Beth came to me with questions about her mother Susan’s finances.
Susan is 80 and widowed. She lives in a retirement home and spends about $60,000 per year after tax. Her health is declining and she’s not expected to live beyond age 85.
After her husband passed away, she now has $1.2 million in a RRIF, $300,000 in a TFSA, and $1.2 million in a taxable account from the sale of the family home. The investments are mostly individual Canadian dividend-paying stocks. There are no bonds and very little cash.
Her other income is modest relative to her assets. She receives a $20,000 survivor pension, $10,000 of CPP, and her OAS is fully clawed back.
Related: Don’t Wait Until 70 – The Costly Retirement Planning Trap
Three years ago, Beth’s accountant flagged the size of Susan’s RRIF and warned that it could lead to a large tax bill at death. On that advice, Beth asked Susan’s advisor to increase RRIF withdrawals well beyond the minimum.
After covering Susan’s spending and topping up the TFSA each year, the excess withdrawals were invested in her taxable account.
On the surface, the strategy seemed reasonable. Pull money out now, pay some tax, and reduce the risk of a large tax bill later.
The result was two tax returns showing roughly $290,000 of taxable income per year. Most of that came from RRIF withdrawals layered on top of her pension income and about $50,000 of taxable dividends.
Those extra RRIF withdrawals were not lightly taxed. About $40,000 of the withdrawals were taxed at Ontario’s top marginal rate of 53.53 percent, with another $75,000 taxed at between 48 to 49 percent under Ontario’s second and third highest marginal tax brackets.
That raises an obvious question. If the concern is paying high tax on RRIF money in the estate, why are we deliberately paying the highest possible tax rates today, only to move the after tax dollars into a fully taxable account?
This is where the logic often breaks down.
RRSPs and RRIFs remain extremely effective tax shelters, even late in life. When you pull extra money out of a RRIF, you are triggering tax at potentially very high marginal rates and moving money into a taxable account where dividends, interest, and future capital gains are taxed along the way. That ongoing tax drag quietly erodes wealth over time.
At age 80, the RRIF minimum withdrawal rate is 6.82 percent, or about $81,840 on Susan’s RRIF. That amount easily covers her spending, pays her taxes, and funds the TFSA.
There was no need for excess withdrawals and no reason to push more money into the taxable account. More importantly, it allowed more of Susan’s capital to remain inside the RRIF, compounding without annual tax friction.
When we compared the two approaches, aggressive RRIF withdrawals versus sticking to the minimum, the outcome surprised Beth. The minimum withdrawal strategy leaves a larger RRIF balance at death, which indeed means a higher tax bill on the final return.
But it also leaves more after-tax wealth overall.
MetricScenario #2: Faster RRIF withdrawalsScenario #1: Minimum RRIF withdrawalsDifference
Projection End Age85850
Lifetime Personal Tax$722,285$384,351$-337,934
Lifetime Government Benefits$70,587$70,587$0
Lifetime OAS Clawback$71,624$71,624$0
Personal Estate
Estate Before Tax$3,498,641$3,950,593$451,952
Tax on Estate$258,669$683,233$424,564
Estate After Tax$3,239,971$3,267,359$27,388
By paying less tax during Susan’s lifetime and preserving the RRIF’s tax shelter, the estate ends up larger even after the terminal tax is settled.
This comes up a lot. People focus on the tax bill at death and forget about the tax paid along the way. Pulling money out of a RRIF at top marginal rates just to avoid future tax often shifts the problem rather than solving it, and usually makes it worse.
Remember the three Ds of smart tax planning: deduct, divide, and defer. Susan is well beyond the deducting stage, and sadly has lost the ability to divide with income splitting. But that still leaves the third D – defer – as an effective tool in her toolkit.
RRIFs are not the issue. Paying high tax now to avoid high tax later usually makes things worse.
Sometimes the right answer really is the unconventional and boring one. Take the RRIF minimum and leave the rest alone.
This Week’s Recap:
The “Let’s Circle Back After The Holidays” season has officially begun.
Lindsay and I are officially on Christmas holidays, wrapping up an incredible year for our business and enjoying a well deserved break for the remainder of the month.
Our kids have one more week of school, so we’ll use the upcoming week to catch up on our last minute shopping and prepare for the holidays.
Last week I shared my op-ed in the Globe & Mail about RRIF minimums and the plight of single seniors. Thanks for all of your thoughtful comments.
Weekend Reading:
Here are eight tips to stop worrying about running out of money in retirement.
On that note, part-time work in retirement has social, financial benefits, but beware of clawbacks.
It’s that time of year again. Nick Maggiulli shares his favourite investment writing of 2025.
A picture is worth a thousand words as Michael James on Money explains investing in alternatives with one simple graphic.
A Wealth of Common Sense blogger Ben Carlson shares how to become a moderate millionaire ($1M to $5M in assets).
In this video Ben Felix reviews the main lessons from The Wealthy Barber (2025), and explains why it’s the best introduction to personal finance he has ever read:
Heather and Doug Boneparth shares their thoughts on what to do when you receive a bonus.
Finally, travel expert Barry Choi says the once-elite airport lounge is now just another crowded space.
Have a great weekend, everyone!
