You spent forty years building three buckets: an RRSP or RRIF, a TFSA, and a non-registered account. The saving discipline is behind you. The harder question is the one almost no one is coached on: which account do you spend first, which do you defer, and how do you keep the government's share as small as the rules allow?
The instinct most people carry into retirement is to leave the RRSP untouched as long as possible — it's tax-sheltered, so why not let it compound? That instinct is often exactly wrong. Sequencing is not a rounding error. Over a 25- to 30-year retirement, the order of withdrawals can shift six figures of lifetime tax and materially change what your heirs receive.
Why the deferral instinct backfires
An RRSP is tax-deferred, not tax-free. Every dollar inside it — and all its growth — is fully taxable as ordinary income when it comes out, either by you or, eventually, by your estate.
Two forces make "defer at all costs" a trap. First, at the end of the year you turn 71 the RRSP must convert to a RRIF, and the government sets a minimum you must withdraw each year — a percentage that rises with age (roughly 5.28% at 71, climbing past 6% in your late 70s and higher still beyond). Those forced withdrawals stack on top of CPP, OAS, and any pension. A large RRIF left to compound quietly becomes a large, non-optional taxable income stream at precisely the age you have the least flexibility.
Second, on the death of the second spouse, the entire remaining RRIF is generally deemed withdrawn in one year and taxed at the top marginal rate. A $600,000 RRIF can lose close to half to tax in a single filing.
The competing pressure is real, too: pull too much out too early and you pay tax sooner than you needed to, surrendering years of sheltered growth. The art is finding the middle — drawing the registered account down deliberately in the years your marginal rate is lowest, rather than being forced to draw it in the years your rate is highest.
The OAS clawback — the invisible tax bracket
Old Age Security is clawed back once net income crosses a threshold — around $90,997 for the 2024 tax year, indexed upward each year. Above it, OAS is reduced by 15 cents per dollar of income until it disappears entirely (in the low $148,000s).
That 15% recovery tax sits on top of your regular marginal rate. A retiree in the clawback zone can face an effective marginal rate well above 50% on the next dollar of income. Managing reported income to stay under — or to pass through the zone efficiently — is one of the highest-value moves in retirement planning.
This is another argument against a bloated RRIF. Large forced minimums in your late 70s and 80s are a common cause of clawback that a decade of earlier, deliberate meltdown could have avoided.
A hypothetical worked example
Consider a hypothetical couple, R and S, both 65, each with a $500,000 RRSP, a $120,000 TFSA, and a $300,000 non-registered account. They need roughly $70,000 a year (before tax) beyond CPP and OAS. The figures below are illustrative only.
Path A — RRSP last. They spend the non-registered account first, then the TFSA, leaving both RRSPs to compound. By 72 the combined RRIF has grown past $1.2M. Forced minimums plus CPP and OAS push each spouse's income into the OAS clawback zone through their late 70s and 80s. On the second death, roughly $900,000 of RRIF is taxed at top rates in one year.
Path B — deliberate meltdown. From 65 to 71, while in a lower bracket, they draw an extra $30,000–$40,000 a year from the RRSPs, using the non-registered account to top up spending and moving surplus into their TFSAs. Each intentional withdrawal is taxed at roughly 20–30% today instead of 45%+ later. By 72 the RRIFs are far smaller, minimums are modest, and neither spouse triggers the clawback. The estate's final tax bill is dramatically lower.
Same savings, same lifestyle. The difference is measured in the low-to-mid six figures — driven almost entirely by sequence.
The tools that make it work
RRSP meltdown. In the low-income window between retiring and age 72 — before CPP, OAS, and RRIF minimums all switch on — voluntary RRSP/RRIF withdrawals can often be taken at a modest rate. The goal isn't to empty the account; it's to shave down future forced income and estate tax while filling lower brackets each year.
Pension income splitting. Once you're receiving eligible pension income — including RRIF withdrawals after 65 — up to 50% can be allocated to a lower-income spouse on the tax return. This evens out two marginal rates, can rescue one spouse's OAS, and is one of the simplest levers available. It's a strong reason to begin RRIF withdrawals thoughtfully rather than deferring the whole account.
Non-registered and the character of income. Not all taxable income is equal. Canadian eligible dividends receive the dividend tax credit, and only 50% of capital gains are included in income. Drawing from a non-registered account by realizing gains gradually, or living off tax-advantaged dividends, can fund spending at a far lower effective rate than an equivalent RRIF withdrawal — while keeping reported income beneath the clawback line.
TFSA last. The TFSA is the account to touch last, for two reasons. Withdrawals never count as income, so they never trigger clawback or push you into a higher bracket — making the TFSA the ideal buffer for a one-off expense or a high-income year. And because it grows tax-free and passes to a spouse or estate without tax, it is the most valuable dollar to leave untouched the longest.
Principles checklist
- Fill your low brackets on purpose. Don't waste the low-income years between 65 and 72 — melt down the RRSP into them.
- Watch the clawback line every year. Keep net income beneath the OAS threshold where you reasonably can.
- Draw in tax order, not habit order: generally taxable/non-registered and measured RRSP withdrawals first, TFSA last.
- Split eligible pension income between spouses to level marginal rates.
- Mind the character of income — dividends and capital gains beat fully-taxed withdrawals dollar for dollar.
- Plan the estate, not just the year. The second-death RRIF tax bill is part of the calculation.
What this means for you
There is no universal answer — the right sequence depends on your bracket, your spouse's, your pension, your health, and your estate goals. But the default of "defer the RRSP and hope" is rarely optimal, and it is often expensive. The good news is that drawdown is one of the few areas of retirement where careful planning produces a large, reliable, tax-driven gain — not a hoped-for market return, but a known reduction in what you hand to the CRA.
If you're within a few years of retirement, or already drawing down, this is the moment to model it before the forced-withdrawal years arrive. A BlueSky Second-Opinion Portfolio Review includes a drawdown and tax-sequencing analysis: we map your RRSP/RRIF, TFSA, and non-registered accounts against your spending, your OAS threshold, and your estate, and show you the ordering that keeps more of what you built. Call us at (416) 930-5550 to arrange one.
This article is general information, not individual tax or investment advice. Tax rules and thresholds change and apply differently to each person; please consult your advisor about your own circumstances.