Making the wrong financial moves at 55 can quietly cost you hundreds of thousands of dollars by age 60. Many Canadians fall into common tax mistakes at 55 without realizing it. These errors often start small and invisible. There is no CRA letter or sudden tax bill but over time, they can significantly erode your retirement savings.
In this post, we highlight the three most critical tax mistakes Canadians make at 55, explain why they matter, and share practical strategies to protect your income and legacy.
1. Skipping an RRSP Withdrawal Strategy
Many couples assume that if one partner is still working, they should leave their RRSP untouched until they need it. However, this is one of the most common tax mistakes at 55 and can quietly cost thousands over time.
At 55, your personal income may be low, especially if you haven’t started CPP or Old Age Security. This creates a valuable opportunity to withdraw from your RRSP at little or no tax cost. For example, in Manitoba, your first $16,000 of income is tax-free. You can take that from your RRSP without triggering a tax bill.
Even withdrawals up to about $57,000 stay in a relatively low tax bracket. Using these years wisely can help reduce your RRSP balance before it grows too large. This can lower mandatory RRIF withdrawals later and prevent higher taxes in your 70s.
If you wait too long, your savings can grow into higher brackets, and you could even face Old Age Security (OAS) clawbacks.
Pro tip: Even if you don’t need the money now, consider reinvesting RRSP withdrawals into your TFSA or a non-registered account. This allows for flexible, tax-efficient growth over time.
2. Taking CPP Without a Coordinated Plan
Too many Canadians make tax mistakes at 55 by treating CPP timing as a stand-alone decision rather than part of a broader income strategy.
While taking CPP at 60 may seem appealing, it isn’t always the best choice. If you retire at 55, think about how you will fund the next few years before CPP starts. Taking CPP too early could reduce your future guaranteed income and increase your lifetime tax bill, especially if it overlaps with large RRSP or RRIF withdrawals later.
The ideal timing depends on:
- Your life expectancy and health outlook
- Your spouse’s income and age
- How CPP fits into your overall withdrawal plan
- Whether early withdrawals could trigger OAS clawbacks
In short, don’t take CPP just because that’s what others do. Take it because it fits your complete retirement plan and coordinates with your other income sources.
3. Treating the TFSA Like a Savings Account
The last of our common tax mistakes Canadians make at 55 is treating your TFSA like a simple savings account, which can limit long-term growth for many Canadians.
Despite its name, the Tax-Free Savings Account is not just for cash savings. Treating a TFSA like a simple savings account is one of the tax mistakes at 55 that can limit long-term growth for many Canadians.
Your TFSA can hold investments, just like your RRSP, and any growth inside it is completely tax-free. Over time, compounding in a TFSA can significantly outperform keeping money in a low-interest savings account.
Because TFSAs are typically used last in a smart withdrawal sequence, they have a long time horizon. That makes them ideal for growth-oriented investments while RRSPs handle day-to-day withdrawals.
If you’re worried about losing access to emergency funds, consider keeping a line of credit for short-term needs instead of parking large amounts of cash in your TFSA.
Smarter Tax Planning Starts Early
Avoiding these tax mistakes at 55 can easily save you six figures over retirement. The key is to coordinate all your income sources, including RRSP, CPP, OAS, and TFSA, in one unified plan rather than managing them separately.
That’s exactly why we created the Atlas System, our process for helping Canadians retire confidently while minimizing unnecessary taxes.
Before you make your next financial move, grab our Free Retirement Toolkit for step-by-step checklists and strategies to build a tax-efficient income plan. It includes detailed guidance on RRSP withdrawals, CPP timing, and long-term portfolio structure.
Final Thoughts
The years between 55 and 60 are a golden opportunity to prepare for retirement, not a time when silent tax traps quietly erode your savings. With thoughtful planning, you can protect both your income and your legacy.
If you want personalized help building your retirement income plan, book your free consultation today.
