Retirement Surplus Planning
For someone who has spent decades saving consistently, watching the portfolio decline in retirement can feel uncomfortable even when the plan supports it. That instinct is understandable. The same discipline that built a large RRSP, TFSA, pension entitlement, and non-registered portfolio can make travel, home improvements, or family gifts feel difficult to justify.
Yet preserving every dollar is not automatically the cautious choice. A large registered account that remains untouched can create substantial taxable income later through RRIF minimum withdrawals, particularly when CPP, OAS, pension income, and investment income are already in place. The planning issue is not whether to spend everything or eliminate every dollar of tax. It is to give the money a clear purpose: retirement security, lifestyle spending, survivor protection, family support, or a deliberate legacy.
Separate Security From Habit
As retirement becomes real, many households continue to treat every investment dollar as though it has the same job: remain invested for as long as possible. In practice, different parts of the balance sheet may serve very different purposes.
Consider a hypothetical couple, Catherine and Mark. Catherine is 62 and retired with a defined benefit pension of about $30,000 a year. Mark is 60 and expects to work until 65. They hold approximately $1.8 million in RRSPs, have maximized their TFSAs, and own roughly $400,000 of non-registered investments.
They are not deciding whether they can pay their regular bills. Their uncertainty arises when they consider a longer trip, a kitchen renovation they have deferred, or a meaningful gift to their children. Each decision leads back to the same concern: should that money remain invested instead?
That is a reasonable question, but it does not begin with the account balance. A sound retirement plan tests the income the household can rely on, core and discretionary spending, taxes over time, market setbacks, potential care costs, and the financial position of the surviving spouse. Security is not the same as preserving every dollar.
Some assets may need to remain available for a long retirement and unexpected events. Some may be intended to support the life the couple wants while they are healthy enough to enjoy it. Some may be assets they are unlikely ever to spend personally. Until those categories are clear, it is difficult to judge whether a particular expense is prudent or whether it is being postponed out of habit.
Define What Retirement Supports
Many people assume retirement requires replacing their full employment income. That can be a useful starting point, but employment income and retirement spending needs are not the same. Commuting, retirement saving, mortgage payments, professional costs, and taxes may change. Other spending, including travel, family support, or home projects, may rise for a period.
A more useful approach is to establish a spending range rather than a rigid annual budget. The range should distinguish between:
- regular household expenses, including housing, insurance, transportation, health care, and everyday living costs;
- spending the household wants to enjoy, such as travel, hobbies, renovations, vehicle replacement, or support for adult children; and
- a contingency reserve for events that cannot be predicted precisely, including repairs, care needs, market declines, or family changes.
The next step is to identify how much of that spending is already covered by reliable income. In Catherine and Mark’s case, Catherine’s pension provides income now and Mark’s employment income continues for several years. CPP and OAS may later become part of the household income picture. Their portfolio may need to cover only the difference between their planned spending and those income sources.
This is why generic withdrawal rules are often inadequate. A household with a defined benefit pension, CPP, OAS, and non-registered assets faces a different retirement-income question from one that depends almost entirely on registered savings. The analysis should also extend beyond the years when both spouses are alive. It should test longevity, survivor income, continuing expenses, and the tax effect of income moving from two returns to one.
Look Beyond Today’s Tax Return
Current tax is visible, which makes it easy to focus on minimizing it. But the lower-income years around retirement can look very different from the years that follow. If Catherine and Mark leave their RRSPs untouched while they continue to grow, the future income stack may become more difficult to manage.
By the end of the year each person turns 71, an RRSP must be converted to a RRIF or otherwise dealt with under the available rules. RRIF minimum withdrawals then apply whether the income is needed for spending or not. The required percentage is 4% at age 65, 5.82% at age 75, and 8.51% at age 85.
On a sizeable RRIF, these withdrawals can become material. Add CPP, OAS, pension income, and taxable investment income, and a retiree may find that more income is appearing on the tax return than the household needs to spend.
The OAS recovery tax illustrates the issue. For the 2026 income year, OAS recovery begins when an individual’s net world income exceeds $95,323. Income above that threshold can reduce OAS by 15 cents for each dollar, up to the amount of OAS received. Paying some recovery tax is not necessarily a planning failure. It may be a reasonable consequence of having substantial income. The important question is whether unnecessary registered income has been allowed to build into later years without being considered.
The survivor years deserve equal attention. Registered assets can often transfer to a qualifying spouse on a tax-deferred basis when the applicable rules are met. That deferral can be valuable, but it may also leave one spouse with a larger RRIF alongside pension income, CPP, OAS, and investment income. The household may have lower expenses after the first death, but there is only one taxpayer.
