The Myth of the “Too-Large RRSP”
Every few months, social media decides the RRSP is a terrible idea. The latest version? “Don’t grow your RRSP too much or you’ll get crushed by taxes in retirement.” The reality is less dramatic. A large RRSP isn’t a tax trap – it’s a planning opportunity, if you know when and how to draw it down.
Myth vs. Fact
Myth: Most people end up in a higher tax bracket in retirement, so you shouldn’t max out your RRSP.
Fact: The vast majority of Canadians retire in a lower tax bracket, thanks to income splitting, CPP and OAS deferral options, and the flexibility to draw down RRSPs strategically before age 71. The issue isn’t the size of your RRSP – it’s how and when you withdraw from it.
It seems everywhere you scroll these days there’s a short reel or post screaming: “If you keep maxing your RRSP, at age 71 the government forces you to withdraw massive sums and you’ll be back in a high tax bracket!” “Most people won’t be in a lower tax bracket in retirement, so your RRSP is a ticking time bomb!” “The RRSP trap nobody warns you about!”
You may have seen something like this: someone with a $1.5 million RRSP at age 65, then at 71 they must withdraw about $79,500, pay roughly $31,800 in tax (40%), and suddenly they’re “back in a high tax bracket.”
The screenshot gets shared, alarms go off, and the message spreads fast. But this is highly misleading. The problem isn’t a big RRSP. The problem is poor timing of withdrawals and not using all the tax tools available to you.
Let’s walk through the myth, what these posts are really describing, and how proper planning turns this supposed “trap” into an advantage.
What the claim says
Here’s what the “large RRSP equals big trouble” narrative says: when you reach age 71, you must convert the RRSP to a Registered Retirement Income Fund (RRIF) and start taking minimum withdrawals.
Because your RRSP has grown large, the mandatory withdrawals are large too. Big withdrawals mean high taxable income and, therefore, a high marginal tax bracket in retirement.
The argument continues that most people won’t be in a lower tax bracket in retirement than they were while working, so RRSP contributions simply defer tax – you’ll pay it all later, possibly at higher rates.
That sounds convincing on the surface, especially with a scary spreadsheet. But it skips the most important part of the story.
The real issue: timing and sequence
The real trigger isn’t the size of your RRSP – it’s the window between retirement and age 71, and how you use it.
When you retire, your employment income disappears – usually your highest-taxed source of income. That creates a “golden window” between retirement and age 71 to draw from your RRSP at relatively low tax rates.
Withdrawing strategically during these years reduces your RRIF balance later, keeps future minimum withdrawals manageable, and smooths out taxes across your lifetime.
Waiting until 71 or later to start large withdrawals can cause a collision of income sources: CPP, OAS, RRIF minimums, and investment income – all stacking in the same year and pushing up your marginal tax rate.
In short, it’s not a large RRSP that creates a tax problem – it’s waiting too long to draw it down.
Why “most people retire in a higher tax bracket” is false
This one refuses to die, so let’s tackle it with data.
According to Statistics Canada, just 8.3% of Old Age Security (OAS) recipients are affected – fully or partially – by the OAS clawback.
That clawback starts around $93,454 of net income, roughly the top of the largest “middle-class” marginal tax bracket (29.65 percent in Ontario).
If only 8% of retirees are in that range, the vast majority of Canadians are not retiring into higher tax brackets. Here’s why:
- Employment income disappears, which alone drops most people into a lower bracket.
- RRSP and RRIF withdrawals are flexible – you control how much you take (within the minimums).
- Income splitting helps – RRIF, pension, and annuity income can be split 50/50 with a spouse starting at age 65.
- CPP and OAS can be deferred to age 70, which raises guaranteed income later while keeping taxable income lower in your 60s.
- TFSAs and non-registered savings provide flexibility – withdrawals are tax-free and can be used to top-up spending without increasing taxable income.
For most well-planned couples, retirement income is comfortably within a lower tax bracket than during their peak earning years.
When a large RRSP can actually be a problem
There are two scenarios where the “RRSP trap” idea has some truth to it.
First, singles with no income-splitting options. If you’re single, every dollar of RRIF income stays in your own tax return. That can lead to higher effective rates, especially if you have investment income or rental income on top of withdrawals. Without income splitting, your ability to control your marginal rate is limited.
