Questrade to Wealthsimple?
Not sure who this is directed at, Arly. I had a corporate investment account at Questrade and moved it to Wealthsimple last year during their summer match promotion.
I’d imagine people are moving to Wealthsimple to take advantage of the 3% cash back transfer bonus. Someone moving $1M would collect $30,000 (paid over five years). Why wouldn’t you take advantage of that?
Thanks for the clarification
This well documented hesitancy to spend is one of the reasons I chose a portfolio of dividend payers. I acknowledge the home country bias and the risk attached but I’m very comfortable with owning (mostly) TSX60 companies that have a long term record of paying out a dividend.
We won’t have any hesitancy about spending our dividends, especially those from the non- registered account. Where I might find some challenges is melting down the RSPs which by default involves selling holdings in addition to harvesting the dividends.
I’ll be turning the DRIPs off on the RSPs around July to start building up cash to be spent in the second half of 2027 as we expect to retire in July of next year.
Hi James, this is a completely rational take. If dividends keep you invested and allow you to spend without worry then I think it’s a pretty sensible approach (despite the sub-optimal strategy, we’re not all emotionless robots).
The RRIF will be tougher because the minimums will easily exceed your dividend yield, forcing you to sell shares eventually.
With my RIF, I expect to withdraw about 11% of the opening balance as a starting point in retirement, and I expect it to last about 11 years using 6% returns and 2.75% inflation. My calculations suggest in year one alone, the withdrawal I’m predicting will be about 2x what the dividends will be. The minimums won’t exceed my dividends, but my planned withdrawal certainly will. I plan to take the RRIF minimum at the beginning of the year and then the balance right at the end of the year to minimize the amount of time before I’ll get a refund from the withholding tax applied to the amount above the minimum.
Thanks for all of the great posts Robb. I have a question about LIRAS. We want to unlock 50% of my wife’s LIRA before we retire next year. I want to know which apps can manage LIRA//LIF withdrawals?
I want to transfer her RRSP holdings and LIRA from the bank to Questtrade or other? I believe the unlocking part is just a matter of filling out a form to unlock the 50%
Her LIRA is registered in Alberta.
I just don’t see the point in paying some institution 1% annually to manage her portfolio when we move to the decumulation stage.
She is more conservative that I am so I thought a balance of VEQT and VBAL would be good in both her LIF and RRSP/ RIF.
Hi David, if your intention is to move the LIRA to a self-directed platform then I’d suggest first opening a new Alberta LIRA at Questrade or Wealthsimple (whichever you decide – either can facilitate the conversion), then initiating the transfer between institutions (bank to QT or WS).
You initiate the transfer *from* the self-directed platform and then their back office contacts the bank’s back office to request and complete the transfer between institutions.
Once the LIRA funds have arrived at their new destination you’d invest the funds in your risk appropriate ETF (note that VEQT + VBAL might as well just be VGRO – it’s the exact same thing), then open a new Alberta LIF account and contact QT or WS and tell them you want to move the LIRA into the LIF in-kind (as-is).
Opening the Alberta LIF requires a form to be filled out, where you’ll have the ability to unlock 50% of the LIRA and move it into an RRSP, and the remaining 50% will go into the new LIF.
Thanks Robb. I wasn’t aware unaware that Wealthsimple offered LIRAs.
Hi Robb re: transfer to Wealthsimple
My self-directed brokerage accounts contain mostly broad market etf’s. My question is – Have any of your clients felt pressure to switch from self-directed to advisor accounts which may contain WS products? I don’t see how WS earns back the bonus money for transferring an account without me switching. On another note, would you consider mentioning Canadian etf’s that are similar to Vanguard’s offerings. I have held Vanguard etf’s for many years but have lately been comparing them to some Canadian offerings. I have found that the results don’t justify not switching to a Canadian product in a registered account especially. There are no tax implications in a registered account and the buy-sell spreads are very narrow.
Thanks for all of the articles and advice that you have given over these past years.
Hi Ed, this is a really good question.
Short answer – no, not on the self-directed side.
However, I have heard from three separate readers and former clients who have been using Wealthsimple’s managed (robo) service for years and have been contacted about switching to the advisory service for an additional fee (I think 0.80% all-in).
For your Vanguard question, I’m not sure I understand what you’re asking. Vanguard Canada is based in Canada and lists its asset allocation ETFs on the TSX. I invest in VEQT, which is why I mention that one so often. iShares’ versions are just as good (XEQT, etc.) but BMOs and TDs and Mackenzies are quite a bit different underneath the hood.
Folks in the robo-advisory model were getting access to a portfolio manager and a financial plan (not sure of the quality of planning advice) complimentary with their management fee, perhaps depending on their status tier and assets under management.
It seems that robo-advised clients will no longer be receiving complimentary advice or access to a portfolio manager – so they’re being upsold to the advisory service level.
I mean, I get why they’re doing it. They’re not making any money charging 0.40% and then having to provide advice to those clients. But it sucks for those longer-term robo-advised clients who were used to getting something for free.
As for the bonus, no it’s unlikely they will earn back those bonuses with future fees – especially for disciplined self-directed investors (I have paid $0 in fees in six years). I don’t think that’s the point. In their latest funding round WS raised $750M and I think they’re using that money to attract more clients so they can say they have x number of clients and $$$ amount in assets under management. Maybe they go public soon, who knows.
Hi Robb – Thanks for your reply. If I stay disciplined, WS might work for me then. As for Vanguard, I was reviewing my holdings and was wondering about other options.
Thanks again.
Ed
Thank you for this educational forum. I’m wondering if someone could address the concept of these self directed brokerage companies inviting accounts to their business without charging fees to transact. An example would be possessing an account with TD Direct who charges commissions to transact along with fees for undersized account balances etc relative to the free ride others provide. I mean, don’t these businesses have a commitment to be profitable and if so how are they generating revenue to stay solvent ? It appears to me that society is being encouraged to trade and gamble with their savings. Are these companies merely scalping trades behind the scenes and if so is this business model sustainable ? Thanks in advance.