Everything up to this point was about accumulating. This lesson is about the phase almost nobody plans for — and where the difference between a good decision and a default one is measured in six figures.
An RRSP must convert to a RRIF or annuity by the end of the year you turn 71, after which a minimum percentage must be withdrawn annually and is fully taxable — 71 starts at 5.28% and rises to 20% at 95. Conventional advice draws taxable first, then RRSP, then TFSA. The smarter middle path is an early RRSP meltdown: draw the RRSP down in low-income years before CPP and OAS begin, to reduce the forced-income spike at 72 and avoid the OAS clawback.
An RRSP cannot be held forever. By December 31 of the year you turn 71 it must be converted into a Registered Retirement Income Fund, used to buy an annuity, or withdrawn entirely (which would be a catastrophic tax event). Almost everyone converts to a RRIF.
A RRIF works exactly like an RRSP — same investments, same tax shelter — with one difference: from the year after conversion, you must withdraw a minimum percentage of the January 1 balance each year, and it is fully taxable as income.
| Age on January 1 | Minimum | On a $500,000 RRIF |
|---|---|---|
| 71 | 5.28% | $26,400 |
| 75 | 5.82% | $29,100 |
| 80 | 6.82% | $34,100 |
| 85 | 8.51% | $42,550 |
| 90 | 11.92% | $59,600 |
| 95 and over | 20.00% | $100,000 |
The full year-by-year table is in the reference section. Below 71 the factor is 1 ÷ (90 − your age).
Three mechanics worth knowing:
The conventional advice is: spend taxable first, then RRSP/RRIF, then TFSA last. The logic is to preserve tax shelters as long as possible, and it is not unreasonable.
But it has a serious flaw. Deferring RRSP withdrawals means arriving at 71 with the largest possible RRIF and therefore the largest possible forced withdrawals — precisely when CPP and OAS have also started. You spend your sixties in a low bracket and your seventies and eighties in a high one, having deliberately arranged it that way.
The better frame is bracket smoothing: rather than emptying accounts in a fixed order, aim to keep taxable income roughly level across your whole retirement, avoiding both wasted low-bracket years and expensive high-bracket ones.
| Phase | Typical situation | Sensible source of income |
|---|---|---|
| Early retirement (60–70) | No CPP or OAS yet if deferring. Lowest-income years of your life. | RRSP withdrawals, deliberately, to fill the low brackets |
| Transition (70–72) | CPP and OAS begin; RRIF minimums start | RRIF minimums plus taxable account |
| Later retirement (72+) | Forced RRIF income, plus CPP and OAS | TFSA on top — adds spending without adding taxable income |
Notice how the TFSA's role inverts from the conventional advice. Its value is greatest not as the last account standing, but as a source of tax-invisible spending in the years when your taxable income is already high — letting you spend more without triggering the OAS clawback.
The RRSP meltdown is the deliberate drawdown of an RRSP during low-income years — typically between retiring and starting CPP and OAS — even when you do not need the money to live on.
A retiree stops work at 62 with a $700,000 RRSP, a $150,000 TFSA, and a taxable account. They need about $55,000 a year and plan to defer CPP and OAS to 70.
Conventional approach. They live on the taxable account and TFSA from 62 to 70, reporting almost no taxable income. At 70, CPP and OAS begin; at 71 the RRSP — still around $700,000 or more after growth — converts to a RRIF. Minimum withdrawals begin at 5.28% and climb. Combined with CPP and OAS, taxable income lands near or above $95,323, triggering the recovery tax, and stays there for the rest of their life.
Meltdown approach. From 62 to 70 they withdraw roughly $50,000 a year from the RRSP, paying tax in the low-to-mid brackets — around 20–25% combined in Ontario, and part of it sheltered by the basic personal amount. They top up spending from the TFSA as needed, and move any surplus into the TFSA and taxable account.
Who it suits: people retiring before CPP and OAS start, with a large RRSP relative to their other assets, who can defer government benefits, and who have TFSA room to receive the surplus. Who it does not: people who need every dollar immediately, those whose income stays high throughout retirement, and — importantly — anyone who will receive GIS, for whom extra RRSP income is taxed at punitive effective rates (Lesson 8.1).
Withdraw from the RRSP, pay the tax, and move what you do not spend into your TFSA. You have converted money that would eventually be fully taxable — to you at high rates, or to your estate at 53.53% (Lesson 7.3) — into money that is never taxed again and passes to a successor holder intact. The meltdown is simultaneously a retirement tax strategy and an estate strategy.
