Most Canadians spend decades building up their RRSPs but give almost no thought to how they will take that money out.
That’s where the problems start.
Without a proper drawdown plan, retirees get hit with unexpected tax bills, Old Age Security (OAS) clawbacks, and ballooning RRIF withdrawals. The worst part is that much of this can be avoided with a few smart decisions.
In this post, we’ll walk through three of the most common RRSP withdrawal mistakes and show you three simple RRSP meltdown strategies that can help you retire with more income and less tax.
Prefer to watch the video?
Why RRSP Mistakes Are So Common
RRSPs are often treated like something to leave untouched until age 71. The logic seems sound: delay withdrawals, delay taxes, and let the account keep growing.
But at age 71, you’re required to convert your RRSP into a RRIF. And starting the next year, mandatory withdrawals begin whether you need the money or not.
If those RRIF withdrawals stack on top of CPP, OAS, or other pensions, you could find yourself in a higher tax bracket and potentially lose part or all of your OAS due to clawbacks.
Another issue is treating your RRSP like a just-in-case account, dipping in only when a large expense comes up. This can create large spikes in income and lead to higher taxes than necessary.
And finally, many people misunderstand what an “RRSP meltdown” actually is. It’s not about emptying your RRSP all at once. It’s a gradual, strategic approach to withdrawing funds while your tax rate is low.
Here are three ways to do it right.
Hack #1: Start Withdrawals Before Age 71
I worked with a client who began withdrawing $50,000 per year from their RRSP at age 60, even though they did not need the full amount to live on.
They were in a low tax bracket, so they shifted the extra funds into more tax-efficient accounts like a TFSA. Compared to someone who delayed RRSP withdrawals, this strategy saved them over $220,000 in taxes over their retirement.
The earlier you start making small withdrawals, the more control you have. You reduce the risk of being forced to withdraw larger amounts later and triggering tax consequences.
Even withdrawing $20,000 to $30,000 per year in your early 60s can make a big difference.
Hack #2: Use Your TFSA to Your Advantage
If you’re in a low tax bracket, withdrawing from your RRSP and contributing to your TFSA is one of the smartest moves you can make.
You’re effectively converting taxable dollars into tax-free income for the future.
This also reduces the size of your RRSP, which can help you avoid higher tax brackets and estate taxes later in life. It may even prevent OAS clawbacks.
Each year, check how much contribution room you have in your TFSA. If you can make a modest RRSP withdrawal without pushing yourself into a higher bracket, it’s probably a good time to shift that money.
Hack #3: Delay CPP and OAS to Create a Tax Window
Delaying CPP and OAS does more than increase your guaranteed income in the future.
It also creates a low-income window in your early 60s when you have little or no government income. That window is perfect for drawing on your RRSP while your tax rate is still low.
If you retire at 60 and delay CPP and OAS until 70, you may have a decade to draw down your RRSP in a controlled way. This can lead to significant long-term tax savings.
This strategy only works if you’re in good health and delaying benefits aligns with your plan. But for many Canadians, it is one of the most effective ways to smooth income and lower taxes over time.
Final Thoughts
At Trans Canada Wealth, we help Canadians build tax-efficient retirement income strategies that give them clarity and control. If you want help figuring out the best withdrawal plan for your RRSP, TFSA, and CPP, book a free retirement strategy call with our team.
