Smart strategies for tax-efficient retirement income

SPM Financial |
Categories
Retirement
Taxes
RRSP
TFSA
Financial Planning

Planning for retirement isn't just about saving money – it's also about withdrawing your savings wisely. Making smart choices about when and how to take money from your accounts can help you pay less tax and make your savings last longer.

We work closely with you to design a retirement income plan that’s not only tax-efficient but also tailored to your lifestyle and goals. You don’t have to navigate these decisions alone. We’re here to guide you every step of the way – here's how:

1. Understanding your retirement income sources

One of the first things we do is help you get a clear picture of your future income. That includes reviewing government benefits, employer pensions, investment accounts, and personal savings. We walk through what each source offers, and how it fits into your bigger plan.

Most Canadians have several sources of income in retirement:

  • Government benefits: Canada Pension Plan (CPP), Old Age Security (OAS), and the Guaranteed Income Supplement (GIS).
  • Registered accounts: Registered Retirement Savings Plans (RRSPs), Registered Retirement Income Funds (RRIFs), and Tax-Free Savings Accounts (TFSAs).
  • Employer pensions: Defined benefit or defined contribution plans.
  • Personal savings: Non-registered investment accounts, real estate, or other assets.

Each of these is taxed differently. We’ll help you understand how they work together and how to draw from them in a tax-efficient manner.

2. Knowing how different accounts are taxed

Understanding how your accounts are taxed is essential – but it doesn’t have to be complicated. We explain the rules clearly and help you plan withdrawals in ways that keep your tax bill manageable and your income consistent.

Here's a quick breakdown:

  • RRSPs and RRIFs: Withdrawals are fully taxable as income.
  • TFSAs: Withdrawals are tax-free and don't affect income-tested benefits like OAS.
  • CPP and OAS: These are taxable, but OAS may be reduced if your income is too high.
  • Non-registered accounts: Only the investment income (like interest, dividends, or capital gains) is taxable.

We help you understand these differences and coordinate these sources in a way that supports your retirement goals.

3. Withdrawing in a tax-efficient order

We help you build a custom withdrawal plan that takes advantage of tax rules and ensures your savings last. This may include figuring out the most effective sequence for drawing down your accounts over time. We’ll address the importance of immediate and on-going tax savings to enhance your income, rather than focusing on longer term net estate values. Sometimes these strategies line up, but sometimes they require a different approach.

A common strategy when looking to maximize tax efficiency of income is to withdraw money in this order:

  1. RRSPs/RRIFs: Start withdrawals early to spread out taxable income over more years.
  2. Non-registered accounts: Use these next, as they have partial tax advantages.
  3. TFSAs: Use these last, since withdrawals are tax-free and can be used to top up income without increasing your tax bracket.

We tailor this sequence to your unique situation, considering everything from your income needs to your long-term tax outlook.

4. Converting RRSPs to RRIFs by age 71

By the end of the year you turn 71, you must convert your RRSP into a RRIF or an annuity. We’ll help you time that conversion carefully and build a withdrawal plan that minimizes tax impact while keeping your income steady.

RRIFs come with minimum withdrawal requirements that increase as you age. That’s why it's a good thing to model different scenarios to help you decide when and how to draw funds based on your lifestyle, health, and legacy goals.

Planning these withdrawals carefully can help manage your tax bracket and ensure your savings last.

5. Using TFSAs to your advantage

Your TFSA is a powerful planning tool – not just for saving, but for drawing income in retirement. We show you how to use your TFSA to keep your taxable income lower and protect government benefits.

TFSAs offer:

  • Tax-free growth and withdrawals
  • No impact on OAS or GIS eligibility
  • Flexibility for emergencies or large purchases

We also help you coordinate TFSA contributions and withdrawals with your broader plan—so every dollar is working hard for you.

6. Managing OAS clawbacks

As your retirement income grows, OAS benefits can be reduced through something called the OAS Recovery Tax, also known as the OAS clawback. The threshold for the 2025 tax year is $93,454; if your income is higher than this, the clawback amount is 15% of the difference between your income and the threshold, and the clawback will be deducted from your monthly OAS payments.1

It's a good idea to proactively manage your taxable income to help you stay below the clawback threshold when possible. Strategies may include:

  • Shifting withdrawals to earlier or later years
  • Using TFSAs instead of RRIFs in high-income years
  • Spreading income between spouses

We’ll track your income sources and help you avoid surprises, so you get the most from your benefits.

7. Splitting income between spouses

We look for every opportunity to reduce your household tax bill, including strategies like pension income splitting. If you and your spouse are in different tax brackets, this can result in meaningful savings.

We help you:

  • Identify eligible income (like RRIF withdrawals and pension income)
  • Split it in the most beneficial way
  • File your returns accordingly

It’s just one of the tools we can use to help your money go further.

8. Planning for taxes at death

When you pass away, the government may consider your RRSP or RRIF as fully withdrawn, leading to a significant tax bill. Naming your spouse as a beneficiary can defer these taxes. Alternatively, strategic withdrawals during your lifetime can reduce the tax burden on your estate. Another option is using insurance or trusts to cover future tax liabilities.

While it’s not pleasant to think about taxes at death, it’s important to have this conversation and understand your options. Once we determine the best strategies for you, we can work with your lawyer and accountant to make sure everything is aligned and clearly documented.

Your partner in planning

Tax-efficient retirement income isn’t about making one big decision; it’s about making the right series of small, smart choices over time. We can help you make those choices with clarity and confidence.

We’re with you every step of the way: from understanding your income sources, to optimizing your withdrawal plan, to preserving your wealth for future generations.

Let’s build your retirement strategy – together.

Sources

Old Age Security pension recovery tax. June 6, 2025. Government of Canada. https://www.canada.ca/en/services/benefits/publicpensions/old-age-security/recovery-tax.html.