Can you have too much money in your RRSP?

Can you have too much money in your RRSP?

Earlier this year the Registered Retirement Savings Plan (RRSP) celebrated yet another birthday. This means for decades Canadians have had a great opportunity to defer taxes and growth their retirement nest egg using the RRSP.  But can you have too much money in your RRSP?  I’ll provide my answer in a bit.

History of the RRSP

The RRSP was created in 1957.  Back then I read that contribution limits were 10% of the previous year’s income to a $2,500 maximum.  If Canadians did not contribute to this account in any given year, that year’s contribution room was gone – forever.  The rules have obviously changed over time, for the better.  Canadians can now grow/maintain their contribution room over many years.  The change happened in the early 1990s – contribution limits changed to 18% of the previous year’s income and account holders then could carry-forward contribution room.  Indefinite carry-forward contribution room was established in the mid-1990s and remains this way thankfully.

Why the RRSP rocks

The RRSP is a kick a$$ retirement account for these two main reasons:

  1. There is a tax deduction for your contribution, and
  2. There is tax deferred growth.

With your tax deduction you can reduce the taxes you pay today.  (We took advantage of this feature this year for us.)

With tax deferred growth investments can grow over time without being taxed as long as the money made stays in the account.  (We take advantage of this every year since we don’t dare touch our investments.)

For most Canadians, to reap the benefits of this tax deferred account, this means they should maximize their contributions in their highest income earning years and have a plan in place to withdraw monies inside the account when they are in their lowest income earning years (likely retirement).  This is because you’re not as rich as you think:  when you take money out of the RRSP you have to pay the tax on the money withdrawn.

Not just a tool for the wealthy – the RRSP can make you wealthy

While the RRSP has heavy competition now in the form of the TFSA – the basics for all Canadians are outlined here – the RRSP remains one of the best retirement saving options available.  Here are other benefits you might not have considered:

  • Free money might be available. Although employer-sponsored pension plans (defined benefit and defined contribution) are becoming extinct, many employers still offer some sort of Group RRSP including plans that provide matching.  This is essentially free money.   Take advantage of it.  Join your RRSP matching plan if you have one at work.
  • It encourages a behaviour of long-term savings. There is withholding tax associated with this account; given RRSP withdrawals must show up as income on your tax return.  Knowing this I believe this is a disincentive to use any RRSP money for short-term needs.  In my opinion short-term money needs are not the same as investing.  Investing is a long-term, multi-year plan.
RRSP Withdrawal AmountWithholding Tax
Up to $5,00010% (5% in Quebec)
$5,001 to $15,00020% (10% in Quebec)
$15,001 +30% (15% in Quebec)
  • Most Canadians are likely to retire with a lower income (than their working years).  For this reason, there is a net tax savings if you use this account.
  • U.S. tax reporting exemptions.  The Canada-U.S. tax treaty recognizes RRSPs as tax-deferred accounts for U.S. tax purposes.  This means there is little worry about foreign income reporting.

How can the RRSP make you wealthy?

Using the super simple RRSP calculator from this page a 30-year-old who contributes $5,000 per year into their RRSP, for 30 dedicated years, earning 6% on average over that timeframe will own over $420,000 in their account at age 60.  Assuming couples can do this, that’s approaching $1 million combined at time of retirement.

$1 million invested wisely in low-cost ETFs is likely to churn out at least $30,000 per year for life starting at age 60.  Combine that with Canada Pension Plan (CPP) and (Old Age Security) government benefits and it’s not a stretch for many Canadian couples to earn $50,000-$60,000 per year in retirement without a workplace pension.

To do this however you would need to 1) save early 2) save often and 3) mind your money management fees.

Now to the question: can you have too much money in your RRSP?


However, this is an excellent problem to have.

Instead of a cash flow issue in retirement you have a tax issue.

In my opinion the latter associated with managing taxes in retirement would be a great problem to have.  Your ability to earn an income in retirement may be compromised or non-existent for many reasons, maybe your health.  If you have a healthy retirement nest egg you’ve eliminated the income problem.

Saving now can pay dividends (literally) later on – which is actually part of our plan.

I’ve read a number of articles and case studies about seniors complaining about the tax-hit on RRSP withdrawals.  I suspect these seniors didn’t realize the RRSP account structure very well.  I can’t necessarily fault them – there’s lots of information (and heavy marketing) about contributing to RRSPs.  There is very little information about asset decumulation.

Common questions about asset decumulation I read about go something like this:

  • What registered accounts do I draw down first?
  • How much income will my investments generate?
  • Do I have any idea how long this income might last?
  • What amount of taxes will my RRSP withdrawals incur?
  • When should I take my workplace pension (if you have one)?
  • Is it more beneficial to draw down non-registered money before RRSPs and TFSAs?
  • And much, much more…

Through this blog I’ll tackle all these questions and many, many more at some point for us because these are very important questions for us to answer too!

In our 40s now, our future approach is to:

  1. draw down RRSP assets strategically to smooth out taxes with time.
  2. spend most/all RRSP assets before CPP and OAS
  3. use up non-registered investments before TFSAs in our 60s or 70s; and finally…
  4. leave government benefits (take CPP at age 70 and take OAS at age 65) along with TFSA assets until “the end”.

We are seriously considering deferring CPP and/or OAS past age 65.  You might want to consider the same. 

I haven’t done all the math on this yet but this is a high-level plan. Your approach and situation may vary.

