Early withdrawal strategies – a reader’s discussion

Many of us on the financial independence retire early journey put a lot of attention and time on the accumulation phase- how much money should I invest each month, which index ETFs and individual stock to invest in, should I invest in TFSA or RRSP first, etc. The accumulation phase is extremely important because it sets you up for future years. However, as we proceed on the FIRE journey, we need to put more attention to the decumulation phase.

To be more specific, how can we make early withdrawals from the different investment accounts while being as tax efficient as possible?

Being as tax efficient as possible doesn’t mean tax evasion and deliberately avoiding taxes. Personally, I think it’s a privilege to live in Canada. We enjoy many social benefits, like universal healthcare and free K-12 education. Therefore, it’s important for us Canadian and permanent residents to pay the appropriate levels of taxes so we can continue to enjoy these great social benefits.

The key here is, as I already stated, is to be as tax efficient as possible and not pay more than one has to. The most important factor one has to consider when it comes to withdrawal tax efficiency, is how to make RRSP withdrawals while minimizing the amount of taxes you have to pay. 

Recently I published an article on our early withdrawal strategies and how we plan to keep more money. Afterward, a few readers reached out for follow-up discussions. I particularly enjoyed an extended discussion with one reader (let’s call him Reader M). With Reader M’s agreement, I have decided to share the discussion with slight modifications.

Early withdrawal strategies – a reader’s discussion

Interesting to read your blog on decumulation strategies and good for you to get started thinking early on that.

Withdrawal strategies is a topic I have been thinking about a lot for the past couple of years. I’m a DIY investor and have been for a couple of decades or so.

Like you, my wife and I each have RRSPs, TFSAs, and taxable investment accounts. We also have no pension income to look forward to, apart from the relatively small stream from CPP/OAS eventually.

Unlike you, we are older (I turn 60 at the end of the year), and still working, and won’t be attempting as lengthy a retirement as you likely will be.

Tawcan: A quick clarification, although we have the goal of reaching financial independence by 2025 or earlier, we may not stop working completely when we are financially independent. It’s quite likely that we will continue to earn working income in some form or another. We simply would have the power to choose what we want to do. 

How to minimize RRSP withdrawal taxes

Although it may not technically be decumulation, my recent thinking has been focused on the fact that the bulk of our liquid investments are in the RRSPs. This creates some issues. One aspect is that I definitely want to have the tax deferment work out in our favour. 

In other words, I want to be doing my RRSP withdrawals at a lower tax rate (similar to your financial independence assumptions) than the one we deferred when making the contributions. But with sizable RRSPs, and the intention to remain invested through retirement, the question becomes how to manage that.  

Start with the idea that, from an income tax perspective, the worst-case scenario is dying during one’s final year before retiring. This would result in the entire balance in one’s RRSP landing as income, in addition to one’s other income during the final pre-retirement year, during the year of death. The income tax on the total RRSP would be over 50%. 

In terms of managing the tax deferment in one’s favour (or maybe more significantly, in one’s family’s favour), this is a horrible result. All of the income would have been deferred for all of those years, only to end up paying a giant chunk of money to the government at the absolute top marginal rate.  

Of course, there is a provision in the law for rolling one’s RRSP assets over to one’s surviving spouse via an election, and thus further postponing the payment of income tax to square up the deferral. For practical purposes though, this actually amplifies the challenge of withdrawing the RRSP funds on a tax-efficient basis because the surviving spouse can end up with an RRSP that is too big for a single person to effectively draw down.  

Tawcan: You made a very good point. While you can pass your RRSP to the surviving spouse, the surviving spouse will end up with a large RRSP and get taxed even more. So I still think it is a good idea to withdraw some portion of the RRSP before age 71. 

If you decide to convert RRSP to RRIF, make sure it’s not a sizable amount of money and you can then treat RRIF as a personal pension. Reader B mentioned something similar when it comes to investment assets in the taxable accounts. 

For example, a $2M RRSP generating a 5% average investment return would have to be drawn down by over $100,000 annually or else it would not be reduced at all. In my view, the plan should be to reduce the RRSP/RRIF ultimately to zero and collapse it. That would mean that it would need to be drawn down by a significant amount higher than the $100,000, even if it were stretched over say a 20-year period. 

But if you are pulling significantly more than $100,000 from an RRSP annually, you are paying a lot of income tax, plus likely losing your entire OAS income amount to the clawback. So if you have a seven-figure RRSP balance, it can be really tough to make the tax deferral work out in your favour and avoid giving a giant chunk to the government.

early withdrawal strategies canada

Now my presumption of course is that I am not going to die just before retiring and that I will have a decent length of retirement time to draw down my RRSP – you sort of have to presume that because you need to plan to manage your expenses in case you live to a ripe old age.  

If I want to help create some “income room” that I can use for the RRSP drawdown, I can defer both CPP and OAS until I am 70. I’ll have to deal with the fact that I’ll get more money from them then, but that isn’t the worst of all worlds. That way, if I retire “soon” I may have 8 or 9 years to draw down the RRSP before the government money kicks in.

Now I want to digress here to point out that the least of my worries is the mandatory RRIF withdrawal rates; I think it only makes sense to be drawing down the RRSP at a faster rate than the minimum required under the RRIF rules. So I view them as essentially irrelevant. 

Tawcan: When I mentioned the mandatory RRIF withdrawal rate in the early withdrawal strategies article, I meant that if we don’t do anything to our RRSP (i.e. make any withdrawals), we would end up with a significant large RRIF, forcing us to have to make large withdrawals later on in life and get hit with a large tax bill. It sounds like both of us have the same thoughts in terms of withdrawing some portion of money from our RRSP before or shortly after retirement, before CCP and OAS kick in. 

Another key thing to consider is health. If you can delay CCP and OAS until age 70, that’d be ideal. 