Second, those who keep working past 70. If you continue earning into your 70s, your employment or business income overlaps with mandatory RRIF withdrawals and government benefits. That’s where income stacking becomes an issue – and where the “tax trap” visuals come from.
But again, many of these are edge cases. For the majority, smart withdrawal planning prevents the problem entirely – even for singles!
What to do instead: turning the RRSP into a planning tool
Here’s a practical playbook. Retire first, withdraw second.
Once you stop earning, use those early retirement years to withdraw from your RRSP at modest tax rates. Start withdrawals in your 60s to reduce your future RRIF balance and smooth taxes.
Delay CPP and OAS to 70 to defer taxable income and boost future guaranteed benefits.
Split income wherever possible – RRIF and pension splitting can cut your household tax bill dramatically.
Use your TFSA and non-registered accounts strategically to fund spending without pushing up taxable income.
Plan your drawdown order, focusing on RRSP and RRIF withdrawals first, then moving to non-registered and TFSA accounts (if necessary).
And keep tabs on RRIF minimums by modelling future withdrawals to avoid surprises later.
Final thoughts
The viral videos warning about a “too-large RRSP” make for great clicks, but bad advice. Think critically – does this apply to me and my situation?
The real problem isn’t the RRSP, it’s ignoring your drawdown plan until age 71.
You can absolutely build a seven-figure RRSP and retire comfortably in a modest tax bracket if you take advantage of the early withdrawal window and coordinate with CPP, OAS, and income splitting.
In the end, an RRSP isn’t a trap. It’s one of the most effective tax-planning tools Canadians have – when used intentionally. The only real danger is letting social media scare you out of using it properly.
If you have $1.5M RRSP at 65 then withdrawing before 71 at modest tax rates might still force you into a high tax bracket at 71 as your withdrawals are more than offset by growth.
More generally, solutions for optimizing lifetime income will vary by individual. For example starting to draw your OAS at 65 might be optimal if you ain’t getting any at 71 either way. There are a lot of variables here.
Could also consider retiring or if one wishes to remain active, volunteer or choose a fun part time or seasonal work.
Personal finance is personal but if I have 1.5 million in my RRSP at age 65 I should have retired much, much sooner.
Heck yes, James!
I don’t, by the way, but on track to retire no later than age 60 🙂
In a non-registered account, investment income is taxed every year. Over decades this can erode a significant amount of the portfolio. Then when investment are sold, capital gains taxes apply. So even if the tax rate on an RRSP is higher when withdrawing than when contributing, the RRSP may still have a higher after-tax return than a non-registered account.
Investors need to look at their after-tax return through their investing lifecycle.
I assume you mean dividend income in describing “investment income” in a non-registered portfolio. There really is no other type of income. I don’t see how taxes on dividend income erode the portfolio. The shares owned remain static until they are sold, at which time the taxes triggered by any capital gains are incurred. but the simple payment of dividends and the possibility of paying tax on those dividends does not erode the portfolio. If you don’t spend the dividends annually, the portfolio actually grows.
Hi Jason, interest income from bonds, GICs, and savings deposits are also considered investment income.
Also there are Canadian dividends, and foreign dividends (different tax treatments).
It’s not a possibility of paying tax on the investment income in a non-registered account – it’s a fact, you will incur taxable investment income each year.
True, it doesn’t technically erode the specific portfolio if you’re reinvesting the dividends – but you’re paying the tax out of another pocket and you have less money at the end of the year.
Good response Robb. It might have been clearer if I said taxes on non-registered accounts are significant cost to the investor that need to be included when calculating after-tax returns. Consider a non-registered Canadian dividend focused portfolio with 4% yield and 25% tax on dividends (hypothetical numbers but not unreasonable). Tax costs 1% of the portfolio value annually. 0.99^30 = 0.74. So over 30 years the taxes can compound to cost over 25% of the investment value. Then capital gains when investments are sold.
Michael James on Money did a good blog post on this issue called Debunking RRSP Myths with Pictures
https://www.michaeljamesonmoney.com/2014/03/debunking-rrsp-myths-with-pictures.html
But I suspect a good number of retirees don’t want to start drawing down their RIFs because they are afraid of running out of money.
They know of retirees who had to pay out of pocket for costly treatments, maybe pay for LTC earlier than expected, etc.
If they are afraid then they don’t realize how much they have and should consult a planner.
