Spending Your VEQT: A Withdrawal Strategy for Retirement

The Missing Chapter

Every article on this site tells you to buy VEQT and hold. But none of them answered the question that eventually follows: how do you actually spend it?

Accumulation is simple — buy VEQT, contribute regularly, don't sell during crashes. Decumulation is harder. You need to pull money out of a volatile portfolio while ensuring it lasts 25-35 years. The stakes are higher (you can't earn your way back from mistakes), and the decisions are more complex (which account, how much, what about taxes).

This article gives you the framework.

The 4% Rule

In 1994, financial planner William Bengen published a study that changed retirement planning. He tested every 30-year retirement period in US history and found that a retiree who withdrew 4% of their portfolio in year one, then adjusted that dollar amount for inflation each year, would never have run out of money — even retiring at the worst possible time (like 1929 or 1966).

The rule works like this: if you retire with $1,000,000, you withdraw $40,000 in year one. In year two, you adjust for inflation — if inflation was 2%, you withdraw $40,800. You keep adjusting regardless of what the market does.

The Updated Research

Bengen's original study used US stocks and bonds. More recent analysis — including work by PWL Capital and Ben Felix — suggests the 4% rule is actually conservative for globally diversified portfolios:

Higher safe withdrawal rates are likely achievable. Updated research using global equity data (not just US), longer datasets, and more realistic spending patterns suggests that 4.5% or even 5% initial withdrawal rates have historically survived most 30-year periods for 100% equity portfolios.

Retirees don't spend in straight lines. Real spending tends to decrease in later retirement years (the "retirement spending smile"). Many retirees spend more in their 60s (travel, activities), less in their 70s, and then more again in their 80s (healthcare). A constant inflation-adjusted withdrawal is a conservative assumption.

The 4% rule assumed the worst case. Bengen designed his rule to survive the single worst starting year in 100+ years of history. The median outcome was much better — most retirees following the 4% rule would have grown their portfolio in retirement.

Sequence-of-Returns Risk

This is the single biggest risk in retirement — and it doesn't exist during accumulation.

The problem: If markets crash in the first few years of your retirement, you're withdrawing from a shrinking portfolio. Those early withdrawals permanently reduce your portfolio's ability to compound back. A 30% drop in year 1 of retirement is far more damaging than a 30% drop in year 15.

During accumulation, crashes help you — you're buying more shares at lower prices. During decumulation, crashes hurt you — you're selling shares at lower prices.

Example: Two retirees both start with $1,000,000 and withdraw $40,000/year. One gets 15% returns in year 1 followed by -20% in year 5. The other gets -20% in year 1 followed by 15% in year 5. Same average returns, same withdrawals — but the one who got the crash early ends up with significantly less money after 30 years.

This is why the transition into retirement is the most vulnerable period — and why some form of cash buffer makes sense.

The Bucket Strategy

The bucket strategy is a practical approach to managing sequence risk:

Bucket 1: Cash (1-3 years of expenses). High-interest savings account or short-term GICs. This is your spending money for the next 1-3 years. When markets crash, you draw from this bucket instead of selling VEQT at depressed prices.

Bucket 2: Growth (the rest of your portfolio). VEQT or your equity allocation. This is your long-term growth engine. You refill Bucket 1 from Bucket 2 periodically — ideally when markets are up, not when they're down.

The bucket strategy doesn't change your expected return or your withdrawal rate. What it does is give you the psychological comfort and practical flexibility to avoid selling equities during a crash. You know you have 1-3 years of expenses in cash, so a 30% market drop doesn't force your hand.

Which Account to Draw From First

If you have VEQT in a TFSA, RRSP, and taxable account, the order you draw from matters for lifetime tax efficiency. The general framework:

1. Taxable account first — in most cases. You've already paid tax on the contributions, and selling triggers only capital gains tax (at the preferential 50% inclusion rate). Drawing this down first lets your registered accounts continue growing tax-sheltered.