I’m thinking it will make sense to start drawing about $70k from my RRSP annually (maybe index that number in a ballpark way). If I want to keep my taxable income under $85k in today’s terms, which makes some sense from a tax bracket perspective because it provides a relatively reasonable average tax rate.  

Once I am 70, I might have $12k or $14k in taxable government benefits to make room for, so I’d need to slice the RRSP drawdown back to about 60k annually to keep me below the clawback threshold.  

In the mix, I’m allowing myself about $15k per year of flexibility, to deal with the fact that I will also have taxable investments and it is possible I’ll have to manage some dividend income and take some capital gains along the way as part of prudent investment management. That would of course require some available income room under the target $85k maximum, for tax purposes (watch out for what that dividend gross-up/tax credit scheme does to your taxable income – for clawback threshold purposes!).

Now the reason that I say my planning may not be entirely a decumulation strategy is that I’m not really intending to immediately spend all of the money that is withdrawn from the RRSP.  Instead, the idea is to get it out at a reasonable tax rate in order to get a significant chunk of it reinvested, in the TFSA as a first priority but also significantly in the taxable account, which I expect to keep growing until the RRSP is eventually exhausted. However, if I get a decent ROI in the RRSP, it won’t likely be exhausted until after I’m 80.  

Some people claim not to care about what they may be leaving behind for kids and grandkids.  That’s not me. I do care about that.

The “withdraw efficiently to invest outside” plan is supported by the fact that my wife is younger than I am, earns more than I do and will likely continue to do so for a handful of years while I get started drawing down my RRSP.  Eventually, if I can make enough headway on my drawdown, we may be able to take advantage of pension income splitting to help my wife get some drawdown on her RRSP. Hers will be bigger than mine (and more challenging to reduce); it is already bigger and presumably will continue to grow for several more years.

If one is trying to use as much income room as possible for drawing down the RRSP, one doesn’t really want other income getting in the way and messing up the tax planning. So while I am devoting my income to drawing down my RRSP, my intention is to avoid generating a significant amount of dividend income in my taxable account. What I’d prefer are long-term-style investments that can accumulate capital gains without requiring too much turnover. 

I use HXS and HXQ as non-dividend generating index ETFs at present and will likely continue as long as they provide that possibility. Payers of significant dividends can be allocated to the RRSP/RRIF and TFSA – how’s that for a counter-intuitive twist. 

tax efficiency more money

Tawcan: An interesting point. Investing in non-dividend ETFs/stocks in taxable accounts does make some sense to me, especially in retirement years as a way to be as tax efficient as possible. But I suppose it really depends on what your “other” income would be and your marginal tax rate when you are utilizing your investment portfolio. It is not a one size fits all solution and will depend on your situation. This is why personal finance is personal. 

Utilizing TFSA in retirement

Tawcan: Withdrawing money from RRSP then contributing the money to TFSA and/or taxable accounts is what we plan to do. It’s really too bad TFSA has such a low yearly limit. It would be great if the government can re-introduce the $10k a year limit. But I don’t see that ever happening. 

I am not sure if there are any benefits to this idea, it might be worth exploring further. A potential idea would be to take out a large chunk of money (say $50K) from your TFSA just before the end of the calendar year and put the money in your taxable account. You’d then make a withdrawal of the same amount of money from your RRSP or RRIF. At the new calendar year and when your TFSA contribution limit resets (plus the additional contribution room), deposit the money from RRSP/RRIF in your TFSA. Repeat this process a few times.  

This way your RRSP withdrawals can compound tax-free in your TFSA for a year before getting rolled into the taxable account. The tricky thing here is to determine the amount so you don’t end up paying too much taxes on the RRSP withdrawal. Furthermore, there’s always an opportunity cost disadvantage to withdrawal from the TFSA. 

An interesting idea! I don’t think it generally works in one’s favour because, apart from the contribution size restriction, the TFSA is really the ideal investment environment.  So there is always an opportunity cost disadvantage to withdrawing from it that has to be outweighed by something in order to justify the strategy.

Another potential justifying circumstance might be if one wanted to invest that TFSA cash (no other source being available) in something with a higher risk profile, such that one wouldn’t want to risk destroying the TFSA room, if the investment were to go the wrong way. Then maybe one wouldn’t want to try it in the TFSA.  

So in the example, you suggested, I don’t think starting with the TFSA withdrawal actually gains you any ground. Doing it near the end of the year would minimize the time of holding empty TFSA space before re-contribution is allowable (must be subsequent calendar year). But ultimately the withdrawal and deposit would likely cancel out each other’s effects and you’d be down the additional transaction fees. Ideally, you just want as much invested in your TFSA as you can legally hold and for as long as possible.

Should I invest in RRSP now or wait until later?

Tawcan: One final question for you, if you knew about the limitation of RRSP 10 to 20 years ago, would you have done the same with your RRSP? Or would you have limited how much you contribute to RRSP each year? 

This is a tricky question because the fact that the future is unknowable plays into this scenario. One thing I would have spent more time thinking about is when it makes sense to begin contributing to an RRSP.  In retrospect, I probably began RRSP contributions a little bit too early and my wife probably did as well.  

Think about it this way: the very first money I put into my RRSP will probably come out at a higher income tax rate than was deferred at the time of contribution. There is something to be said for saving RRSP contribution room for a while, while one’s highest marginal tax rate is working its way up the scale. But on balance, I likely would not have done much differently because I really didn’t have any idea what my future income level would be, and especially what my wife’s future income level would be, by the time we were over 50.

Tawcan: Not to mention the money in the RRSP will be compounding tax-deferred. 

I also had no way of knowing that we would have such a significant ROI result for the years 2019, 2020, and so far in 2021. A stretch of returns like that can really move the needle for the account size. For example, you have shown that your 2020 investments have done really well.

