Making RRSP Withdrawals for Early Retirement
I continue to get lots of reader emails and questions about the timing of making RRSP/RRIF withdrawals – which makes this post very valuable to me/us as we plan our own RRSP withdrawals very soon!
Read on, let me know your thoughts, and I will include references to our plan that hopefully helps you out too – as you make your RRSP withdrawal decision for any retirement too.
Making RRSP Withdrawals for Early Retirement
What is the best age to convert your RRSP to a RRIF?
There isn’t one.
I mean that.
I say that because you would have to predict the future and work backwards: inflation, spending needs, rates of return, taxation rates are all subject to constant change.
That said, instead of trying to be perfect, good enough will be close enough.
I know this based on my own work over the years preparing our financial independence budget and from my work supporting hundreds of DIY investors who are planning their own retirement income needs and wants.
A reminder if you ever want some low-cost retirement income planning projections completed for you, hit up me here. I also offer a nice discount to all My Own Advisor readers as a thank-you for following this site. Just ask and you get the discount. 🙂
Back to the subject, RRSP withdrawals could take a few key formats:
- Lump-sum RRSP withdrawals – before converting your Registered Retirement Savings Plan (RRSP) into a Registered Retirement Income Fund (RRIF), or
- Converting some or all of your RRSP into a RRIF at a certain age, or
- Delaying RRIF conversion until the very latest age possible.
I’ve found dealing with hundreds of DIY investors over the years, the option #3 is not usually wise but I’ll come back to that point as we go through each key age milestone option below.
While every personal finance decision is personal, I’m going to highlight a few key RRSP milestones to consider including sharing my own plan that will come into effect very soon…
To convert or not to convert – is that the question?
A reminder you can convert an RRSP to a RRIF at any age. There is no minimum age requirement.
One option I referenced above is to convert your RRSP to a RRIF (or buy an annuity, etc.) by the end of the year you turn 71.
My parents did that a few years ago. They turned 71, they converted their entire RRSP to a RRIF. That was more flexible for them than buying an annuity.
In the following year after you turn age 71, you must make your first mandated RRIF minimum withdrawal. That withdrawal rate will increase as you age. Age 71 is the deadline though: you must convert your RRSP to a RRIF by December 31st of the year you turn 71.
Here’s how forced RRIF withdrawals work:
- Take your RRIF value: The calculation starts with the market value of your RRIF holdings on January 1st of the year you are withdrawing.
- Use the Prescribed Factor: Your age, or the age of your younger spouse/common-law partner if you elect to use that, determines a prescribed factor to be used. (This factor is typically 1/(90 – age) for ages below 71). This factor rises as you age – the government wants their money back.
- Calculate: Multiply your RRIF value by the prescribed factor which calculates the minimum amount you must withdraw from your RRIF that year; and that RRIF income is taxable income.
Combining 1-2-3, this table below shows the RRIF minimum payout percentages for different ages, I’ve started at age 65 in this post to keep things simple.
| *Age At Start Of Year | RRIF Minimum Payout Percentage |
|---|---|
| 65 | 4.00% |
| 66 | 4.17% |
| 67 | 4.35% |
| 68 | 4.55% |
| 69 | 4.76% |
| 70 | 5.00% |
| 71 | 5.28% |
| 72 | 5.40% |
| 73 | 5.53% |
| 74 | 5.67% |
| 75 | 5.82% |
| 76 | 5.98% |
| 77 | 6.17% |
| 78 | 6.36% |
| 79 | 6.58% |
| 80 | 6.82% |
| 81 | 7.08% |
| 82 | 7.38% |
| 83 | 7.71% |
| 84 | 8.08% |
| 85 | 8.51% |
| 86 | 8.99% |
| 87 | 9.55% |
| 88 | 10.21% |
| 89 | 10.99% |
| 90 | 11.92% |
| 91 | 13.06% |
| 92 | 14.49% |
| 93 | 16.34% |
| 94 | 18.79% |
| 95 and older | 20.00% |
* Keep in mind that different rules apply for RRIFs that were set up before the end of 1992 but given that was 30+ years ago this may not apply to many of you.
A reminder you can always withdraw MORE than the RRIF min. value but this may have (more) tax implications such as withholding taxes.
Making RRSP Withdrawals for Early Retirement
OK, knowing the RRIF mins. listed above I’ve broken down some RRSP withdrawal considerations for early retirees into some age-related milestones:
- Option 1 – Early Withdrawals (e.g., ages 50-64): Make RRSP lump-sum withdrawals or convert some of your RRSP to RRIF.
- Option 2 – Traditional Conversion (Age 65+): Convert some or most of your RRSP to RRIF for pension income splitting benefits.
