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RRSP and RRIF Withdrawal Timing Considerations

Introduction and Summary

When should you start taking money out of your RRSP (if you do not need it to pay bills)?  Should you take it out before age 65?  Before age 72?  Or leave it as long as you possibly can?  The answer is clear – “It depends.”

Something else is also clear.  You should not make a decision to take a taxable withdrawal until:

  • the benefits are demonstrated to you in a retirement financial projection using objective and reasonable assumptions about your future. If you need guidance on reasonable assumptions, see the Projection Assumption Guidelines issued by the FP Canada Standards Council®.
  • the projection is repeated using different assumptions to provide reasonableness around your conclusion (called a “sensitivity analysis”). For example, rates of return, inflation, life expectancy and drawing from different types of accounts first (e.g., regular savings, a TFSA or your RRSP) can each impact the results.

Your advisor should update and re-run your projection at your annual update meeting to ensure that a change to your withdrawal plan is not required.  All of the above steps are required to provide you with advice that is in your best interests as dictated by a code of ethics if you use a professionally designated advisor.

Basis of Conclusion

A research study was conducted by Doug Chandler, FSA, FCIA, on behalf of the FP Canada Research Foundation titled Retirement Drawdown and Choices – RRIF, TFSA and Non-Registered Accounts, in October 2022.  I suggest you read this research study (but if you do not have that much stamina, at least read the executive summary and the conclusions) – https://fpcanadaresearchfoundation.ca/media/kr4frrvr/fpcanada-dc-en-retirement-drawdown-choices-paper.pdf.  This study yielded interesting results, contrary to some very popular advice being offered by some financial advisors.  The following are quotes from that study, followed by my interpretation and “take aways” (Hereafter, I will typically use the term RRSP but my comments also apply to RRIF.):

  1. “Once the full complexity of investment risks, longevity risks and Canada’s morass of taxes, credits and income-tested benefits for seniors was taken into account, this research concluded that simple, single-scenario projections of the value of a drawdown strategy are unreliable and misleading.”

There are many things that impact whether you should withdraw your money from your RRSP (or RRIF) earlier versus later:

  1. Investment rates change frequently.
  2. Life expectancy for you and/or your spouse will have an impact and is undeterminable.
  3. Your tax rates will likely change between now and in the future changing the amount of cash remaining after paying taxes.
  4. Your age, health, marriage status, income, etc. will impact your entitlements to tax credits.
  5. Age, OAS and other clawbacks as well as your entitlement to benefits (such as the GST credit and Guaranteed Income Supplement) are based on your income, which will be impacted by the amount and timing of your RRSP withdrawals.
  6. Will you be disabled in the future? Eligibility for tax credits, government programming, long-term care subsidies, etc. will be a consideration in the RRSP analysis.
  7. What about the possibility of divorce, changes in your lifestyle expenditures, amendments to tax law, impact of natural disasters on your expenses, etc.?

Essentially, the study is saying that there are many variables that can apply to many personal situations, so there is no “rule of thumb” that can be applied consistently.  Thorough multiple-scenario projections are required to reach a reliable conclusion.

  1. “When RRIF withdrawals in excess of the minimum prescribed in the tax regulations (and in excess of the requirements for current spending) are invested in a non-registered account, taxes on non-registered investment income drag down any advantage attributable to tax brackets.”

Once the money is taken out, any investment income you earn going forward is based on the lower after-tax principal amount.  Furthermore, in contrast to this money in your RRSP, any income you earn on the now non-registered money is taxed annually, and capital gains are taxed whenever investments are sold.  In other words, taxes are triggered earlier rather than later when more than the required RRIF minimums are withdrawn.  Taking the money out of the RRSP early reduces the future growth of your portfolio because part of your investment capital has been given earlier to the government for income taxes.

  1. “Different situations can give very different results. However, in general, the value of accelerated RRIF withdrawals may be overstated when an estimate of the average rate of return on investments is used without regard to variability.  Advantages can disappear when investment returns are above average (because of extra taxes on non-registered investments) and when investment returns are below average (because the fund is exhausted before death and the anticipated high rates of taxation on  estates never rise)

If you take the money out of your RRSP early based on an estimated average rate of return, what happens if you exceed that rate of return?  The higher taxes would apply immediately to your withdrawals, resulting in less money than if you had deferred the withdrawal until the future.  The compounding effect of this early reduction increases the risk of running out of money during retirement is higher.  If the reason for taking the money out early was to avoid the high tax rate on the balance remaining at your death, this benefit is lower or disappears if you have less money or no money at death.

  1. “In general, it would appear that strategies of paying tax sooner to avoid higher tax later are rarely as effective as they would first appear”

The strategies used by planners when advising you to take money out of your RRSP earlier to save taxes frequently do not provide the projected results.  Therefore, you need more information before acting on such presentations (see 1. above).