To get these kinds of returns after having built up a reasonably substantial ‘account value’ is great but in no way could have been reliably predicted during the first 15 or 16 years of contributions.

I think prudence requires planning for the potential of less successful scenarios and as part of that, maxing out RRSP contributions along the way as my wife and I did was the right thing to do. It is also a good habit to develop I think, as opposed to some of the alternatives.  

So while ending up with very substantial RRSPs raises some issues and requires some additional planning, it was the objective all the way along and I think it is the good sort of ‘problem’ to have at this stage. Giving a little more to the government is less problematic than ending up without enough to live comfortably on; and if I had ended up with significantly less in my RRSP as a result of lower ROI, then the RRSP account would still have been the right saving/investment platform for me.

Tawcan: an excellent point indeed! I started contributing to my RRSP and max it out when I started working 15 years ago. Back then I didn’t consider the withdrawal tax consequences either. However, if we are worrying about RRSP withdrawal taxes, that means the investments have done well and that the RRSP has grown to a sizable amount. Both of which are very good problems to deal with. It’s better to have more money for retirement and have to pay taxes than not having enough money for your retirement. 

Wrapping up

Thank you Reader M for our thoughtful email exchanges and for allowing me to publish our exchanges into a blog article. Connecting with other like-minded people is something I really enjoy. 

As you can see, the decumulation phase can be complicated and we all should pay more attention to this important phase. Years ago, the RRSP was the only tax-advantaged savings vehicle that Canadians could utilize. The introduction of TFSAs certainly complicates the tax simulation and calculation in retirement years. But I believe having more options available is always a good thing.

Because we are all different, there is no one size fits all solution when it comes to early withdrawal strategies. It is therefore vital to develop multiple plans and have different options. More importantly, I think it’s important to be open to different ideas and allow yourself to change your plans accordingly. 

And as mentioned before, worrying about RRSP withdrawal taxes and trying to avoid OAS clawbacks is a good problem to have. It only means that you have done well with your investments. It is not the end of the world if you end up paying a little more taxes. There are more important things in life than minimizing taxes. 

Mrs. T and I continue to feel very fortunate that we are doing well financially and we are on track to reach financial independence before the end of this decade. Given everything that’s happening in the world, there are many people that desperately need a helping hand. Therefore, I think it is far more important to give. If you’re reading this, I’d strongly encourage you to donate your time and money to charities and try to make this world a better place.

Sadly, there are far too many divisions in the world today. Rather than creating more divisions, let’s remove these divisions and barriers, come together, and make this world a better place.  

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67 thoughts on “Early withdrawal strategies – a reader’s discussion”

  1. Great post, sorry for late comment, but just found post.

    I am happy to see someone else considering delaying OAS til 70..
    i too am pondering with leaving OAS and CPP till 70 to enable me to only be taxed on RRSP withdrawals ( lower tax bracket) between 65 and 70.
    Everywhere I read , they recommend not to delay OAS even though it grows the longer you wait, but you take risk that if you die early there is no successor top up of OAS to your surviving spouse hence you lose it , and it also takes up room from registered withdrawals and lowering taxes.

    One question that I would appreciate your opinion, I have both a LIRA and an RRSP,( as well as my wife).. She still is working.
    Approx $250k in each.

    What would you recommend I do first with my LIRA and RRSP.

    Convert LIRA to LIF? Draw down LIF between 65 to 70,leave RRSP alone til 70

    Convert LIRA to LIF and transfer 50% to RRSP? Draw down LIF between 65 to 70,leave RRSP alone til 70,

    Convert RRSP to RIF , leave LIRA alone til 70. Draw down RIF between 65 to 70,

    Convert both (RIF and LIF) at 65, draw down from each ?

    Problem with LIF it has a MIN and a MAX amt one can withdraw yearly, thus not allowing you to take as much as one wants.RRIF only has a MINIMUM.

    Thanks in advance for any opinions you might have.

    • Hi Tom,

      It might be best to consult with a tax specialist in this case and figure out the most tax efficient strategy. Generally speaking, I think there are benefits to delay converting RRSP to RRIF.

      • Good advice. With respect to delaying OAS, you should also take into account that it may be partially or fully clawed back if you delay taking it until 70 if your income jumps up due to mandatory withdrawals from RRIF/LIF, etc. It may make sense to start withdrawals from the registered accounts before 71 when your marginal tax rate is lower. Get advice.

  2. Hi Bob

    I like your plan about moving to Denmark, but have you really thought it all through.
    First moving to Denmark will put you in non residence status in Canada and you have no tax write offs at all, and will be paying 25% across the board. If you feel you need $56k income in Denmark this would push your before tax earnings to $70k.
    Now in Denmark if I remember correctly tax rates are among the highest with under $0-$11000 taxed at 27% and anything above taxed at 42%.
    Now Denmark does have a DDT with Canada, but you will still be subject to any tax you have not paid in Canada namely 17%(difference between Denmark and non resident Canadian tax).
    Also if you use the gross up on Canadian dividend clause and have $56k total, then you would be subject to the full amount of 42% on that income, which gives you $32,480 as income in Denmark.

    This really does not look like alot of money to live comfortably in one of the most expensive country’s in Europe.
    Plus as a non resident, you and your wife have no claim to OAS, so actually worrying about a claw back does not come into play.
    Your thoughts on this would be appreciated, cheers

    • If Bob and Mrs. T have lived in Canada for at least 20 years after reaching 18 and before they leave for Denmark (and I’m pretty sure that will be the case), they are both eligible to collect OAS. Since 1971, you qualify for a FULL pension after 40 years of residency after age 18 (so full OAS as of age 58, assuming continuous residency), but if one has at least 10 years of residency after age 18 (age 28) then they will receive a prorated OAS pension. Again, provided that one has lived in Canada for at least 20 years after reaching age 18 (age 38, again assuming continuous residency), OAS payments will continue even after one leaves Canada.

