You may be far wealthier in retirement than you think if you’re this type of retiree. How to maximize your money in 2026

For many mature adults, the biggest fear in retirement isn’t market volatility or inflation — it’s outliving your retirement savings.

Surveys consistently show that Canadians who are approaching or are already in retirement, concerns about retirement income security weigh heavily on their minds. A national retirement study reported by Benefits Canada found that 61% of retirees worry that their savings won’t last as long as they do — a concern that often outweighs other financial risks (1).

But what if there were ways to reduce that prospect — and potentially stretch retirement savings further — not by saving more, but by rethinking how money is invested and drawn down once withdrawals begin?

That question sits at the heart of the research by U.S. financial planning experts Michael Kitces and Wade Pfau. Their work is widely cited in Canadian publications and followed by Canadian financial planners through professional education, conferences and continuing-education programs (2). Kitces and Pfau's analysis of long-term market data challenges some traditional assumptions about retirement investing — particularly the idea that risk should always decline the moment someone stops working (3).

Under some conditions, their research suggests that an unconventional approach to asset allocation in retirement can significantly improve the odds of financial success. In some scenarios, it can leave retirees with substantially more wealth over time than conventional strategies — not because they took bigger risks, but because they carefully managed when they took them.

Here’s a closer look at how that approach works, and what it could mean for Canadian retirees.

Rethinking risk in retirement

Most retirees are advised to steadily reduce risk as they age. A common guideline suggests shifting more money into bonds and away from stocks the moment retirement begins, also known as the rule of 100. This guidance is based on the assumption that older investors can’t afford market swings (4).

The rule says you subtract your age from 100 and the remainder is equivalent to the percentage of your portfolio you put into stocks. The rest goes into more conservative, safer investments such as bonds. As you age, you slowly move more money into bonds, to reduce risk in the event of a sudden market downturn.

That advice sounds sensible — but research by Kitces and Pfau suggests it can backfire if markets fall early in retirement. Their work on retirement withdrawal risk and asset allocation focuses on what’s known as sequence-of-returns risk.

Sequence risk refers to the danger of experiencing poor market returns early in retirement, when withdrawals begin. If retirees are forced to sell investments during a downturn to cover living expenses, those early losses can permanently reduce the size of their portfolio — even if markets recover later.

Kitces and Pfau propose a different approach. Instead of the rule of 100, their research suggests the reverse: that retirees may benefit from relying more on safer assets in the early retirement years, then gradually increasing exposure to growth assets later. The goal is to protect the portfolio during its most vulnerable phase while allowing long-term investments time to recover and compound in the background.

This framework aligns especially well with Canadian retirement plans.

Most Canadian retirees receive predictable, inflation-adjusted income through Canada Pension Plan (CPP) and Old Age Security (OAS), which provide monthly payments regardless of market performance. Financial advisors may describe these benefits as a form of bond-like income that can help cover basic expenses.

Because part of a retiree’s income is already stable, there may be less pressure to sell investments during market downturns, particularly in the early retirement years. That stability can give you more flexibility in how and when you draw from your savings.

Sponsored

Smart investing starts here

Build your own investment portfolio with CIBC Investor’s Edge online and mobile trading platform. Enjoy low commissions on trades and special pricing for active traders, students and young investors.

Get started today

Best-case scenario

To understand why timing matters so much in retirement, Kitces and Pfau tested their strategy across many historical market scenarios. The most favourable outcomes tended to occur when retirees avoided major stock losses early in retirement (5).

Imagine two retirees, Geoff and Gisèle. They both retire with $1 million each and plan to withdraw $40,000 a year, adjusted over time, to cover living expenses.

Geoff follows a traditional approach. He starts retirement with 80% of his portfolio in stocks, gradually reducing that exposure as he ages. Gisèle does the opposite. She begins retirement conservatively, with only 20% in stocks, slowly increasing her exposure to growth investments later on.

Now imagine the markets fall sharply right after they retire — similar to what happened during the tech crash in the early 2000s.

Because Geoff heavily invested in stocks from day one, his portfolio took a significant hit. Worse, he still needs to withdraw money to live on, which forces him to sell investments while prices are down. Gisèle, on the other hand, relies more on safer assets early in retirement, allowing her to fund withdrawals without selling stocks at depressed prices.

That early difference compounds over time.

Using real historical market returns over the following two decades, Kitces and Pfau found that under this scenario, Gisèle’s portfolio could still be worth around $1.5 million years later — while Geoff’s portfolio could shrink to just over $300,000. The gap isn’t caused by better stock-picking or higher returns, but by avoiding losses at the worst possible time (6).

Put another way, Gisèle ends up with a portfolio several times larger simply because she reduced her exposure to market risk early in retirement, then allowed growth to play a bigger role later.

To be clear: this is only one hypothetical scenario based on specific assumptions and a particular market sequence. Future returns and performance never follow a specific script.

Bottom line

The example here highlights a powerful lesson for mature adults. In retirement, when you take risk can matter just as much as the amount of risk you accept. Experiencing market losses early, while you’re also withdrawing income, can permanently shrink a portfolio, even if markets recover later.

For many retirees, using safer income sources in the early years and allowing growth to play a bigger role later can reduce that risk. The practical next step is to review how your retirement income is funded in the first five to 10 years and make sure you’re not forced to sell growth investments during a downturn.

- with files from Melanie Huddart

Article sources

We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.

Benefits Canada (1); Kitces (2); Objective Financial Partners (3); Kiplinger (4); Government of Canada (5); Fiology (6)