At the end of the day, having a nest egg in your 50s and 60s that forces you to navigate the tax implications of your RRSP decisions is a great problem to have.

This will only occur if you contribute to this account early and often.

The RRSP became a senior by turning 60 recently.  You can benefit from this account now and for decades to come if you know the rules and use them to your advantage.

What do you think?  Can you have too much money in your RRSP?  Is this a good or bad problem to have?  

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

68 Responses to "Can you have too much money in your RRSP?"

  1. Great post Mark. Thanks for all your insight.
    I just turned 60, and just retired from full time work. There is a 7 digit RRSP waiting for me to start drawing down in a year. Are there advantages to converting some or all of it to a RIF before 71? Or, should I just withdraw from the RRSP accounts annually. I want to draw down RRSP, LIRA, RIF then CPP, OAS, unregistered, and TSFA last, staying in a tax efficient bracket, etc.
    There isn’t a lot of detail on RIF vs RSP withdraws before 71.

    1. Congrats on the 7-digit RRSP – well done.

      As you know, you don’t need to convert all RRSP assets to RRIF but you can always do some. Many retirees do some (not all) to help smooth out taxes.

      You are correct about RRIF vs. RRSP withdrawals and I hope to write more myself as a form of self-help in the coming years.

      Given RRSP withdrawals are essentially the same as RRIF, re: you are getting money you need to pay for things, you might want to consider the advantages of the RRIF whereby is it steady withdrawals vs. RRSP that could be x1 or x2 per year lump sums. You can always start with the lump sums and see where that takes you after 1-2 years. Probably my plan.

      This is my asset draw down thinking FWIW:

  2. I’ve maxed out my TFSA and nearly maxed out my RRSP (only $681 of room left on my RRSP – the contribution limit doesn’t go up very much anymore due to me contributing to a pension).

    If I reach the maximum, and withdraw some of those funds for a home purchase (home buyers plan), do I get back that contribution room for this year (if at all, as I believe unlike the TFSA, RRSP contribution room doesn’t bounce back the following year, it’s gone for good, but I’m assuming under the HPB we’re allowed/forced to – otherwise penalized – to contribute back what was taken out over 15 years or less).


    Just wondering, as I have to turn off my employee volunteer RRSP contributions to my Sun Life account soon, if I am not allowed to continue contributing (without penalty) after I take withdraw in a couple of months.

    1. The way the HBP works…if you take money out of the RRSP for a home purchase you don’t get back the contribution room. You’re effectively borrowing your own money. Repayments will not affect your future RRSP contribution limits.

      Yes, you are forced to repay your $1,666.66 ($25,000 divided by 15 years) under the HBP. You can pay this minimum or more.

      Also, only what you contribute to the RRSP, excluding the amount associated with your HBP repayment plan, can be used as part of the RRSP tax deduction.

      I hope that helps Greg! Not tax advice, just something to consider!

      1. Okay so if you took out the $25,000, your contribution room does not restore, but it remains there. So theoretically you could withdraw the $25,000 and pay back $25,000 same year with no penalties, as you’re repaying the loan (not that you would but say you won the lottery, etc – and you are not required to start making payments back until the 2nd year, but theoretically again you could repay it right away).

        So if your total contribution room was say $50,000, and you had $50,000 in there and withdrew $25,000 for HPD (no penalties there). You still have $50,000 for room, but starting in year 2 you must begin repaying ($1666.66 per year) or you would receive a penalty for not doing so. You can repay it sooner or in larger sums to pay it back sooner.

        Can you put this money back in the same year?
        (IE if you withdrew $25,000 when your RRSP was at the maximum amount with no contribution room remaining as part of HPD, you could put back in $1,000 in the same year as the withdrawl)?

        Just trying to figure it out, as I am thinking of withdrawing a portion of my RRSP to increase my down payment, I am $681 away from the maximum contribution room (putting in $400 per month), and even if I withdrew a portion of the RRSP, would I be able to keep contributing to my RRSP and count some of it for taxes and some of it for repayment of the withdrawl in the same year?

        1. My understanding is…

          1. your existing total contribution room is $50,000,
          2. you take out $25,000 for HBP; that must be paid back within 15 years; you start in year 2 – otherwise a penalty is incurred,
          3. you can repay it sooner for sure….

          Understood, just trying to figure it out. But for simplicity, think of the HBP as borrowing money from your future self, money you owe back, and RRSP contribution room already lost because of the original contribution made. Good luck with your decision!

  3. @Helen: Here’s my fee sharing….
    13 years ago I retired from full-time employment. After paying a fee for my first RRSP W/D, I immediately switched over to a RRIF (I also don’t like to pay to withdraw my own money even if there is a deduction allowed at tax time). I have been investing with TD Price Waterhouse since 2013 (I switched when my broker wanted to go from charging $125/year to over $2000/year to administer the account). Because of the amount in the account, I do not pay an annual administration fee (in 2013, the minimum amount required to be in the account to be eligible to pay no fees was $25K). I take out more than my minimum W/D amount (almost double) and still only pay the 10% withholding tax with no de-registration fee. There is no yearly accumulation calculation for withholding of taxes. I am absolutely not a millionaire (not even close!) so I don’t think I have preferential treatment. Why am I so blessed when others appear not to be? …. Could it be that I only W/D quarterly?

  4. For an international perspective, when we left Canada my wife’s pension was rolled I to a LIRA, being new to investing I went safe and put it all into a 30 year strip government bond. Who knew interest rates were about to collapse. 20 years later I calculated that it average nearly 11%, but going forward it would only be 2%, being a strip and all. So I sold it and moved To ETF.