      • I completely understand the “gravy” comment.

        I do think though that a full understanding of government benefits will aid any retiree (FIRE or “traditional”) in successfully establishing their decumulation plan.

  3. Now back to the topic of withdrawal strategy. Melting down RRSP will be a challenge for us as well. Anybody considered to leverage for investment so that RRSP can be drawn down faster?

    I don’t know how comfortable I will be for this strategy when the time comes. It’s definitely a nice problem to have to have OAS claw back. But I will not exclude this possibility yet.

  4. Hey Bob & Reader M

    Excellent discussion and a topic I’ve spent quite a bit of time on. I’m 68 and have been retired since age 60 with no company pension. My wife is 64 and was stay at home. We always maxed out our RRSPs (mine and spousal) and tried to keep them at a similar total value. I also made a spousal loan to my wife to get her non-registered account started (she has since paid off the loan from her dividends and her spousal RRSP withdrawals). I took my CPP at age 60 and my OAS at age 65. My wife will take her OAS next year when she turns 65.

    Some comments:
    – I think we should have stopped contributing to the RRSPs a couple of years earlier to hold them to a smaller total value (but it’s probably not that big a deal)
    – we tried to draw our RRSPs down by withdrawing so our net income was close to the top of the 2nd federal tax bracket (ie: $98k for 2021). We did this for me from age 60 (retirement) to 65 (collect OAS) and my wife from 58 to this year. The drawdown didn’t work very well as our RRSP returns were greater than our drawdown so they continued to grow. I still think the drawdown before taking OAS is a good idea.
    – we put the RRSP withdrawals into our TFSA first and then our non-reg accounts. We only invest in dividend income/growth stocks so this did significantly increase our non-reg dividend income (and thus our net income especially with the gross-up).
    – I think the TFSA is the best spot for investments and would recommend it before RRSP contributions.
    – it looks like the math will work for us on avoiding OAS clawbacks until my wife is forced to convert her RRSP to a RRIF (1st withdrawal in 2029). After that, we will definitely have a certain amount clawed back.
    – part of the reason for taking OAS right at 65 is that it allows us to collect it without any clawback (for 11 years for me and 7 for my wife). Also, I suspect there is going to be changes to the OAS program with the debt mess the liberals have gotten us into.
    – I also think personal tax rates are going to go up so getting some out of the RRSPs will end up being at a lower rate than in the future.
    – as an aside, I have very little faith in financial advisors, especially from the big banks. I’ve heard some totally amazing cases of BAD advice. Also, no one cares more about your money that you do so may as well take care of it if your are inclined that way at all.


  5. A friend of mine told me his FA suggested that he realize capital gain now due to the possible increase of capital gain inclusion rate.

    Another friend told me her FA suggested not to put any money into RRSP now as she has a rental house and expected capital gain when she sell it.

    So many laughs to PROFESSIONALs.

    I will go to a fee only FA when time comes. But even a fee only FA will not care for your money as you do.

    • As I navigate my way through the CFP course and also interact with lots of blogs and other sites that spend time on these topics I often reflect upon what my objective will be should I choose to go down the road the entire way, take the CFP exam, fulfill the other requirements and provide a fee for service offering.

      I believe my approach will be to present options to my clients with the objective of giving them as much relevant information as I can reasonably gather and add in any relevant experience that I may have to offer. My goal will be to empower people to make the best decision that they can for themselves.

      I think part of being a successful CFP will be understanding how I keep any of my own biases in check, while trying to expose any biases of the client so that both parties are working cohesively to identify the correct path.

      So, I agree that no one cares for our money better than ourselves, but we do not all possess the knowledge to apply that care correctly. Helping people with that knowledge is what keenly interests me.

    • Exactly, you should be the one that cares most about your money. Relying on the professionals is fine but that’s just their opinions & views. Ultimately you need to make the decisions on your own.

    • Dear May
      As far as what your FA suggested, good advice, how else is Canada going to cover the debt from the CERB program. You don’t think they will tax the middle class further to pay for the expenditures over the past 18 months.
      Most FAs also believe that RRSP’s are scewed in the government’s favor.
      I never said you need to have an FA, what I said was, is a good one can save you money. They are like doctors, if you do not like their advice see someone else.

      • Even if the capital inclusion rate will be increased to 75%, realize the capital gain you don’t need to spend now is a bad idea. My friend has high tax marginal rate, so he will get only $75 back for every 100, invest it back into the market, he will have less money to work for him. Let’s assume capital inclusion rate indeed increase to 75% starting next year and he won’t need that money for at least 5 years, assume market returns 8%, simple math will reveal he actually will end up with more money by NOT realize capital gain now.

        Good FA definitely helps, that’s why I plan to get one myself. But without enough knowledge, you won’t be able to tell which one is good. That’s why all the financial blogs and discussions are really helpful and why we are tawcan’s readers.

        • Dear May
          At time it makes sense to realize capital gains to increase you overall book value. Increasing book value with a 50% rate will put him ahead in the long run over time.
          I will not on this blog get into how you can increase book value on stocks or ETFs, all of them perfectly above board, because this is not something I feel comfortable discussing here.
          Once the rate goes to 75% it will never come back down and that 25% is gone forever.
          Massive debt, too few people in the middle class, ergo who pays.
          Maybe I should charge a consulting fee? HMMMMMM

          • Thanks for pointing out the wrong point of My calculation. After 5 years, actually selling now will have more money.

            However, after 10 years, selling now will have less money.

            It’s still not a bad advice if you ask me as I don’t see my friend needs this money for 10 years.

          • Typo. I mean it’s still not a good advice to sell your investment solely depending on possible capital rate inclusion rate increase.