Withdrawing from RRIF doesn’t mean spending. Use the withdrawals to put in the TFSA. Then it grows tax-free, and remains tax free, even in the estate, even for singles.
I’m 63 and retired at 60. I should have started melting at 60 but didn’t. I started this year with quite high withdrawals and will continue until the RRSP is dry. This, at present says I’ll be 83. I hope I see this out. Market performance currently has also created a large non-reg and TFSA. I’ll add 2 things people should watch for. Dividends are grossed up 38% and this amount is added to your gross income so you could leap the OAS threshold, correct me if I’m wrong. Also, don’t be afraid of OAS clawback. Reducing RRSP withdrawals to save on clawback could end up costing more than you’re saving. Again, correct me if I’m wrong.
Hi Greg, you are correct about the dividend gross-up – and that is in fact the amount used to calculate your income for the OAS clawback threshold.
Thank you for writing this. I have been so confused by these messages on social media. We are in a very high tax bracket currently and have no plans to be even close to this in retirement. We are making use of our current high income to sock away as much as we can, so when you take away savings and mortgage, the amount we need to live on in retirement is much lower than we earn today.
The RRSP has been very helpful to defer our tax burdens in our highest earning years.
My pleasure! It was infuriating to see this message popularized several times over the past few weeks on social media. As someone who has written nearly 1,000 retirement plans I can say with absolute certainty that most people are in a lower tax bracket in retirement, and contributing to their RRSP during their working years was one of the best things they could have done for their retirement.
Apologies to email subscribers who received this email three times this morning.
I’m looking into the issue with our email delivery service provider. Not my intention to spam your inbox, important as this topic might be 😉
I’ve received it 4 times already. It seems like as soon as I delete it, another one is sent.
I’ll just leave one in my inbox, unopened, then maybe I won’t receive any additional ones.
I’m at 7 times now! I guess its a *very* important topic!
Great post. There is almost certainly a mental hurdle to get over when going from contributing or maxing RRSP every year to suddenly flicking a switch and starting to withdrawal massive sums of money. And this can cause people to delay seeking proper planning for years or even decades.
I think working past 65 in s a big one. Do we have stats on how many Canadians have the wealth to retire but then choose to keep working to age 70 and beyond?
I’ll never forget watching Bob Layton on Global News, maybe 20 years ago. He was going off about how he was getting screwed because he had to convert his RRSP into a RRIF and pay massive taxes. I’m thinking to my self, “um, yeah? You’re in your 70s and still working and likely still getting paid very well! Why are you surprised?”
For those of us who have such problems, how fortunate we are!
Yes I agree. We will be facing this issue in five years as my spouse continues to enjoy his business and we have a nice RRSP, tfsa, and non registered investments and continue to add to them. We are practicing our spend and generosity muscles but know we will be in a larger tax bracket at age 71. There’s no way around it but we have benefited from deferring taxes through RRSP over the years. It is what it is.
I’m not sure if there is a clitch in your system or if anyone else is encountering this but I have received 4 of these newsletters this morning. Very interesting reading but I don’t need the reminder that often just yet.
RRIF income splitting with a spouse starts at 65. If instead of using an RRSP a business owner uses an Individual Pension Plan or Personal Pension Plan, pension income splitting can start at any age (no need to be 65).
Moreover, many business owners have unrealized gains in the investment accounts of their business. Selling such assets creates capital dividend account credits, which enable the shareholder to benefit from 100% tax-free capital dividends. Therefore, a mix of split pension income with capital dividends could push the taxpayer in Canada into extremely low tax brackets.
Retired at 65. Now 75. Converted RRSP to RRIF at 65 and took out minimum amount required every year + get investment tax credit of $2K. Also take dividend income every year (I’m paying tax on it anyway). Took max CPP at 65 and OAS at 70.
RRIF is invested in ETFs 60/40 and is worth more today than 10 years ago even with withdrawals. TFSA is maxed out and all in growth ETFs.
Non registered accounts are/will be subject to capital gains (or losses) on rebalancing or cashing in…
I am SINGLE so a tax bomb will hit me as I age especially from late 80s on.
Suggestions, Rob?
Canadians who are single at this stage of life are not “edge”. Grey Divorces are on the rise and many are choosing not to remarry. There is a growing trend of GenX’ers who have tons in RRSP’s as the TFSA started well after we graduated from school. And as a single, there a real consequences to your estate if you pass earlier than expected. It is taxed first then to your estate because there is no spouse. This allows for the funds to stay in the “family” longer providing more options for the surviving spouse. RRSP’s are not a scan but there is a very real issue if you prioritise this over the TFSA if you are single. I do think this is the real issue.
