How should you optimize your RRSP withdrawals? In this case, making registered withdrawals and clawing back OAS was the most efficient way to limit the overall taxes. However, creating this plan is only one part. When the time comes to implement that plan, things can change.
Let’s look at a real example to see the impact that a better withdrawal plan can make.
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Chris’s Original Plan
Chris is 66, retired, and widowed. He receives monthly income from CPP, OAS, and a survivor pension totaling about $4,900 per month. He also has:
- $15,000 in a TFSA
- $1.65 million in an RRSP
- $350,000 in a non-registered account
Chris needed about $7,500 per month after tax to cover his lifestyle.
His advisor at the bank told him not to worry. The plan was to spend from his non-registered account first, then draw the minimum from his RRIF starting at age 72. This would keep his income below the OAS clawback level for as long as possible.
And the advisor was technically right. Chris wasn’t going to run out of money. But the plan came with a hidden cost.
By age 90, Chris would still have a large RRIF balance remaining. When he passed away, it would all be taxed as income. This resulting in a final tax bill of more than $800,000. His net estate would be around $1.4 million.
A More Tax-Efficient Strategy
Instead of deferring RRSP withdrawals until age 72, we built a plan that targeted $145,000 of taxable income per year starting immediately.
At that level, Chris would lose his OAS, but the long-term tax savings made up for it.
Here’s how the income added up:
- $50,000 from CPP and pension
- $20,000 from dividends and interest in his non-registered account
- $75,000 from RRSP withdrawals
By drawing down his RRSPs earlier, the account was nearly depleted by age 90. That meant there was much less to be taxed at death.
The result?
Chris’s final tax bill dropped to $377,000 and his estate value increased to $1.92 million. That’s a $520,000 improvement compared to his original plan—even without receiving Old Age Security.
Flexibility Is Part of the Strategy
With a plan in place, the next question became: how should Chris make these withdrawals?
Rather than taking out $75,000 from his RRSPs evenly each month, we suggested drawing from the non-registered account throughout the year and waiting until December to withdraw from the RRSP.
Why? Because by the end of the year, Chris would have a better idea of his total income. If he ended up doing some consulting work or if interest rates changed, we could adjust the RRSP withdrawal to keep him close to the $145,000 target.
This flexible, year-by-year approach gives him control and clarity while still reducing long-term taxes.
Final Thoughts
Chris’s situation is a perfect example of how a thoughtful retirement withdrawal strategy can make a major difference. It’s not just about avoiding risk. It’s about making sure your income plan works for both your lifestyle and your tax bill.
If you’re not confident in your withdrawal strategy or have never had this conversation with your advisor, we can help.