    Now with retirement fast approaching I’ve started looking into withdrawals, my fear was I’d be forced to cash out the whole thing, but thankfully I can make periodic (think that is the correct term) withdrawals subject to 15% withholding tax. Of course I have to pay tax here as well. Our intension is to return to Canada at some point, figure once we hit our 80’s at that point I’d to use that money to get settled back in but as they say, best laid plans of mice and men LOL

  5. De-registration fees: It would be good if others shared how much their financial institution charges (if they charge) to withdraw your money from your RSP/RIF, LIRA/LIF.

    I shared that BMO InvestorLine charges $50 for amounts over the minimum withdrawal amount. ($25 for 5-star clients)

  6. Bonnie, I agree with interpreting Helen’s link above differently. It’s clear CRA allows single withdrawals not requested or planned in advance to be done at minimum withholding rates, not cumulative. An institution may have their own rules but since I have done sixteen separate withdrawals at minimum rates in 2 years I know this to be true, as RBC would not be breaching CRA rules-for long, if ever. I also recently set up a minimum withdrawal LIF with no withholding tax, and was told this has no affect on any RRSP “single” withdrawals withholding tax so we’ll see later this year. It all has to be reconciled at tax time so the benefit isn’t much regardless.

    1. Exactly. In my early 40s, so I haven’t seen this in action for myself yet, my understanding and all observations are that regardless of how the withholding taxes work for a discount brokerage – it is just withholding tax – it must be reconciled at tax filing. This is simply the government’s way of ensuring they start getting their loan back sooner than later.

  7. I agree this blog topic is great. However, I looked at your link Helen, and I’m interpretting it differently for SINGLE withdrawals and MULTIPLE instalment withdrawals (known in advance by your institution)

    “Withholdings on Multiple Withdrawals

    The issue concerns the lump-sum withholding rate that should be applied in a situation where an annuitant requests that a particular amount be withdrawn from a plan or fund by means of a series of payments (instalments).

    Should the withholding tax rate be applied based on the amount of each individual installment or the total of all payments (the total amount of the withdrawal requested)?

    CRA’s position

    It is the CRA’s longstanding position that, when qualifying lump-sum payments are split into multiple payments (installments), and that each payment is made in fulfillment of a single compensation that is known in advance, the withholding rate applicable to the total payment is used.

    If each payment is a separate payment, the lower rate of withholding applies to each.

    For example, if at the beginning of the year you receive a request to pay a client $1,500 per month out of the client’s RRSP for an annual amount of $18,000, you would apply the withholding rate of 30% to each installment payment. Because the total amount of the withdrawal for the year was known in advance, the withholding rate applicable to the total amount withdrawn is to be applied.

    If, later in the year, the client requests an additional withdrawal that is over and above the installment payments, you should use the rate that applies to that payment only.”

    You still have to deal with the de-registration fee 🙁

    1. I don’t recall there are any ways of getting around the account de-registration fee unless they are waived by the discount brokerage. Those banks and financial companies like their money 🙂

  8. This blog topic is great! There is so little written on de-accumulation.

    About RSP withdrawals & with-holding tax: I phoned BMO InvestorLine today to inquire. They said that while they cannot speak for other financial institutions, their rules are that taxes are applied on an annual cumulative basis. So. it doesn’t work to expect to be able to withdraw, for example $5,000 each quarter and expect only the minimum tax of 10% to be applied. The annual total withdrawal would be $20K, therefore 30% with-holding tax would apply. BMO says their back office tracks the withdrawal amounts. This link validates this:

    Further, a “de-registration fee” applies for each withdrawal. The normal fee is $50. (It is $25 for their 5-star clients).

    RIF/LIF withdrawals; No fees are applied for the minimum (government mandated) withdrawals. If the withdrawal is over the minimum, then the $50 de-registration fee applies.

    I don’t like the idea of fees to withdraw my own money, but it is what it is

    BTW: I found the comments made by Dividend Earner to be very sensible.

    1. Hey Helen

      That sounds like quite a bummer with BMO on both the fees and how they collect the withholding taxes. I’m with RBC Direct Investing and if you are a Royal Circle Member (> 250k total family assets) then there are no withdrawal fees. They also calculate withholding taxes on the transactions for a single day, not the whole year (I think RBull or some else mentioned this earlier).

      If I was you, I’d seriously think about transferring my assets form BMO to RBC. I transferred from TD to RBC about 7 years ago and it was very simple and smooth. I’m been quite pleased with RBC DI on a number of different fronts (research, quotes, trades, reporting, etc).

      I”m 64 years old, have been retired for just over 3.5 years, have no company pension, started my CPP right at 60, and have been working hard to draw down both my RRSP and my wife’s spousal RRSP (she was a stay at home mother) so we’ve been doing about a dozen withdrawals and in kind transfers per year.

      As an aside, I think I put too much into our RRSPs and would have been better off with putting more into our non-registered accounts instead. (and of course TFSAs if they had been introduced earlier)


      1. Thanks for the input Don. My understanding is most discount brokerages collect the withholding tax differently. My parents are with TD and I instructed them to withdraw $5,000 from each RRSP before the end of each year, starting a few years ago. They are not 71 yet but will be (both) within 5 years. They get charged $25 for each transaction. I know of other investors with RBC and they have no withdrawal fees. Kinda nice. I’m actually going to lobby TD for that myself 😉

        Anyhow, parents have company pensions and are now collecting both CPP and OAS. They are VERY fortunate with their pensions but now is also the time to use RRSP withdrawals to ensure no loans are taken to pay income tax, to travel, to spend, etc. If you’re not doing this in your 60s or 70s, there will never be a time. I think they are seeing the value of this now. For many years, they thought they had to wait until age 71.