- Option 3 – Forced Conversion (Age 71): Convert entire RRSP to RRIF if not already done.
Pro Tip Reminder: Use your spouse’s younger age if you are able to reduce your minimum withdrawals when you start your RRIF.
Option 1 – Early Withdrawals Ages 50-64
In making lump-sum RRSP withdrawals before age 65, you can be strategic.
This is our plan.
We will not convert our RRSP to RRIF in early retirement.
We will make lump-sum RRSP withdrawals for these primary reasons:
- We will get the retirement income we need, AND
- We can start to “smooth out taxation” over a period of time from those RRSP withdrawals. This will be important to think about especially if you have other retirement income sources like we do: say, part-time work, a corporation salary, taxable dividends, a future workplace pension or other income sources coming online at some point.
That said, some form of early RRSP to RRIF conversion can also be very smart in that:
- Minimum RRIF withdrawals are not subject to withholding tax.
- Many financial institutions charge fees for RRSP withdrawals, but RRIF withdrawals are often structured and free.
- You desire a predictable retirement income stream.
Generally speaking though, early RRSP to RRIF conversion may not make too much sense since it can reduce flexibility.
If you are receiving eligible pension income, or RRIF income at age 65+, then you may be entitled to claim both a federal and a provincial/territorial tax credit. The federal nonrefundable pension income tax credit is on the first $2,000 of eligible pension income, which translates into maximum federal annual tax savings of $300. The amount of additional provincial/territorial tax savings varies depending on where you reside.
More details: https://www.taxtips.ca/filing/pension-income-tax-credit.htm (TaxTips.ca)
Option 3: Forced Conversion Age 71
While an option, this may not be the best…but read on.
Waiting until age 71 to convert your entire or remaining RRSP to a RRIF could be helpful for the following:
I converted my RRSP and LIRA to RIFs at 55. These two accounts were the basis for funding my retirement. I had savings in my TFSA but no other income so incurring fees for taking money out of my RRSP didn’t make sense for me. My LIRA has the minimum and maximum brackets so I tend to take the max from this account as it is the most inflexible. I then supplement my income using my RRSP. I take more than the minimum from my RRSP so once again that is another reason to have converted since the minimum withdrawal was not going to be an issue for me and once again, being who I am, I really didn’t want to pay any extra fees that I didn’t have to pay.
Nice, Paul.
I’m going to covert my LIRA to LIF at age 55 in a few years – start spending that.
I will need to take $$ out of my RRSP in 2027+ (and moving forward) to fund early retirement. Just part of the plan all along, along with a small corporation salary and taxable dividend income.
I do know many clients I support struggle with RRSP/RRIF withdrawals but interesting once they start, it seems they are more than fine. Likely some wired behaviour there from 30+ years of saving and investing, some behavioural biases to overcome. I will need to do the same. 🙂
Yes, after having saved for so many years, changing over to that spending mindset can be an adjustment.
Funny thing about my LIF, once I had it set up, the stocks in that account started to perform very well. It ended up increasing the amount I could take this year as my account had grown more than I had withdrawn and I was withdrawing the max. So this year I have reduced the amount I am taking from my RIF and increased the amount I am taking from my LIF.
I am actually taking more from those accounts than I need to fund my lifestyle but the plan is to take the amount and move it to my TFSA. It was also to smooth out taxes over the full life of my retirement as opposed to having a large tax bill later.
You have good problems re: higher returns via LIF. 🙂
“I am actually taking more from those accounts than I need to fund my lifestyle but the plan is to take the amount and move it to my TFSA.”
Yes – perfect plan to MAX out the TFSA(s) into your 70s…then you can spend that or create any estate legacy you wish!
Mark
Waited until we were 71 (now 77 and 79) to convert each of our RRSP’s to RRIF’s. That said, around 62, realized there would be tax consequences in retirement. I opened a a non registered account and started moving stocks “in kind” from each of the RRSP to the non registered. Moving $4999 worth of stocks “in kind”, the tax is 10% and I would transfer $4,999 each day until I had moved whatever I wanted that year knowing it would be deed to income and I would pay the tax in April. Once you RRIF, you cannot do that as the withdrawal amounts accumulate and any amount over $15,000 is 30% withholding tax. As I did not have an advisor, perhaps we would have RRIF’d part of our RRSP’s earlier but I still had control. With the benefit of TFSA’s, what remains in our RRSP, I can transfer stocks in kind there. We spend the dividend income (stopped drips at 72) and that opens more room in the TFSA.
Seems very wise, Bev, re: get the money out of the RRSP to your TFSA. I know many retirees that have done that or are doing that!
