Which Accounts To Tap First In Retirement?

Retirees, or those close to retirement, might have several buckets from which to withdraw income in retirement. There may be assets in RRSPs, taxable or non-registered investment accounts, TFSAs, and possibly corporate or small business assets. At retirement you need to consider which of these accounts to tap into first. To further complicate matters you might also have income from a workplace pension, not to mention government benefits such as CPP and OAS (and when to apply for these benefits).

The natural inclination, both from a behavioural and a tax planning perspective, is to put off paying taxes for as long as possible. For Canadians, that means leaving assets inside their RRSP until age 71, converting their RRSP into a RRIF, and beginning RRIF withdrawals in the year they turn 72.

Also worth consideration is the incentive for retirees to delay their application for CPP and OAS until age 70. Do this and your CPP benefits will increase by 42 percent and OAS benefits will rise by 36 percent versus taking these entitlements at 65.

Tax-Free Savings Accounts have been around for less than a decade but already play a critical role in retirement planning. Money saved inside a TFSA grows tax-free and you pay no tax on withdrawals. For retirees, an added benefit of TFSAs is that any money withdrawn does not affect means-tested programs such as OAS and GIS, so there’s no chance that a clawback will be triggered by this income.

You can’t put any more money into an RRSP after age 71 but there are no such limits with a TFSA – you’ll earn new contribution amounts each year until you die. That reason, coupled with the idea of ongoing tax-free growth, entices many seniors to leave their TFSAs intact for as long as possible in retirement.

Which Accounts To Tap First In Retirement?

Which accounts to tap first in retirement?

It’s all well-and-good to suggest holding off on RRSP withdrawals until age 72, and to delay your CPP and OAS application until age 70, and to continue funding your TFSA every year while avoiding the temptation to raid it for as long as possible. But if you’ve retired well before the age of 70 then you’ll need to derive an income from somewhere – especially for those who don’t have a workplace pension.

Which accounts do you tap first in retirement and what’s the best practice for those who may not have the luxury of waiting until age 70-72 to collect their retirement income because, well, they’re retired and need the income?

Jason Heath is one of Canada’s best known fee-only financial planners, writing columns for MoneySense and the Financial Post. He says many retirees intend to defer their RRSP withdrawals until age 72, but he finds that in a lot of cases they are actually better off drawing from their RRSPs earlier and deferring their CPP and OAS until later – “the exact opposite of what they tend to do!

According to Heath, if someone can draw down on their RRSPs during their 60s and defer their CPP and OAS to age 70, they can also decrease their reliance on risky assets (investments) in their 70s and 80s, while instead increasing their iron-clad, government-guaranteed, inflation-protected pension income.

But when it comes to CPP and OAS, Heath finds that most people tend to apply as early as possible.

“Sometimes that’s because they feel ‘they’ve earned it’ and other times it’s simply because they got an application in the mail from Service Canada.”

Heath uses retirement modelling software in his practice to help determine the ideal drawdown for his clients:

“I like to have someone with a fairly smooth income over retirement, as opposed to a very low income and tax bracket in the early years in exchange for a very high income and high tax bracket if they defer their RRSPs.”

He says it’s also worth considering the net value of one’s estate. For example, your net worth may appear higher if you defer your RRSP to 72 – if you ignore the deferred tax on the RRSP. You also have to take larger withdrawals from an RRSP versus a non-registered account to end up with the same after-tax cash flow. And on your death, half your RRSP or more may disappear to tax.

“So I think there is something to be said about considering how much of a client or couple’s money will end up in their kids’ hands as well as their own hands during their lives,” said Heath.

Modest RRSP withdrawals can be advantageous for those who retire in their 50s or 60s. By converting some or all of your RRSP to a RRIF it ensures you qualify for the pension income amount after age 65, a tax credit that gives you $2,000 of withdrawals tax-free.

Heath’s ideal drawdown strategy:

“I’d always max out a TFSA account as long as someone had non-registered funds to do so. I think the ideal drawdown strategy may be a bit of RRSP/RRIF income, supplemented with non-registered funds, while maxing out your TFSA as long as possible. CPP and OAS deferral is often beneficial.