There is also the final tax return. If a substantial RRSP or RRIF remains when the second spouse dies, the remaining registered balance can generally be taxable on that final return, subject to specific rules and exceptions. Adult children generally do not have access to the same tax-deferred rollover that may have been available between spouses. A retirement plan should therefore assess the years when both spouses are alive, the survivor period, and the estate outcome.
Use Flexible Years Deliberately
Recognizing a future RRIF issue does not mean an RRSP should be withdrawn immediately. A withdrawal creates taxable income today, so the tax cost now must be compared with the likely tax cost and reduced flexibility later.
For Catherine and Mark, the period after Mark retires may be especially useful. Depending on when they start CPP and OAS, their pension income, investment income, and intended spending, they may have a period before their later retirement income sources begin to stack. These can be years when they have more discretion over how much taxable income to create.
Selected RRSP withdrawals in those years could fund travel, a renovation, or a family gift. Where TFSA contribution room exists, some after-tax proceeds could be contributed to the TFSA. The annual TFSA contribution limit is currently $7,000, although Catherine and Mark have already used their available room.
The comparison is not between doing nothing and moving money merely for the sake of activity. One path may involve spending from pension income and non-registered investments while allowing the RRSP to continue growing. That may feel conservative today, but it can lead to a larger RRIF and higher mandatory taxable income later. Another path may involve purposeful RRSP withdrawals in lower-income years to reduce future forced withdrawals or fund goals the household has already identified.
CPP and OAS timing belong in the same analysis. Delaying OAS increases the payment by 0.6% for each month after age 65, up to 36% at age 70. Deferral can make sense in the right circumstances. However, it should be assessed alongside projected income in the years when the larger benefit would begin. The objective is not to minimize one year’s tax bill. It is to use the full retirement timeline to determine when income can be taken with the greatest flexibility.
Give Surplus a Purpose
Once a household has tested its spending, reserves, survivor needs, and future income, it can address a more difficult question: how much wealth is it realistically unlikely to spend?
That is where retirement planning begins to overlap with estate planning. A trip may be more meaningful in the sixties than later in retirement. A renovation may improve the home the couple expects to occupy for many years. A gift may have greater value when an adult child is managing a down payment, child-care costs, or another significant life expense than it would as an inheritance decades later.
These choices should not weaken the couple’s own retirement security. Future care costs, longevity, market uncertainty, and survivor protection remain central. But if an amount is genuinely surplus, leaving it invested until death is also a decision. It should be compared with the alternatives while the household retains flexibility.
Estate and Legacy Decisions
For assets intended for children or other beneficiaries, beneficiary designations should be reviewed alongside the broader estate plan. RRSPs, RRIFs, TFSAs, and insurance policies may have designations that no longer reflect the household’s current wishes. Naming a beneficiary can direct where an asset goes, but it does not automatically eliminate tax created by a registered account at death.
Permanent life insurance may also warrant comparison for some families with investment assets they are highly unlikely to spend and a clear intention to leave a defined amount to children. A life insurance death benefit is generally paid tax-free to the beneficiary and may help cover tax and other costs arising at death or increase the amount ultimately available to heirs.
Insurance is not automatically the better answer. Premium commitments, health and insurability, available alternatives, and the household’s need for flexibility all matter. Those dollars should be clearly surplus before a family gives up access to capital that may still be useful during retirement.
Where family circumstances are more complex, a trust created through a will may be worth discussing with legal and tax professionals. Trusts should not be viewed simply as a tax-reduction tool, particularly given changes to trust taxation. They can still be useful when parents want to control the timing of an inheritance, protect assets in particular situations, support a beneficiary with specific needs, or avoid distributing a large amount all at once.
Build a Plan for Every Dollar
Leaving an RRSP untouched can be entirely appropriate when the capital is needed to support a long retirement, manage care costs, withstand a market decline, or protect the surviving spouse. The balance alone cannot establish that conclusion.
A coordinated plan should show what the household spends, which income sources cover those needs, how RRIF withdrawals may develop, what changes after the first death, and what could remain at the second death. It should also identify which assets are for lifestyle, which are for security, and which are intended for family or charitable purposes.
For households with meaningful registered savings, pension income, and assets outside registered plans, the most valuable planning work is often the comparison of several reasonable paths. If your current plan has not modelled retirement income, survivor taxation, planned gifts, and estate outcomes together, Ferguson Financial Planning can help assess the trade-offs using your specific numbers and priorities.