How Can I Withdraw Retirement Savings with the Least Tax?

Tax time is a stressful time of the year, especially if you don’t have a plan.

We put a list together of the top 8 mistakes we see when retirees approach their taxes. 

1) Treating withdrawals like a paycheque replacement

A lot of retirees default to the simplest approach:

• “I need $X per month.”

• “I will withdraw from the easiest account.”

But the problem we see happening is that different accounts create different types of income, and the tax system treats them very differently.

• RRSP/RRIF withdrawals are fully taxable as income.

• TFSA withdrawals are not taxable and do not count as income.

• Non-registered withdrawals might be interest, dividends, or capital gains, each taxed differently.

If you pull from the wrong bucket at the wrong time, you can unintentionally push yourself into a higher marginal bracket, trigger benefit clawbacks, or create a bigger tax bill than expected.

You’ll want to avoid any of those “uh-oh” moments. 

2) Waiting too long to start drawing down RRSPs

This is one of the biggest hidden issues we see.

Because many Canadians delay RRSP withdrawals since they assume they’ll be in a lower tax bracket later, or just because it becomes mandatory later on. 

Sometimes that’s true but often it isn’t. And sometimes just waiting for the mandatory timing isn’t the best option.

Why? Because later in retirement, multiple income streams stack on top of each other:

• CPP

• OAS

• workplace pensions

• RRIF minimum withdrawals

• investment income

If you leave RRSP/RRIF withdrawals too late, you can end up with a higher income in your 70s and 80s than you had in your 60s. That can increase taxes and create clawbacks, especially for OAS.

A smarter approach is to work with a professional to plan withdrawals so you can try to spread the tax across many years, instead of compressing them into a short amount of time.

3) Taking large lump-sum withdrawals

Lump sums feel clean since it’s “One withdrawal, one problem solved.”

But tax-wise, lump sums can be expensive because Canada’s system is progressive. The more taxable income you report in one year, the higher the marginal rate on the top portion.

Large RRSP/RRIF withdrawals can also create a second problem people do not expect: 

withholding tax is not the final tax.

When you withdraw from an RRSP, the institution withholds tax at source. 

Many people assume, “Great, taxes handled.”

But in reality, withholding is a prepayment. Your actual tax bill depends on your total income for the year. If the withdrawal pushes you into a higher bracket, or if you have other sources of income that do not have taxes withheld as they pay you, you can still owe more at tax filing time.

4) Accidentally triggering OAS clawback

Old Age Security isn’t taxed like a typical pension, but it can be reduced if net income is high enough.

The key issue is that certain withdrawals can push your income over the threshold, even if you do not feel like you have a high income.

Common triggers:

• Big RRSP/RRIF withdrawals

• Realizing large capital gains in a single year

• One-time income events (sale of a property, severance, etc.)

The frustrating part is that the clawback is avoidable in many cases with the proper planning. 

Because zero tax is impossible but proper planning can often reduce the amount that you pay – through your tax bill or through clawbacks. 

5) Ignoring the spouse strategy

A married couple can have the same total household income as another couple and still pay very different tax, depending on how income is split.

Two common planning levers:

• Pension income splitting (where eligible)

• Coordinating withdrawal sources so one spouse is not artificially “high income” while the other is low

If one spouse is pulling most taxable income from RRIF withdrawals while the other is mainly using TFSA withdrawals, you can accidentally create a tax imbalance and lose efficiency.

6) Using the TFSA only as a “last resort”

Many retirees treat the TFSA like a museum piece. 

They want it untouched, or they only want to use it in an emergency.

But the TFSA is your tax superpower.

Because strategic TFSA withdrawals can help:

• Keep taxable income within a target bracket

• Reduce the chance of clawbacks

• Provide cash flow flexibility in years when you want to minimize income (for example, a year with a large RRIF withdrawal already required)

  
  

This is not a universal rule. Sometimes it makes sense to preserve TFSA growth.

Sometimes it makes sense to use it as a release valve. 

The point is to treat it as part of a system, not a separate piece or an afterthought.

7) Not planning around “tax brackets,” only around “tax deductions”

Most people understand deductions but few people plan around brackets.

In retirement, smart tax planning often looks like this:

• Identify a target taxable income range

• Withdraw enough to “fill” the lower bracket intentionally

• Avoid spilling unnecessarily into higher brackets in a single year

This is especially important in the early retirement years before CPP and OAS are fully layered in. Those years can be a planning window where you have more control over income.

8) Thinking “tax-efficient” means “one perfect rule”

There is no universal “best order” that fits everyone. 

The right withdrawal strategy depends on:

• Age and time horizon

• Pension income (or none)

• Account mix (RRSP/RRIF vs TFSA vs non-registered)

• Marital status

• Desired lifestyle spending

• Estate goals

• Exposure to U.S. assets or property (if applicable)

What we aim for is a plan that is coordinated and repeatable. The best strategy is often the one you can follow consistently, with annual adjustments.

What you can do this March

If you are close to filing, March is a good time to do two things:

1. Review what your taxable income actually was last year.

2. Plan withdrawals for the current year before December.

If you are already retired or retiring soon, you need a withdrawal plan that treats your retirement income like a system, not a series of one-off decisions.

At PKAG, we help you prepare for what’s next.

Start your worry-free journey by signing up for our next seminar here 

This commentary is for discussion and informational purposes only and should not be interpreted as a recommendation, an endorsement, or solicitation of any investment strategy, or to buy, hold or sell any security. Individual circumstances and current events are critical to sound planning; anyone wishing to act on the information presented should consult with his or her financial, legal or tax advisor.

David Popowich and Faisal Karmali are Investment Advisors with CIBC Wood Gundy in Calgary.

The views of David Popowich, Faisal Karmali, and the guest author and referenced material do not necessarily reflect those of CIBC World Markets Inc.

This information, including any opinion, is based on various sources believed to be reliable, but its accuracy cannot be guaranteed and is subject to change.

CIBC Private Wealth consists of services provided by CIBC and certain of its subsidiaries, including CIBC Wood Gundy, a division of CIBC World Markets Inc.