Hi Jaci, I’m definitely not saying that singles are an edge case – hardly! I’m saying situations in which contributing to an RRSP is still not advantageous are rare.
Your point about the TFSA is well taken, but the contribution room is much more limited.
And investment income in a non-registered account is taxed every year.
The RRSP is not the boogeyman it’s made out to be.
Wow, if paying tax is a problem then you need to move offshore to a tax haven and join the other me me me types.
I don’t mind paying tax. I see it as a benefit because if I wasn’t paying tax I would be in a pretty poor financial state and living on the bread line!
Paying too much because of incompetent and corrupt government is another issue and then one should follow the example of our PM …..
Great article Robb. The one thing I would offer is that for those with a Defined Contribution Plan, that ends up in a LIRA when leaving your employer and then must be changed to a LIF by age 70 (or 71). LIFs have maximum withdrawal limits, so they are less flexible that RIFs. If someone will have both a LIF and a RIF, they should focus on LIF withdrawals before RIF.
I have a LIF and RIF and am married. I set up a Spousal RRSP years ago which is now a Spousal RIF. We are on the tipping point where larger LIF/RIF withdrawals will bump us up to the next tax bracket, which is still lower than pre-retirement rate. If we don’t make it to 95, then there will be a large tax bill for the estate. Similarly, if markets perform well over the remainder of retirement, that will end up with higher tax rates later in retirement. Thus, even though larger withdrawals will lead to higher taxes in the foreseeable future, we are planning to take slightly larger withdrawals with the intention of planning for lower taxes later in retirement or on the estate. That being said, if markets perform poorly, we will revert to withdrawals that keep us in a lower tax bracket.
Hi Bob, thanks for your comment. Most jurisdictions allow 50% unlocking of the LIRA prior to moving it into a LIF (moving it into the RRSP where withdrawals are more flexible with no maximums).
And, yes, good returns have kept RRIF and LIF balances higher than expected over the past 10-15 years. yes, that can lead to higher taxes down the road, but also more money for you and for your beneficiaries or estate.
IMO we focus too much on the tax paid in the estate, and not the decades of tax deferral that allowed the RRIF and LIF to grow that large in the first place.
One component of this that tends to be overlooked is what happens when one spouse dies before the other, as is the usual situation.
Now the surviving spouse has BOTH RIFS/LIFS etc but no longer can income split.
THAT leads to much higher taxation.
And I wish pros would stop with the line of leaving the TFSA for last. That’s nuts! I take out the distributions every month. Next year I’ve opened up an extra $10,000 plus the new contribution amount. Refill from the holdings in the RIF. Repeat. Tax levels are now managed at my preference as over half my income is tax free.
Hi Jayne, that situation does often lead to higher tax rates and potential OAS clawbacks – I suspect a good portion of the 8.3% of OAS recipients who are affected by the clawback are surviving spouses.
As for the TFSA, it’s common for those who don’t need the income for spending to leave their TFSAs intact and/or contribute to them annually (left pocket to right pocket transfers).
That’s a good practice IF you don’t need the money – why not take advantage of the tax-free account and new room?
But, hey, I’m on round three of refilling my TFSA after draining it for another house upgrade! I suspect I’ll use it again (and again), strategically, throughout our lifetime.
Jayne: for business owners that can set up IPPs or PPPs via their businesses, section 56 of the Income Tax Act provides a pension income splitting tool that is not available to those with RRSPs and RRIFs. Section 56 says that taxation occurs in the hands of the recipient of the death benefit money paid out of the registered pension, not taxed in the Estate of the deceased RRSP/RRIF annuitant (the surviving spouse in your example). Thus, by having a number of designated beneficiaries, including non-taxable beneficiaries, the tax burden can be significantly reduced if the registered monies are in a pension plan instead of an RRSP/RRIF.
Rob I’ve received this email 7 times today. Don’t know why or if anyone else if experiencing the same. Not sure what’s going on….
Thanks,
Karen W
Apologies, Karen – major issue with our email service provider this morning that led to this same message going out seven times.
