Plan Your Retirement Withdrawals Now to Avoid Tax Surprises and Benefit Clawbacks
If you're saving for retirement, you're doing the right thing. But a new report from Wealth Professional Canada warns that most Canadians have no strategy for withdrawing their money. This mistake can cost you thousands in extra taxes and lost government benefits.
Here’s what you need to know to keep more of your hard-earned savings.
The Key Impact: Higher Taxes and Lost Benefits
The order you tap into your RRSP, TFSA, and non-registered accounts matters. Withdraw too much from your RRSP early, and you could:
- Jump into a higher tax bracket.
- Trigger an Old Age Security (OAS) clawback — where the government takes back part of your OAS payments if your income is too high.
Delay all withdrawals until age 71, and you'll face large mandatory RRIF withdrawals that combine with CPP and OAS income, creating the same problem.
Who Is Affected
- Canadians aged 55 and older — especially those with multiple retirement accounts (RRSP, TFSA, non-registered).
- Anyone expecting to receive OAS or CPP — poor withdrawal planning can reduce these benefits.
- High-income retirees — those with significant savings face the biggest tax and clawback risks.
Key Numbers and Dates
| Item | Details |
|---|---|
| RRSP to RRIF deadline | You must convert your RRSP to a RRIF by December 31 of the year you turn 71. |
| RRIF minimum withdrawal at age 71 | 5.28% of the account value. This is a mandatory minimum. |
| CPP early vs. late | Taking CPP at age 60 reduces payments by up to 36%. Delaying to age 70 increases them by up to 42%. |
| OAS clawback threshold | If your net income exceeds a certain amount (around $86,000 in 2024), you must repay part of your OAS. |
What You Should Do
-
Create a withdrawal plan now — Don't wait until you turn 71. Start thinking about the order of withdrawals in your 50s or early 60s.
-
Consider the order of accounts — A common tax-efficient strategy is:
- Withdraw from non-registered accounts first (they have some tax advantages).
- Then use your TFSA (tax-free withdrawals).
- Leave your RRSP/RRIF for last, but don't delay too long.
-
Decide when to start CPP and OAS — Taking them early reduces monthly payments. Delaying increases them. Your choice depends on your health, other income, and life expectancy.
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Watch the OAS clawback — If your income is near the threshold, consider withdrawing less from your RRSP/RRIF in some years to avoid losing OAS benefits.
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Consult a financial advisor — A personalized plan can balance tax efficiency, benefit maximization, and your income needs. This is especially important if you have multiple accounts.
Bottom Line
Most Canadians are good at saving for retirement but bad at planning withdrawals. The wrong strategy can mean higher taxes and lost OAS benefits. Start planning now — especially if you're 55 or older. A simple change in the order you tap your accounts could save you thousands.
Source: Wealth Professional Canada report via Yahoo Finance Canada