By Kevin Rector, licensed Financial Services Professional, Calgary · Updated October 2026
The short version: The order you draw retirement income can change how much tax you pay over your lifetime. In many cases, drawing on RRSPs during the lower-income years before RRIF minimums start, timing CPP and OAS to fit your health and income, splitting pension income with a spouse, and keeping the TFSA for later can help reduce lifetime tax and protect your OAS. Every situation is different.
Most people spend decades thinking about how much to save. Very few think about how they will take it out.
That second question matters more than people expect. Two people can retire with the same RRSP, the same TFSA, and the same amount in their corporation, and pay very different amounts of tax over their retirement. Often the difference comes down to the order they drew it.
Every dollar you take in retirement comes from somewhere: an RRSP or RRIF, a TFSA, a non-registered account, your corporation, CPP, OAS, or a pension. Each one is taxed differently. Each one affects the others. With a plan, you can smooth out your tax bill, protect your government benefits, and leave more behind. Without one, many people end up paying higher rates in their 70s than they did in their 60s.
The default approach, and where it goes wrong
Here is what I see most often. Someone retires at 60 or 62. They live off their non-registered savings or a few dividends from the corporation. They leave the RRSP alone because they have heard it is best to let it grow. CPP and OAS start at 65 because that is when everyone takes them.
It feels sensible. The problem shows up later.
By the end of the year you turn 71, your RRSP has to become a RRIF, and the government sets a minimum you must withdraw every year after that. If the RRSP has been growing untouched for a decade, those minimums can be large. Stack them on top of CPP, OAS, and any corporate dividends, and your taxable income can end up higher in your 70s than it was in your 60s.
That creates three problems:
Higher tax brackets. Income that could have been taken at a low rate in your early 60s is now taxed at a higher one.
The OAS clawback. Once your net income passes a set threshold (about $95,000 for 2026, indexed each year), the government recovers 15 cents of OAS for every dollar above it. Dividends from your corporation are grossed up for this calculation, so they push your income higher than the cash you actually received.
A large tax bill at death. Whatever is left in a RRIF is generally taxed as income in the year of death, unless it rolls to a surviving spouse. For a single person or the second spouse to pass, a large RRIF can be taxed at the top rate in one year.
When the RRSP gets too big
Many successful professionals have the opposite of the usual problem: an RRSP that has grown larger than their retirement plan actually needs.
It sounds like a good problem. But a large RRSP is a tax bill waiting to be paid. Every dollar in it will eventually be taxed as income, either through withdrawals or at death. The bigger it gets, the more likely those dollars come out at higher rates than they went in.
A few signs your RRSP may be overfunded:
Your projected RRIF minimums, plus CPP, OAS, and any pension, would already put you near or above the OAS clawback threshold.
You expect your income in your 70s to be about the same as, or higher than, your income in your 60s.
You do not need much of the RRSP to live on, and most of it is likely to pass through your estate.
If that sounds familiar, there are options. You can start drawing it down earlier, in the bridge years, at lower rates. You can move some of those withdrawals into a TFSA, where future growth and withdrawals are tax-free. If you are incorporated, it may be worth revisiting with your accountant how you pay yourself, since salary creates new RRSP room and dividends do not. And if part of the RRSP is likely to pass to your family or a charity, planning ahead for the tax at death, through insurance or charitable giving, can protect more of what you leave behind.
The earlier you spot it, the more room you have to fix it gradually instead of all at once.
The bridge years
The years between when you stop working and when government benefits and RRIF minimums kick in are often the most valuable planning window in retirement. These are often called the bridge years.
During those years, your taxable income can be unusually low. That is an opportunity. Instead of leaving the low tax brackets empty, you can fill them on purpose.
In practice, that can mean drawing from your RRSP earlier than you have to, at a lower rate than you would pay later. It can mean taking dividends from the corporation in measured amounts each year rather than letting the balance build. And it can mean living on those sources while you delay CPP or OAS.
Delaying government benefits is worth a look. CPP can start anywhere from 60 to 70, and OAS from 65 to 70. Each year you wait increases the monthly amount for life, and both are indexed to inflation. For someone in good health with other income to bridge the gap, a larger guaranteed income later can be valuable protection against living a long time.
This is not right for everyone. Health, family history, other income, and how much you want to spend early in retirement all matter. But it is a conversation most people never have, because the default is simply to take everything at 65.
Tools that help with the order
Your corporation. If you are incorporated, you have a tool most retirees do not: control over when income shows up on your personal tax return.
Money inside the corporation is not taxed personally until you take it out. That means you can decide, year by year, how much to draw as dividends. In a lower-income year, take more. In a year with a large RRIF withdrawal or a one-time gain, take less. Few other retirement assets give you that kind of flexibility.
