When the RRSP Meltdown Doesn’t Melt
Claire retired at the end of 2022, age 60, with $600,000 in her RRSP. She sat down with me to build her decumulation plan and we landed on a strategy that sounds counterintuitive to most retirees: spend down the RRSP aggressively between 61 and 69, while intentionally delaying CPP and OAS to 70.
The logic behind the “meltdown”:
- Smooth out her tax rate over her lifetime. Rather than a low-income decade followed by a high-income collision, draw the RRSP down while her other income is low.
- Shrink the eventual RRIF balance before mandatory minimum withdrawals kick in. A RRIF that's still large in her 70s, combined with CPP and OAS, is a recipe for a much bigger tax bill down the road.
- Let CPP and OAS bake in the oven until 70. Delaying both means larger, inflation-indexed, guaranteed government benefits for the rest of her life. Arguably the best “investment” available to a retiree.
So, Claire and I set the withdrawal schedule: $48,000 in 2023, $50,000 in 2024, $52,000 in 2025, and $54,000 in 2026 – taken monthly, on the 15th.
On a $600,000 portfolio, an 8% withdrawal rate in year one is aggressive by almost any standard. But calling this an “8% withdrawal rate” makes the strategy sound more reckless than it actually is.
Claire wasn't trying to establish an 8% perpetual withdrawal rate. The deliberately high withdrawals were concentrated in the years before CPP and OAS began, when her taxable income was relatively low.
The obvious risk: draw it down too fast, and there's nothing left to “melt” by the time she's 69.
Fast forward three-and-a-half years after the exact opposite of a poor sequence of returns happens. The RRSP meltdown didn't melt, it expanded.
The numbers
Claire's RRSP is invested in Vanguard's Growth ETF (VGRO), an 80/20 global growth fund. Using the Modified Dietz method, which accounts for the timing of her monthly withdrawals, here's what actually happened:
| Date | RRSP Value | Annual Withdrawal | YTD Return |
|---|---|---|---|
| Dec. 31, 2022 | $600,000 | — | — |
| Dec. 31, 2023 | $628,950 | $48,000 | 13.40% |
| Dec. 31, 2024 | $701,650 | $50,000 | 20.20% |
| Dec. 31, 2025 | $762,700 | $52,000 | 16.80% |
| July 31, 2026 (YTD) | $810,500 | $31,500 (YTD) | 10.60% |
In three-and-a-half years, Claire has withdrawn $181,500 from her RRSP – and the account is worth $810,500, up $210,500 from where she started.
Go figure.
Why the meltdown didn't melt
Of course, none of this was inevitable in our planning. It's simply what almost four consecutive years of strong VGRO returns (13.4%, 20.2%, 16.8%, and 10.6% so far) look like when they land on top of a well-timed withdrawal strategy.
Markets could just as easily have handed Claire two or three negative years, and this would be a very different (and much more cautionary) blog post. That's the caveat with any sequence-of-returns story: we're looking at one particular sequence.
But that's exactly the point of the story. The retirement plan wasn't predicated on a forecast that markets would cooperate. It was built on the idea that Claire's tax situation and government benefit entitlements, not her portfolio's short-term returns, should drive the withdrawal decision.
The RRSP meltdown was intended to smooth taxes and maximize guaranteed income, with the portfolio doing whatever it was going to do in the background.
As it turns out, in Claire's case, the background did some very heavy lifting. She's taken well over six figures from her RRSP to live on, and the account has more money in it today than the day she retired.
When she turns 70, she'll have maximized the age-related increase available by delaying CPP and OAS. Both benefits will also be inflation-indexed, providing a larger stream of guaranteed income for the rest of her life.
And that's an important distinction: the goal was never to make Claire's RRSP balance as small as possible. The goal was to optimize her after-tax retirement income. A smaller RRIF that produces manageable taxable income can be far more useful than a large RRIF that forces big withdrawals alongside CPP and OAS.
