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What is the Goal for Decumulation?

I recently wrote that “this is my 8th year of drawing down my RRSP.”  To explain why I do this, even though I’m not even close to 71 yet, I wrote “to reduce lifetime taxes.”  A commenter observed that this isn’t the right objective, which is true enough.  What I wrote is conveniently short, but not accurate.  My real reason for melting down my RRSP early is surprisingly challenging to define.

Reducing lifetime taxes

Some people claim that minimizing taxes really is their true objective, but I doubt this is true.  Going all in on this goal would mean quitting your job and giving away all your savings.  There might be some taxes in the short term, but after that, you’d never pay any income taxes again.

This is clearly not what people mean when they say they want to minimize taxes.  So, the real objective is something else.

Maximizing after-tax consumption

This goal is a little better, but still not quite right.  To go all in on this goal, you would need to stop all spending immediately to build up savings and spend it all very late in life.  As long as you expect your investments to grow faster than inflation, allowing your savings to continue growing leads to more available for consumption in the future.

But, this is a poor outcome.  What good does it do you to starve now so that you can waste millions when you're in your 90s?  This isn’t the real objective.

Maximizing after-tax consumption subject to a preferred spending profile over time

This is getting closer to the mark.  I plan for flat consumption over time.  This means I target the same amount of inflation-adjusted spending each year.  I plan to give money to my sons periodically while I’m alive, so I’m not trying to maximize their inheritance.

I make choices that increase my expected annual inflation-adjusted spending, based on assumptions about the returns I’ll earn, the tax rates I’ll pay, and how long I’ll live.  By drawing from my RRSP now and planning to take both CPP and OAS when I’m 70, the amount I can consume each year goes up.  

This higher annual spending doesn’t just apply to the years after I’m 70.  I’ve been able to safely spend more in each of the past 8 years because of my RRSP meltdown and my decision to collect CPP and OAS at 70.

Risk

My inflation-adjusted spending isn’t actually flat each year the way it is with a strict version of the 4% rule.  I use conservative assumptions about investment returns and longevity to set a spending level, and I recalculate my spending level each year based on the actual results I get.  

So, it’s likely that my inflation-adjusted spending will rise over time.  However, it might fall if I’m unlucky with my returns or lucky with my longevity.  So, there is a risk component to my decumulation goal in addition to maximizing annual spending.  I usually express this as maximizing my safe spending level.

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Comments

  1. James RankinNovember 11, 2025 at 11:05 AM

    I also plan to eliminate my RRSP savings from age 58/59 to 70/71. I will also defer CPP to age 70 and perhaps OAS as well. Our main source of income for retirement will be my wife's DB pension plan, dividends from my non-registered account, and our RSPs. We hope to leave the TFSAs alone, but call upon them for outsized / unplanned or special expenses.

    If need be, we will tap into the underlying equity in the non-registered account, but our income should be more than sufficient with this approach.

    Overall, I'd say the plan is to keep taxation as consistent as possible throughout our retirement, and try to keep our average tax rate around 11% while avoiding OAS clawbacks as much as possible (for me, with the dividend gross up, I expect a modest level of clawback, but nothing that throws our plans into question).

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    Replies
    1. Michael JamesNovember 11, 2025 at 1:01 PM

      Your plans are consistent with my approach. We're balancing declared income and taxes to avoid big tax hits in any one year. We're leaving our TFSAs until late in our lives for two reasons. One is outsized expenses, as you say. The other is to draw down RRSPs earlier so that when one of us dies, the ongoing tax hit of declaring all the RRIF income on one tax return will be less punishing.

      One possible difference is that I intend to draw down my capital slowly to age 100. This increases the amount we can spend now and allows us to be generous with our kids at crucial times like when they're buying a home.

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