The proof
Would any of this survive your accountant reading it?
That is the only test worth applying to a page like this one. So every exhibit below carries its own assumptions, its own arithmetic and the material it came out of, printed at the same size as the finding. Where two of our own decks disagree with each other, the flag stays on.
Not one of the exhibits below is a projection or a product. Start at the first one. It takes about four seconds and it catches nearly everybody who has ever read a statement.
Four answers. Only one of them can be right, because that is how multiple choice works.
A 25% average return over two years. How much do you have?
We open seminars with this one. It catches nearly everyone in the room, including the people who do this for a living, and it catches them in about four seconds. You start with $100,000. You hold it for two years. Over those two years the average annual return was 25%.
Work out your answer before you open anything. Then open the other three, because the arithmetic sitting under each of them is the part actually worth your time.
$100,000. Two years. The average return was 25%. Where does it land?
Workings opened
All four, then the answer opens. Two of them is where most people stop, and two of them is exactly where the point of this is hiding.
Option A · $156,250
Year one: $100,000 grows 25%. That is $25,000, so you finish the year at $125,000.
Year two: $125,000 grows 25%. That is $31,250, so you finish at $156,250. Average the two years and you get 25%.
Option B · $100,000
Year one: $100,000 grows 100%. That is $100,000, so you finish the year at $200,000.
Year two: $200,000 falls 50%. That is $100,000 gone, so you finish at $100,000. Average +100% and -50% and you get 25%.
Option C · $46,000
Year one: $100,000 grows 130%. That is $130,000, so you finish the year at $230,000.
Year two: $230,000 falls 80%. That is $184,000 gone, so you finish at $46,000. Average +130% and -80% and you get 25%.
Option D · $0
Year one: $100,000 grows 150%. That is $150,000, so you finish the year at $250,000.
Year two: $250,000 falls 100%. The shares are worth nothing, so you finish at $0. Average +150% and -100% and you get 25%.
All four opened
All four are correct. Same average, every time. From a 56% gain to nothing left at all, and every one of those pairs averages exactly 25%. Two minutes, this week: find the return figure your statement prints largest, and check whether it is an average or a compound return. If it only gives you an average, you are being told something true that is not useful.
What it proves
An average annual return is close to meaningless as a way to judge what happened to your money, and it is still the figure printed largest on most statements. An arithmetic average cannot see a negative year compounding, which is the one thing you needed it to show you.
Assumptions, sourcing and flags
Arithmetic only, and deliberately extreme so the mechanism is visible. Real portfolios do not move like C or D, but the mechanism is identical at every scale. Not a recommendation, not a comment on any specific investment, and not a forecast.
You deduct at the rate you are in when the money goes in. You pay at the rate you are in when it comes out.
Your RRSP deduction was a loan. Did anyone read you the terms?
Ask most people what an RRSP deduction does and they will say it saves them tax. It does not. It moves the tax. Two different rates, set decades apart, by two different governments, and nobody sat you down and read out the repayment terms.
So pick the bracket you actually contributed in. Watch what happens to the amount you deferred as you move up the rungs, and then watch what happens to the payback period.
$10,000 a year for 35 years at 7.50%, which gets you to $1,542,516. Draw 5% of that and leave the capital alone and you have $77,126 a year of retirement income.
| Bracket you deducted at | Tax you deferred over 35 years | Retirement income it takes to hand back |
|---|---|---|
| 15% | $52,500 | 4.5 years |
| 20% | $70,000 | 4.5 years |
| 25% | $87,500 | 4.5 years |
| 33.33% | $116,666 | 4.5 years |
| 53.50% | $187,250 | 4.5 years |
Then you keep paying. Every year after that. And when you are gone, whatever is left in the RRIF is added to income on the final return, so your estate pays as well.
What it proves
Change the bracket and the deferral swings from $52,500 to $187,250. The payback period does not move at all. It is 4.5 years at every rung, because the tax you owe on the way out rises at exactly the rate the deduction did on the way in.