A few takeaways
I think this case is worth sharing right now for a few reasons, especially for retirees sitting on the sidelines worried about a large RRIF balance or a future tax/OAS-clawback collision:
The sequence of returns cuts both ways. Most of the conversation around decumulation risk focuses on the downside because a bad sequence of returns early in retirement can permanently damage a plan.
Less discussed is what a good sequence does. Four strong years in a row did a lot of positive work and is worth talking about.
“Doing nothing” isn't the safe default it feels like. For retirees stuck in analysis paralysis, leaving the RRSP alone (or drawing minimums) can feel like the prudent choice next to an 8%+ initial withdrawal rate.
But inertia has a cost too: a bigger RRIF balance to manage later, reduced income from government benefits, and a tax bill in your 70s that's larger than it needed to be.
Claire's account is worth more today than when she started, and she still managed to shrink her future RRIF and defer CPP/OAS to their age-70 amounts. The “aggressive” path and the “safe” path aren't always where you'd expect them to be.
I suspect many retirees are in a similar boat, with RRSP or RRIF balances that you intended to meltdown over the past three-and-a-half years. But the meltdown didn't melt.
Which raises the natural question: Should Claire spend more, now that the plan is ahead of schedule? Or should she simply stick with the original plan and let the extra portfolio value provide a larger margin of safety for whatever the next decade brings?
That's a post for another day, but let me know your thoughts in the comments section.
Good points. I’ve been “melting down” my RRSP for several years, but it keeps getting bigger. A good problem. I’ve also adjusted upward my safe spending level faster than inflation. This is the good side of sequence of returns risk.
Excellent post. I think it’s a “ both and” for Claire. She should spend more and let the extra portfolio value increase margin of safety. Could increase withdrawals now modestly (staying in the first tax bracket or edging a wee bit into the second) to ensure TFSA is filled up every year and also add to non-registered savings/investments to maximize future flexibility.
Wife and I both withdraw from RIFs and LIF to the top of the first tax bracket each year even though we live on only $50k/year. The unspent extra tops up both our TFSAs and balance in non-reg. Deferring CPP and OAS to 70 to give us more time to melt down our balance which has also increased since we retired 4 years ago. We will never be in a lower bracket and likely will end up in a higher one at 70 despite our current extra withdrawal amounts. Not complaining .
Ditto, it’s a nice problem to have
Similar situation, good returns actually allowed us to increase more withdrawals to purchases a joint last to die insurance policy which will now move to our family more efficiently than being fully taxed and going thru the estate. We had no more room for another TFSA
When setting up the withdrawal strategy, is it a matter of trying to get the RRSP account down to a certain amount before it becomes a RRIF? I could be oversimplifying it but thinking a larger withdrawal could occur following the years of good returns and smaller withdrawals following the years of not so good returns. Of course, this kind of income consistency during retirement could be stressful unless there is another non-RRSP account to withdraw from to smooth it out. Maybe revisiting the plan every 2-3 years could help too. I’m still decades away from retirement so forgive me if this is an ignorant way to think it.
Nice problem to have and have been exercising this strategy for the last 7 years; maximizing TFSA room and adding to Non-Reg accounts for flexibility.
What are addition strategies to lower taxes?? Charitable donations, LP’s??
Any advice?
Hi Robb, this is something that needs to be revisited yearly. Far too often we build plans then obsess with running the play for fear of taking our heads out of the sand. It’s mind baffling that someone who is retired, has a portfolio that keeps growing, knowingly will end up paying more taxes once all sources come on line at 70, yet we only withdraw to the first tax bracket. I get the fear of running out of money at a very ripe old age and the anxiety around that. I think we need to do a better job of educating ourselves psychologically. If we withdraw to the second tax bracket (which I assume we are talking about 93K) does our plan state we must spend the incremental funds? If we don’t have plans that flex then we may be in a similar position as Claire which in itself is a great position to be in. Base on what I read it comes down to stopping to smell the roses or obsess with the amount of tax you pay.
