Many Canadians enter retirement without a plan for withdrawing their RRSPs. The result is often a larger tax bill than necessary and less money left for their family.
While drawing down your RRSPs aggressively can be a smart move in many cases, it’s not always the right approach. In this post, we’ll walk through a case study to show how an optimized withdrawal plan changed one retiree’s financial outcome. If you’re wondering whether to take more from your RRSP now or later, Jim’s story will give you a clearer view.
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Their Situation
Jim is 70 years old and recently retired. He has saved $400,000 in his RRIF, $100,000 in a TFSA, and $100,000 in a non-registered account. He also owns a home valued at $600,000, which he does not plan to sell.
Jim’s goal is to spend $5,200 per month, indexed to inflation, without accessing home equity. Based on a modest return of just over five percent per year, he is currently on track to meet this goal. His retirement is 105 percent funded, which gives him a two-year buffer beyond his estimated life expectancy of age 87.
What He Was Planning
Jim had planned to draw down his RRIF aggressively in the early years of retirement. His thinking was simple, get the money out while tax rates are lower and reduce the risk of a big tax hit at death.
He receives regular income from a workplace pension, CPP, and OAS. In addition to the required RRIF minimums, he planned to top up his income with extra withdrawals from his RRIF each year.
According to this plan, Jim would deplete his RRIF by 2033. After that, he would move to his non-registered account. Once that was gone, he would begin drawing from his TFSA.
This approach seemed logical, but we wanted to test it further.
A Better Way to Do It
Using financial planning software, we optimized Jim’s withdrawal strategy. The result looked quite different from his original plan.
Instead of relying on the RRIF to top up his income, the revised plan had Jim drawing from his non-registered account first. He still received the required RRIF minimums, but nothing more.
Once the non-registered account was used up, withdrawals would begin from the TFSA. The RRIF would remain largely untouched through the later years of retirement.
The Results
This change had a noticeable impact.
Jim’s retirement funding increased from 105 percent to 114 percent. His buffer expanded from two to five years past age 87.
His after-tax net worth at 87 also increased, from $950,000 to $975,000. All of this was achieved without changing his lifestyle or savings just by withdrawing money from more tax-efficient sources.
Why This Worked
The key difference was the tax treatment of each account. By drawing less income from fully taxable sources like the RRIF, Jim was able to reduce his overall tax bill. This allowed him to spend the same amount in retirement while preserving more of his portfolio.
While aggressive RRSP drawdowns can be useful, they are not always the right answer. In Jim’s case, a more balanced approach produced a better outcome.
Final Thoughts
It’s easy to assume that pulling money from your RRSP quickly is the safest move, but every situation is different. Without a personalized plan, you could end up spending more in taxes than necessary and leaving less behind.
In Jim’s case, simply adjusting the withdrawal order made a meaningful difference. His plan improved, his retirement became more secure, and his estate grew, all without saving an extra dollar.
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