Insights & Resources

Trying to “pay no tax” in your 50s and 60s by avoiding RRSP withdrawals can set you up for the highest-tax years of your life later. That’s not because you did anything reckless. It’s because of how retirement income stacks once CPP, OAS, and RRIF minimum withdrawals all arrive in the same window.

This matters in Ontario because OAS clawback can start when net income goes above $95,323 (2026). And by December 31 of the year you turn 71, RRSPs must be dealt with (typically converted to a RRIF), which means minimum withdrawals eventually become mandatory. If you don’t choose your withdrawal plan early, the calendar will later.

Meet Linda: Age 56 with a $1.35M RRSP

Let’s walk through a real-world style example. Linda is 56, lives in Ontario, and is newly retired. She’s recently widowed, has a paid-off home, and she saved consistently for decades.

Here’s her starting point:

• RRSP: about $1.35M
• TFSA: around $175,000
• Non-registered account: about $240,000
• Survivor pension: about $42,000 per year
• Home: roughly $750,000, mortgage-free
• Spending target: $6,100 per month, rising by about 2.5% each year

Linda’s instinct is one we hear all the time: avoid RRSP withdrawals for as long as possible to avoid tax. On the surface, that sounds sensible. RRSP withdrawals create taxable income, they come with tax slips, and there may be withholding tax. TFSA withdrawals, on the other hand, feel clean and simple.

The problem is that “tax later” isn’t automatically “less tax.” With an RRSP, you don’t make the tax bill disappear. You decide which years it shows up. If you push too much of that income into the wrong years, it can cost more.

Control is the core issue. While funds are still in an RRSP, you can choose your withdrawal amount (including zero). Once the RRSP becomes a RRIF and minimum withdrawals begin, “zero” often stops being an option, even if your spending stays steady.

For Linda there’s another important planning layer: she’s widowed. If she dies with a large RRIF balance, those registered dollars are generally treated as income on her final tax return. Many families are surprised by how large that final tax bill can be when registered accounts are left to grow untouched for decades.

Low tax now can be the setup for high tax later.

The 3 rules that quietly run the whole plan

Most retirement tax surprises aren’t random. In our experience, they usually come back to the same small set of rules that show up again and again.

1) The RRSP clock

In Canada, you must deal with your RRSP by December 31 of the year you turn 71. Typically, that means converting it to a RRIF. After that, minimum withdrawals apply.

2) RRIF minimum withdrawals don’t care what you need

Minimum withdrawals are based on the size of the RRIF, not on your spending target. At age 72, the minimum RRIF withdrawal is 5.4% of the prior year-end value. If the account is large, the required withdrawal can be significant.

3) OAS clawback (OAS recovery tax)

For the 2026 income year, if net income is over $95,323 and you’re in the 65–74 age band, OAS begins getting clawed back. The clawback rate is 15% of the amount over the threshold. By the time income is around $154,708, OAS can be fully clawed back.

Here’s why these rules hit people who “don’t feel wealthy.” On paper, Linda might think: “My pension is $42,000 per year. How would I ever be in OAS clawback territory?”

But retirement income doesn’t arrive as one neat number. It arrives as a stack:

• Pension income
• CPP (if started)
• OAS (if started)
• Required RRIF withdrawals
• Plus any taxable income from non-registered investing

Once the stack crosses lines like the OAS recovery threshold, your after-tax result can drop even if your gross income rises. That’s why planning the sequence matters.

Scenario 1: The common RRSP-last approach (and the age-72 surprise)

Scenario 1 is the approach many people naturally follow. Linda uses her pension first, then draws down her non-registered account, then leans on the TFSA because it feels tax-free, and leaves the RRSP alone for as long as possible.

In her late 50s and 60s, this can look great:

• She has $42,000 of pension income.
• She tops up spending with TFSA and non-registered withdrawals.
• Her taxable income can stay relatively modest.
• Her RRSP keeps growing tax-deferred.

The surprise tends to show up later. By the early 70s:

• The RRSP has been converted to a RRIF.
• The RRIF balance is often larger than it used to be.
• Minimum withdrawals arrive whether she needs the money or not.

To make the math concrete, imagine her RRIF is about $2,000,000 at the end of the year she turns 71. At age 72, 5.4% of $2,000,000 is a required withdrawal of $108,000.

Now stack that on top of other retirement income:

• Pension: $42,000
• Plus CPP and OAS (if started by then)
• Plus the RRIF minimum: $108,000

Even without a lifestyle change, Linda’s taxable income can end up brushing right up against, or sailing past, the OAS clawback threshold.

The clawback is what often makes people feel blindsided because it acts like an extra layer of tax. If income is $10,000 over the OAS line, the clawback is 15% of that $10,000, which is $1,500 of OAS lost, on top of regular income tax.

There’s also a flexibility cost. If you spend down the TFSA early, you have less tax-free capacity later for “lumpy” years, like:

• A major home repair
• Replacing a vehicle
• Helping adult children
• A market down year when you’d rather not sell investments in a non-registered account

Scenario 1 usually doesn’t destroy someone’s retirement. It just makes the later years unnecessarily expensive and less flexible than they needed to be.

Scenario 2: Pay more tax early to shrink the future problem

Scenario 2 tends to make people uncomfortable at first because it goes against the “avoid RRSP withdrawals” instinct.