  6. Hi Bob

    Look I am being nice, maybe just the way I type to the point.
    Having an educated discussion also means that you know a little about what you are talking about and not throwing random things out there like Tim.
    You think I achieved FIRE at 49 by myself, please. I could earn money 24/7 because of my trade, but my Financial Advisor (FA) made me FIRE at 49. They are like a mushroom patch or good fishing hole, never tell anyone else, unless they give you the right to refer them.
    Banks and financial institutions are in the market to make money and as Tim pointed out, he does not like the MER fees that they charge for the various funds. That is their job. NOW THE OTHER SIDE OF THE COIN.
    Most funds have various MERs attached to them and almost all of them are available to you even if you have a self directed plan. Just because they do not show on your trading website, whichever you use, does not mean they are only for institutional brokers. I will not disclose information to your readers, which if they do their homework or actually have a good FA, they can also find out for themselves. I will say, that most mutual funds like stocks, you can increase your book value and not even show a capital gain, another lesson learned from my FA.
    Also Tim, I repair all of my cars, also all my own cabinetry, and have built a few houses because that interested me. I agree, that a few decisions can mean much more than $10k. But, my FA has already made me that $10k and much more just by their expertise.
    BTW Bob, RRSPs can be split between your wife and you at age 65 not sooner. RRIFS opened anytime you like. No discussion, that I will pass on for free.
    The rest of what I have learned I share with my children and my immediate family. Happy Investing to all and to all a good night.

    • Bob.. maybe it’s time to block people who join these discussions only to say “I know something you don’t know and I’m not going to tell you”.

      This blog is always positive and provides different levels of valuable information depending on readers’ current financial IQ. Let’s not let people like FIRE49 drag it down to the level of many social media platforms.

      • Dear Bruce
        Bruce, some have found my style of writing acidic and I must agree. My profession did not allow for many mistakes, actually none, they all could have killed me or someone else. Unfortunately that is also the way I write and sometimes it gets the better of me.
        See Bob started this and quote “Tawcan » Financial Independence Retire Early Via Dividend .”
        This is off Google.
        But this whole discussion has been about early withdrawals, can or can not RRIFs, RRSPs…..Very little has to do with FIRE and dividends and even Bob will not achieve FIRE because he wants sideline work if they move to Denmark and he does lots of work on the side. That my friend is not RETIRING EARLY.
        So since you want people blocked, because as you put it, they do not share,I will share some advice.
        Investing in mutual funds or ETFs as they are known or stocks depends not on how much time you have to research but rather in how comfortable you are at investing. As long as you invest in something, it really does not matter, at the end of the day all that matters is, you have invested somewhere. Do we make mistakes, certainly, and anyone who tells you they have never lost money in the markets is a liar.
        You have various stages, growth, income, accumulation, all of them can be used at anytime in your life depending on your needs. US or Canadian, Reader B never invested in US, good, I do, as do alot of other people.
        Now I will share.
        First, my financial advisor aka accountant, bookkeeper, masters in economics and business, FRIEND(FA) once asked me what I wanted. Said to me, do you want to earn $120k per year and keep $60k or do you want to earn $60k and keep $60k? I can do that for you.
        I hold positions in AAPL, MSFT, AMZN, BRKB, V, COST, SBUX to name a few, do they all pay dividends, no, but they all have growth and coupled with my positions in ENB, PPL, POW, FTS and all the major banks in Canada, they average out quite nicely.
        My generation started investing before cellphones, online banking or internet and it made it a little harder but doable. At that time RRSPs were the flavour of the day and we all invested dollars to save a penny, not advise I would give today.
        I once asked Bob, why he would not draw down on the principle and he told me, it is a legacy for his children, good. People can retire on $1 million at 3.5% @ 60 if you need $60 k a year $35 k dividend and $ 25k draw down. But, people who have invested their whole life find this problematic because it is outside of their normal thought process, save and save more, WRONG.
        Now my advice, to all
        Everything other than RRSPs or TFSAs which have a beneficiary attached will (if the estate is over $100k, depending on financial institution, online DEFINITELY) go through probate even if there is a WILL. Any estate which has a charity named in the WILL, probate is a must, because charities want every penny they are entitled to(no rounding up or rounding down) EVERY PENNY. Real estate, other than your personal residence, probate. Probate fee in B.C. roughly 1.4% at this time, not to mention if Canada imposes an inheritance tax, laugh if you want to, remember DEBT, and who will pay.
        As our children’s professional income increases, their capital gains tax on our stocks and holdings will be significant and it will increase to pay for the debt built up by this incompetent government, past, present and future.
        Now my advice, to all
        Our real estate, already joint ownership with the children. Probate, nothing.
        Our children all have TFSAs which have been maxed out with our help(gifting no limit) and name my wife and I as beneficiaries, if something should happen. Reason for maxing out, any growth inside the TFSAs is realized room that the children can use at any given time afterwards.
        example: TFSA Maximum contribution $75,5 k portfolio grows to $200 k you ask you son for $150 k, your contribution room is the $200 k, not the max contribution of $75,5 k.
        Our plan is to collect CPP and OAS, enjoy our sizable RRIF at age 65, when both my wife and I can draw from it. Whittle down the savings till we might need a home or drugs, enjoy Pharmacare, which will be paid for by the government and if not ask our children for a donation.
        The cash in the bank account will be kept under $100k and topped up as need be so as not to incur probate.
        The legacy which we hope to leave our children is, work hard, enjoy life, have a good FA, hopefully someone like mine, and leave the government as little as possible in the end.

        My father always said, He worked 8 hours a day for the government and what he did for the other 16 hours was none of their business. He also hated watching the NEWS at 6 pm and seeing how the government wasted his money every day.
        Hopefully Bruce, this advice will suffice not to incur you wrath of being blocked.

    • Hi FIRE@49,

      There are many different ways to reach FIRE and not everyone likes using a financial advisor. Personal finance is personal and it’s not a one size fits all solution.