Assumptions, sourcing and flags
From the Qualified Plans material. Assumptions in full: $10,000 contributed at each year end for 35 years; 7.50% growth, tax deferred, giving $1,542,516 after 35 years; retirement income of 5.00% of capital, being $77,126 a year with the capital left intact; marginal bracket held flat through both the contribution and the withdrawal years. 53.50% is BC's top combined marginal rate on income over roughly $265,545. The other rungs are illustrative and are not BC brackets. Illustrative only, not a projection, not a recommendation, and not a promise of any result. RRIF minimum withdrawal factors are prescribed under the Income Tax Act (Canada). Rates, brackets and limits change every year. Re-confirm current CRA and BC figures each January before acting on any of this.
It is a fair question and it deserves a real answer. The real answer is not an opinion, it is a distribution.
Can you just take 10% a year?
It comes up in almost every second meeting. Somebody looks at a balance, does quick mental arithmetic, and asks whether ten percent a year is reasonable. Nobody has ever given them a number back.
So we built one. Forty thousand simulated runs at each withdrawal rate, over thirty years, with the withdrawal indexed to inflation and fees at one percent. Read the two right-hand columns against how long people actually live.
40,000 runs per point. 30-year horizon. Withdrawal indexed to inflation, fees at 1.0%.
| Yearly withdrawal | Chance it runs out inside 30 years | Typical year the money is gone | Your age then, if you started at 65 |
|---|---|---|---|
| 10% | 100.0% | year 11 | 76 |
| 9% | 99.9% | year 12 | 77 |
| 8% | 99.7% | year 14 | 79 |
| 7% | 98.2% | year 16 | 81 |
| 6% | 92.9% | year 19 | 84 |
| 5% | 78.0% | year 22 | 87 |
A 65-year-old Canadian man can expect roughly another 19.6 years, so about 85. A woman, 22.2, so about 87. Both figures carry a verification flag: the client's Retirement Income Guide p.4 says 19.6 and 22.2, and the 18 Retirement Risks deck slide 3 says 19.7 and 22.3. The guide's figures are used here because they are the ones this table sits beside.
What it proves
Start at the top of that table and the money is gone at 76. You have to come all the way down to 5% before it outlasts an average man, and even then it only just reaches an average woman. The old rule of thumb was four percent. More recent work puts the safe starting number nearer 3.9%, mostly because expected returns came down and lifespans went up.
Assumptions, sourcing and flags verify
Our own simulation, 40,000 runs per point, 30-year horizon, withdrawal indexed to inflation, fees at 1.0%. Return and inflation assumptions from the FP Canada / Institute of Financial Planning 2026 Projection Assumption Guidelines, 60/40 mix: equity 6.4%, fixed income 3.2%, inflation 2.1%, before tax, with a 10% volatility assumption. The typical year the money is gone is the median year across the runs that do run out. A hypothetical illustration, not a forecast and not any client's actual result. Life expectancy: Statistics Canada, additional years at age 65, 2023. VERIFY: the two decks disagree on life expectancy at 65 and one of them needs correcting. No withdrawal rate is certain to work, because it depends on actual returns, actual inflation, and how long you live.
Every single return figure is identical between these two retirees. Only the sequence changed.
Same returns, same withdrawals. Why does one of them finish with three times the other?
Two people retire on the same day with the same money. They get exactly the same twenty annual returns and take exactly the same withdrawal each year. One gets the bad years first. The other gets the same bad years last.
Nothing about the second one's discipline, patience or advice was different. This is the risk that does not show up anywhere on a statement, and it is the one that arrives in the years either side of the day you stop working.
A 20-year illustration. One set of annual returns, run forwards for A and backwards for B, with an identical withdrawal each year.
Retiree A, bad years first
The early losses come out of a pot that is also being drawn down, so there is less left to rebound with. A never catches up.
Retiree B, bad years last
The same returns, arriving in a kinder order. Nearly three times the money, decided entirely by which end of the sequence the bad years landed on.
Both of them, with the withdrawals stopped
Turn the withdrawals off and the order stops mattering. Both sequences finish at exactly the same number.
Sequence risk is created by withdrawing. It does not exist while you are saving.