In addition to the spend/TFSA comments, I wish these articles highlighted the opportunity to DONATE and be generous. While it may appear to be a problem maximizing CPP/OAS, community and society have huge needs in food banks/ poverty, education, basic school supplies, arts, medical research, etc.
OK enough preaching !and back to basics. Donations give a 50% tax return. If you are fortunate to have non-registered stocks, you can not only donate them without paying capital gains, you can also donate them to a DAF (donor advised fund). This provides either a one time tax credit of 100% of the appreciated stock, with no capital gain, or the ability to plan giving over a few years. Your donation balance in the fund can also grow giving you the ability to be even more generous!
Our DAF is back to our total contributions after years of being generous to causes and projects we believe in.
Check it out!
Hi Charles. What a great concept. I did not know about the DAF. I will look into it. I am current waiting for a decumulation strategy meeting with Parallel Wealth so I can ask them what they know too. PW plan seem.s a bit expensive ( 4K) but I figure if it gives me some guidance on how much I should take from where it would ve worth it. The scenario des ribed here in the article is exactly the main problem with decumulation strategy, sometimes they aren’t even close because lf market returns. Anyway thanks for the idea snout the DAF. Can you use the DAF to gift specific people or just charities I wonder. Let me know if you have an answer to this
Thank you for picking up on this and responding.
I am 79, generous (I believe) with family and have found this to be one of the best and most satisfying financial decisions that I have made. Enjoy the generosity and tax savings!
Hello Amy, they have a list of charities that they work with,. its been excellent. i think before when i was running the numbers, makes sense to use them if you are contributing around around 10k per year as they do have admin fees involved.
My parents took CPP at 65 (to get as much of the government’s free money as possible). They started withdrawing RRIFs at 70. Now they are pushing 90 and complain every year about how much income tax they pay on their RRIFs and pensions, so they are hesitant to withdraw more. I figure maybe 50% of their $1M+ will go to estate taxes. Meanwhile, their grandchildren are struggling with day-to-day finances and would greatly appreciate financial assistance now.
Have you had the discussion with them about this? They may have apprehensions surrounding increased care costs? But outlining that, perhaps, smaller living gifts to their grandchildren now would be a rewarding experience for everyone.
So true. My parents did as well, and then a sizeable lump that is left in the Estate and fully taxed.
I feel like something is missing here — what other income does Claire have? I’d be very surprised if she’s living on ~ $50k per year from her RRSP meltdown (and on CPP, OAS & RRIF after age 70). I know many people do, especially people who already own their home, don’t take international vacations, and rarely dine out. But if she’s fortunate and wealthy enough to have accumulated that large an RRSP by age 60, she likely hasn’t been living especially frugally.
My thought’s are exactly, who can live on $50K/ year even with a paid off house, there are still maintenance, property tax, water bills & house insurance. Besides, what retirees will invest 100% of her/his RRSP in growth ETF? Why hasn’t she adjust her withdrawal yearly since her goal is smooth out her lifetime income tax? There are so much missing information & so many questions of her approach.
Great post, a nice problem to have, It’s a good case for a flexible withdrawal strategy like “Guardrails”. When the funds exceed %20 it would be safe to increase your drawdown by 10% so the 48K would become 48K + 4800 or 52.8K per year and stay at that level until a new guardrail is hit like another %20 increase or a %20 decrease in the portfolio.
I think it’s important to start considering these options well ahead of retirement. I’ve already started to think (worry!) about this at 48 with over $600k in RSP and hope to work well into my 60’s. I am late to the spousal game, so I’m looking at that to balance my wife and I out. In Claire’s position I’d increase spending on experiences as much as possible while I can – travel etc. It’s also a nice thought to see the impact of “early inheritance”: charity, helping family/friends etc while I’m alive. I say that now, but I just know I’ll be one of those retirees that will be hesitant to spend (trying to work on that now!)