2. RRSP/RRIF second. Withdrawals are taxed as income. The goal is to draw these down gradually to stay in a lower tax bracket — not to let the RRSP grow so large that forced RRIF withdrawals push you into a high bracket (and trigger OAS clawbacks).

3. TFSA last. Tax-free growth is the most valuable shelter you have. Let it compound as long as possible. The TFSA is also the most flexible in retirement — withdrawals don't count as income, don't affect OAS/GIS, and the room is restored the following year.

Important nuance: This is the general framework, but individual circumstances vary. If your RRSP is very large, it may be worth drawing it down faster in early retirement (when you have no other income) to avoid massive forced RRIF withdrawals later. A fee-only financial planner can model this for your specific situation.

The RRIF Transition

By December 31 of the year you turn 71, you must convert your RRSP to a Registered Retirement Income Fund (RRIF). The key change: you're now required to withdraw a minimum amount each year, whether you want to or not.

The minimum withdrawal starts at roughly 5.28% at age 72 and increases each year, reaching 20% by age 95. These withdrawals are fully taxable as income.

Why this matters for VEQT holders: If your RRSP has grown substantially (because you've been holding 100% equities for decades), the forced RRIF withdrawals can be large — pushing you into higher tax brackets and potentially triggering OAS clawbacks.

The strategy: Consider voluntarily drawing down your RRSP earlier in retirement, while your total income is lower. Converting RRSP to TFSA (withdraw from RRSP, pay the tax, contribute to TFSA if you have room) is a well-known optimization that many retirees benefit from.

Should You Shift Away from VEQT?

This site is called BuyVEQT — but even we acknowledge that the answer might change as you approach and enter retirement.

The case for staying 100% equity: If your CPP, OAS, and/or pension cover your basic expenses, your portfolio is discretionary spending money. You can afford more volatility because you don't need the portfolio to survive. In this scenario, VEQT's higher expected return continues to serve you.

The case for adding bonds: If your portfolio is your primary income source and you have no pension, the sequence-of-returns risk is real. A shift to VGRO (80/20) or even VBAL (60/40) in the 5 years surrounding retirement reduces the chance that a crash permanently impairs your spending power.

The practical approach: Many advisors recommend a "glidepath" — shifting from 100% equity to 80/20 or 70/30 in the 3-5 years before retirement, then potentially shifting back toward more equity once you're a few years into retirement and sequence risk has passed.

There's no single right answer. The key is having a plan before you need one.

A Brief Note on Estate

If leaving an inheritance matters to you, know this: VEQT in a TFSA passes to a successor holder (spouse) completely tax-free with no impact on their own TFSA room. RRSP/RRIF assets are taxed as income on your final tax return unless they roll to a surviving spouse's RRSP. Taxable accounts trigger a deemed disposition (capital gains are taxed as if you sold everything on the date of death).

Estate planning is highly specific to your province and family situation. This is one area where a qualified estate lawyer and accountant are worth the cost.

The Practical Plan

For most VEQT holders approaching retirement:

1. 5 years before retirement: Consider whether to shift some equity to bonds (VGRO or a bond allocation). Build your cash bucket (2 years of expenses in HISA/GICs).

2. At retirement: Establish your withdrawal rate (4-4.5% is a reasonable starting point). Set up systematic withdrawals from your taxable account first.

3. Early retirement (62-71): Consider voluntary RRSP drawdowns while your income is low, especially if your RRSP is large. Convert excess RRSP withdrawals to TFSA if you have room.

4. At 71: Convert RRSP to RRIF. Ensure forced minimums won't push you into a high bracket — if they will, you should have been drawing down earlier.

5. Throughout retirement: Refill your cash bucket annually from the equity portfolio. Adjust spending in down years if possible — flexibility is the best risk management tool.

The strategy is more nuanced than accumulation. But the underlying philosophy is the same: own the global economy, keep costs low, and let time work in your favor.

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This article discusses general retirement strategies and is not financial, tax, or legal advice. Retirement planning is highly individual — consider working with a fee-only financial planner and tax professional for a strategy tailored to your situation.