The corporation also needs a plan of its own. If it holds investments that keep growing, the passive income rules and the eventual tax at death still apply. Drawing it down steadily through retirement, rather than leaving it all to the end, is often part of a good sequence.
Income splitting. Once you reach 65, up to half of eligible pension income, including RRIF withdrawals, can generally be split with your spouse on your tax returns. If you have a workplace defined benefit pension, that income can generally be split before 65. If one spouse has much more retirement income than the other, splitting can bring both into lower brackets and help keep each of you under the OAS clawback threshold. Dividends paid to a spouse who is a shareholder may also help, though the rules on splitting income through a corporation are strict, so this needs your accountant's input.
The TFSA. TFSA withdrawals are tax-free and do not count toward the OAS clawback. That makes the TFSA one of the most useful accounts to keep for later in retirement, or to draw on in a year when other income is already high.
Insurance-based retirement income. For owners with a corporate-owned permanent policy, the cash value can be used as collateral for a loan later in retirement. Because it sits outside your taxable income stack, it often works best as one of the last sources you draw on. I cover how that works in 3 Ways to Put Your Retained Earnings to Work.
What a sequence might look like
The sequence below is a general illustration only, not a recommendation. Every situation is different, and the right order for you depends on your age, health, income, accounts, corporate structure, and goals. Review any plan with your accountant and a qualified professional before acting on it.
With that in mind, here is the general shape I often start from, whether someone is an employee or a business owner:
Early retirement (roughly 60 to 65). Draw from the RRSP, and the corporation if you have one, to fill the lower tax brackets, especially if the RRSP is overfunded. Use non-registered savings as needed. Consider delaying CPP and OAS.
Benefits begin (65 to 70). Start CPP and OAS at the age that fits your health and income. Begin pension income splitting with your spouse. If you are incorporated, keep corporate dividends measured to stay under the OAS clawback threshold where possible.
RRIF years (72 and on). Minimum withdrawals are smaller because the RRSP was drawn down earlier. Keep the TFSA as a flexible, tax-free reserve.
Later years. Draw on the TFSA, and an insurance-based strategy if one is in place, for income that does not add to your tax bill or affect your OAS.
The aim is the lowest tax bill across your whole retirement and your estate, rather than in any single year, while still giving you the income you want to live on.
If you are in your 50s, this is the right time to start mapping it out. The decisions you make about salary, dividends, and RRSP contributions now shape how much flexibility you have later.
Frequently asked questions
When does the OAS clawback start?
For 2026, the OAS recovery tax applies once your net income passes $95,323. The government recovers 15% of every dollar above that threshold, up to the full OAS amount. The threshold is indexed and changes each year.
When do I have to convert my RRSP to a RRIF?
By December 31 of the year you turn 71. Minimum withdrawals begin the following year and are set by a government formula based on your age.
Should I take CPP early or late?
It depends on your health, other income, and spending needs. CPP can start between 60 and 70. Starting before 65 reduces your payment by 0.6% for each month early, and waiting past 65 increases it by 0.7% for each month you delay. OAS can be delayed from 65 to 70, increasing by 0.6% per month.
Do TFSA withdrawals affect my OAS?
No. TFSA withdrawals are tax-free and do not count toward the income used to calculate the OAS clawback.
Can I split retirement income with my spouse?
Once you are 65, up to half of eligible pension income, including RRIF withdrawals, can generally be split with your spouse. Income from a workplace defined benefit pension can generally be split at any age.
What is an overfunded RRSP?
It is an RRSP that has grown larger than your retirement plan needs, so required withdrawals push your income into higher tax brackets or above the OAS clawback threshold later in life. Drawing it down earlier, in lower-income years, is one common way to manage it.
Is a RRIF taxed when I die?
Generally, yes. The remaining balance is included in your income in the year of death unless it passes to a surviving spouse or partner, in which case the tax is usually deferred until the second death.
About Kevin
I am a licensed Financial Services Professional and Senior Partner at Eau Claire Partners in Calgary. I work with established families and business owners to build wealth and risk strategies that protect their family's lifestyle and prepare for retirement. Much of that work is helping people get their registered accounts, pensions or corporations, and government benefits working together.
Your next step
If retirement is within the next 10 to 15 years and you have not mapped out the order you will draw your income, let's talk. Book a 20-minute call with me and we will look at your accounts, your pension or corporation, and your timing. You will leave with a clear sense of where the biggest opportunities are and what the next step would be.
Kevin Rector is a Financial Services Professional with Eau Claire Partners. Licensing varies by province. This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax rules, thresholds, and government benefit amounts change and depend on individual circumstances. Results vary. Consult your accountant and a qualified professional before acting on any strategy described here.
