How I Manage my RRSP in Retirement

Spending from retirement savings, or decumulation, in a way that maximizes what you have left to spend after taxes is surprisingly complex.  I’ve done extensive simulations of various strategies for my situation, including strategies that change over time, to find what works best for me.  Here I describe how I’m managing my RRSP in retirement, but it’s important to remember that it may or may not work well for you depending on your particular circumstances.

Looking for the fully optimal financial strategy is futile.  I ran my simulations and chose a simple enough strategy that worked well across a wide range of investment outcomes.  The only reason for changing my strategy is if something happens that is far outside my expectations.  Those who constantly seek perfection waste their time and hurt their outcomes with constant tinkering.

Our portfolio and goals

My wife and I have RRSPs, TFSAs, and non-registered accounts.  I prefer not to discuss exact amounts, but broadly speaking, our combined RRSPs are larger than our combined non-registered accounts, which are larger than our combined TFSAs.  In addition to the exact sizes of these accounts, two other figures that are significant for simulations are our unrealized capital gains in the non-registered accounts and our deferred capital losses from previous years.

My wife and I have roughly the same net worth.  Although we consider all our assets to be owned by both of us, CRA doesn’t see it that way.  We spent decades carefully choosing whose money to spend each year so that we’d have close to the same net worth now.

Our goal is to maximize the amount we can safely spend each year, rising with inflation, for the rest of our lives.  We have no interest in scrimping now just so we can live rich when we’re much older.  Some might even choose to spend more in their 50s and 60s than they will spend later, but I can’t see any logic in living poor early on just to be rich later.

The main tax challenge we face is high taxes and possibly OAS clawbacks on forced RRIF withdrawals after we turn 72.  These taxes will be even higher after one of us passes away, and higher still after the second passes away.  The remedy here is to make modest RRSP/RRIF withdrawals in the years before we turn 72.  The goal is to make lightly taxed RRSP/RRIF withdrawals early rather than heavily taxed withdrawals later.  This gap in tax rates has to be large enough to overcome the value of continuing to defer taxes.  

This is where the simulations help.  At one extreme, we could be spending entirely from our TFSAs to keep our incomes very low.  My simulations show that this “collect the GST rebate” strategy is not optimal for us (nor do I find it palatable).  At the other extreme, winding down our RRSPs quickly is far from optimal as well.  Something in between is best.

Our decumulation strategy

My simulations tell me that we’re best to target a particular income level each year.  Note that our income is not the same thing as how much we spend.  The amounts we spend from non-registered accounts create only modest declared income for taxes.  By adjusting how much we spend from each type of account, we can target different amounts for how much we spend and how much we declare on our income taxes.

Each year since we retired, we spend exclusively from our non-registered accounts until November.  At this point, I’m able to predict reasonably accurately how much income (interest, dividends, and capital gains) we will declare on our taxes.  For some people, this might include a pension or part-time employment income.  Then we each make RRSP withdrawals to increase our declared income to the target level determined by my simulations.

This target level of income is heavily influenced by marginal tax rates.  We live in Ontario.  For 2026, the tax rate on regular income is 19.15% up to $53,891, 23.15% from there to $58,523, and 29.65% from there to $94,907.  For many people, the optimal income target for taxes will be at one of the break points (roughly $53,900, $58,500, or $94,900), but it can be above, below, or between these levels depending on your particular circumstances.

I definitely do not get excited about hitting my income target exactly.  Being off by $1000 makes little difference. The point is to slowly drain the RRSPs/RRIFs at low tax rates to avoid paying higher tax rates later.  Trying to be exact is a waste of time.

Each year, I run the simulations again to see if our income target for taxes changes.  This income target tends to rise as we get closer to age 72, and it can go up or down if the stock market does something extreme one year.

One thing that my simulations have been very consistent about is that we’re best off to take CPP and OAS when we’re 70.  Even if one of us dies at 70, the other will see an increase in standard of living (from a purely financial point of view).

We continue to add to our TFSAs each year.  Once most of our non-registered money is gone, we will use the TFSAs to augment our spending without increasing our taxes.  This will be particularly important when large demands for cash come up, such as buying a new car.

Another detail is that once we turn 65, we’ll make sure to have at least $2000 each come out of RRIFs rather than RRSPs so that we can use the pension income tax credit.

Conclusion

There are many other details in how we handle our money in early retirement, but this article gives an overview of how my simulations have taught us to think about decumulation.  I have found these ideas to be relevant to a few of my friends and family members for whom I’ve done simulations, but I can’t say much beyond that.  Your mileage may vary.