Tax-Efficient Decumulation

For many retirees, the biggest financial challenge is generating income when the paycheques stop. The second is how to draw down retirement assets today while maintaining sufficient assets for tomorrow. There are various strategies that you can employ to withdraw retirement income from your savings and investments in a manner that minimizes the risks posed by inflation and taxes. It’s best to work with a financial planner or, if you’re doing the majority of this planning on your own, to ensure that you have considered your personal situation and goals.

Regardless of which approach you take, there are a few general considerations to take into account when formulating a withdrawal strategy. They are discussed in the sections that follow.

Review the order to withdraw funds from investments in retirement, Your objective is to minimize tax, now and in the future. Compare and contrast the tax implications of the following types of income:

  Pension Income
(CPP/QPP, OAS, employer DB pensions & annuities)
Non-registered Investments
(including real estate & businesses)
Locked-in Pension Accounts (LIFs/LRIFs) RRSPs/RRIFs TFSAs
  • Income received
  • Investment income
  • Capital gains triggered
  • Income withdrawals
  • Lump sum withdrawals
  • Minimum withdrawals
Not taxable  
  • Original amount invested
  • Amounts withdrawn

Tax-Free Savings Account (TFSA)

  • Use to tax-shelter money, as all investment income earned within the account, is tax-free.
  • Supplement your income by making a non-taxable lump sum withdrawal. Money may be withdrawn from the TFSA at any time for any purpose.
  • Re-contribute amounts withdrawn in previous years, especially if you have surplus cash. Assets withdrawn may be put back in the following year or later without penalty.
  • Unused TFSA contribution room from previous years may be carried forward to future years.


  • Determine an optimal time to start taking a periodic income from your RRSP, by converting it into a Registered Retirement Income Fund (RRIF) (maximum age 71). Keep in mind your marginal tax rate, as well as your current and future effective tax rates.
  • If you want to maintain an investment account, roll over a maturing RRSP to an RRIF. You’ll be required to withdraw a prescribed minimum amount out each year. You may withdraw more.
    • If applicable, consider basing your RRIF payment on your spouse’s/partner's younger age.
  • Consider the tax implications when you remove lump sum amounts from your RRSP/RRIF or locked-in pension plan accounts. Withholding tax increases as the amount withdrawn increases. The withholding tax may be only a down payment on the tax payable. Any tax shortfall must be made up when you file your annual income tax and benefit return.

Tax Rates

Understand your marginal and effective tax rates in retirement, especially after age 65. At higher income levels, pension and age credits unique to seniors begin to be clawed back, then OAS benefits. Proactive tax planning is advised to maximize income from these government sources.

For more information on tax planning in retirement, see the Tax in Retirement section of this website.