A retirement withdrawal plan involves strategically withdrawing your savings to maximize your income and minimize your taxes. When you have multiple types of accounts, such as RRSPs, TFSAs, ISAs, and non-registered investments, it’s important to take a structured approach. Every situation is different, so it’s recommended that you consult a professional in this field.
1. Non-registered investments
These investments are subject to taxes on capital gains and interest income. Since you pay taxes on the returns each year, using these funds first allows you to preserve tax-advantaged accounts (such as RRSPs and TFSAs) for longer. It is often recommended to start with this type of investment.
2. RRSPs and LIRA
Once you’ve withdrawn your non-registered investments, you can start withdrawing funds from your RRSPs and LIRAs. Here are a few strategies to follow:
- Convert to a RRIF: At age 71, you must convert your RRSPs into a RRIF (Registered Retirement Income Fund) or an annuity. It’s often a good idea to start withdrawing from your RRSPs before this conversion to spread out your tax liability and avoid excessively high taxable withdrawals later on.
- Using a Locked-in Retirement Account (LIRA): This type of account follows rules similar to those of an RRSP. You will need to convert it into a Life Income Fund (LIF). Withdrawals are taxable, so it is important to plan these withdrawals in light of your other sources of income.
3. TFSA
The TFSA (Tax-Free Savings Account) offers the greatest tax advantages, since withdrawals are tax-free. It is therefore recommended that you save your TFSAs for last. This allows you to cover your expenses without incurring additional taxes, which is particularly useful if you need to manage your taxable income to avoid thresholds such as the Old Age Security (OAS) repayment threshold.
4. Income Splitting Planning
If you have a spouse, income splitting can help reduce your couple’s overall tax burden. You can split up to 50% of certain retirement income (such as withdrawals from a RRIF) with your spouse, which can help reduce your tax liability, especially if one of you is in a lower tax bracket.
Example of a Disbursement Schedule
- Non-registered investments: It is generally recommended to use these funds first, since they generate taxable investment income
- RRSPs and RIFs: Make strategic withdrawals based on your tax bracket and your liquidity needs.
- TFSA: Save this account for last, because withdrawals are tax-free and will not trigger a social security refund.
Conclusion
A good withdrawal plan will allow you to smooth out your taxes over the long term while maintaining a stable income in retirement. Since every situation is unique, it is strongly recommended that you consult a professional, such as a financial planner registered with the Autorité des marchés financiers (AMF) and recognized members duly registered with the CSF or IQPF.
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