      • Dear Bob
        I disagree, I worked too hard for my dollars to try and figure it all out.
        I could have built you a world class kitchen or house.
        I could have worked on your cars and tuned them to the last horsepower.
        I built industrial plants all over Canada.
        But I leave the finance and what to do with my money to those who made a career of it.
        Advice to you. The best financial advisors or accountants out there have worked for the taxman or the SEC somewhere in their career because they know how the “SYSTEM” works.
        The taxman uses accountants and banks as their aka watchdogs to oversee us, the public. Banking security systems are far better than what the taxman uses because they only need to handle security for their own. The government should have instituted their own system years ago and told the banks they would need to use it and nothing else, but we all know what would have happened then. PHOENIX PAYROLL SYSTEM ring a bell.
        If I were a bank and the government told me, I needed to use their system for my day to day business, I would close my doors tomorrow. The government is built on INCOMPETENCE and is never going to be anything but incompetent.
        From this incompetence is born some of the best accountants and financial advisors for the private sector and some of them do not want to get big, they would rather enjoy life and stay under the radar.
        If personal finance were personal then why even have a blog. We share ideas, we communicate and sometimes it can get heated.
        Did I like your interview with Reader B, yes, of course.
        But, the whole discussion afterwards digressed into, how to withdraw RRSPs, how to form RRIFs, how much is tax free, how to pay less, how to pay nothing, how to worry worry worry.
        Not one person commented on how to invest solely in Canada or what they do with their investments. Not one, said how they themselves have achieved FIRE. All about how not to pay the taxman. The whole discussion centred around what Reader B makes tax free.
        At $30k a month in dividends my last worry is what I pay in taxes.

  7. Boy I tell you, reading this discussion about to RRIF or not to RRIF, what age or not what age, Can wife or can she not, sure is fun to follow.
    Amazing, have anyone of you even discussed this with a financial advisor from your bank or your financial advisor a your brokerage firm, or are you all just flying two sheets to the wind and hope someone comes up with the right answer.
    Amazing how much time you all spend on this discussion but at the end of the day, an hour with your financial advisor and all would be clear and he or she would probably formulate a plan. If you all would have phoned up your bank on Monday, this discussion would be done and dusted by Wednesday, but you all want to rehash it over and over again.

    • I enjoy learning about this and want to understand how it works. I may consult with a professional at some point but they all have their biases and limits to their knowledge as well. The number of times the professionals at banks have recommended high MER active managed funds and didn’t understand the drawbacks is amazing.

      Some people like to hire interior designers and tell them to fix their house or take their car to the mechanic and have no interest in what needs to be done. Others want to understand – there are almost always trade-offs and shades of grey on these decisions that you won’t catch unless you have a deeper understanding. For me, I have a mechanic I trust and tell them to do what they think should be done on the car and let me know if they think I should get rid of it instead of fixing it. If my mechanics bill was $10K a year I would learn more but for the amount I spend there and the fact that cars don’t really interest me I’m happy. With my investments, the differences in these decisions can mean much more than $10K per year and I want to understand the different options even if end up talking to an advisor. Plus I find it interesting….

    • Actually, I’m taking the CFA course right now, and I enjoy the interactions as we have the discussion – but to your point – yes, if I NEEDED the information right now, or if anyone else did – I echo your recommendation that I should seek out someone who knows the answer. In the meantime I’m going to keep studying and contribute to healthy conversation 🙂

  8. Super useful discussion. My situation is very similar. I have a mix of RRSP, TFSA, and taxable investments. My wife will have a small pension in addition to these investments.

    Like most of the other comments here, my plan is to draw down my RRSP before I start taking CPP and OAS with the goal of keeping my taxable income low. Expect that I will probably delay taking CPP which from my calculations seems like a bit of a wash from an investment perspective but helps deal with longevity risk.

    I think the main mistake I made is assuming I could split RRSP withdrawals between me and my spouse because my assumption was that I would convert it to a RRIF. Given that I may start withdrawals before 55 which means they will have to come from my RRSP because you can’t convert to a RRIF before then. I should have started earlier to balance this out more evenly with a spousal RRSP.

    As I withdraw from my RRSP some will be for spending but expect that some will also bolster taxable investments accounts. Probably going to continue with a mix of index and dividend investments for the taxable accounts.

    Appreciate the blog and find it very useful. Keep up the good work.

    • You CAN open a RRIF before the age of 55 I believe. I searched and could find no rules against opening a RRIF before 55. You can transfer in part (not all) of your RRSP into the RRIF once it is opened and you have to withdraw at least the minimum amount required by the rules in the following year. A good strategy is to transfer in what you wish to withdraw in that year and leave in some money to keep it open. We opened RRIF’s before tuning 65 and we still have the majority of our registered funds within our RRSP’s.

      • You’re correct about no restrictions on the RRIF conversion age. Appreciate you pointing that out. I think I got the wrong idea from this article https://invested.mdm.ca/md-articles/converting-your-rrsp-to-rrif which says 55 is the minimum age but all the other articles I’ve found say there’s no limit.

        The part that’s still a problem is I don’t think I can split up the RRIF income between my spouse and myself until we hit 65 https://www.cpacanada.ca/en/news/canada/2019-02-27-rrif-conversion-tips. That’s better than nothing but my plan was to split the RRIF withdrawals to keep income tax rates low and do some of it prior to turning 65.

