Not everyone heads into retirement with a maxed-out TFSA and a well-funded non-registered account. If most of your savings are in RRSPs, RRIFs, LIRAs, or LIFs, your withdrawal strategy becomes one of the most important financial decisions you’ll make. Every dollar you pull out gets added to your taxable income, and the wrong move could trigger steep taxes or OAS claw backs.
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Meet Isabelle and Shawn
Isabelle, age 60, and Shawn, age 61, retired earlier this year. They both started receiving CPP. Isabelle receives $850 per month, and Shawn receives $800 per month, giving them a combined income of $10,000 per year.
They wanted to enjoy the first 10 years of retirement by traveling while they still could. Their goal was to spend $7,500 per month during that time, then dial it back to $5,500 per month for the slower years ahead.
Their financial picture looked like this:
• Isabelle’s RRSP: $700,000
• Shawn’s RRSP: $800,000
• TFSA: $0
• Primary residence in Ontario: $1.1 million, which they planned to keep
At first glance, this sounds like a solid retirement plan. But where they were drawing the income from would make all the difference.
The Original Plan: Only Withdraw What You Need
Their initial strategy was to draw just enough from their RRSPs to meet expenses. Once their accounts converted to RRIFs, they would follow the minimum withdrawal rules and funnel any excess into their TFSAs.
This kept their annual tax bills low but came with a big trade-off.Their initial strategy was to draw just enough from their RRSPs to meet expenses. Once their accounts converted to RRIFs, they would follow the minimum withdrawal rules and funnel any excess into their TFSAs.
This kept their annual tax bills low but came with a big trade-off.
The Long-Term Tax Cost of Doing Nothing
Because the RRIFs weren’t being drawn down aggressively, a large portion of their savings remained in taxable accounts until the end of their lives. When Isabelle passed away at age 90, the registered assets triggered a final tax bill of $556,000.
Their total estate came to $3.83 million, including their home.
A Better Strategy: Preplan Your Withdrawals
To reduce long-term taxes, we ran a more proactive withdrawal plan. One that took advantage of their lower tax brackets today, rather than letting assets sit and grow in fully taxable accounts.
In the first 10 years, they targeted $63,000 per year in taxable income each. CPP covered $10,000 per year, so they withdrew $53,000 each from their RRSPs. This gave them a combined family income of $126,000. After taxes, they had around $115,000 left to spend and contribute to their TFSAs.
After the first 10 years, they reduced monthly spending to $5,500. They then targeted $46,000 in taxable income each. With CPP and OAS now included, their RRSP withdrawals dropped. This gave them a combined income of $92,000 and enough leftover funds to continue topping up their TFSAs.
How This Impacts Their Estate
The result was a final tax bill of only $65,000. Their total estate increased to $4.06 million. An improvement of more than $230,000.
This is the power of tax efficient retirement withdrawals. Lower taxes, more flexibility, and a better legacy for your family.
Then Life Changed: A Health Diagnosis
A few months into retirement, Shawn was diagnosed with a life-limiting illness. Doctors estimated he had about 10 years to live and encouraged the couple to make the most of their time together.
A Flexible Plan for Changing Circumstances
For the next five years, they increased spending to $10,000 per month to travel while they could. No more TFSA contributions. Every dollar went toward experiences.
In the following five years, they targeted $8,000 per month. Isabelle also began setting funds aside in case Shawn needed care.
After 10 years, Isabelle continued on her own with $5,000 per month in spending and a taxable income target of $80,000 per year. With taxes and expenses covered, she began rebuilding her TFSA.
Throughout these changes, the plan remained focused on withdrawing only what was needed and adjusting as life evolved.
Final Thoughts
If your retirement savings are mostly in pre-tax accounts like RRSPs or RRIFs, your withdrawal strategy is more than just a numbers game. It’s the foundation of your entire retirement plan.
The difference between a reactive plan and a proactive one was more than $230,000 in savings and a tax bill that dropped by almost 90 percent.
Your retirement plan isn’t static, and it shouldn’t be. Health, markets, and lifestyle goals change. Your plan should too.