Here, Linda:

• Delays CPP and OAS all the way to age 70, and
• Pulls more from the RRSP in her 60s while other taxable income is lower

Why would delaying CPP and OAS help? Because it changes the income stack. If CPP and OAS are not yet turned on, there’s more “space” in the middle years to withdraw from the RRSP without stacking CPP/OAS on top and pushing income higher later.

The delayed-start increases are meaningful:

• CPP increases by 0.7% per month you delay after 65, up to 42% more at 70 compared to 65
• OAS increases by 0.6% per month you delay after 65, up to 36% more at 70

In this scenario, Linda targets a higher taxable income in her 60s, around $165,000 per year. She doesn’t need that much to spend, so the extra RRSP withdrawal is re-directed:

• If she hasTFSA room, she refills it.
• If not, she invests in a non-registered account.

There are two real trade-offs here:

• Emotional: you’ll see withholding tax on RRSP withdrawals. Even if it’s part of a smart plan, it can feel like you’re paying “too much” tax.
• Mathematical: shifting money into non-registered investing can create annual tax drag on interest, dividends, and realized gains.

There’s also an edge case worth respecting. If health is poor and longevity is uncertain, delaying CPP and OAS and accelerating RRSP withdrawals may not feel worth it.

Still, for someone with a large RRSP who expects a long retirement, scenario 2 can convert a future tax jam into something you can actually steer.

Scenario 3: The blended approach that smooths the curve

Scenario 3 is where Linda lands in the case study because it tends to be calmer and more sustainable. It keeps the core logic of scenario 2, but avoids going full throttle.

In this blended approach:

• Linda still delays CPP and OAS to age 70, earning those permanent increases.
• She targets a moderate taxable income in her 60s, around $105,000 per year.

That target isn’t “magic.” It’s a tool. The goal is to stop the RRSP from ballooning into a massive RRIF, without creating a current tax bill that feels unreasonable.

Then, after age 70, once CPP and OAS start and her income stack rises, she adjusts RRSP/RRIF withdrawals down. At that stage, she’s paying close attention to the OAS clawback threshold. The goal usually isn’t to hit the line perfectly. It’s to avoid accidentally bulldozing through it.

This is also where the TFSA gets a new job. Instead of being the first account she spends down, it becomes the account she protects for control later. If Linda has a year where taxable income is already high (for example, because of a larger RRIF minimum withdrawal or realized gains), she can use TFSA withdrawals for spending without increasing taxable income.

In modelling like this, the long-term difference can be significant. Not because the investments earned more, but because the tax timing was better. The after-tax estate can end up meaningfully larger, sometimes by hundreds of thousands of dollars, simply because:

– the RRIF is smaller, and

– later-life tax spikes are softer.

A steadier plan often means steadier taxes and fewer surprise outcomes.

A simple framework: The Retirement Income Ceiling Map

If you understand the logic but don’t want to build a massive spreadsheet, you can still use a repeatable process each year. Here’s a practical version we often use as a starting point: the Retirement Income Ceiling Map.

1) List your guaranteed income by age

Start with what will show up no matter what:

• Pensions
• CPP (based on the start age you’re considering)
• OAS (based on the start age you’re considering)

2) Choose a taxable income ceiling for two phases

Pick one ceiling for the years before CPP/OAS begin (often your 60s), and another ceiling once CPP and OAS are on (often your 70s and beyond).

The later ceiling is frequently shaped by the OAS clawback threshold. The reason is simple: every dollar over that line can feel like it’s being hit twice (income tax plus the 15% clawback).

3) Fill the ceiling deliberately

In the earlier years, “fill the ceiling” with RRSP withdrawals before RRIF minimums start making the decision for you.

Then coordinate the rest:

• If spending isn’t covered, top up from non-registered savings.
• Use TFSA last as needed for spending.
• If RRSP withdrawals create extra cash you don’t need for spending, recycle it back into the TFSA (if there’s room), and then into non-registered investing if there isn’t.

Applied to Linda, the flow looks like this:

• Each year begins with her guaranteed $42,000 survivor pension.
• In her 50s and 60s, before CPP and OAS begin, she has more room to withdraw registered funds at a manageable tax cost.
• If the RRSP withdrawal creates more cash than she needs, she doesn’t park it in chequing. She cycles it back into TFSA contributions when possible, and then into non-registered investing.
• After age 70, once CPP and OAS join the stack, she reduces RRSP/RRIF withdrawals and uses the TFSA as a pressure valve in higher-income or higher-expense years.

This isn’t about perfection. It’s about being deliberate while you still have options.

Wrap-up: You’ll pay tax on registered money, but you can choose the years

With RRSP and RRIF money, you don’t get to choose whether you’ll pay tax. You get to choose when. If you don’t pick the timing, the calendar will.

Linda’s example shows the pattern clearly. “TFSA first, RRSP last” can set up bigger taxable income later, more risk of OAS clawback, and a harsher final tax return. A more aggressive RRSP drawdown can buy control, but it can feel painful in the moment. A blended approach often produces steadier taxes and more flexibility, and it can leave a larger after-tax estate.

We are here to help you meet your investment goals and we welcome your questions. We work with business professionals, executives, and families to grow and protect their wealth. To discuss our approach and if it is the right fit for you, we invite you to schedule a no-obligation discovery consultation.