Two provisions materially reduce a couple's retirement tax bill, and both are easy to miss.
Pension income splitting lets you allocate up to 50% of eligible pension income to your spouse on your tax returns. From 65, eligible income includes RRIF withdrawals and annuity payments — which means a retiree with a large RRIF and a lower-income spouse can move half of it across, using both sets of lower brackets.
This does not only cut the marginal rate. It can pull one spouse's net income below the OAS clawback threshold, preserving benefits that would otherwise have been recovered. For a couple with uneven retirement incomes, splitting is frequently worth several thousand dollars a year for the cost of ticking a box on a return.
The pension income amount is a non-refundable credit on the first $2,000 of eligible pension income. From 65, RRIF income qualifies. A retiree with no other pension income can convert a small part of an RRSP to a RRIF at 65 purely to withdraw $2,000 a year and claim the credit — and if both spouses do it, that is $2,000 each. It is a small, reliable saving that goes unclaimed constantly.
An annuity converts a lump sum into guaranteed income for life. The industry oversells them; do-it-yourself investors dismiss them entirely. Both are wrong, and the reason is that an annuity is not an investment at all — it is insurance against living a long time.
Every other part of your retirement plan carries a risk it cannot solve: you do not know how long you will live. Plan for 90 and live to 99 and you have a problem no allocation fixes. An annuity transfers that risk to an insurer, who can pool it across thousands of people. Nothing in a portfolio can replicate that, because you cannot pool longevity risk with yourself.
| What an annuity gives you | What it costs you |
|---|---|
| Income that cannot run out, however long you live | The capital is gone — no liquidity |
| Complete removal of sequence risk on that portion | Little or nothing left for heirs, unless you buy a guarantee period |
| No investment decisions, no rebalancing, no panic | Inflation protection costs considerably more |
| Higher payout rates the later you buy | Exposure to the insurer’s solvency (Assuris provides limited protection) |
The sensible middle path most retirement researchers land on is partial annuitisation: annuitise enough that your essential spending — housing, food, utilities, healthcare — is covered for life by guaranteed sources, and invest the rest for growth and flexibility.
For many Canadians, CPP and OAS already cover a substantial part of essential spending, and deferring CPP to 70 is itself a form of annuitisation — and generally a better-priced one than anything commercially available, since it is fully indexed and backed by the federal government. Work out what CPP, OAS and any workplace pension cover first. If they meet your essential spending, you may need no annuity at all. If a gap remains, closing it with a partial annuity in your seventies is a defensible way to make the rest of the plan safe to be aggressive with.
You now have the whole arc: cash flow into the right accounts, invested at low cost in a diversified portfolio you will hold, located tax-efficiently, protected against the downside, and drawn down in an order that keeps the tax bill low. The capstone turns all of it into a one-page plan built from your own numbers — including the Investment Policy Statement from Lesson 5.3 and a personalised version of the Module 2 waterfall.
By December 31 of the year you turn 71. From the following year you must withdraw a minimum percentage of the January 1 balance, starting at 5.28% at 71 and rising to 20% at 95, all fully taxable. You can convert earlier if useful — converting a small portion at 65 lets you claim the $2,000 pension income credit — and if your spouse is younger you can elect to use their age to calculate a lower minimum, which must be chosen at conversion.
The conventional order — taxable, then RRSP, then TFSA — often backfires by leaving a large RRIF that forces high taxable income after 72, exactly when CPP and OAS have also started. Bracket smoothing usually works better: draw the RRSP down deliberately in the low-income years before CPP and OAS begin, then use the TFSA later to add spending without adding taxable income. The exception is anyone who will receive GIS, for whom RRSP withdrawals carry punitive effective rates.
Deliberately withdrawing from an RRSP during low-income years — typically between retiring and starting CPP and OAS — even when you do not need the money, and moving the surplus into a TFSA. You pay roughly 20–25% tax instead of the 43%+ you would face once forced RRIF minimums stack on top of CPP and OAS, and you shrink the fully taxable balance that would otherwise land on your final return. It suits early retirees with a large RRSP who can defer government benefits.
Model the two withdrawal orders. Compare living on taxable savings until 71 against deliberately drawing the RRSP down from 62, and look at what happens to taxable income after 72 in each case.
Educational purposes only — not financial, investment or tax advice. RiskStock is not a registered dealer, adviser, or tax professional. Nothing in this course is a recommendation to buy or sell any security or product. Tax and benefit figures are for the 2026 tax year, were verified against official sources on 2026-07-27, and change annually — confirm your own numbers with the CRA and a qualified professional before acting.