Do you keep your DRIPs on inside the TFSAs?
Thanks for sharing,
Mark
We stopped the drip in all accounts once we RRIF’d and spend our dividend and interest income. I withdraw any remaining accumulated cash in the TFSA in December and in January I transfer stocks in kind to the TFSA whatever new room is now available. Once I have $0 balance in my RRIF, I may restart the drip and just take income we need from our non registered cash account and start drawing leaving the TFSA to grow. Would have to take capital gains into consideration though. Now I can move stocks in kind from the non registered account to my husband’s TFSA as his RRIF is closed. I don’t know if these decisions have been right or good for someone else but the thought of our estate losing 1/2 or more from the RRSP/RRIF investments was upsetting. Perhaps we have paid more tax than we could have but I shudder to think what tax we would be paying today if the RRSP had been left growing “TAX FREE” over the past nearly 20 years.
Amazing, Bev.
We only have DRIPs ON inside our TFSAs today. Been that way for about 2 years now.
I will update this post but I intend to do this for 2027: “….move stocks in kind from the non registered account”…
https://www.myownadvisor.ca/should-i-transfer-stocks-into-my-tfsa/
RRSPs/RRIFs are great, but to your point, I think the more folks understand this is just one account they can defer tax with, the better. It’s just one tool in the investing toolbox. At least those are my thoughts since RRSPs/RRIFs, TFSAs and non-registered accounts can work together well.
Mark
Hi Mark,
Great post, and very relevant as I’m considering early retirement in the next 2–3 years. As I’ve mentioned before, I follow a Connolly-Mah dividend growth investing strategy. Our portfolio is currently allocated 64% RRSPs, 22% non-registered, and 14% TFSAs.
Because of the relatively high RRSP weighting, our plan is to use an RRSP melt strategy in the early years of retirement while continuing to reinvest non-registered dividends. After a few years, we’ll transition to a hybrid approach by adding some non-registered dividend income alongside RRSP withdrawals to help smooth taxes. We’ll also continue contributing to and reinvesting dividends in our TFSAs until around age 65, then begin drawing tax-free income from those accounts. We’re planning to defer CPP to age 70 as well.
Although I’ve run a number of retirement projections over the years (including your CAP projections about five years ago), I still recognize there are things I may be overlooking. We’ve hired a fee-only financial planner to validate our strategy, identify any blind spots, and prepare a comprehensive retirement plan. I went into the process with the mindset that I don’t know what I don’t know and wanted an independent perspective.
Thanks again for continuing to publish these posts. I also really enjoy reading the comments—there’s always something to learn from the DIY investing community.
Nice to hear from you, JL!
Good stuff on the stocks – Canadian stocks have done well.
I like Henry’s approach, I do, just that I believe his concentration risk is a bit risky and he’s missing out on returns from around the world in the process.
If the RRSP is large (good problem), then yes, time to take it down in value and defer at least CPP in the process to buy yourself some time.
Only happy to help you out with the projections but certainly a fee-only planner might but I would be surprised if your drawdown order is vastly different than RNT (Registered, Non-Reg. and TFSAs).
I appreciate your kind words and keep me posted! 🙂
Mark
I RIF’d so I could take the minimum tax free at the beginning of the year, top up TFSA and have some income. We can’t split income yet, but it works for our plan to begin spending some of it to smooth out taxes. It’s also possible to switch a RIF back to an RRSP (for those who make unexpected income). That way you aren’t forced to take the minimum and get into the next tax bracket. It depends on the brokerage – big banks can handle the switch back, Wealthsimple and Questrade can’t do it (as far as I can tell).
What I’ve seen for anyone under age 65 is the following:
1. RRSP lump-sum withdrawals – can be strategic with how much they want to take out and when,
2. Some RRSP to RRIF conversion – RRIF mins. cannot split income but provide a steady paycheque.
Usually around age / at 65 is when I see the income splitting benefits kick in, pension tax credits kick in, etc.
That said, everyone is different and there are exceptions to rules of thumb!
I know for us we will not RRIF anything in the coming year or so, go from there.
Mark
Similar playbook, option 1 going on 4 years now. I started taking the minimum pus a $15K top up to try to keep me in the 20% withholding tax. My effective tax rate after credits sits in mid single digits which is a pretty cheap way to get money out given I contributed in the mid 30% tax range.
This year and going forward I’ll increase the withdrawals to 30% withholding rate which should get me to a high single digit tax rate. This still gives me a spread of almost 25% and will allow me to transfer more funds to our TFSA’s which will churn tax free for 30+ years.