        There is no value in them waiting until age 71, to hoard a bit of money in their RRSP, only spend potentially more in taxes as they get when they’ll need help with tax filing, etc.

        Everyone is different but certainly anyone with a great pension in their 50s and 60s, can likely afford to draw down RRSPs sooner to avoid more taxes in their 60s and 70s with CPP and OAS come in and maybe better still, there is an opportunity to defer both to have more fixed income if you draw down RRSPs sooner.

  9. I read recently that in the retirement and de-accumulation stage, your single biggest expense is INCOME TAX.

    I wonder how the super-rich minimize their income tax payable.

  10. I just wish that the TFSA option had been around earlier, it would have given more options.

    As it is we will have to pay tax on RSP withdrawals and tax on some pretty hefty capital gains if we cash in shares in our non registered accounts.

    1. I hear ya. I figure all my wife and I can is the following:
      1) max out TFSAs and RRSPs
      2) pay off our home
      3) invest in a tax efficient way in our non-registered accounts
      4) live our lives 🙂

      If we can do all 4 of the above, we’ve done very well.

  11. In my post above, I should have mentioned the reason for opening a LIF (transfer from a LIRA) or a RIF (transfer from a RRSP) early is to take advantage of the $2000 annual Pension Credit starting at age 65. Mark and his readers have mentioned this before. A LIRA to a LIF is more restricted than a RRSP to a RIF. You can choose to only transfer $2000 per year into the RIF, just enough to be able to take out the $2K for the Pension Credit. (You may need to take a bit more out, just to keep the RIF account open.)

  12. Bonnie, if you convert it to a RIF to get the money out, you may be eligible for the $2,000 pension income tax deduction. Funds taken out of an RSP do not qualify for this tax credit.
    I don’t think the amount of tax would be any different as either would be considered ‘income’ except for possibly being eligible for the $2,000 pension income deduction if you converted to a RIF. With my ex–RRSP RIF I am required to take out a minimum of about 5% a year and there is no maximum limit applied.
    A modest amount of tax is withheld. It shows up on my T-5 the next year and reduces my total tax payable in April. Whether it is a smaller percentage than what is required to be withheld from an RRSP withdrawal, I don’t know. It seems to be.
    I would give some more thought to retiring early if your almost-$80,000 RRSP would only last a year. Sounds like you may still be carrying a fair amount of debt. First step is to figure out your expenses and the income you would need to cover them. I retired at 66 and like many single women of my age had only modest savings, most of which was in a defined contribution pension plan. However, I had almost no debt which has since been reduced to $0. Between CPP, OAS and my LIF/RIF withdrawals, I manage quite nicely on less than $35,000 a year and I have a choice between maxing out my TFSA each year or a vacation or a home reno project. You have enough time to get reading and I recommend Gail Van Oxlade’s books.

  13. Love your blog Mark, so much common sense. Totally agree with your post, so much focus on accumulating and not enough on decumulating. My wife and I are both retired, both have defined benefit pensions( I know I know, we hit the jackpot with those), CCP & OAS. Each year in about November / December ( so I have an accurate feel for our total income for that year) I withdraw enough from our RRSP’s to keep us just under the OAS clawback limit. That money then goes into our TFSA for the next year. Any left over goes into our non registered account. By the time we hit 71 and have to convert to a RRIF, the minimum withdrawal should be low enough to stop any OAS clawback
    As for withholding taxes on RRSP withdrawals, well we all know we have to pay tax on RRSPs eventually. If it is only 10% because I pull out less than $5,000, and I am in a higher tax bracket than 10%, then I’ll have to pay more the following April. If it’s 20%, then I have just paid my taxes on that 4 months sooner than I would like, but oh well.

    1. Thanks Ken. One of my goals of this site is to try and write clearly, concisely and with a purpose. I don’t always succeed but it’s great to hear feedback if I capture something people feel passionate about.

      With x2 DB pensions – you are set – but you know this. This makes it smart to withdraw from RRSPs to avoid OAS limit. You want OAS since it’s paid from government revenues – so it’s your tax money. You are also smart to fill up any money you don’t need at this point in your TFSA. That account is golden 🙂

  14. I will be 55 when I retire in Dec 2019 (actually could retire now at 53 with magic 80 but I want to add to my work pension, RRSP/TFSA and nonregistered accounts). I didn’t know you could turn RRSP into RIF before age 71? What is the advantage of turning it into RIF early, as opposed to just withdrawing from RRSP? Is the withdrawal tax rate determined by previous year’s income tax return?(ie. 2019 tax year) Right now my RRSP is less than $80k, but its enough to defer my pension for 1 year. Also I was wondering if you do defer your pension let’s say for 1 year, (and I’ll have to check with my employer) does it change my monthly pension if it sits in my employer’s account for a year? I’ve also wondered about the advantage of taking a lump sum payment of my pension (instead of guaranteed monthly payments) and investing that in a LIRA? Any thoughts on that one?

    1. The tables I’ve seen show a RIF factor for age 55 so I’m guessing this is the minimum age one can convert (assumption on my part which may be incorrect). One advantage of converting earlier would be related to fees and withholding taxes. As I said, the withholding rate has nothing to do with income. It is jut a guide for the financial institution.