200+ unsubscribes later I think we have fixed the issue 🙁
One small note, you can actually split pension income as early as age 55. So for younger retirees that gives you even more low income years to melt away the tax burden sitting in your RRSP. Some people seem to be unaware of this and stick with the generic advice to hold money in RRSP’s for as long as possible.
Hi Phil, yes – for DB pension income (actually there is no minimum age – someone retired from the military in their 40s could technically split their DB pension income if it made sense to do so).
You cannot split RRIF and LIF income until 65, and it must be a RRIF or LIF (not an RRSP withdrawals, and, well, you cannot withdraw from a LIRA).
That right Phil, IPP and PPPs allow pension income splitting even BEFORE age 55. Not only that but the $2000 per year per person ‘non refundable pension amount credit’ is also available each year. For larger DB plans, provincial pension legislation typically caps the earliest at 55….
I got sucked into this too. Fortunately our income wasn’t high at the time. We realized the mistake and started contributing and we are all caught up in last 2-3 years. Our income increased quite a bit and with addition of baby, it worked out okay.
We have a bit of situation with RRSP – we have fully contributed to RRSP up until now and no room left after filing income tax for year 2024. So wanted to ask you a couple of questions:
1) Can we contribute to RRSP in Feb 2026 based on our income in year 2025 before we file taxes for the year 2025 and designate the contribution to the year 2026?
2) Our company offers to deposit the pay directly into RRSP (to avoid paying the tax and then getting the refund later and due to unique pay structure this one time contribution ends up being around 13-14% of annual pay) in Feb every year and we can designate the contribution to either previous year or current year i.e. 2025 or 2026 for the upcoming Feb 2026 pay. Since we have contributed fully up to the “available contribution room for 2025”, we would have to designate the Feb 2026 contribution to the year 2026. We won’t get to claim it till we file the tax return for year 2026 in April 2027, but pre-tax money can at least start compounding inside RRSP and won’t have to wait till May 2027 for tax refund. am I thinking this right?
I get that you are responding to something that is often too one-sided in presentation and does not adequately credit the significant benefit that can be gained through an RRSP. But I think your comments maybe swing a bit far in the opposite direction. I agree that if you have a large RRSP/RRIF it is absolutely crucial to try to plan your drawdown, and begin relatively early, in order to achieve a tax efficient withdrawal from your investment. But RRSPs that are very large can also make it very difficult to execute the drawdown plan and they introduce a terminal risk consideration for anyone concerned with passing their assets along to subsequent generations on a tax efficient basis.
Let’s start with the risk. If you pass away with a large RRSP or RRIF, the entire value of it hits as taxable income in the year of your death. Suppose you pass away with $1,000,000 RRIF and you are a tax resident in BC. A minimum (assuming no non-RRSP income or capital gains need to be allowed for) of approximately $740,000 would be taxed at the top rate of 53.5% by 2025 rates. The rest of the $1,000,000 would be taxed too, just not at the top marginal rate (again assuming you have no other income to account for outside of the RRIF). That is a big tax hit for your estate! So that is sort of pushing toward the worst case scenario for the large RRIF holder. Of course, if you have a much smaller RRIF or if you don’t care about what happens to your money after you perish, this won’t be an issue for you. But many who have large RRIFs probably do care how they will ultimately be taxed.
It’s true that upon one’s death the contents of one’s RRIF can be passed along on a tax-deferred basis to a surviving spouse, if there is one (though not to anyone else), but it’s also true that this does not necessarily provide a solution if that spouse has their own income stream or their own significant RRSP or RRIF; it might only compound the ‘problems’ associated with the “too large RRIF”. (Let’s face it, these are first world ‘problems’ and probably not something worth complaining about on the grander scheme.) Obviously the suggestion that ‘income splitting’ can provide a partial solution is true as far as it goes, but again it isn’t helpful if the spouse will have an equivalent or higher income, as with many ex-professional couples, or if there is no spouse. And planning where length of lives is an important component raises its own challenges.
Then there is the drawdown plan. That presents its own issues. Maybe you can have and closely follow a plan if your RRIF only contains cash and/or fixed income investments. But if you hold growth investments, including stocks and equity ETFs, a good year of returns within a large RRIF can easily negate an intended ‘drawdown’ withdrawal and then some. This happened to me for 2024, where despite an intended aggressive withdrawal the RRIF balance increased by more than the amount I took out. I am deferring CPP and OAS but this used up one of my precious few ‘pre-age 70’ years with no drawdown being accomplished. Again, growth is great and not to be complained about but it does illustrate that for a large RRIF a strategic ‘drawdown plan’ for tax efficiency is more apt to be an ongoing need for ‘drawdown management’ than a simple step-by-step plan that can be set out in advanced and followed to the letter.