  1. “The challenge of drawing clear and convincing conclusions is even greater for couples than for singles. Pension-splitting and the effect of first death on living expenses significantly expand the uncertainty around the marginal effective tax rates.  A modest difference in investment returns can lead to an entirely different income split, with the effective tax rate applicable to the drawdown strategy including phase-out of GST credits for low income spouses rather than OAS clawbacks for the higher income spouse.  Differences in government benefits and spending that arise after the death of the first spouse clearly play a role in assessment of drawdown strategies, but the nature of that role is obscured by uncertainty as to when the period of survivorship will begin and end.”

For married and the common-law couples, the projection of whether to take money out of the RRSP early is much more complicated because there are two sets of variables to consider, one for each spouse.  This is further complicated by the need to consider the timing of death for each spouse.  When does the first person pass away, and how much longer does the second spouse live? The resulting income, expenses, life insurance and the government benefits for the survivor need to be considered.

  1. “While there are sophisticated ways to approach the drawdown decision, the need for financial plans to cost-justify the effort and explain the conclusion to clients are serious obstacles.”

In order to make the decision on when to drawdown your RRSP, a thorough retirement plan must be prepared.  It needs to provide you with multiple scenarios, and consider your most probable future circumstances.  Computer software for testing results using multiple simulations may be more expensive than that used by some planners today.  In some cases, rates of return, inflation rates, life expectancies, etc. may be locked in by “head office” preventing presentation of various scenarios.  If appropriate software is used by the planner, then the time to run these simulations will take longer, resulting in additional wages paid by an employer to your planner, and/or extra fees to you.  Consequently, the cost of this plan, in comparison to possible financial benefits received, becomes an obstacle, particularly when the cost will be incurred whether or not the plan leads to a meaningful decision.  Who faces this obstacle: the planner or you?  Who is paying for it?  If you are paying, you may be reluctant to spend the money when the effort may not yield a solution.  If the cost of the analysis is borne by the planner as part of the built-in fees of the account, they may hesitate doing a proper analysis.  This will avoid the costs of the needed sophisticated software,  as well as the time for training with the software and doing the analysis.  Consequently, the lack of comprehensive planning may lead to recommendations that are contrary to your best interest.

  1. “It is unlikely that any depth of analysis could lead to a drawdown decision that could be implemented and applied for an extended period of time without review. As circumstances change from year to year, the merits of drawdown options will change.”

If the required sophisticated retirement planning is done, the decision made to draw early needs to be revisited from year to year.  Changes in the many variables, such as a change in tax bracket, investment rate of return, lifestyle expenses, etc. as discussed above, may change the decision.

My Thoughts

So far in this article, I have been providing my opinion of what the research study is telling us.  I think bullet points numbers 6 and 7 above set out the overall conclusion.  Now I will provide you with my thoughts, which do not vary much from what you have already read.  My first observation is this.  With respect to the RRSP drawdowns. I see a recommendation for early withdrawals being made by a lot of financial planners these days.  I do not think this should be any advisor’s “starting” position for long-term retirement and tax planning.

Common factors to consider in reaching any decision include:

  • Will you need to spend all of your money during your lifetime? If so, then your tax rates, rate of return, timing of withdrawal, and from which source you first take your money (e.g., your non-registered accounts, your TFSA or your RRSP), and other factors, will impact your wealth over time.
  • Are you going to be in a substantially higher tax rate in retirement? This is not the usual situation, as most people will have lower incomes when living on their Canada Pension Plan (CPP) and Old Age Security (OAS), and perhaps an employer pension plan, instead of a pre-retirement full-time working salary. If you have a large RRSP, it is possible that withdrawals could push you into a higher bracket, but this is something your advisor should be able to help you predict.  You need to take into account that pension splitting of your RRIF with a spouse and other tax planning options may also help reduce your tax bracket.
  • Are you (or both spouses, if married or common-law) expected to die young? This is also unusual as you have approximately a 50% chance of making it to age 90 if you are over age 50. See actuarial tables as summarized in FP Canada Standards Council® in their publication of Projection Assumption Guidelines for 2024. However, if you die young, and do not have a spouse as your beneficiary, you may have more money remaining in your RRSP that is taxed at death.  This could result in a higher tax rate than if you had taken it out gradually before hand.  Unfortunately (fortunately?), we cannot predict this age.  Your advisor can run projections using different life expectancies to see if higher taxes will be an issue at certain ages.
  • Will you be entitled to the Guaranteed Income Supplement (GIS) in retirement? The GIS is for very low income individuals, i.e., less than about 20,000 for individuals and $26,000 for couple (before OAS), in 2023. RRSP withdrawals can reduce your GIS by about 50 cents per dollar of RRSP income, so withdrawals before starting the GIS usually makes sense.
  • Will you be subject to repayment of your Old Age Security in retirement? Repayment (“clawback”) occurs when an individual is making over $87,000 (based on 2023 rates, with that amount increasing by inflation each year). Taking RRSP withdrawals may avoid some OAS repayment, but your current tax rate is also a consideration in this circumstance.  You need to calculate:
    • the change in future taxes (higher now, maybe higher or lower later, including after OAS and CPP starts);
    • the amount of lost income in the future on the reduced RRSP balance;
    • the increase in your OAS (based on your chosen start date, which can be from age 65 to age 70).

