The $2 Million Retirement Story
Meet John and Mary—both 60, both retired, each with $1,000,000 in an RRSP. Their shared aim is straightforward: maintain a comfortable lifestyle with $70,000 per person before tax, while minimizing taxes and preserving capital through age 90.
Key Strategy: Do not wait for large, forced RRIF minimums at age 71. Instead, smooth income early, use CPP/OAS strategically at 65, and convert fully by 71 to reduce lifetime tax liability.
Step-by-Step Execution Plan
Phase 1: Ages 60–64 (Early Draw)
- Withdraw $70,000 per person per year directly from RRSP.
- Keep the remaining balance invested (growing at assumed 6%).
- Goal: Fill modest tax brackets now to shrink future mandatory withdrawals.
Phase 2: Age 65 (CPP/OAS Integration)
- Both start full CPP and OAS (~$24,000/yr per person).
- Convert $276,000 from each RRSP to a RRIF bucket.
- Withdraw $46,000 from RRIF; CPP+OAS covers the rest of the $70k goal.
- Benefit: Access the $2,000 pension income credit and income splitting rules.
Phase 3: Age 71+ (Full Conversion)
- By Dec 31 of age 71, convert all remaining RRSP to RRIF.
- Withdraw the greater of $46,000 or the RRIF minimum.
- Reinvest any surplus cash into TFSA or non-registered accounts.
Projected Cash Flow (Per Person)
| Age | Action | Source | Amount | Notes |
|---|---|---|---|---|
| 60–64 | Withdraw | RRSP | $70,000 | Smooths taxable income early. |
| 65 | Convert | RRSP → RRIF | $276,000 | Sets up 6 years of strategic RRIF draws. |
| 65–70 | Withdraw | RRIF + CPP/OAS | $46k + $24k | CPP/OAS completes the $70k goal. |
| 71+ | Withdraw | RRIF Min | Variable | Reinvest excess to TFSA. |
Indicative RRIF minimums (from ~$970k at age 71): Age 71 ≈ $51k; Age 75 ≈ $56k. Early smoothing helps avoid OAS clawback.
Why This Works
- Income Smoothing: Avoids massive tax spikes after age 71 when RRIF minimums force high withdrawals.
- Credits & Splitting: RRIF income at 65+ qualifies for pension splitting and the $2,000 tax credit.
- OAS Preservation: Lower RRIF balances later reduce the risk of income crossing the OAS clawback threshold.
Common Questions
When must I convert RRSP to RRIF?
Mandatory by Dec 31 of the year you turn 71. However, partial conversion at 65 is highly recommended to access tax credits.
Will CPP/OAS cause clawback?
It can if total income exceeds the recovery threshold ($90k+). This plan aims to keep taxable income steady to avoid that zone.
Can we split RRIF income?
Yes. In Canada, eligible RRIF income received after age 65 can be split with your spouse (up to 50%) to equalize tax brackets.