Ask MoneySense
I have a $180,000 defined contribution (DC) pension plan from my former employer and must decide whether to transfer it into a personal locked-in retirement account (LIRA) at Manulife—where the group plan currently resides—or to another LIRA to invest directly in ETFs through my bank.
I am 52 and considering retiring at 55. I have about $120,000 in RRSPs. I also have a LAPP pension that would pay roughly $600 a month if I start collecting at age 65.
My husband is 53 and expects to retire in two years. He has about $37,000 in RRSPs and a defined benefit public pension plan (DBPP) that would pay roughly $33,000 a year if he retires at 65 (about 0.3–0.4% less if he retires at 55).
We can claim Canada Pension Plan (CPP) at 60 ($600), 65 ($940) and 70 ($1,335) for me; my husband’s approximated CPP amounts are $669 at 60, $1,045 at 65 and $1,484 at 70.
We currently carry a mortgage balance of $280,000 and expect it to be about $230,000 when my husband retires in nine years; mortgage amortization could be longer if interest rates stay high. Our children will finish university in two years.
What is the best strategy for my DCPP/LIRA? Is retiring at 55 realistic while continuing mortgage payments? What’s the optimal approach to withdrawing from our various pensions and retirement accounts?
—Beni
What’s the best strategy for pension plan and retirement savings withdrawals? Set up a plan
Beni, before making any transfer decision, start with a clear retirement plan. Any recommendation about transferring a DC pension, managing RRSPs or timing CPP depends on the lifestyle you want in retirement, the income you’ll need and the timeline for using each source of funds. Without those assumptions, advice will be generic and may not suit your goals.
Begin by documenting your current spending and lifestyle. Estimate future expenses (housing, utilities, travel, health care, discretionary spending) and project them at different ages. From those projections, determine a target annual retirement income and the age you want to stop working. Update this plan annually so it stays realistic as markets, interest rates and family circumstances change.
What to know about DC pension plan withdrawals
Taxation and withdrawal rules for your defined contribution pension are the same whether you keep the money in the group plan or move it into a personal LIRA. So the transfer decision should primarily hinge on investment options, fees, service quality and whether you want hands-on control (for example, direct ETF investing) versus convenience and potential advisory support at your existing provider.
Your required retirement income should determine when you withdraw from DC/LIRA accounts and from RRSPs/RRIFs. There’s no tax advantage to always starting one account type before the other, because withdrawals from registered plans are taxed as regular income. However, DC/LIFs often have maximum annual withdrawal limits, so those rules can affect sequencing. Generally, you may begin with accounts that are constrained by minimum/maximum rules while managing tax brackets and eligibility for government benefits.
How to think about RRSPs, LIFs and sequencing withdrawals
One practical framework: plan to use your RRSP/RRIF balances so they are largely depleted by an advanced age you pick (for example, age 80), while preserving your guaranteed sources of lifetime income—CPP, OAS and defined benefit pensions—for later years. Your DC pension will convert to a life income fund (LIF) when you start withdrawals, and LIFs often have both minimum and maximum withdrawal rules that differ from RRIFs.
If you aim to exhaust RRSP/RRIF funds by age 80, you’ll still have CPP, OAS and pension income left. Based on the CPP/OAS estimates you provided and your husband’s pension, this could deliver a substantial base income in later years. Check whether your workplace pensions are indexed to inflation and whether any bridge benefits drop away at 65, as this influences purchasing power over time.
Be cautious about withdrawing extra from a RRIF solely to top up a TFSA. While this can make sense in some tax-planning scenarios, taking additional RRIF withdrawals increases taxable income, may push you into a higher tax bracket and could reduce some income-tested benefits or credits. Follow your spending plan and withdraw only what you need each year.
Delaying CPP to age 70 increases your lifelong guaranteed CPP income and helps protect against outliving other savings. The trade-off is having lower guaranteed income in the early years of retirement. If you have good workplace pensions or sufficient savings to cover early retirement years, delaying CPP can be a sensible longevity-insurance strategy.
Finding qualified advice for retirement plan transfers and withdrawals
Also plan for survivor outcomes. When one spouse dies, CPP income and OAS will generally be reduced to the survivor’s entitlements, pension survivor benefits may change, and you’ll lose pension income splitting for two taxpayers. Consider how pension survivor options, joint-and-last-survivor annuities, or RRIF beneficiary designations affect household cash flow after a death.
In summary: don’t rush to transfer the DC pension without comparing fees, investment choice and support. Create a retirement cash-flow plan showing income and withdrawals by year, test scenarios for retiring at 55 versus later, and evaluate mortgage affordability under each scenario. A certified financial planner can model the different transfer and withdrawal sequences for taxes, benefits and longevity risks and help you determine whether retiring at 55 is feasible while maintaining mortgage payments.
Read more on retirement planning:
- Can you pay off your debt while saving for retirement?
- The best ETFs for retirement income
- Is semi-retirement stressful? Here’s what to do about it
- DC plans once you retire: What do you do with them?