Many retirees hold the bulk of their savings in registered, tax-deferred accounts such as Registered Retirement Savings Plans (RRSPs). By law, RRSPs must either be used to purchase an annuity or converted into a Registered Retirement Income Fund (RRIF) by December 31 of the year the account holder turns 71. RRIFs require annual withdrawals beginning the following year, with each required payment based on a percentage of the account’s value.
The same age-71 conversion rule applies to locked-in RRSPs, defined-contribution pensions and deferred profit-sharing plans (DPSPs). For those in their 50s and 60s, two key questions are: when should withdrawals begin, and how much should be taken each year?
As a simple guideline, many discussions around sustainable retirement withdrawals suggest a rate in the range of 2% to 5% of the account’s starting value, adjusted annually for inflation. This is a theoretical guideline rather than a precise recommendation, because appropriate withdrawal levels depend on the retiree’s age, life expectancy, risk tolerance, investment fees and other personal factors.
RRSPs can be converted to RRIFs at any time. The federal RRIF minimum withdrawal schedule increases with age: for example, the minimum rate in the year the owner turns 60 is 3.23% of the prior year’s year-end market value, at 65 it is 3.85%, and at 70 it rises to 4.76%.
Expected future capital inflows—such as proceeds from downsizing a home, selling a cottage or receiving an inheritance—can change optimal withdrawal timing. For retirees who anticipate a significant future infusion of funds, taking additional RRSP withdrawals in their 60s may be reasonable because those investments will be replenished later. Withdrawals taken earlier can also reduce future taxable income spikes when the larger capital sum is invested, which may help minimize lifetime taxes.
Retirees in their late 50s or early 60s often have at least two government pensions they can defer: the Canada Pension Plan (CPP) and Old Age Security (OAS). CPP can be started any time between age 60 and 70; OAS normally begins at 65 but may be deferred until 70. Members of defined-benefit workplace pension plans can frequently defer their employer pension start date as well.
Deferring CPP or OAS is a common reason to withdraw from an RRSP earlier. For a 65-year-old who defers pension income until age 70, deferral increases lifetime government pension payments, but it also means the retiree may need RRSP withdrawals in the interim to cover living expenses. Even when not strictly necessary, early RRSP withdrawals can help avoid moving into higher tax brackets later and may reduce the risk of OAS clawbacks if future income is high (OAS clawback thresholds change over time; planners should verify current levels).
At age 65, RRIF withdrawals and other eligible pension income can qualify for a pension income tax credit and the ability to split up to 50% of eligible pension income with a spouse. Converting an RRSP to a RRIF after 65 can therefore provide tax credits and income-splitting advantages not available for RRSP withdrawals.
On the other hand, retirees holding significant non-registered investments may prefer to delay converting their entire RRSP to a RRIF in their 60s. RRIFs require a minimum annual withdrawal that cannot be skipped; RRSPs offer more flexibility, allowing withdrawals to be postponed in years when a taxpayer realizes large taxable gains in non-registered accounts. Careful income management can let retirees take advantage of lower tax brackets—often below $50,000 for many individuals—or plan to use up to the highest marginal brackets as their situation dictates.
Strategic RRSP and RRIF withdrawals serve multiple purposes: they can reduce lifetime tax liability, preserve or maximize government benefits that are income-tested, lower tax exposure at death (since RRSPs, RRIFs and similar accounts become taxable on death unless transferred to a surviving spouse), and enable contributions to Tax-Free Savings Accounts (TFSAs) that grow tax-free. In addition, withdrawals that allow a retiree to defer CPP and OAS can improve inflation-protected government pension income later in life, providing longevity protection.
Ultimately, people in their 50s and 60s should actively plan RRSP withdrawals as part of a broader retirement income strategy. Thoughtful timing and sizing of withdrawals can help maximize after-tax retirement income for both the retiree and their beneficiaries.
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