      As for taking a commuted value. There are many considerations. Inflation protection of the pension being a big one. The other is the ability of a person to invest. Not everyone has that ability. I also took into consideration the fact that most pensions have a survivor benefit that is substantially less than the actual pension. From a LIRA/LIRRSP the funds are unlocked and the full amount belongs to my spouse.

    2. Yes, you can convert some or all of your RRSP earlier than 71 if you choose. The key consideration is an RRIF will lock you into at least minimum withdrawals for life, as set by the fed govt. Mark has a chart somewhere on here with them. At age 55 for example the amount is 2.86% of your RRIF balance and rises each year. Minimum withdrawals do no have any tax held at source unless you request it after considering your entire tax picture. Amounts above minimum are the same as for RRSP withdrawals or higher if you request.

      I would think about and research very carefully converting a DB pension benefit into a lump sum benefit. Why would you want to do this? You would have to have a professional do the math, but is doubtful to me it would be beneficial financially and you would assume more risk, and work involved in investing it. The MB govt is a pretty sure thing.

      1. RBULL,

        How do you know I work for the MB govt?
        I have decided I’m going to take my DB pension in monthly payments at 55 as it will be a substantial sum after 35 years of employment. Why mess with a sure thing? Less stress knowing I can eat and pay my bills. I think I’ll just continue to tinker with my TFSA, RRSP and non reg accounts and leave my work pension alone. Thanks to your blog Mark, I’ve dodged a future mistake.

        1. Happy to run this site where it provides an opportunity for me and others to learn.

          The “sure thing” (i.e., pension) is a decision you won’t likely regret – ever. Stability of income and predictability is key when it comes to money. I think this is a smart decision. Just my $0.02!


        2. Bonnie, I don’t know MB govt. for sure but the reference to magic80 gave me a strong clue.

          Probably a very good plan to take your substantial monthly payments, and invest your personal savings.

          G/L with your upcoming retirement.

    3. Absolutely – an RRSP can be converted to a RRIF at any time. Any age. You can consider converting 25% or 50% or whatever amount of your RRSP into a RRIF. The rule at age 71 is a “forced” conversion. Basically, the government wants their money back sooner than later because RRSP was always tax-deferred money not tax-free!

      The longer you can defer a good pension, and not bump you into the next tax bracket or incur early withdrawal penalties with a pension, the better. You are basically keeping fixed income intact for longer – the longer you live.

      Ask your employer if your benefit is higher or your penalty for early withdrawal is lower – if the pension remains with your employer for another year or two.

      With lump sum payments, you would need to run the numbers but typically, and I mean typically, those pensions are golden and provide fixed income for you regardless of what the stock market may or may not do – this is a HUGE advantage.

      Some articles for further reflection:

    4. I disagree with some of the replies who say taking the lump sum is crazy. Yes, a DB pension is golden, HOWEVER, the lump sum value of a stream of pension payments is calculated based on long term interest rates. Interest rates at at historic lows. So let’s say your DB pension is $40k a year. How much money does your company have to set aside to provide you with 40k a year in today’s interest rate environment? The answer is a lot .,….so based on your age etc the lump sum offered to you will be over a million or 2 million. If interest rates go up to 10% , how much does your company have to set aside to guarantee you 40k a year for life ? The answer is ALOT less.

      Another way to think about it is that taking the pension versus lump sum is like investing in an annuity. So if you were sitting on a million dollars right now would you invest in an annuity??? Likely not. BUT if interest rates were 10% you might consider locking into an annuity. The choice is the same with your pension.

      When you are ready to retire, your HR department will give you options with the actual $$ involved. You might be surprised , depending on the interest rate environment at the time, how attractive the LSP option is.

      I retired last year ..only had 10 years with Co. so only qualified for 13,000 pension. Was surprised when cash value was 354,000 with 200,000 eligible to be in LIRA . No brainer IMO to take the money. After discussing with coworkers who are experts in the field ( disclosure —I was in investment business) they said “yes of course, anyone who takes the pension instead of the cash value in this environment is nuts)

      1. I don’t think a lump sum is crazy, it all “depends”.

        You really need to think about the solvency of your pension. If it is with government, Canadians will be fine. If it is with private industry, I would likely think twice.

        “So if you were sitting on a million dollars right now would you invest in an annuity???”

        Absolutely not for me given your interest rate reasons.

        Good case study Jim. Thanks for sharing.

  15. This is a very timely topic for me. I am currently looking at the best tax efficient strategies to start to de-accumulate my RSP and LIRA several years before I turn 71. I’ve run many calculators and they are telling me that when I am about age 85 and up I will have to make pretty large withdrawals from the RIF and pay some big taxes. This is if I stick with the traditional path; opening a RIF at age 71 and transferring my stock portfolio to the RIF, and continue with good conservative, reasonable annual returns, So, I want to avoid being a little old lady having to make huge RIF withdrawals, pay huge taxes, and not have the energy or zest for life left to enjoy my hard earned and hard saved money.

    Can anyone recommend a good tax accountant in the Toronto area?

    1. Helen,
      Your comments are too funny but so true for me as well “I want to avoid being a little old lady having to make huge RIF withdrawals, pay huge taxes, and not have the energy or zest for life left to enjoy my hard earned and hard saved money.” Maybe KPMG could help? Lol, sorry, been watching CBC documentary about shell company tax havens. But seriously, this is an issue I maybe be facing as well. I want to spend before 75, when I don’t have the energy to travel anymore.

