Retirement » RRSP/RRIF

Developing RRSP withdrawal strategies

The RRSP is one of the key pillars of retirement savings. Although many people contribute to RRSPs because of the immediate tax savings, it’s also one of the best accounts for long term retirement savings.

Lots has been written about accumulation and growing RRSPs but as the demographics suggest more and more baby boomers need to pay attention to RRSP withdrawal strategies.

Converting RRSPs to income

When you need income from your RRSPs, you will need to decide on either a RRIF or a Life Annuity. With interest rates at all time lows, the RRIF is by far the more popular choice today.

Related article: How to convert RRSPs to income

With the RRIF, you have a lot of choice and flexibility. You can increase income, decrease income, stop income, make lump sum withdrawals, and change investments.

Related article: Everything you need to know about RRIFs

Life annuities, on the other hand, are simple and management free. Once you purchase an annuity, you get a fixed income for life regardless of what happens to the stock market, economy or interest rates.

Related article: Everything you need to know about annuities

When should you convert RRSPs to income?

One of the big tax benefits of the RRSP is tax deferral. In fact, deferring tax is one of the three D’s of tax planning. Deferring of tax simply means instead of paying the tax now, you can pay it in the future allowing you to use the government’s money for your own benefit.

Deferring RRSP and RRIF income is smart, especially in your working years. If you take money out of your RRSPs when you are working you will probably pay more tax because you will be in a higher tax bracket. I’m good with the concept of tax deferrral while you are working but once you are retired should you continue the path of tax deferral? Aren’t you supposed to spend your RRSPs in retirement?

When you retire, just remember the whole point of putting money into the RRSPs in the first place: To save money to enhance your retirement to make retirement the best years of your life. Despite this common goal, I see far too many people hit retirement and are reluctant to spend their RRSPs and RRIFs because of over generalized advice around the benefits of continued tax deferral.

When should you take money out of your RRSPs/RRIFs?

My advice has always been for retirees to come up with RRSP withdrawal strategies as soon as retirement starts. The point of developing RRSP withdrawal strategies are to help retirees create more income so they can spend it. But for some retirees, they don’t need or want to spend the money or they get so focused on tax deferral so they do not withdraw any money from their RRSPs. Even if you do not need the money, it might make sense to develop a withdrawal strategy for other tax reasons.

Reasons why developing RRSP withdrawal strategies make sense

  1. RRSP income can create clawbacks on income-tested programs. RRSP withdrawals are fully taxable and can cause higher incomes, which can lead to Old Age Security (OAS) clawback, and less Guaranteed Income Supplement (GIS). If you know your higher taxable income can create ‘clawbacks’, it can be advantageous to take money out of the RRSPs before you qualify for these programs.
  2. Higher incomes in retirement. If you knew you would pay 32% tax on any RRSP withdrawals in the future, would you be willing to take that money out now at only 25% even if you did not need the money? In most cases, people retire with less income than while they were working. However, I’ve run across many examples where people might actually have more income in retirement. This can be more common with people who have defined benefit pensions and others who plan to work in retirement.
  3. Deferral of lifestyle. Retirement is not just about money and tax. People who defer their RRSPs to age 71 are also deferring their lifestyle. Think about this . . . if you have not used your RRSPs by the time you turn 71, what makes you think you will need your money after 71? I see so many people deferring RRSPs to age 71 only to find they can’t spend it later. They then take minimum income because they have to but don’t even spend that money. And then they die with too much RRSPs.
  4. Taxation of RRSPs at death. I’ve written extensively about why you do not want to die with too much RRSPs. The tax consequence can be too significant. You might wind up paying even more tax when you die than if you developed a withdrawal strategy while you were living because the RRSPs are all taxed at once. If you think avbout it, you would never withdraw all of your RRSPs out at once while you are living because the tax hit would be too severe but that’s exactly what happens when you die. It’s like taking all your RRSPs out at once and taking the big tax hit in one shot. Deferring tax to retirement makes sense but deferring tax to death may actually be counter productive from a tax perspective.

Planning is personal

All the theory in the world is useless unless you can apply it to yourself. I’m always concerned that someone will read this article and then go an take out all their RRSPs out once they retire for all the wrong reasons. Remember that planning is personal. Just because it made sense for someone to defer RRSP income into the future, does not mean you should too. Good planning will make all the difference so take this information and apply it to your personal situation. Look at the merits of developing RRSP withdrawal strategies from many different angles. Run a good retirement plan that projects income and expenses well into the future.


  1. Gemma Vena

    Hi Jim

    I enjoyed your article. I’m trying to help my mother get some advice. She is a 67 year old widow who is on pension income only and receives GIS and has 70k in an RRSP. She is trying to figure out what would be the best strategy to cash it out to pay least amount of taxes and loss of GIS.

    Do you provide such advice? What is the fee? If not can you recommend anyone?

    Thanks so much

    • Doug Runchey

      Gemma – From a GIS perspective, she’s probably better off withdrawing it all in one year even if she pays somewhat more taxes as a result.