The heart of the concern about the ‘too large’ RRIF is tax efficiency and the risk that one can end up paying tax at a significantly higher tax rate on withdrawals than the rate one deferred by making the RRSP contributions in the first place. The prospect of being able to pay a lower tax rate on withdrawals in retirement is a main benefit of contributing to an RRSP. So the issues associated with the ‘too large’ RRIF are not entirely a myth that should be discounted. They need to be understood and, if applicable, taken into account when one is making investment and retirement planning decisions. They can raise the question, for at least some people at some point, as to whether it is prudent to continue to stuff more cash into an RRSP that is already very large or likely to become very large before one gets to the point of drawing from it. If your RRIF is too large, you may not be able to draw it down effectively without paying very high tax rates on at least some of your withdrawals.
I agree with your observation that this is not ‘most people’s problem’. The suggestion that most people will pay a higher income tax rate in retirement than when they were working is almost certainly incorrect. So I think this advice from your concluding comments is bang on: “Think critically – does this apply to me and my situation?” Don’t just follow click-bait headlines; always opt for a better understanding of the issues and whether they apply to your situation in particular!
Hi James, thanks for your comment. I acknowledged the edge cases where this could be an issue. I work with who I call “regular Canadians with regular problems” and I’m telling you after writing 1,000+ retirement plans over the years this is just not an issue for the majority of Canadians.
Not all that different than when everyone was screaming about the proposed capital gains inclusion rate changes that never materialized – this was mostly going to affect the wealthy, and not to some extreme level that the media and some advisors and accountants made it out to be.
But, James, let me reply to your point about dying with a large RRSP or RRIF balance because this has been brought up a few times. Simply put, it’s not practical to plan on dying early. We have to plan on the opposite – that we live a nice long healthy life and need enough resources to support that life.
Yes, people die unexpectedly early and that can cause tax issues (like that viral CTV article a while ago: https://boomerandecho.com/no-canada-doesnt-have-a-death-tax-heres-what-really-happened/).
Okay, so what’s the solution? Avoid RRSPs? Start spending them down at 45-50? Sure, if I knew I was going to die at 65 I would do that. But that’s just not practical for financial planning purposes.
It’s like the CPP debate – those who pound the table about taking it early argue that if they die early they won’t get anything. Okay, but as Fred Vettese says, “you’ll also have bigger problems – like not breathing!”.
Listen, I saw two viral posts on Instagram warning people in their 30s and 40s to stop contributing to their RRSP or face this tax trap in retirement. This post is simply meant to counteract that – think critically for yourself and your own situation.
Using some edge case example to scare people into avoiding what is likely their only meaningful method of reducing taxes in their working years is so irresponsible.
“ Listen, I saw two viral posts on Instagram warning people in their 30s and 40s to stop contributing to their RRSP or face this tax trap in retirement. This post is simply meant to counteract that – think critically for yourself and your own situation.”
Thats true. People in the thirties should be contributing, its a no brainer. And the social media posts about bad RRSPs and all the advantages of non-reg accounts are silly. But… when you are in your 50s and the RRSP is ~7 figures then it might be time to stop contributing. Depending on circumstances.
I think it depends on what one’s income is in their 50’s. If income is being taxed at the 53% tier while working in our 50’s then it’s still very likely that contributing to RSPs wins out as for most, it’s difficult to get to that level once retired – but likely still an even trade at that point.
Or maybe time to retire. I can’t imagine why you wouldn’t contribute to your RRSP in your 50s as a high earner, even with a 7-figure RRSP balance. A dollar saved at a top marginal tax rate today is worth more than a dollar saved in the future. And the tax sheltering alone gives the RRSP a tremendous advantage over alternatives.
Maybe you don’t want to retire. Not everyone does at 55. And perhaps you have a CCPC and you get to decide whether you are a high earner or not. You run the models and they tell you that contributing to RRSP leaves you paying more lifetime tax and leaving a smaller inheritance for the same level of expenditure than if you stop contributing to RRSP.
There is more than one scenario out there.
