For many Canadians, retirement planning focuses heavily on saving and investing. Years are spent contributing to RRSPs, building non-registered investment accounts, and preparing for the day employment income stops. However, one of the most important aspects of retirement planning often receives far less attention: how to withdraw those assets once retirement begins — strategically.
A well-designed withdrawal strategy can help retirees reduce taxes, preserve government benefits, and potentially extend their savings. In particular, coordinating withdrawals from RRSPs and non-registered accounts with Canada Pension Plan (CPP) and Old Age Security (OAS) benefits can significantly impact retirement income.
The retirement income puzzle
Most retirees receive income from several sources:
- Canada Pension Plan (CPP)
- Old Age Security (OAS)
- Registered Retirement Savings Plans (RRSPs) or Registered Retirement Income Funds (RRIFs)
- Non-registered investment accounts
- Workplace pensions, if applicable
While having multiple income sources is beneficial, each source is taxed differently. For example, if a retiree withdraws $50,000 from a RRIF, that entire amount is added to their taxable income for the year. Without careful planning, retirees can unintentionally create large tax bills or trigger reductions in government benefits.
The goal is not simply to minimize taxes in a single year. Rather, the objective is to create a sustainable withdrawal strategy that manages taxes over a lifetime.
For some, paying the tax now helps to reduce taxes down the line for their estate. Many Canadians accumulate substantial RRSP balances during their working years and delay withdrawals until required by law. At age 71, RRSPs must be converted to RRIFs, and mandatory minimum withdrawals begin the following year.
As account balances grow, these mandatory withdrawals can become surprisingly large. Combined with CPP and OAS income, retirees may find themselves in higher tax brackets than expected.
The OAS clawback: a hidden retirement tax
One of the most important reasons to plan withdrawals carefully is to avoid or reduce the Old Age Security recovery tax, commonly known as OAS clawback.
OAS is available to most Canadians aged 65 and older who meet residency requirements. However, the government reduces OAS benefits when a retiree’s net income exceeds an annual threshold.
For the 2025 tax year, OAS began to be clawed back when net income exceeded $93,454. The threshold is indexed annually. For 2026, this amount is $95,323.
For every dollar of income above the threshold, 15 cents of OAS benefits must be repaid. Clawback continues until every dollar of OAS is required to be repaid. In effect, retirees above the threshold are paying both regular income tax and an additional 15% recovery tax on income above the limit.
Why early RRSP withdrawals can make sense
Many retirees assume they should avoid RRSP withdrawals for as long as possible. In reality, withdrawing some RRSP funds earlier in retirement can produce better long-term results.
The years between retirement and age 71 frequently present a unique planning opportunity. During this period:
- Employment income may have stopped
- CPP may not yet have started
- OAS may not yet have started
- Taxable income may be relatively low
These lower-income years provide an opportunity to withdraw RRSP funds at modest tax rates. By gradually reducing RRSP balances before mandatory RRIF withdrawals begin, retirees may:
- Reduce future RRIF minimum payments
- Lower lifetime taxes
- Decrease the risk of OAS clawback
Rather than allowing RRSP balances to continue growing unchecked, strategic withdrawals can help smooth taxable income across retirement.
The role of non-registered accounts
Non-registered investment accounts offer valuable flexibility because not all withdrawals are taxable.
When funds are withdrawn from a non-registered account, only the capital gains attributed to the withdrawal are subject to tax. The original capital invested can generally be withdrawn tax-free.
For example, a retiree who needs an additional $20,000 in cash may choose to withdraw from a non-registered account rather than take an equivalent RRIF withdrawal. Depending on the investment holdings and tax consequences, this may help keep income below important tax thresholds such as the OAS clawback limit.
Coordinating CPP and OAS decisions
Withdrawal planning should also consider the timing of CPP and OAS benefits. Many Canadians are eligible to begin CPP at age 60 and OAS at age 65. However, both benefits can be deferred in exchange for larger payments later.
The optimal timing depends on many factors, including:
- Life expectancy and health
- Other income sources
- RRSP balances
- Tax considerations
In some cases, retirees may intentionally draw more heavily from their RRSPs during their 60s while delaying CPP and OAS. This approach can reduce future RRIF balances while increasing guaranteed government income later in retirement.
Looking beyond annual taxes
A common mistake is focusing solely on minimizing taxes this year.
Suppose a retiree avoids RRSP withdrawals today to keep taxes low. While this may reduce current tax liability, it could result in:
- Larger RRIF withdrawals later
- Higher tax brackets in future years
- OAS clawback
- Larger tax liabilities on the final tax return at death
A better approach is often to evaluate taxes over an entire retirement period rather than year by year. The objective is to create a steady, sustainable income stream while minimizing unnecessary taxation over the long term.
The value of a retirement income plan
Retirement income planning is fundamentally different from retirement accumulation planning. Building wealth is only half the challenge. The other half is converting that wealth into tax-efficient income.
A comprehensive retirement income plan should analyze:
- RRSP and RRIF withdrawals
- Non-registered account withdrawals
- When to start CPP and OAS
- Tax bracket management
- OAS clawback exposure
- Estate and legacy considerations
Even small adjustments can create significant benefits over a retirement that may last 25 to 35 years.
Final thoughts
Many retirees spend decades building their RRSPs but relatively little time planning how to withdraw those funds. Yet the withdrawal phase is often where the most valuable financial planning opportunities lie.
By strategically coordinating RRSP withdrawals, non-registered investments, CPP benefits, and OAS income, retirees can potentially reduce lifetime taxes, preserve government benefits, and create a more sustainable retirement income stream.
Proactive planning can help avoid unnecessary OAS clawback and large estate tax bills. For Canadians entering or already enjoying retirement, developing a thoughtful withdrawal strategy may be just as important as the investment strategy that built their wealth in the first place.
Disclaimer:
Ingrid Kucera is a Financial Advisor with CI Assante Wealth Management Ltd. The opinions expressed are those of the author and not necessarily those of CI Assante Wealth Management Ltd. Please visit www.tmfg.ca to discuss your circumstances prior to acting on the information above. CI Assante Wealth Management Ltd. is a Member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization.