    2. Unfortunately I don’t know any good tax accountants in Toronto that work on a fee-only basis for retail investors. You could start with this list though?

      Have you tried the RRSP/RRIF calculator on this page Helen?

      For just an example, I found $30k withdrawn from $500k RRSP/RRIF that continues to earn 6%, each year, is basically “cash for life” until age 94.

      You can then add in what you might expect from OAS + CPP, plus other income, and see what your income might need to be.

      Hope that helps provide some insight.

  16. Bonnie, I don’t know the rules for deferring your pension. You don’t say how old you are and that may make a difference. I haven’t done on the math on this suggestion but, if you are able to defer your workplace pension and aren’t yet either 60 or 65 when CPP and OAS respectively can kick in, I think you are able to turn your RRSP into a RIF product. You could then draw on the RRSP funds to provide an interim pension. For example, if age 58 (so can’t get CPP or OAS) you could take out $10,000, $20,000, $30,000, etc. Of course, it would be taxable income then but a good way to reduce the balance before your workplace pension kicks in along with CPP and OAS and the eventual requirement to put the RRSP into a RIF product at age 71 and your income goes up again. I hope this at least gives you some ideas to work on and explore much further. I can’t guarantee all the foregoing is 100% correct.

    1. Pat is on the right track – having a healthy RRSP value gives you options. RRSP withdrawals could be considered pension-like and/or you can turn some or all of your RRSP into a RRIF at any time to get steady income.

      One of the key benefits of this account is withdrawing from your RRSP in your lowest income years to help you benefit from the net tax strategy.

    2. Great considerations Pat. Yes, some pensions can be deferred to continue their growth and/or avoid incurring early withdrawal penalties. Using personal savings (some, doesn’t need to be all) before workplace pension + government pensions take effect (CPP and OAS) can be a good way to smooth out taxes.

  17. Excellent post. Regarding decumulation of assets you said you plan to “spend the majority of our RRSP assets before taking any workplace pension income”. Like you, I have a defined workplace pension that will kick in after I retire Dec 31,2019. How do I delay receiving my work pension in 2020, so I can withdraw down my RRSP’s only at the minimum withholding tax rate? Is the withholding tax marginal rate for 2020 based on my 2019 tax year (my highest year earnings)? If that’s the case, then do I have to wait to earn nothing in 2020, before I drawn down my RRSP in 2021? What do I live on for 1 year (2020) if I’m not working, not drawing my work pension, and can’t withdraw from my RRSP until the next year (2021)? I know these are tax law questions, but I”m just curious about this stategy, as it’s getting closer………..:)


    1. Hi Bonnie

      I notice a fundamental error in your thinking re: minimum withholding tax rate. The withholding tax is just a guide issued by the government for the financial institution that sets how much withholding tax is applied at RRSP withdrawal (or RRIF if more than the minimum). It is not likely going to correspond to any kind of actual tax rate that will become apparent on filing. I don’t overly concern myself with fitting into any specific withholding rate as I know it will all come out in the wash when I file. Those that have a set income level can likely determine to a decent degree of accuracy their overall tax rate but I have a variable farm income that makes that more difficult. Ideally, a person could add up all their income, all their deductions/credits and come up with where they lie in the tax tables.

      As for your pension plan. If you are qualified to receive your pension without any kind of reduction then I do not see the advantage to defer it (even if can be deferred). Take the pension, withdraw RRSPs if it makes sense and be thankful you are set for life. I had intended to retire at 50, defer my pension until 60 to avoid the age penalty and withdraw RRSPs in the interim. Due to illnesses in the family it didn’t work out and I had to work to 55. Will I have “too much” in my RRSP? Ya, but that’s a good problem to have IMO and I can live with paying taxes later as necessary. I also consider the RRSP to be a kind of insurance policy for my family in the event of me getting hit by a bus or something. It can be transferred to spouse and child’s RDSP without incurring taxation.

    2. Thanks Bonnie. Depending upon the rules of your plan (talk to your employer), you may be able to defer to your pension date. Like another comment, if you are qualified to receive your pension without any kind of early withdrawal penalty (I have this on mine, if I start my pension at 55 vs. 60 or 65) then I think you should take it as soon as you can. Then, you can consider taking pension + RRSP withdrawals before OAS and/or CPP start to minimize taxes.

      Having such options in life you are VERY lucky. 🙂

  18. I invest in my RRSP, but I feel like the advantages aren’t really there.

    The main problem I see is that we withdraw and pay taxes on it at the marginal rate. If it was in a taxable account, depending on what we hold in there, chances we’d pay taxes on it as if it was capital gains, which is 50% of what our marginal rate is.

    We usually say that the plan is to add money in RRSP when your income is high, and withdraw when it is low, however I can’t see my income tax ever being lower than my capital gain tax. Unless the liberals decide to push it up and it evens out.

    I often have internal debates about whether to invest in RRSP or taxable.

    1. Jon, I think you are misunderstanding the structure of the RRSP. When you withdraw money from your RRSP, you are not paying any taxes on your part of the RRSP (including the growth) but you are giving back to the government it’s part of the RRSP, including the growth. How come? Say, for simplicity, your marginal tax rate is 50% when you put the money in and when you take it out. Say you put in $20,000. You now have an RRSP with $10,000 belonging to you and $10,000 belonging to the government. You have your account and the government’s account. You also have $10,000 from your tax deduction to save or spend. Say your RRSP grows to $100,000. Now you have $50,000 in your account and the government has $50,000 in it’s account. You then withdraw the $100,000. You get to keep $50,000 (all the growth on your $10,000) and the government gets to keep $50,000 (all the growth on it’s $10,000). You pay no taxes on the growth of your account and no taxes when you take money out of your account (just like a TFSA). It feels like you are paying taxes at your marginal rate, but you are not. You are just paying back the government’s money and the growth on it.

