RRSP Withdrawal Strategy: How to Beat the OAS Clawback

October 20, 2025

Reaching $1.5 million in your RRSP is a big achievement. However, your RRSP withdrawal strategy can create unexpected problems. Many Canadians do not realize that hitting this milestone can trigger extra taxes and clawbacks. As a result, retirement income can be reduced by thousands of dollars.

Fortunately, understanding how RRSP withdrawals affect Old Age Security (OAS) can help you plan better. For example, a small adjustment to your RRSP withdrawal strategy could save tens of thousands over retirement. In this article, we explain the hidden tax traps and show simple strategies to protect your retirement income.

Understanding the OAS Clawback

When your income exceeds a certain threshold, OAS payments are gradually reduced. This reduction is called the OAS clawback, or Old Age Security recovery tax.

For example:

If your income surpasses $93,454 (2025 threshold), you lose 15 cents for every dollar above the limit.
This acts like an additional 15% tax on income that could have supported your retirement.

Without planning, many retirees do not realize how quickly mandatory RRIF withdrawals push them above this threshold. Therefore, being aware early can save thousands.

Case Study 1: Jim’s Scenario

Jim just turned 71 and must convert his RRSP into a RRIF. His RRSP withdrawal strategy will determine how much he withdraws and how much OAS he may lose. At his age, the required RRIF withdrawal is 5.28%. This means he will need to withdraw over $79,000 next year.

Adding his CPP ($10,000) and OAS ($8,900), Jim’s total income rises to just over $98,000. Consequently, he is above the OAS clawback threshold. Without proper planning, part of his OAS payments will be clawed back, which effectively acts as an extra tax on his retirement income.

Key Considerations:

If Jim is married, he can split RRIF income with his spouse. This reduces individual income and keeps both under the OAS clawback threshold.
If Jim is unmarried, a carefully planned RRSP withdrawal strategy earlier in retirement could have minimized the clawback.

Case Study 2: Tom’s Scenario

Tom is 60 and has $1.2 million in his RRSP. If he lets the account grow until he turns 71 without taking any withdrawals, his RRIF withdrawals could exceed $117,000 per year. His RRSP withdrawal strategy will greatly influence his total taxable income and potential OAS clawback.

Combined with CPP and OAS, Tom’s income clearly exceeds the OAS clawback threshold. Without planning, he risks losing a substantial portion of his retirement benefits.

Planning Insights:

Retirees in their late 50s or early 60s have an ideal window to manage withdrawals strategically.
By gradually drawing from RRSPs while income is relatively low, retirees can smooth their income curve.
Therefore, a well-designed RRSP withdrawal strategy protects cash flow, reduces clawbacks, and minimizes taxes over retirement.

RRSP Withdrawal Strategy: Steps to Beat the OAS Clawback

1. Plan RRSP Withdrawals Gradually

In your RRSP withdrawal strategy, begin taking partial withdrawals before your mandatory RRIF conversion.
This prevents your account from growing unchecked and pushing you above the OAS clawback threshold.
Additionally, early withdrawals can smooth your taxable income over retirement.

2. Income Splitting with a Spouse

After age 65, RRIF income can be split with a spouse.
By doing this, you reduce individual income and minimize clawbacks.
For example, splitting income can help both spouses stay below OAS thresholds.

3. Monitor Government Benefit Thresholds

Track OAS and other government benefits each year.
Plan withdrawals carefully to stay under the thresholds whenever possible.
As a result, you can protect your retirement income and avoid unnecessary taxation.

4. Use Retirement Planning Tools

Tools like the Atlas system model tax-efficient RRSP withdrawals.
They help optimize cash flow, protect benefits, and preserve your estate.
Therefore, using planning tools ensures your RRSP withdrawal strategy is aligned with your long-term goals.

5. Consider Timing and Tax Brackets

Withdraw during low-income years to take advantage of lower marginal tax rates.
Avoid large withdrawals that push you into higher tax brackets unnecessarily.
Consequently, careful timing protects both your cash flow and government benefits.

Final Thoughts

Hitting $1.5 million in your RRSP is a significant milestone. However, your RRSP withdrawal strategy determines how much you actually keep. Without careful planning, retirees can unintentionally lose thousands of dollars due to OAS clawbacks and higher taxes.

By following a well-structured RRSP withdrawal strategy, you can gradually manage withdrawals, minimize clawbacks, and optimize your retirement income. Additionally, considering factors such as timing, income splitting, and government benefit thresholds ensures your strategy works for both short-term cash flow and long-term estate planning.

In conclusion, a thoughtful RRSP withdrawal strategy protects your retirement savings and gives you confidence in your financial future. Start planning early and review your strategy regularly to stay on track.

For more detailed guidance, watch the full video on YouTube and visit the Trans Canada Wealth Management YouTube channel for additional retirement planning tips.