There’s one thing in this retirement planning game that has always perplexed me, hinted at in this statement: “But inertia has a cost too: a bigger RRIF balance to manage later, reduced income from government benefits, and a tax bill in your 70s that’s larger than it needed to be”.
This notion of avoiding reducing your government benefit. I mean, it seems logical on the surface: you don’t want to “lose” something you were going to get. But the fact that you’re getting less money because you’ve got too much money just seems like the quintessential non-issue? Assuming a smooth tax curve, of course.
What a great post. I have taken the same approach, withdrawing RRIF to bring my income to the top of the first tax bracket each year (reviewing the details annually). My inspiration was a conversion I had with a friend who had inherited funds from a relative, only to find the amount much diminished as a result of the tax impact of the RRIF being included in that relative’s income in year of death. I did not want that to happen to my kids.
I was wondering if, in light of the fact that Claire is going to have a larger RRIF mandatory withdrawal than she had initially planned (a nice “problem” to have, of course), it would make sense for her to start taking OAS at age 65 rather than deferring it to age 70? On the one hand, this would result in a smaller OAS payment; on the other hand, she would: 1) get 5 more years of OAS payments, and 2) reduce the risk of having the OAS clawed back as a result of the higher RRIF withdrawals. Is this something she (well, actually Robb) would need to run the numbers on, depending on Claire’s circumstances, to determine if this is the better strategy?
Robb can you comment on this please?
Hi Eddie, in this case Claire would not be remotely close to the OAS clawback threshold ($93.5k income, indexed to inflation annually) even with the higher RRIF balance. Besides, the market giveth and taketh away – meaning I would not consider this higher balance to be a permanent thing. More like the market pulled forward a few years of growth and could easily give that back with a correction in the coming years.
Finally, if the goal is to keep her average tax rate consistent and smooth while bringing down the RRSP/RRIF balance, then taking OAS at 65 is counter to that strategy because the RRSP/RRIF withdrawals would need to decrease in order to make room for the OAS income.
OK, thanks for the reply. You make a good point about the RRIF balance decreasing due to market conditions. I sort of assumed that RRIF payments would stay the same or increase as the years go by, but yeah, the way the market has been going the last few years is almost certainly not representative of what will happen in the next few decades.
Am I getting too old to be disappointed that all the expressed “strategies ” here refer to spending to the maximum and nothing about being generous and donating. Our boomer generation is hugely fortunate. Time to share ( and it’s still tax efficient)
Thanks for the excellent reminder that a financial plan is a snapshot in time and that a periodic review is needed to indicate whether things are progressing as expected or a plan update is warranted.
I have been reading a lot about drawing down on RRSP’s and deferring CPP and OAS to age 70. My husband and I both have RRSP’s although not enough to cause an OAS claw back, no pension, just CPP and OAS topped up with RRSP withdrawals. I understand the tax implications when forced to draw down on a RRIF. What I don’t understand is where is the loss of the CPP and OAS income from ages 65-70 being taken account into this?
Esther, do you mean the “loss” of not taking the benefits from 65-70? It’s made up for quite quickly with a 42% (CPP) and 36% (OAS) increase in the benefit amount. Plus inflation adjustments.
When we advise clients to delay CPP and OAS to 70, we’re not saying to delay living your best life until 70. We’re saying get the money from somewhere else, ideally from an RRSP. You need a decent sized balance to make it work ($250k+).
“ Should Claire spend more, now that the plan is ahead of schedule? Or should she simply stick with the original plan and let the extra portfolio value provide a larger margin of safety for whatever the next decade brings? That’s a post for another day”
I’m looking forward to your column on how to prudently deal with an investment mix that is defying the plan by increasing instead of decreasing after several years of unexpectedly great returns. A great problem to have but one that needs to be addressed none the less.
Thanks for much great ongoing advice. .
