A strong investment portfolio and a solid tax plan should go hand in hand. But too often, we see one without the other.
In this case study, we’ll show how adjusting a retiree’s investment mix helped him create a more tax efficient retirement plan, allowing him to draw more from his RRSP, avoid OAS clawbacks, and increase his estate by over $160,000.
Prefer to watch the video?
Michael’s Situation
Michael is 61 and recently retired. He receives $9,600 per year in CPP and has built up solid savings:
- TFSA: $125,000
- Non-Registered Account: $500,000
- RRSP: $1.1 million
He spends around $5,500 per month and wants that number to rise with inflation as he moves through retirement. Like many retirees with large RRSPs, he’s concerned about the potential tax liability at death and wants to implement an RRSP meltdown strategy to reduce that burden for his family.
The Investment Plan
Michael’s portfolio is built around dividend stocks. His expected returns look like this:
• 6 percent from dividends
• 2 percent from capital growth
• 8 percent total return
At first glance, this may seem ideal. But when we started building out his withdrawal plan, the dividend income from his non-registered account created some challenges.
The RRSP Meltdown Strategy
To minimize taxes and avoid the OAS clawback, we set a target of $90,000 in annual taxable income. This gives Michael the income he needs for spending, while keeping him below the Old Age Security clawback threshold.
Here’s how his income adds up using the current portfolio:
• $9,600 from CPP
• $30,000 in dividends from the non-registered account
• That leaves just over $50,000 available for RRSP withdrawals each year
Once Michael begins receiving OAS, that number will be even lower. The result is that more money stays in his RRSP, growing tax-deferred, but eventually taxed at a high marginal rate upon death.
The Problem with High Dividends
Michael’s high dividend strategy looks great from a cash flow perspective, but it limits the amount he can safely withdraw from his RRSP each year. That means less flexibility and more taxes later in life. We wanted to know if he could still target the same return, but with a better tax outcome.
A Smarter Portfolio Structure
We adjusted Michael’s non-registered investments to aim for a lower dividend yield and higher capital growth, while still maintaining an 8 percent total return. The revised portfolio targets:
• 2 percent in dividends
• 6 percent in growth
Now, instead of receiving $30,000 in dividends, he only reports $10,000 from the non-registered account. Combined with CPP, his total taxable income before RRSP withdrawals is $19,600. That leaves him room to withdraw over $70,000 from his RRSP each year without going over the $90,000 threshold.
That small shift allows him to draw more from his RRSP, reduce the future tax burden, and stay below the OAS clawback level.
The Results
Under the original dividend-heavy approach, Michael’s projected estate value was $3.57 million.
After adjusting the portfolio, his estate grows to $3.73 million.
That’s a $160,000 improvement—without changing his total expected return or his overall risk profile.
He can still invest in dividend-paying stocks if he prefers that strategy. The key is to hold those investments inside his RRSP or TFSA, where the income isn’t taxed annually. In the non-registered account, it’s better to focus on growth-oriented investments that keep taxable income low.
Final Thoughts
Michael’s situation shows how tax strategy and portfolio structure need to work together. His original RRSP drawdown plan was sound, but until we adjusted where his income was coming from, he was leaving money on the table.
With just a few changes, he reduced taxes, improved flexibility, and grew his legacy.
If your investment and withdrawal strategies aren’t aligned, there’s likely room for improvement.