      • Scarlet Dong

        That one way of what Doug suggested. But by doing so, your mother’s GIS will be eliminated the year after the lump sum RRSP withdrawal, OAS might even face a clawback depends on if she has other income in the same year of withdrawal.
        Or another way would be to convert the RRSP into a RRIF now and start taking the minimum annually. For 70k, minimum withdraw is roughly 3.1k annually. Her GIS will be reduced about $140/m, but will get full oas and most GIS. She can potentially take more when needed in retirement and depleted her RRIF early, so her GIS will resume back to full amount. In addition that your mom may not have many other complicated income sources in retirement. This way, RRIF is still tax deferring, also will be a useful source of fund to meet needs.
        $70k is still considered not a huge number for retirement which will create complex tax implications. So I think this might be the best way for her.

  2. Fernsk

    I realize that this is an older article but it has relevance to my current situation and thoughts. I am retiring on June 1 (today is April 28, 2017). I am fortunate to have a Defined Benefit Pension which is not indexed to inflation. I have a very modest RRSP of approximately $54000 invested in mutual funds and approximately $500 contribution room for $2017. I also have a TFSA with approximate $15000 in contribution room available as of January 1, 2017. I will turn 60 in May 2017 but do not plan to take my CPP until I’m 61 or 62. So I have some strategy questions:

    Does it make sense to use my RRSPs as an inflation device, making annual withdrawals to approximate a 2% inflation rate? I realize that there would be a withholding tax on these withdrawals.

    Furthermore would it make sense to withdraw additional funds to top up my TFSA since I will have a lower income from 60-65 even if I begin receiving CPP early, OAS would kick in at 65?

    Last question, if I plan on making withdrawals (pending advice received) should I plan on maxing out my RRSP in 2017?

  3. Sheree

    I plan to withdraw money from my RRSPs starting the same year that I retire (age 65). Do I have to convert my RRSPs to RRIFs or can I just “cash out” some of the RRSPs when I need or want the extra income?

  4. Brent

    Hi jim,
    I suggest you re-publish this article. As many financial planners are living in the dark and never question the theories that they are sold by their corporate leaders. Case in point, my wife has retired. She had perhaps 24K in Income last year. I advised her to withdraw an additional $10K from her RRSP. The idea is to take advantage of the Lower Tax rates now, even though she does not truly need the $.
    With $24K of Income, plus ‘cashing out’ $10K in RRSP, she would have gross income of $34K, after deducting her personal exemption (roughly $10K) her taxable income is $24K, this would be subject to Combined Prov. & Fed Tax of roughly $2600 (this equates to just over 10%). The $10K was saved for her to enjoy. She retains the option to place it into savings or in her TFSA. If she continues this for the next 5 or 6 years, she would have a nice little chunk of change that was taxed at a very low level. The strategy to plan with-drawls and keeping your taxes low is important.

  5. FLDS

    Hi Jim
    How early can one withdraw from RRSP after retirement? Husband withdrawal age 67, wife withdrawal age 63. What is the amount that can be withdrawn from RRSP? Husband income from pensions less then $2000/mth, wife income bridged less then 1250/mth after deduction until age 65.
    Plan to withdraw in 2020.
    Your advise or suggestion please.

  6. Bob

    You can withdraw money from an rrsp any time , but at 65 you should convert at least 12,000
    to a rrif and then you can withdraw $2000. per year tax free as pension income . The first
    $2000. of pension income is not taxed.

  7. Dennis

    Hello. I am 51 and have a few friends that have needed money and have taken from their rrsp. So I dont know nothing about this how can I find out if I even have it and how much I have worked a lot but unsure about this thanks

  8. TooMuchRRSP

    Hi Jim,
    I have a unique RRSP question. I’m 44 and have an RRSP worth around $5million. I’m still employed at one of the Banks and an income we’ll say is $100,000. I’ve pulled loads of money out over the last year and two and have paid taxes through my nose. This upcoming year 2021, will be particularly higher has I bit the bullet and pulled out $1million from the RRSP to a non-registered account so that I would be able to do more complex options strategies not allowed in a registered account. (naked writing).
    I’ve considered as many options as I know to capitalize on on the value such as private mortgage lending and self directed mortgages to myself, but both options have their shortfalls.
    What options do I have?? How do I access these funds now in a tax efficient way?

    Thank you

  9. Rod O'Connell

    Quick question….never seen this one in any writings on RRSP withdrawl strategies. My wife has and RRSP and a small Spousal RRSP. Are the two RRSP accounts treated as one for planning and withdrawl purposes? I presume that the two accounts are considered together. As we look to spend down much of the RRSPs before age 71 I am thinking that the initial withdrawls could all come from the Spousal RRSP until it it exhausted and then move to the RRSP. The reason would be just so that we have one less account to manage sooner than later. Does this strategy make sence or am I missing somethng? I have never read anything on this approach in all my reading. Thanks

    Thanks so much for sharing your wisdom.

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