Great article where everyone has this problem of too much money with such a GREAT run in the stock market.. BUT how would you adjust if the oppisite were true and we had a few years of negative double digit losses?
PS Love the website
Hi Jim, ideally we’d start retirement with a cash wedge (say, 85-90% of the RRSP in an asset allocation ETF and 10-15% in a HISA ETF or money market fund). Draw from the cash wedge in down times, and from the asset allocation ETF in good times. Spend the dividends. If the down times last long, re-evaluate whether taking CPP and/or OAS earlier would help (even delaying to 67-68 is beneficial) to top-up income.
Ultimately, your plan is out of date the moment the market opens tomorrow and we should dynamically adjust as needed.
A good plan should have a ‘Cash Wedge’ built in (2-3 years of planned ‘draw’ in a liquid investment not tied to the market). While there is a downturn, you draw from the ‘Cash Wedge’ instead of selling your investments when they’re down. Then when they come back up, you return to drawing from your market investments and also replenish the ‘Cash Wedge’.
We had a retirement plan done by a professional and I did not like what was suggested. The plan had us taking money out of our TFSA’s while we still had money in our RRSP’s. We decided to do things the way that we felt was best. We are taking substantial amounts from our RRSP’s, aiming for an annual income of $150,000 each. We are living on much less and investing the rest. We will delay taking CPP and OAS until 70. When I calculated our plan, it resulted in much less tax over the next 30 years. Thank you for telling people to empty their RRSP’s first. This makes so much sense to me and yet the professional we hired did not even suggest this approach.
Hi Diane, thanks for sharing your experience. Good on you for double checking the numbers yourself and questioning if the advice made sense.
I’d say most planners in my peer group would suggest the opposite – touch the TFSA last for regular living expenses and only use it in the event of a large one-time expense (vehicle replacement, home reno, gifts to kids, etc.) and only after other options are explored (like a HELOC at 4.5%?).
Another case would be if you had a large unrealized capital gain in a taxable account and didn’t want to trigger more taxable income (but needed funds for a large one-time thing). A TFSA withdrawal is tax-free, and you get the room back the following year. This approach can work well with a November-December TFSA withdrawal and then re-fill the TFSA in a new tax year.
Thank you for picking up on this and responding.
I am 79, generous (I believe) with family and have found this to be one of the best and most satisfying financial decisions that I have made. Enjoy the generosity and tax savings!
I really don’t understand why people who have more money than they need are so against paying tax. (OAS clawbacks included). In spite of government inefficiencies with our money, it still needs money and younger generations will have to pay more if us retired folks don’t. After all we are still getting benefits from being a citizen of this country.
Hi Dean, while I agree with you (definitely a “first world” problem to pay high taxes and have your OAS clawed back), I don’t begrudge anyone for wanting to be as tax efficient as possible with the resources they have.
If your last dollar of income was taxed at 30.5% but your next dollar of income would be taxed at 36% – plus cause a 15 cent clawback of your OAS – that’s an effective marginal tax rate of 51%. I don’t know about you, but if I could keep my income below that threshold I would absolutely try to do that.
A nice “problem” to have. Donating securities in kind can help. So far, it’s a matter of which stick. We’ll see how the markets behave.
Dear Robb, your website content is so beneficial; clear and concise easy to understand for an ordinary person like me. I started managing my own portfolio this year and will melt down RRSP starting next year at age 64-69 at $40K/year give or take. Is it a good idea or beneficial to convert RRSP to RRIF this instance?
I also leant from your article “A Smarter Way to Spend Without Stress in Retirement” dated May 28, 2025 and adopted in my TFSA with VEQT 90% & HISA ETF 10%. Having read and listened to many podcasts, I got stuck in analysis paralysis and that’s when your article helped me focus and clean up many mutual funds after taking over from the bank’s management. I have pension income and backup in my non-registered account so I’m good with all equities.
Thanks again for your very useful and practical write-ups. Your generous contribution to the Canadian DIY community is greatly appreciated.