What it proves
Which is why the years either side of retirement deserve the most caution rather than the least, and why stay invested and ride it out is advice that quietly stops working the day you start drawing an income out of the same account.
Assumptions, sourcing and flags
From the Retirement Income Guide. A 20-year illustration using an identical set of annual returns in reversed order with an identical withdrawal each year. Illustrative arithmetic, not a projection of any portfolio and not a forecast.
Most people answer fifty percent. It is a hundred, and the gap between those two answers is where the years go.
You lost half. How much do you have to make back to be even?
This is the simplest arithmetic on the page and it is the one that catches the most people. A loss and the gain that reverses it are not the same number, because the gain is calculated on a smaller pile than the loss was.
The right-hand columns are the part that matters if you are drawing an income. Those are not years the account spends catching up. Those are years it spends recovering instead of paying you.
Starting from $100,000. Recovery years are compounded, not divided.
| Loss | What is left of $100,000 | Gain needed to break even | Years at 4% | Years at 6% | Years at 8% |
|---|---|---|---|---|---|
| -10% | $90,000 | +11% | 2.7 | 1.8 | 1.4 |
| -20% | $80,000 | +25% | 5.7 | 3.8 | 2.9 |
| -30% | $70,000 | +43% | 9.1 | 6.1 | 4.6 |
| -40% | $60,000 | +67% | 13.0 | 8.8 | 6.6 |
| -50% | $50,000 | +100% | 17.7 | 11.9 | 9.0 |
Lose ten percent and you need eleven to get back. Lose thirty and you need forty-three. Lose half and you need to double.
What it proves
Recovering from a fifty percent fall takes about nine years at eight percent a year, and closer to eighteen at four. For somebody still working, those are years the portfolio spends catching up. For somebody drawing income out of that same account, it is a different problem wearing the same clothes.
Assumptions, sourcing and flags
From the Retirement Income Guide. Recovery years are compounded, computed as ln(1 / (1 - loss)) / ln(1 + rate); the simple gain-divided-by-rate shortcut materially overstates them. The rates shown are assumptions for the arithmetic, not projections.
Is it good has no answer. Growth, safety, diversification and guarantees do, and every account you own answers them differently.
Somebody asked whether the account is any good. Good at what?
You have been sold accounts one at a time, by different people, each of whom was answering a different question. Nobody has ever laid them side by side and asked the same things of all of them.
Here they are. Run every account you hold through them, including the ones you inherited, the ones from the old employer, and the one you opened at a bank branch in your twenties.
The same questions, asked of every account on the same terms.
A teaching grid, not a product recommendation. What suits you depends on your own situation.
What it proves
No single account does all of those jobs at once. That is the trade-off every account makes, whether its brochure says so or not, and the useful conversation starts once you can see which trade you made in each one.
Assumptions, sourcing and flags
From the Retirement Income Guide. A simplified teaching framework, not a recommendation of any account type or product. Where a contract offers a promise, that promise carries conditions, typically reduces proportionally on withdrawals, and usually costs more than the equivalent product without it. Read the contract rather than the brochure.
No estate tax and no gift tax, and there has not been since 1971. The bill arrives from two other places instead.
Canada has no estate tax. So why do families lose three quarters of it?
You die owning shares in your private corporation. You are deemed to have sold them at fair market value, so the accrued gain is taxed on your final return, even though nothing was sold and nobody received a cent. Then the company still has to get the money to your family, and winding it up or redeeming the shares creates a deemed dividend. That is taxed again, in the estate.
Same value, two taxes, and neither of them is called an estate tax. Which is exactly why nobody plans for it. There is a ladder below, and the distance between the first rung and the last is the whole of what estate planning is for.
Four rungs. Only the first and the last carry a dollar figure, because those are the only two our own material puts a number on.
Take the small version first, because it is easier to hold in your head. A holding company has $1,000 of cash in it and the shares have a nominal cost base. At death the deemed disposition creates a $500 gain, which is roughly $250 of tax on the terminal return. Winding the company up to release the cash creates a $1,000 deemed dividend, which is roughly $450 of tax in the estate. Seven hundred dollars of tax on a thousand dollars of value.