        • The reason we opened RRIF’s was that our discount broker charges $50 per withdrawal from an RRSP but do not charge for withdrawals from RRIF’s and we wanted to get some money out of our RRSP’s. Since I have no pension, I opened a RRIF, transferred about $14000 in RBC stock from my RRSP and sold enough shares each year in the RRIF to withdraw $2000 annually so I could claim the $2000 pension credit from age 65 to 71. At that point I have to convert all of my RRSP’s to RRIF’s. I could only claim the pension credit at 65. My wife who started her pension in her 50’s was able to claim the pension credit immediately on starting her pension.
          You are correct that you cannot split the RRIF withdrawals with your spouse until you turn 65. Maybe your spouse can withdraw from her RRSP’s before you turn 65 by opening a RRIF and making transfers from her RRSP’s (including spousal RRSP’s) and make RRIF withdrawals. You have to be careful with spousal RRSP/RRIF’s though. If you have made contributions within the 3 previous years into a spousal RRSP, then any withdrawals from it or the RRIF should be claimed on your tax return.

  9. Thanks for sharing this exchange Bob!
    Decumulation definately doesn’t get the attention it deserves, glad to see both thought processes.

  10. This is why I keep reading financial articles. The first 99 will be mostly things I knew….then this type of gem pops up. I always assumed OAS clawback was a pure benefit repayment. Thanks Michael

  11. Hi I noticed several references to Claw Back of OAS as being a problem. While you do not see the claw back in your bank account the total clawed back is an income tax credit payed. This means you are actually credited with having payed the claw back as part of your total tax owing to the government.
    I used to think it was lost money confiscated by the government.

    • I’m a little bit confused by this comment so I’m providing a reference as a point of clarification:

      Income Tax Act s. 180.2
      Seniors must pay back all or a portion of their OAS (line 11300 of the tax return, line 113 prior to 2019) as well as any net federal supplements (line 14600, line 146 prior to 2019) if their annual income exceeds a certain amount. If 2020 line 23400 (line 234 prior to 2019) net income before adjustments is greater than $79,054 ($79,845 for 2021) then you will have to repay 15% of the excess over this amount, to a maximum of the total amount of OAS received. The clawback threshold is indexed each year in the same manner as federal tax brackets and personal tax credits.

      So, based on the above, at tax time a calculation is performed to determine if the net income of the recipient of OAS exceeded the threshold for clawback. If the net income did exceed this threshold then the recipient will repay benefits at a rate of $0.15 for every dollar of net income above the threshold amount to a maximum equivalent of the entire OAS benefit.

      Formula: Clawback = Net Income – OAS Threshold x (OAS Clawback Rate – 15%)

      In the case where full the full OAS is clawed back, it means the individual’s net income exceed the “income level cut-off’ for the year. In 2019 the income level cut-off was $125,696.

      Of course, OAS is taxable, and if a portion is clawed back then you don’t pay the top marginal rate on the money that is clawed back, but you’re still having to repay the amount clawed back.

          • I think it’s somewhat a matter of semantics.

            My point was that recipients receive OAS in monthly instalments. If, at tax time, the calculation results in a clawback then that amount is added to the net tax calculation. So, a refund would be reduced or an amount owing would be increased.

            No matter what I call it, I will be returning the amount of the clawback to CRA.

  12. Hi Bob

    Had to cut our travels due to family issues in Vancouver, so for the past month have been here and boy has it changed and not for the better, but alas.
    I will give you all some advise.
    First, waiting until 70 to collect your pension just because the government now lets you is always BAD advise. 65 is the best time to collect, whether you need the money or not. Giving away money to the government is never a good idea and their own accountants know it.
    Second, invest only in one RRSP if married. At 65, both you and your wife have access to those funds as a pension. Trying to draw it down early to pay minimum tax, good luck, take it from someone who is there.
    Third, if you have children, when they turn 18, gift them money to invest in a TFSA and have you and your wife as the beneficiary. You can ask them to give you the funds at any time and the investment growth that they have achieved is there forever. You level of room only depends on how well your investments have grown. 6% dividend stock and at the end of the year, you have 6% more room in your TFSA.
    Fourth, pension and OAS income are never and should never be a factor in your FIRE plan. If you need those two to FIRE then you will and have never reached FIRE. They are gravy on top of the mash potatoes, nothing else.
    Fifth and the most important, go see a “PROFESSIONAL” financial advisor, preferably one not taking on new clients, through a friend. If he or she will not see you, then ask them for a referral, they have enough contacts and will not refer you to someone they do not feel competent. “PROFESSIONAL”, someone with a degree or masters in economics or business would be nice, not someone who does it as a hobby hoping to make extra cash. They do not charge for a consultation and someone who does, is not worth the time and effort to advise you on your hard earned cash.
    To add, if the government were a Casino, it will always be the HOUSE. They make the rules, they apply said rules and when the rules are not in the House’s favour, they the government will change the rules.
    Main thought
    The whole purpose of investing is to reach FIRE and not be dependent on government funds, whether you payed into them or not. Financial strategies should help you get out from under the government’s wing, let them keep their OAS, you should not need it, just as you should not need an inheritance to achieve FIRE. The second word of the acronym FIRE people is INDEPENDENCE. If you need your inheritance, you have no independence. Third and fourth RETIRE EARLY, meaning without PENSION or OAS, so stop worrying about them, because with FIRE you will hopefully not see them for a number of years.
    Canada is a great Country to live in for 6 months and 1 day, just for the tax reasons, AT THE PRESENT TIME.
    But, I know of and have lived in far better socially minded countries, where EVERYONE is treated the same. Not based on race, colour, heritage or wealth, they all pay the same and have the same benefits. Do they all get along all the time, certainly not, but they all strive for the same thing, a better life and a better country.
    If I am wrong in my assertions then please tell me why, Canada introduced another “HOLIDAY”.
    Ask a 100 Canadians, what makes you Canadian? You will get 100 different answers, because, we have no National Identity.
    I have worked my whole life, well 31 years of it, to achieve FIRE. I have enjoyed the past 10 never worrying about Canada, pensions, OAS or any of that.
    As in The Lion King, HAKUNA MATATA

    • Interesting and valid points here. If you have read my other FIRE related articles, I have always stated that we see OAS and CPP as the extra gravy and we do not count them as part of our FIRE plan. 🙂

  13. Fantastic post Bob! You’re so right that so much material in the personal finance sphere is dedicated to the accumulation phase, but not many talk about the withdrawal process. I really appreciated how detailed your “withdraw efficiently to invest outside” plan is.