      You sometimes hear people saying they are converting capital gains taxes into marginal rate taxes when they take money out of an RRSP. Not true. Or you shouldn’t hold dividend paying stocks in your RRSP because you are losing the dividend tax credit. Not true. No taxes are obviously better than dividend taxes. You are always better off investing in an RRSP (OAS clawback issues aside) rather than a taxable account (assuming your marginal rate is not higher in retirement) and that’s even before the tax arbitrage benefit if you marginal tax rate is lower in retirement, which is the case for most people.

      1. Thanks for your detailed comment Grant. Clearly you know the rules.

        I agree with you certainly on this one, since you know how I invest: …”you shouldn’t hold dividend paying stocks in your RRSP because you are losing the dividend tax credit.” Big deal.

        I think in most cases you are better off investing in tax deferred accounts to the extent possible while you’re working. Only my wife’s RRSP has room now for us so we try and eat our own cooking on that front 😉

        1. I don’t think this comment matters …”you shouldn’t hold dividend paying stocks in your RRSP because you are losing the dividend tax credit.” It’s like saying don’t buy stocks because you lose capital gains taxes. What do you buy? bonds? There is no money to be made in bonds. Stocks can have an average return of 8%-10% per year. My portfolio has a 12.75% annual return since 2009. You cannot make these choices based on a future tax rate because the name of the game once the money is in an account is to make the most money you can and not to obsess over the inevitable taxes you have to pay. If I can triple my money in the RRSP account because of the tax refund I put back in it, why not?

          Yes, there is tax efficiency but investing in a dividend stock isn’t just about taxes. All my holdings for example pay dividend including my US dividend stocks in my RRSP. The reality is that those investment have a great return for me (including the dividend) and in a RRSP account, the return should be what matters in the accumulation years. In the retirement years, the dividend you withdraw may play a role but at the end of the day, it’s no different than withdrawing from an index fund.

          There is a tax consideration in retirement to take into account but when you are accumulating, you want your money to work and make more money and it should hopefully do it tax free so that all your money is at work faster. It’s almost like you would have wanted GOOGLE in a non-registered when they IPO and hold it to this day, you would have never paid any taxes on it until you start selling and then it’s taxed at a capital gains rate. TFSA is the new account that makes it a no-brainer over non-registered. Fill it up but don’t be mistaken that the refund from a RRSP contribution should be put to work and make more money rather than fund a repair on the house or a trip to Vegas. That’s just plain non-optimal budgeting.

          My TFSA is full and I am working on filling my spouse right now. Same apply to the spousal RRSP, I need to even it out to balance taxes at withdrawal. That’s the amount of tax planning I am doing during the accumulation years. I agree with others when they comment on filling the TFSA first and wait to be in a higher tax bracket than move your TFSA in RRSP and take the refund to fill your TFSA back up. Use it as a funnel. I personally fill both up.

    2. No problem Jon. The RRSP is not for everyone. You’re right about the capital gains taxes, it is a low form of taxation. But I wonder for how long at 50%?

      We’ll see I guess…what the Liberal agenda really is.

  19. Excellent post – as you state there is very little information on the decumulation of assets.
    The industry mantra of maximizing RRSP can in many cases be the wrong thing or less optimal to do.

    My current strategy is to figure out which marginal rate band I’m in before year end (mid December) and then withdraw enough from the RRSP to bring me to the limit of the band (i.e. not bump me in the next marginal tax rate level). I’m assuming here that I will always be facing higher tax levels going forward. Withdrawn amount goes to first to max TFSA, then consumption and if any is left over to non-registered account.

    One small note making a number of withdrawals at the minimum (<5K) rather than a larger one does not to work – the institution looks at the cumulative withdrawals over the year to determine the withholding rate (this is apparently mandated by CRA) – work around is to have multiple RRSP accounts in different institutions (not worth the trouble imo) or simply draw the larger amount late in the year minimising the length of time the withheld sum is in CRA hands before being credited in your tax filing.
    Also note that each withdrawal also has a fee attached (at TD- $25 subject to GST/HST, of course 🙂 )

    1. fbgcai, I’m not sure if you have tried multiple minimum tax RRSP withdrawals before but it does in fact work at RBC. I discussed this specifically with them and was told there is no cumulative rule from CRA. Since then I have completed 8 minimum RRSP withdrawals each of the past 2 years at the lowest rate-10%. The rule is each withdrawal (per account) must be done on a different day. ie not 8 on the same day. I plan to do multiple minimum tax withdrawals again later this year, which takes less than 20 seconds each after being logged in.

      I do not have any withdrawal fees with my Royal Circle account.

    2. Great to hear from you on this.

      Sounds like you’ve done some great homework – bring you “up” to the point whereby you’re not in next tax bracket. We hope to have the same plan eventually.

      Like you, as we age, I’m also assuming taxes are just going to go up in Canada over time. This includes a cap on TFSA contributions and higher capital gains taxes. Not fun…but at least I/we will be prepared to fight the good fight with options.

