Why RRSP Withdrawals Before Age 71 Can Sometimes Make Tax Sense
For most Canadians, the conventional wisdom is to leave their Registered Retirement Savings Plan (RRSP) untouched until age 71, when it must be converted to a Registered Retirement Income Fund (RRIF) or annuity. At that point, minimum annual withdrawals begin, and the government gets its share through taxation.
But in some cases, waiting until 71 isn’t the most tax-efficient choice. Strategic withdrawals before age 71 can actually reduce your lifetime tax bill, increase after-tax wealth, and provide more financial flexibility.
Avoiding High Tax Brackets Later in Life
Many retirees delay withdrawals until 71, only to discover that their required RRIF withdrawals—combined with CPP, OAS, pensions, and investment income—push them into a higher tax bracket.
By drawing down RRSPs earlier, at lower income levels, you may pay less tax overall. This “smoothing” of income can reduce the risk of large withdrawals being taxed at 40–50% rates later.
Reducing the OAS Clawback
Old Age Security (OAS) benefits are clawed back when income exceeds a threshold. Large RRIF withdrawals in your 70s or 80s can unintentionally trigger the clawback.
Withdrawing modest amounts in your 60s—especially if you have little other taxable income—can keep your future income below that clawback zone.
Using Lower-Income Years
Many Canadians retire in their early 60s but defer CPP and OAS until 65 or 70. During those “gap years,” taxable income may be relatively low. That window is often an excellent time to withdraw from an RRSP strategically—filling up lower tax brackets and paying less tax.
Estate Planning Benefits
RRSPs (and later RRIFs) are fully taxable as income in the year of death if left to non-spouse beneficiaries. For a large account, that can mean a tax bill at the highest marginal rate.
By gradually drawing down the account earlier, you reduce the size of that taxable estate liability. In many cases, this leaves more after-tax wealth for heirs.
Funding Lifestyle Flexibility
Withdrawing early doesn’t just save taxes—it can also support lifestyle choices:
- Covering travel and leisure in active early retirement years
- Helping adult children or grandchildren with major expenses
- Diversifying income sources instead of relying solely on non-registered accounts
Coordinating with TFSA Contributions
Another advantage of early RRSP withdrawals is the ability to re-invest after-tax proceeds into a Tax-Free Savings Account (TFSA). Future growth in the TFSA is tax-free, unlike the fully taxable RRIF withdrawals. Over time, this shift can improve tax efficiency and estate outcomes.
Final Thoughts
RRSPs are powerful retirement savings tools, but they’re not always best left untouched until 71. For many Canadians, the most tax-efficient path involves planned early withdrawals—especially in lower-income years, before government benefits begin.
The right approach depends on your unique circumstances: income sources, retirement timing, health, and estate goals. A financial planner can help you model different scenarios and decide whether early RRSP withdrawals fit your long-term plan.
Rona Birenbaum is a certified Financial Planner and is licensed to do financial planning. Rona is registered through separate organizations for each purpose and as such, you may be dealing with more than one entity depending on the products purchased. Rona is registered through Caring-for-Clients for financial planning services. This website is not meant as a solicitation for financial advisory services. Financial advisory services are available through the facilities of Queensbury Strategies Inc. Financial Planning is not the business of or under the supervision of Queensbury Strategies Inc. and Queensbury will not be liable or responsible for such activities.
This information is of a general nature and should not be considered professional advice. Its accuracy or completeness is not guaranteed, and Queensbury Strategies Inc. assumes no responsibility or liability. Information provided is from sources believed to be correct. Please obtain financial planning advice before acting on any information herein.