If someone has a really high income from pensions, rental real estate, non-registered investments or other sources, deferring your RRSP to 72 may make sense. So, early RRSP withdrawals aren’t for everyone. And if someone has corporate assets, it gets even trickier, but running projections can allow you to try to put together the pieces of the puzzle in the most efficient manner.”

Final thoughts

Even though my own retirement is a few decades away I have given some thought about withdrawal strategies and which accounts I’d tap into first after I retire.

Let’s assume I retire at age 55 and start collecting my workplace pension. I don’t have a non-registered account, so I’d top-up my retirement income by withdrawing $15,000 – $20,000 per year from my RRSP between age 55 and 70. I’d hold off applying for CPP and OAS until age 70, and continue funding our TFSAs every year.

By age 70 most of my RRSP would be depleted, however that would be replaced by the additional income from CPP and OAS. Our TFSAs become the wildcard – giving us flexibility and freedom to fund our hobbies, travel, and to pay for big ticket items such as a new car, renovation, or gifts to the kids.


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  1. PIERRE on April 10, 2017 at 4:44 am

    I agree on cashing up on RRSP early to ensure that the extra income will not interfere in me receiving my OAS at and after 65.
    I am in the situation that I am entitled to an indexed pension at 60, but I have been maximizing my RRSP contributions all my life so that, if I wait too long, I will have to withdraw from my RRSP forcing me in the “claw-back” range and will lose a good part of my OAS. So my plan is to retired a few years before 60 and live on my RRSP stack exclusively so that, when I turn 60 I can get add my CPP and pension, til 65 at which time, my OAS will supplement. My CFSA and other saving remain as extra.

  2. Dave on April 10, 2017 at 8:39 am

    If you retire at 55 but apply for CPP at 70, won’t your monthly amount decrease since you have stopped contributing at an early age? You will have 15 yrs less of contributions than someone who works up to 70 yrs old. That is the one problem I see with early retirement, because you stop making regular income and are living off of investments, your contributions decrease or stop altogether which will lower the amount you will collect. Isn’t that the case?

    • Echo on April 10, 2017 at 1:37 pm

      Hi Dave, it is true that retiring early (55) will negatively affect your average earnings when it comes to calculating your CPP benefit. In this case you would not receive the full benefit from waiting to apply for CPP, however you will eventually come out ahead.

      Pension expert Doug Runchey says, “I refer to this situation as waiting to receive a larger slice of a smaller pie, but you’ll always get more pie if you wait.”

      I highly recommend contacting Doug who – for a small fee – will run the calculations for you: http://www.drpensions.ca/dr-pensions-services.html

      Well worth it for peace of mind that you made the right decision for your own unique situation.

  3. pierre on April 10, 2017 at 11:46 am

    Yes, I agree, the total amount receive will always be less if you work few years. Same for my pension plan.
    The numbers will always look better the longer you work (therefore you retirement will be that much shorter).
    However, I am making my decision of a less shiny retirement, but one when my best/healthy years are available. I would not go unless I am sure that I have enough to be comfortable (and some extra) and would not suggest it to anyone before that.

    Six years ago I walked one week on the Compostela of Santiago in Spain, I now intend to do the whole road as soon as I retire. This is just the first of a long list of relax travelling we intend to start. While the health keeps up.

  4. Kim on April 10, 2017 at 1:47 pm

    I’m planning on retiring around the age of 58 so here’s a couple of questions. Would you convert your RRSP to a RRIF at 58 and then take the mandatory minimum withdrawal amount (or more as needed) or would you leave your RRSP as is and just withdraw the annual amount you need (knowing that tax will be withheld from the payment and you might also have to pay a withdrawal fee)? I’m also interested in your opinion about when to take CPP. If I wait until 65 (or 70) then I have 7 years of $ 0 income so my monthly CPP will be reduced. If I take CPP at age 60 my monthly CPP will be reduced by 36% (if I remember correctly). I’m assuming that taking CPP at age 60 is a bigger reduction than the reduction due to 7 years of $ 0 income? Has anyone done the math on this?