In other words, if you draw early, will you have more money in the future, either to spend while alive and/or to leave in your estate?

With respect to early withdrawal of your RRSP under any circumstances, think of this simplistic example.  Assume you are in the 40% tax bracket today, and you have $100,000 in your RRSP earning 5% per year, being $5,000 annually.  If you withdraw $100,000 over the next few years from the RRSP, pay tax on it, and re-invest it, you will be left with $60,000 to invest.  Instead of making $5,000 per year in your RRSP, which will remain there and be reinvested for future growth, you will be earning only $3,000 on the $60,000.   Going forward, you will be paying tax on that $3,000 of annual income each year, leaving you with only $1,800 per year to reinvest.

If you left that $100,000 in your RRSP, and then drew it out at the same tax rate of 40%  in retirement, you would have more money.  This is because you would have growth on $5,000 of re-invested income each year, instead of the growth on only $1,800 per year.  You would be even further ahead if you can draw it out at a lower tax rate in retirement.  If you live to a reasonable life expectancy, but had a lot of money remaining in the RRSP, you may pay tax at about 50% on the balance remaining if your total income is over $236,000 (in 2023).  However, that extra 10% tax cost may very well be more than offset by the additional investment earnings on the postponed tax bill.

As noted above, if you are in a non-typical situation with higher income in retirement, then my assumptions may not hold true for you.   In addition, if your higher income in retirement results in repayment of your Old Age Security, the above assumptions may also not hold true.  However, this will depend on the total amount of income you are earning in retirement, your rate of return, your tax rate, how long you live and the degree to which the OAS is impacted.

My Example of a Misleading Analysis

One of my first experiences many years ago with an advisor recommending early RRSP drawdowns was as a way to attract new business.  I warn you that the next few paragraphs are going to be a rant from me.  Jump to my closing paragraph if you wish.

I have seen a few planners use the scare tactic of high taxes upon death to convince potential clients that they had a way to reduce those taxes, and therefore, they should change advisors to get better advice.   The recommendation was the use of an early withdrawal from the client’s RRSP.  In one all-too-common scenario, individuals were told to (a) borrow money as an investment loan, (b) purchase securities in the stock market,(c) deduct the related interest on their tax return, and (d) use that deduction to offset an early withdrawal from their RRSP.  They showed potential clients they would have more money at death if they took money out of their RRSP early in this manner.  However, they were only shown two scenarios, which was misleading.  Coincidentally, this plan resulted in purchase of additional investments and acquisition of a line of credit, both of which can result in additional commissions and referral fees for an advisor.

An objective presentation would have shown a third scenario with the same assumptions and borrowing technique but with the money kept in their RRSP as long as possible (i.e., no regular withdrawals).  In this third scenario, the individuals would get the same interest deduction.  They would receive a tax refund because of the interest deduction (instead of the refund being used to offset a taxable RRSP withdrawal).  The tax refund could then be re-invested.  This method would result in the individuals having even more money upon death then either of the other two scenarios.  Ironically, this third presentation would generate as much or more in commissions and referral fees; however, it was a much harder sell.  First, it did not result in lower taxes at death on the RRSP, which was the initial sales pitch.  Although it generated higher total wealth using the same assumptions, the key problem with this scheme would become more obvious – the risk of loss.  In fact, my problem with both of these possible recommendations is that they are high-risk leveraging investment plans.  This is especially so because borrowing money to put in the stock market is a high-risk manoeuvre and is not recommended for low income, low net worth or inexperienced investors.  In many cases, the potential clients would not meet the required suitability guidelines imposed by securities regulators.

Many people should not be borrowing money to invest in the stock market because of high risks, and these risks need to be portrayed clearly.  Borrowing money can be used to make more money, but can result in losing even more money unless the investment portfolio is successful.  Borrowing $50,000 to purchase $50,000 of investments might sound like good idea if the investments increase in value.  If the investments decrease in value, you still need to repay the $50,000 loan plus the interest, and need to use other savings to do so.

In summary, their presentation is misleading unless all three options are shown.  Incidentally, the above method uses a trade marked name, which I have been forbidden to use after my letter to the editor of an online financial planning magazine was published showing the flaw in the sales pitch.  However, while one planner said they would show me an error in my published calculations, they did not to follow through.  I wonder why?


The take away from this article is that you should not withdraw money early from your RRSP without having a written financial plan demonstrating its effectiveness under various alternative scenarios.  As always, my articles are my opinions, and other professionals may disagree.  I am always learning, so if you disagree, I welcome your analysis and constructive criticism to improve my knowledge.

Blair Corkum, CPA, CA, R.F.P., CFP, CFDS, CLU, CHS holds his Chartered Professional Accountant, Chartered Accountant, Registered Financial Planner, Chartered Financial Divorce Specialist as well as several other financial planning related designations. Blair offers hourly based fee-only personal financial planning, holds no investment or insurance licenses, and receives no commissions or referral fees. This publication should not be construed as legal or investment advice. It is neither a definitive analysis of the law nor a substitute for professional advice which you should obtain before acting on information in this article. Information may change as a result of legislation or regulations issued after this article was written.©Blair Corkum