When it comes to retirement, what’s going to make the biggest impact on your financial future: getting a slightly better return on your portfolio or creating a smart, tax-efficient plan?
If you asked most financial publications, the answer would be portfolio performance. But this example shows why a well-structured withdrawal plan often delivers more value than chasing an extra half percent of growth.
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Meet Tim and Macy
Tim is 59, and Macy is 58. They’re newly retired and hope to spend $7,500 per month in retirement, gradually scaling back to $5,500 per month after age 80. Like many Canadians, they assumed the best strategy was to leave their RRSPs alone and draw from their TFSAs first to avoid paying tax.
Between them, they had:
- Around $290,000 in TFSAs
- $1.4 million in RRSPs
- $350,000 in a joint non-registered account
They planned to take CPP at 60 and OAS at 65, with a 6 percent rate of return on their investments.
Scenario 1: No Planning, Just Performance
Their original strategy was simple. Spend from the TFSAs first, then the non-registered funds, and finally dip into the RRSPs once everything else ran out.
But this “tax-light” approach early in retirement led to big problems later on. By deferring their RRSP withdrawals, they were eventually forced to take large mandatory withdrawals that exceeded their spending needs.
These forced withdrawals created tax drag, and the leftover money ended up in their TFSAs. At the end of the plan, they still had a large RRSP balance, triggering a final estate tax bill of $558,000. Their net estate was just $985,000.
Scenario 2: Lower Returns, Worse Outcome
To isolate the impact of investment performance, we lowered their return from 6 percent to 5.5 percent.
That single change dropped their final estate value by over $550,000. The new net estate was just $429,000. A small difference in return made a huge difference in outcome — but only because the plan wasn’t optimized in the first place.
Scenario 3: Smarter Planning, Better Results
We then introduced a few key planning strategies.
First, we delayed both CPP and OAS to age 70. This provided higher long-term income and helped avoid the OAS clawback. Their estate jumped by over $360,000 with this one change alone.
Next, we changed the withdrawal order. Instead of avoiding tax early, Tim and Macy began drawing from their RRSPs right away, targeting $50,000 per person in taxable income. This helped shrink their RRSP balances faster and smoothed out their tax liability over time.
Finally, we stopped letting cash sit in taxable accounts. Instead, they redirected excess funds into their TFSAs annually. These tax-free contributions compounded for decades and boosted their final estate.
By applying these strategies, their final estate jumped to $1.51 million — even with the lower 5.5 percent return.
Scenario 4: Combine Planning and Performance
We then reapplied the original 6 percent return alongside the new strategies. With everything working together, their final estate value surpassed $2 million.
Final Thoughts
The numbers speak for themselves. The unplanned, higher-return scenario left behind $985,000. The planned, tax-efficient approach with the same return left over $2 million.
If you have an hour to improve your finances, don’t spend it watching the markets. Spend it reviewing your withdrawal strategy, pension start dates, and how to use your registered and non-registered accounts more efficiently.
Tax planning is something you can control. And it could be the difference between leaving $1 million… or leaving $2 million.
