Walter and Joanne had saved over $2 million for retirement. But like many Canadians in their 60s, they didn’t have a clear plan for how to draw income from their portfolio without triggering unnecessary retirement tax.
Their story, originally featured in a recent article, outlined one advisor’s recommended strategy. But we saw opportunities to improve the outcome with a smarter withdrawal plan that could lower their lifetime tax bill and leave more behind for their family.
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Their Situation
- Ages: 68 (Walter) and 67 (Joanne)
- Spending goal: $8,600 per month
- Debt: None
- Real estate: Home and cottage valued at $1.55 million combined
- Investments: Over $2 million across RRIFs, a spousal RRSP, TFSAs, and a non-registered account
- Government benefits: CPP and OAS starting now
- Return assumption: 7 percent
The Original Plan
The advisor’s goal was to keep each of their taxable incomes under $57,000 per year to stay in the lowest tax bracket.
The plan relied on:
- Small withdrawals from registered accounts
- Early start to CPP and OAS
- Income-splitting to smooth out taxes
This worked well in the short term, but it left large balances in their RRSPs and RRIFs, creating a hidden tax issue for later.
Why Deferring Withdrawals Can Backfire
By their late 70s, Walter and Joanne would still have over $1 million in registered accounts.
If one of them passes away, the surviving spouse would inherit the full balance and become responsible for future withdrawals. That could push their income into Alberta’s top tax bracket.
At the end of the plan, their projected final tax bill was close to $1 million.
A Smarter Way to Reduce Retirement Taxes
Instead of limiting withdrawals early on, we suggest drawing more while both spouses are alive and in lower tax brackets.
Here’s how that might look:
- Target $82,000 in taxable income per person per year
- Withdraw more from registered accounts now
- Reinvest unused income in their non-registered account
- Split income to remain tax-efficient
This strategy helps reduce the size of their RRSPs earlier, giving them more control over future withdrawals and lowering the final tax burden.
The Results
- Final tax bill reduced
- Net estate increased by over $100,000
- More control over their income path
- Lower risk of being forced into a high tax bracket later
Final Thoughts
Walter and Joanne’s case shows how small adjustments can make a big difference in their retirement taxes. Drawing a little more income today, even if you don’t need it, can lead to major tax savings and a stronger financial legacy.
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