  14. This was an excellent article, referencing the deaccumulation phase of an RRSP and RRIF, considerations, and how to go about it, etc. What I really enjoyed was the dialogue between Reader M, and Bob. All very clear, and understandable.

    I also really liked Bob’s conclusions, that considering deaccumulation strategies is a good position to be in. Consider donating money and time helps the world now (and also reduces taxes!).

    Thank you Bob for putting this together and the publication. Also, thank you Reader M for your ideas, and letting this important topic be shared.

  15. I really enjoyed this article, and it’s always good to read and learn about other people’s perspectives on investing choices.

    My own opinion is changing on a regular basis, but on the “if I could do it all over” question I believe – I used my RSP room way before I should have. Before the TFSA I wish I had kept more of my investments outside my RSP. When the TFSA came I wish I contributed to it first. But eventually my income did rise to where contributing to my RSP first was the right choice. It would have been more impactful had I saved my RSP room for later when the refund would have made the largest impact.

    I also think there are other considerations. Now I’m reluctant to max my RSP out every year to buy more dividend paying stocks when in retirement I’ll pay tax on those dividends as if they were income.

    Having said that, part of my reasoning is that I’m saving my “extra” RSP room (I take advantage of my employer’s RSP matching program) to help offset taxes for future capital gains – even after I retire. This will help me mitigate some of the tax concerns when I convert some of my growth stock position into dividend growth stocks, which is my preferred approach to generate my retirement income.

    • Glad you enjoyed reading this article James. Decumulation is a very important part of the financial independence journey and needs to be discussed more.

      I like your idea of saving some RRSP room for future years. Something to consider for sure.

  16. Excellent, as usual.
    Good of you to mention that the ‘worry’ of paying too much in taxes due to successful investments is a good problem to have.
    Decumulation: At age 60, I thought I’d be looking at decumulation in the face. Not so. I still consider myself in the accumulation phase since my mother just turned 91 and shows no sign of slowing down. Also, the oldest pension recipient in my (small-ish) pension fund is 110 y.o. (!!!) with a number of people between 100 and 110. So, I could well have 40 years of life ahead of me that I need to finance. I will keep reading your blog for tips on dividend-yielding stocks.

  17. I am in a similar situation as Reader M. Retired for a couple of years, but now at 62, I will have to start withdrawing from my RRSP. Like Reader M I want to get as much out of the RRSP account as possible before 71 at which point I start receiving the maximum CPP/OAS benefits. This will also lower the required RIFF withdrawals starting at 71.
    I also have a smaller RRSP which I will not touch and turn it over to a RIFF at 71. My non register account hold only a few dividend stocks but I intend to add to this with some of the funds I withdraw from the RRSP. I like the idea Reader M mentions about having non dividend holdings in the non registered account. My problem (probably a good problem) is that at 71, I start receiving my CPP/OAS with my required amounts from both RIFF accounts and along with any dividends from my non registered account, I will probably end up having some clawback on my OAS. Now I will be in a higher tax bracket until 71 for withdrawing larger amounts from the RRSP in order to have a minimal amount remaining at age 90 and to reduce the required withdrawal amounts in the RIFF.
    I do not plan to touch anything in the TFSA account as this will pass onto my two daughters.
    If I knew then, what I know now, I would have stopped contributing to the RRSP once it reached a certain figure and put any else towards a non registered account.
    Enjoy reading all your articles and the responses.

    • Glad you enjoyed this article.

      Taking money out of RRSP will trigger withholding tax. IF you convert some portion to RRIF then take out the money, I believe there’s no withholding tax at all. It might make tax planning slightly easier.

      • You do not trigger withholding tax if you take out the minimum RRIF withdrawals based on you or your spouses age. However this does not mean your are not paying tax since tax is calculated at tax time. Depending on your income you may or may not owe tax on the RRIF withdrawals. The withholding tax is just paying the tax in advance. You cannot avoid tax on RRIF withdrawals unless your income is low or you donate a significant amount to charities.

  18. Great ideas for drawing down RRSP’s and thinking about retirement strategies. I never had a pension plan so my RRSP will be my primary retirement income generator. It is currently over $1.5 million and growing every year. It may be taxed at a higher rate than when I contributed years ago, but the compounding growth of pre-tax income over many years will make up for that in my opinion. At the point when I need to convert to a RRIF at 71 I will not need the income due to the dividend income generated by my taxable investments. So I plan to donate significant amounts to charities in the form of shares with imbedded capital gains to offset the RRIF income. High income in retirement is not a problem in my opinion. Yes we need to think of the less fortunate in our world. I would rather give the money to charity rather than the government in the form of taxes paid

    • First of all, congrats for having done very well with your RRSP. Good point on donating shares to charities. This is something Reader M and I will be discussing as a follow up article.

      Having a high income in retirement is better than not having enough money. 🙂

  19. Thanks for sharing your conversation with Reader M, Bob. You both make some great points. I also think having more options is generally better. 🙂

    The risk of changing tax laws is a major consideration for me when it comes to a decumulation strategy. Canada’s capital gains inclusion rate used to be 75% in the 1990s. It was dropped to 50% in 2000. There’s a possibility this rate could increase again next year. I hope it won’t, haha. But I’m hedging my bets by maxing out my TFSA first, then focusing on dividend stocks in my non-registered account.

    • Having more options available to you is always a good idea IMO.

      Given the current state of the economy and federal government deficit, I wouldn’t be surprised at all if they change the capital gains inclusion rate to 75%.


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