    • FritoPaws on April 16, 2017 at 8:18 am

      I believe CPP allows for 7 years of zero earnings in their calculation for maximum pension. They don’t penalize you for not earning every year of your working life.

  5. Wes on April 10, 2017 at 3:02 pm

    Thanks for the timely article Robb. I retired 3 years ago at 62. I converted my SDRSP to SDRIF and started withdrawing funds for living expenses, started collecting CPP ( at 78% of max? ) and started receiving my OAS in Feb 2017 after I turned 65 at end of Dec 2016. My take is, I can never predict how long I’ll live so I may as well enjoy it while I’m still alive and kicking. Not wanting to be selfish or anything but the government is benefiting a lot from me from the income taxes I’m paying at tax time and I know from actuarial estimations, my beneficiaries will still enjoy the fruit of my labour even after I’m gone.

  6. Rich on April 10, 2017 at 3:49 pm

    In addition to the reason Dave stated above, too many of my friends and co-workers have “walked in front of the bus” within a few years of retiring. CPP and OAS are largely a use it or loose it proposition so taking them as soon as possible is a reasonable decision even if not always the optimum financially. Also, get busy on that bucket list!

    • Garth on April 19, 2017 at 12:34 pm

      “Getting hit by a bus’, while tragic, is not a threat to your retirement. If it happens, your money worries will be over. A real threat to a happy retirement is “failing to die in a timely manner” and running short of money. Much more tragic IMHO.

      Only those who intend to die young in retirement should take CPP and OAS early. All others should delay if they can afford to.

  7. Duncan on April 12, 2017 at 8:28 am

    Great Article Robb, very timely, I’m 51 and was just thinking how to use my retirement funds when it’s time. I’m thinking along the same lines of using up my RRSP first, letting my TFSA’s grow and drawing my OAS and CPP later on. I found a website with a great spreadsheet to help me see the different scenarios http://www.calorsoftware.com/estimating-how-much-you-need-in-retirement/

    hope this helps your readers too!

    • pierre on April 12, 2017 at 9:50 am

      I agree Duncan, it is very good.
      I get around excel and I had been developing my own complex spreadsheet for a few years, but this one has a lot of extra and it is easy to accommodate for particular situations (like and extra income/liability etc).
      I also added a “claw-back” line and compare my estimated income to stay below.
      The only thing it is missing is something about pension pre-65 and post-65, but that would be gravy.
      That being said, it is better to double check the calculation before the big jump, which this does greatly for me.

  8. Sheila on March 22, 2019 at 12:36 pm

    I am 61, recently retired. I want to pay off my last mtge of 200k. I have that amount in an RRSP which I won’t need for income. I have rental properties which already put me in a higher tax bracket. I plan to hold off on the CPP and OAS until age 70. Any suggestions on how to convert my RRSP to pay off that mtge with the least amount of loss through penalties and income tax?

  9. Gail Baxter on November 1, 2020 at 5:11 am

    I plan on using my RRSP to bridge me till 70. I agree with the idea of having a guaranteed higher income without the worry of stock market swings. My investment advisor isn’t thrilled with the idea. I suspect he is concerned about his lost revenue .

  10. James T on November 3, 2020 at 9:57 am

    In our case, my wife and I are now both retired. Myself at 65, where the company I worked for most of my career re-sized my position about 4 years back. At that juncture I was placed or pushed, depending upon your view, into retirement. After reviewing the new retirement role, we felt it necessary to draw my own CPP as Company Pension was not enough to fully cover our living expenses (just too close for comfort). My wife was only part time then, and not long afterward was similarly encouraged to leave her employment role.
    Our health is still relatively good and we are both sort of active, so we have elected (and we feel lucky to be able to make the choice) to defer all her Pensions – at least for a few years – to take advantage of the growth potential.
    Our decisions are primarily on our own Health needs (now and in the future), Taxes to be Paid (trying to keep them as low as possible) and how to keep our role of independence from changing as we age.

    As regular middle class Canadians, we enjoy reading your articles and it helps us open our minds to discover alternative ways of looking at our own financial decisions.

    Yes, a copy of the Retirement Income For Life would be appreciated.

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