We never once came close to the taxable income we are logging over the last few years. 25% of our income is deregistered RRSPs annually and I won’t start CPP til age 70 (2 yrs), in 2 yrs. Spouse took OAS and CPP at 65, 5 yrs ago.
So far our individual incomes from all sources are planned to bump up against the OAS clawback and our RRSPs have typically regained the annual withdrawals since I started withdrawals at age 60 and spouse at age 62. RRSPs have been a boon but lately we can’t seem to get them down and I have CPP coming in 2 years. I suppose a burst bubble will do that for us I expect. TFSA top comes in 6 weeks.
Hi James,
“But if you hold growth investments, including stocks and equity ETFs, a good year of returns within a large RRIF can easily negate an intended ‘drawdown’ withdrawal and then some.”
Welcome to the club! This is exactly my situation. Completing my fourth year of retirement and so far, for each dollar withdrew from my RRSP, three dollars were added. The last two years (2024 and 2025) offered returns over 20% and that totally messed up my RRSP depletion strategy.
I have resigned myself to paying more taxes and will withdraw more aggressively, using that money for more travel. To mitigate taxes a bit, donations to charities will be increased.
I wonder how this plays out for people whose RRSPs aren’t that big and who had already started their CPP but are still working (therefore there is no option to delay CPP since the 12 months grace have already passed).
I would also love to see articles that touch on cases that aren’t so odd: those whose CPP and/or OAS are really small because they worked/lived outside of Canada for part or most of their adult life.
Thank you
Rob,
I was just talking about your blog this morning and said you have given the best (most practical) advice on any sites I have seen in the past 10 years. I financial coach people on a volunteer basis and often recommend them to your site and to consider your service.
In the case of the oversized rrsp….I am one of those people.
I have essentially not contributed to my RRSP (to be converted in 2027 to RRIF) since I think 1992 when my son was born and wife no longer worked so we did a spousal rrsp instead.
Current value of MY rrsp is 1.3mm which is amazing when I look back.
We have done the rrsp melt down with my spouse’s rrsp but not mine. Why not?….my plan was to quit work at age 65ish but my clients wanted to keep me working, on a part time basis so there was no benefit to me taking our rrsp/rrif. (Nice clients!)
My rrsp has done very well but I lucked out as I bought an oversized allotment of strip bonds in the 90’s that paid 10.8% to maturity.
My wife’s rrsp has also done well and we have drawn down over $400k but still have a large amount in it ($700k).
The goal here is to use up the 30% tax bracket as best we can for both of us.
So what to do with my oversized rrsp……
I took OAS at 65 as I will for sure lose a good chunk of the OAS after I convert to RRIF.
At age 72 I will convert to RRIF and then split it as best I can with my spouse until she has to convert a few years later.
…..The point of this long winded story is
I WILL be in a higher tax bracket when I retire…..
and WHO WOULD HAVE THOUGHT this would be the case. Good returns and extra income after 65, It is only looking backwards at this that I see this unfold. No planning on my part …..
So my comment is Do the best you can, enjoy it along the way and then financially plan accordingly along the way with what you have.
In our case we will mitigate the “terrible higher tax rate issue” by donating more and getting a 50% tax credit…..
As I said above…who would have thought I would be in this position…certainly not me.
Keep up the great work.
Hi Dale, apprciate your comment and the kind words – it means a lot! And I agree with your outlook.
The only quibble is about OAS – delaying creates a bit of a “super-ceiling” where you can actually keep more of your OAS (and therefore get more out of your RRSP/RRIF from 65-70).
Love your perspective, though – particularly about being more generous with charitable contributions.
The majority of my RRSP deposits during my last 15 working years were done from a marginal tax rates of 37.91 to 43.41% (Ontario). I started RRSP withdrawals when I retired – at age 63. I had to convert to RRIF and LIF two years ago and with the RRIF/LIF withdrawals, OAS, CPP and a modest DB pension my average tax rate (including OAS claw back) in 2024 was 12.7% and my income is now higher than when working – even accounting for inflation. Spousal income splitting really helps. And now the RRIF/LIF account values are $200k larger than 10 years ago when I retired. Too big RRSP? No such thing possible!
Well done, Jerry – this is how you do it!