Now scale it up and it stops being an example. Five million of retained earnings, the same nominal cost base, nothing written down. That is a career. The years of not taking a salary at the start, the staff you kept on through the bad year, the weekends.
By default every dollar your company grows from here accrues to you, and so does the tax on it at death. The bigger it gets, the bigger the eventual bill. A freeze swaps your growth shares for fixed-value preferred shares worth what the company is worth today, and issues new common shares to the next generation, usually through a family trust so you keep control. No tax today. Your number stops growing, and everything the business earns from here belongs to them along with the tax on it.
There are real traps, and they are the reason this is lawyer-and-accountant territory rather than a form you download. Valuation needs a price-adjustment clause in case the CRA disagrees. Attribution rules can push income straight back into your hands if it is structured carelessly. A family trust hits a deemed disposition at twenty-one years, and that date arrives whether anybody diarised it or not.
No dollar figure on this rung, on purpose
Our own material does not put a dollar figure on this rung, so neither do we. What a freeze saves depends on what the company grows to between the freeze and the day you die, and nobody knows that number in advance.
Post-mortem planning is the technical name for a simple goal. Every version of it kills one of the two taxes rather than trying to shrink both. A loss carryback under section 164(6) has the corporation redeem the shares from the estate, creating a capital loss that carries back against the gain on the terminal return, and the estate pays dividend tax instead. A pipeline goes the other way: the estate transfers the shares to a new company for a promissory note, waits out the required period, then repays it, keeping the lower capital gains rate and removing the redemption entirely.
Which one fits depends on your corporate tax accounts, on the GRIP and the RDTOH and the capital dividend account balance, and on where capital gains rates sit against dividend rates at the time. It is genuinely case by case. The rule of thumb is that a loss carryback is a dividend strategy and a pipeline is a capital gains one, and the rule of thumb is not the answer.
No dollar figure on this rung, on purpose
No figure on this rung either. The saving turns on your corporation's own tax accounts and on the rates in force in the year you die, and we are not going to make one up to fill the gap.
Reduce and defer are both useful. Neither one produces cash. A real liability still crystallises on the day, it has to be paid in cash, and the estate is at its least liquid moment. That is when families sell a going concern in ninety days and destroy value doing it.
A corporately-owned exempt policy does all of that at once. Growth inside it is not taxed annually, which also means it does not add to the passive income that grinds down your small business deduction. The corporation receives the death benefit with no tax on receipt. The benefit above the policy's cost base credits the capital dividend account, and that flows out to shareholders without tax. Put it alongside a loss carryback and the redemption gets funded by the death benefit rather than by selling something.
And it is not only a problem at death. Every dollar of corporate passive income above $50,000 a year grinds five dollars off your small business deduction, and at $150,000 of passive income the deduction is gone. At roughly a 5% yield, about a million of corporate investments starts the grind and around three million wipes it out. The pile of cash you are keeping for later is quietly raising the tax on the work you are doing now.
What it proves
Reduce the rate. Defer the timing. And have the cash ready on the day, so nobody has to sell the business to pay a tax bill. The third one is the one people skip, and it is the one that costs families the most.
Assumptions, sourcing and flags
From the client's own advanced planning material. Illustrative Canadian combined rates, used to show the shape of the problem rather than to predict any family's result. The roughly 75.7% outcome, the $1,000 example and the $5,000,000 worked example assume a nominal cost base on the shares and no planning at all; your own numbers will differ, sometimes substantially. Section references are to the Income Tax Act (Canada): 164(6) loss carryback, 112(3) stop-loss, 83(2) capital dividends, 89 capital dividend account, 12.2(1) exempt policy accrual. Passive income thresholds, small business deduction grind rules, capital gains inclusion rates and dividend rates all change. Confirm current legislation before acting. General information, not legal or tax advice. Every structure described here needs a lawyer and an accountant on the file, and an actuarially sound policy illustration before any insurance decision.
Which of those is about your file?
Nothing above asks you to agree with it. It asks you to check it against your own numbers, and that is a fifteen minute job rather than a project. Bring the exhibit you think does not apply to you. Those turn out to be the useful calls.