I know quite a few folks, my in-laws included, who were given horrendous advice and therefor got this wrong and delayed RRIF till 72. As a result they are paying more tax now than in the working years even once you include age and pension credits. Pretty crazy considering they will be paying >$500k for this “advice” in fees over their retirement. How this is legal is beyond me.
Ouch, Ben and good of you to share with my readers…in that it is usually “…horrendous advice…” from my experience to always wait until age 71 to convert your RRSP to a RRIF.
For small RRIF balances, not an issue.
In some cases, it makes sense.
In many cases that I’ve seen with proper tax planning – once CPP and OAS and other income streams are already online it does not.
Thanks for sharing,
Mark
For me with a good pension, TFSA and taxable investments my RRSP has turned into a “good” problem that I have over saved for retirement. My current plan is to melt down the RRSP and have it gone by 71. I assume this will allow for more flexibility and avoiding minimum withdrawal rules. Spending the RRSP money doing fun things like travel etc. While I am still young enough and able enough to enjoy things while my body and mind are still up for the challenge. However, on a side note about “horrendous advice” waiting until age 71 I crunch some of my numbers and depending on the returns (currently my RRSP is 100% VTI) the deferred tax growth more than makes up paying a higher tax rate on mandatory withdrawal and loss of income from claw backs. Could be part of a plan to create the largest estate.
Sounds like you got it figured out! 100% on the RSP meltdown and enjoying yourself. VTI would have served you well over the years, not that enthusiastic on the US I’ve long sold most of ours but I’ve been know to be wrong:)
Estate? I don’t think there is much of a plan to be honest, they retired @65 with no debt, 2xOAS, 2x near max CPP and 2x complementary pension plus a fully funded TFSA. They do not “need” RRIF income but are unable avoid withdrawals or spend it anyways cause that makes them uncomfortable (money psychology is hard). So yeah that will likely become an Estate unfortunately. Taxes and fees are the two cardinal sins imo.
You have a great plan.
Mark
Love the plan, Tech. 🙂
“My current plan is to melt down the RRSP and have it gone by 71. I assume this will allow for more flexibility and avoiding minimum withdrawal rules. Spending the RRSP money doing fun things like travel etc. While I am still young enough and able enough to enjoy things while my body and mind are still up for the challenge.”
We are very much aliged on that. I saved so I could retire early. 🙂
Waiting until age 71 to tap the RRSP could work for some, if they need to continue working well into their 60s but for many retirees it doesn’t make much sense if they have been diligent savers.
Interested to know the qualifications and experience of the person who gave the advice to delay the RRIF to 71?
A CFP at CIBC is all I know, ultimately it’s not a great show from both sides a classic case of ignorance meets lack of due diligence.
I utilized RRSP withdrawals early into retirement, not for the income, but for tax bracket harvesting. Granted it was minimal amounts, but it seemed like a good move to at least use up all of the first bracket. I had some GICs at the credit union that were redeemed without any fees. If I didn’t have them I would have likely used the partial RRIF conversion to avoid the TDDI RRSP withdrawal fee.
I only decided to RRIF the equity RRSP and LIF the LIRA in 2020 (for the 2021 tax year) when the unplanned farming income finally ceased and I had a better handle on annual taxable income going forward.
One item I did manage to get correct was to try to keep options open as much as possible. Turns out, not one plan actually worked out as originally thought so being able to zig and zag as necessary turned out to be a huge factor.
Excellent, Lloyd!!
re: “One item I did manage to get correct was to try to keep options open as much as possible. Turns out, not one plan actually worked out as originally thought so being able to zig and zag as necessary turned out to be a huge factor.”
I hope to be just a flexible with life and rolling with it as you are. 🙂
Mark
Today, I expect to convert both of our RSPs to RRIFs before the end of the year and start withdrawing the minimums early in the New Year.
The one potential hiccup is my contract is getting stretched into next year and this will likely move my payment schedule also. I might make a few extra dollars for some added scope but mostly it’s just shifting revenue from 2026 to 2027. This will have all kinds of tax implications. I think the best choice will be for me to declare that my RRIF minimum be based on my wife’s age as she is a couple of years younger.
In all likelihood we will still take more than the minimum using either age but this will mitigate the tax hit if something else were to change, causing me to have even more self employment income next year.
We can’t wait Mark! Looking forward to our discussion next Monday!
Yes, if you desire RRIF min. income as a base, and you have a younger spouse, it can make great sense to leverage your spouse’s younger age!
Converting the RRSP to RRIF is not a must before age 65 in my book, more if you want the income stream to be consistent vs. variable.
Converting the RRSP to RRIF at age 65 can make great sense for the reasons in the post!
Yes, looking forward to our chat. 🙂
Mark