"I have a significant RRSP that will soon convert to a RRIF. I’m terrified that the mandatory withdrawals in my mid-70s will push my income so high that I lose my Old Age Security (OAS) benefits."
This is an incredibly valid concern for many successful Canadians. The traditional financial advice has always been to "defer, defer, defer"—keep money tax-sheltered in an RRSP as long as possible.
But retirement planning isn't linear. Sometimes, following standard advice can lead to a "tax trap" in your later years. At JMH & Co., we often model scenarios to see if accelerating withdrawals—taking money out sooner than required—might actually lower your lifetime tax bill.
The RRIF Reality Trap You spent your working life getting tax deductions for contributing to your RRSP. By the end of the year you turn 71, that account must convert to a Registered Retirement Income Fund (RRIF) or an annuity.
Starting the following year, the CRA requires you to take out a mandatory minimum withdrawal. These withdrawals are treated as fully taxable income.
The catch? The required percentage increases every single year you get older. While you might only need a small amount to live on, the government may force you to take out—and pay tax on—much more.
The "So What?": OAS Clawback and Estate Taxes Why would anyone voluntarily pay tax sooner by taking out more than the minimum? There are two primary drivers for this strategy:
1. The OAS Recovery Tax (Clawback)
OAS is designed for lower-to-middle-income seniors. If your net world income exceeds a certain threshold set by the CRA (for the 2025 tax year, it begins at $93,454), the government starts "clawing back" your OAS at a rate of 15 cents for every dollar over the limit.
If your mandatory RRIF withdrawals push your income deep into clawback territory later in life, you are effectively facing a massive marginal tax rate on that income.
2. The Ultimate Tax Bill on Death
This is the factor most often overlooked. If you pass away with a large balance in your RRIF and do not have a qualifying survivor (like a spouse) to roll it over to tax-free, the entire balance is brought into income on your final tax return.
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For a large RRIF, this pushes the estate into the highest marginal tax bracket in Alberta.
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Your estate could lose nearly half of your hard-earned savings to the CRA in one single swoop.
Strategic Advice: When Acceleration Makes Sense
The goal of accelerating withdrawals is tax "smoothing." It means intentionally taking taxable income in your 60s or early 70s—perhaps when you are in a lower tax bracket than you will be later—to reduce the size of the RRIF over time.
This strategy might make sense for your situation if:
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You have a "gap years" opportunity: You have retired in your 60s but have not yet started CPP or OAS, meaning your current taxable income is temporarily low.
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You have TFSA contribution room: You can withdraw taxable RRIF money now, pay the tax, and move the net funds into a Tax-Free Savings Account for future tax-free growth.
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Your RRIF is substantial: The projected minimum withdrawals in your late 70s will definitely trigger OAS clawback.
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Legacy is a priority: You want to maximize the after-tax inheritance for your children rather than deferring taxes until death.
Conclusion
Accelerating RRIF withdrawals is not a simple decision. It requires complex modeling to ensure you don't trigger clawbacks now to save them later, or worse, deplete your savings too early.
Navigating these retirement income waters can be complex, but you don’t have to do it alone. Whether you are just converting your RRSP or already navigating RRIF minimums, our team at JMH & Co. is here to help you optimize your strategy.
Contact us today to schedule a consultation to review your retirement tax plan.
This blog was written using the assistance of AI.
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