This is a very important and interesting topic. Ben Felix did a review of this some time ago, (Episode 70) and concluded you can’t have too big an RRSP, because no matter what tax bracket you are pushed up into with the minimum RRIF withdrawals, (including the extra 15% of OAS clawback), the tax free compounding within the RRSP more than makes up for the higher marginal tax rate no matter what level you get to at current tax rates. So it’s a case of focusing on what you have left after tax is paid rather than how much tax you actually pay. Who cares how much tax you pay if you are left with more money after tax than if you have a smaller RRSP and pay less tax? So even for those who choose to work after 71, it’s better to have a larger RRSP than a smaller one.
https://youtu.be/XLTeXH1RQYs?si=OmmLtCNO4LpuTy1F
Thanks for your comment, Grant! I trust Ben to have done the hard math and looked at all of the edge cases. Very interesting that even in the top brackets it is still more advantageous to utilize the tax-shelter of the RRSP/RRIF even though it seemingly leads to higher taxes and clawbacks – you still have more money overall!
Robb, thanks for this excellent article, which prompted me to do a rough, back-of-the-envelope calculation to see whether I need to speed up my RRIF melt-down (I’m 68) before I turn 71. Which brings me to my reason for commenting: your article mentions, in passing, annuity income, and I know that one option for dealing with an RRSP/RRIF at age 71 is to purchase an annuity. However, I don’t think I’ve ever seen anything published talking about how exactly one goes about this. For example, when you need home or auto insurance, there are brokers that you can work with that will find the most favourable policy, which saves you doing all the research on an insurer-by-insurer basis yourself. In the context of purchasing an annuity, I wonder whether the same approach exists, or whether the potential purchaser has to do a lot of research to find companies that offer annuities, contact each one with details of the person’s age, and whatever else is relevant, and then analyze all the options to figure out who offers the best annuity option. If knowing how to go about this annuity process is within your wheelhouse, I bet I’m not the only one of your readers that would love to be further educated on this process. Or if you’ve already written about this, I’d be grateful if you could refer me to the link on your website. And many thanks again for all the great articles, Robb; they always give me something to think about, and I’ve learned a great deal from you!
Hi Barbara, thank you for the kind words and for bringing up this excellent question about annuities. It deserves a broader article – and I’ll work on that – but in the meantime I can hopefully answer a few of your questions. You purchase an annuity from an insurance company (Sun Life, Manulife, Canada Life, etc.).
The website CANNEX maintains the PAY Index to show the baseline of what a Canadian can expect from an immediate income annuity (https://www.cannex.com/index.php/services/canada/benchmarks-indices/pay-index/). They also have a service to help you compare and view quotes from multiple annuity providers.
I’ll get to work on that article!
Hi Robb ~
Thank you very much for this information! Great to know that I won’t have to do all the heavy lifting on the research aspect myself. And I’ll look forward to reading more about it in a future posting. (If memory serves, I believe it was Fred Vettese that referred to an annuity as creating your own DBPP.) All the best, Barbara
https://lifeannuities.com/aboutus.html.
Phil Barker is an annuities broker. Very helpful when we were making our decision.
Thanks very much, Judy, for that information and the link; much appreciated! Cheers, Barbara
WoW, Barbara! I haver $ame query! Thk u 4 voicing it 4 ‘us’ I 100% agree withe many ‘above voices’: “Rob’s ‘work of advising’ us is phenomenally valuable, interesting and well-written!
I concur with a hearty THANX!
At 63 and retired now for 2 years, I am in the early stages of drawing down my registered retirement accounts (starting with LIRA accounts) for the purpose of reducing overall taxable income when I am forced to convert to a RIF. Could someone please explain how each component of investment income ( ie dividends, capital gains, LIF/RRSP withdrawals) are calculated for the purpose of determining taxable income? This will assist me in determining how much I should pulling out of my registered accounts each year to remain within the various tax brackets. Thanks
My best advice is to utilize this tool to model your income mix. It will be close enough for most people to plan on.
Don’t forget to set your province.
https://turbotax.intuit.ca/tax-resources/canada-income-tax-calculator
So many times I hear all the things you should do at or before age 70…
Well i worked until just before age 71. Six figure income. So no room for tax mitigation.
I deferred both CPP and OAS, so i get well above the published “normal” published amounts.
My RRIF balance is a bit below a million by about $150K. But keeps growing.
My thought is I had amazing tax sheltered growth, (still do) .
So I pay the taxes. BUT i do offset it with charity and political donations.
It seems a base assumption in many strategies require that you not work until you are 71.
Silly assumption