  20. Excellent post Mark. I agree with all you’ve said.

    We did the bulk of our saving starting with the RRSP. Nowadays though it is so much easier for people to learn and discuss with boards/blogs etc. like yours than for 2/3 of the time we were saving. This is working perfectly for us now in retirement drawing money from RRSPs at much lower tax rates than when we were employed and earning more. We planned and expected this, although the future is unknown with tax rates and trending of growing government spending and debt pile = ultimately higher taxes. This is part of the reason we have also chosen to withdraw more now from RRSPs than we spend in order to fund our TFSA contributions, smooth taxes and maintain our unregistered acct (tax advantaged for now) rather than use it to fund TFSAs. I choose to make numerous RRSP withdrawals for each of us at the minimum withholding rates and owe at tax time, rather than overpay initially at higher rates. YMMV

    As your post indicates its very important for people to understand the options today and carefully consider what avenue they choose, if they don’t have the ability to maximize and benefit from both TFSA and RRSPs. It is impossible to recommend exactly what approach is best for people without knowing specifically what their situation is and making some assumptions. Also no one knows what future tax rates will be and if TFSAs will truly always be exempt from cap gains/income tax etc. ie – they may affect OAS some day.

    1. Thanks RBull. I think you and other successful retirees (that saved enough) are smart to “smooth out taxes” prior to collecting CPP and OAS.

      While it’s impossible to create rules that work for everyone, I would agree it’s important for investors to know know their options. Blindly keeping your RRSP intact until age 71 (with RRIF rules must come into effect) is not smart IMO. I can appreciate not everyone can max out RRSPs or TFSAs or even one of those for that matter. But options are there for folks and they can choose wisely accordingly to support their future income needs.

      1. Absolutely. Blindly keeping RRSPs intact or blindly contributing when it won’t be beneficial tax wise, or missing the opportunity to contribute to spousal plan where it makes sense are some bad ones. From that standpoint the TFSA is a simpler decision to save and benefit.

  21. Super post Mark. We certainly didn’t give the matter much thought when we were piling funds into our RRSP’s, It was great for compounding and growing the balance, but when we finally started drawing down funds we got a real tax shock. Of course this was before the PC’s reduced withdrawal rates. Not only is it taxed at the highest rate, the amount required put us close to an OAS for clawbacks. When the PC’s dropped the rates we immediately saved over $10k in taxes. We’ll eventually have to pay but at least its spread over a longer period, and there’s always hope there will be another drop in the withdrawal rates down the line.
    It’s the reason I believe young people (actually everyone) should max out their TFSA before adding to an RRSP. Pay a bit more in tax now and be much happier later.

    1. I didn’t give much thought either in my 20s, I was simply told to “buy RRSPs” 🙂

      Of course I realize much more now.

      I would agree with you about the TFSA first. I actually do this myself.

      This is because the taxation of that money is known today, taxed before money goes in; as long as the government doesn’t tinker with the rules there is no tax on the money coming out – regardless of income, which is huge. TFSA is filled with dividend paying stocks and REITs.

  22. Would it ever make sense to withdraw from an RRSP during a year of low-to-no income? Assuming it would be to simply get some out (at a low withholding rate) to invest in a taxable account?

    1. I think so Skube but every investor decision is different. I think the key for folks is, invest in high income years or at least working years, and withdraw when income is lowest – to get the net tax savings.

    2. There could be times where a withdrawal during low/no income years would make sense for some people. One thing to remember though is that once removed, that contribution room is gone. It is not re-instated like a TFSA is.

  23. I was a huge fan of RRSPs and started early (19). One of the best things I did. Having a large pool of RRSPs gave me options I might of not otherwise had. I don’t sweat about having to pay taxes or worry about a clawback.

    Having said that, with the advent of other programs (RESP, TFSA, RDSP,etc etc), people have to be aware of THEIR situation and know which tools are for which job. It ain’t black and white anymore. Plus there is always the good chance the government of the day will change any program so what we have now might not be what we have in 20-30 years. Having options is good IMO.

    1. It’s refreshing to hear that Lloyd: “Having a large pool of RRSPs gave me options I might of not otherwise had.”

      I’m glad I started when I did as well, in my early 20s, thanks to my parents. My RRSP is now fully maxed out, in part thanks to my workplace pension that reduces available contribution room but I’ve also worked hard to save thousands into this account in any given year.

  24. Withholding tax on withdrawals is not a penalty., & the witholdong tax is not severe. It might be severe if you are in the top tax bracket, & it might be -0- if you have no other income. How is -0- tax considered severe? Equating withholding tax with actual tax paid is ludicrous & makes no sense whatsoever

    1. Thanks for your comment Steve. Maybe my wording wasn’t as clear as it could have been. You are taxed on money withdrawn from an RRSP.

      The withholding tax, I feel, which is what you may pay to withdraw the money anyhow (this is calculated at the time of tax filing) is a disincentive to withdraw from your RRSP if you money is needed for any short-term savings.

      I was not equating withholding tax as a penalty over and above what money you are taxed on. I have clarified the wording – so appreciated if this wasn’t clear. Cheers.

    2. The withholding tax can never be zero to my knowledge. You might get it all back on filing, but the financial institution has to apply the appropriate withholding tax.

      1. Agreed, my understanding is something is always taken off the top; immediately upon withdrawal. Even if you take about $50, withholding applies.

        A consideration to avoid this therefore is converting RRSP to RRIF, withdrawing RRIF min., although you will be taxed on any money withdrawn as well.


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