Should I start withdrawing from my RRSP before 71?
By Krystian Urbanski, CIM, CIWM, FCSI, PFP · Chief Retirement Strategist, RetirementIQUpdated · 3 min read
Often, yes, if your income is low between retirement and 71. Withdrawing RRSP money in those years, often at lower tax rates, can reduce your lifetime tax, shrink the RRIF minimums you are forced to take later, lower the OAS clawback and leave less taxable money in your estate. It can also let you delay CPP and OAS.
Why the years before 71 matter
Many people retire in their early 60s with little taxable income until CPP, OAS and RRIF minimums all arrive. Those years can be the cheapest time in your life to pay tax. Leaving everything in the RRSP until 71 can mean larger forced withdrawals later, higher tax brackets, OAS clawback and, at death, the remaining balance taxed as income in one year unless it rolls to a spouse.
When an earlier drawdown usually makes sense
- You have retired, or cut back, before 65 and your income is modest.
- Your RRSP is large compared with your other savings.
- You want to delay CPP or OAS for larger lifetime pensions.
- You are single, or likely to be the surviving spouse, and would face a large tax bill at death.
When it may not
- Your income in your 60s is already high (for example, from a workplace pension).
- You would spend the money rather than move it to a TFSA or use it for planned costs.
- You have little in savings and may qualify for the Guaranteed Income Supplement later.
How to do it well
Lump-sum RRSP withdrawals have tax withheld (10% to 30% outside Quebec), which can be less than your final tax, so plan for it. Converting part of your RRSP to a RRIF at 65 can make withdrawals eligible for the pension credit and for pension income splitting.
Susan and Tom retire at 62 with $900,000 in RRSPs and modest other income. Drawing about $40,000 a year each from 62 to 70, and delaying CPP and OAS to 70, keeps each of them in a lower tax bracket throughout and leaves smaller RRIFs, so their RRIF minimums at 72 no longer push them into the OAS clawback.
What to do next
- Map your taxable income for every year from retirement to 72.
- Identify the lower-income years and how much room they leave in each bracket.
- Move surplus withdrawals into your TFSA.
- Coordinate with your CPP and OAS start ages.
Free tools that help
Related questions
What is an RRSP meltdown?
A planned strategy of drawing down RRSP or RRIF savings earlier than required, often in lower-income years, to reduce lifetime taxes and the OAS clawback.
Is withholding tax the final tax on an RRSP withdrawal?
No. It is a prepayment. The withdrawal is added to your income for the year, and your actual tax is settled when you file.
Can I put RRSP withdrawals into a TFSA?
Yes, if you have room. You pay tax on the RRSP withdrawal, but future growth in the TFSA is tax-free and does not affect the OAS clawback.
Have a question we have not answered?
Send it in. The most common questions become new answers here and notes in Sunday Coffee with Krystian, the weekly email for Canadian retirees.