A retirement account can become too successful for its own good. The larger a Registered Retirement Savings Plan (RRSP) grows, the more income its owner may eventually be forced to withdraw, report, and share with the CRA. Ignore that future bill long enough, and retirement savings can begin behaving like a financial guest who orders lobster on you after promising to split dinner evenly.
Deferral eventually ends
Canadians must close an RRSP by December 31 of the year they turn 71. They can withdraw it, buy an annuity, or transfer it into a Registered Retirement Income Fund (RRIF). A RRIF keeps the investments tax-deferred, although mandatory withdrawals begin the following year and become taxable income.
The minimum is calculated from the account’s January 1 value and an age-based factor. That factor is 5.28% at 71, 5.4% at 72, 6.82% at 80, and 20% from 95 onward. Investors can withdraw more, but not less, which makes a large balance increasingly difficult to hide beneath the retirement mattress.
Waiting makes the number grow
Suppose a $500,000 RRSP compounds at a hypothetical 5% for seven years without withdrawals. It grows to approximately $704,000, creating an age-72 minimum near $38,000. A $500,000 balance would require $27,000. Waiting has added roughly $11,000 of annual taxable income before Canada Pension Plan (CPP), Old Age Security (OAS), a workplace pension, or investment income enters the room.
That combination can be expensive. The 2026 OAS recovery tax begins when net world income exceeds $95,323 and generally recovers 15% of the excess. Minimum RRIF withdrawals normally have no tax withheld, but they’re still taxable.
Use the lower-income years
Retirees may be able to make partial RRSP withdrawals before 71, particularly during lower-income years before CPP, OAS, or mandatory withdrawals begin. Paying some tax earlier can reduce a larger balance later, although the correct amount depends on tax brackets, benefits, spending, and longevity.
Couples can also elect to split up to 50% of eligible pension income, while an RRIF owner can choose a younger spouse’s age when establishing the account to reduce future minimums. Another option is contributing after-tax withdrawal proceeds to a Tax-Free Savings Account (TFSA) when sufficient room exists. Growth and withdrawals inside a TFSA are generally tax-free and don’t increase OAS recovery tax.
The RRSP or RRIF withdrawal remains taxable before it reaches the TFSA, so this isn’t a secret tunnel beneath the Income Tax Act. Unused TFSA room carries forward, while withdrawals generally return as room the following calendar year. Retirees should verify their available room before moving a dollar.
Consider L
Loblaw Companies (TSX:L) could give long-term TFSA money a defensive growth engine. It operates grocery banners including No Frills and Maxi, Shoppers Drug Mart pharmacies, PC Optimum, and healthcare services. Canadians may postpone a new sofa during a slowdown, but dinner and prescriptions remain stubbornly attached to the schedule.
Second-quarter revenue increased 4.1% to $15.3 billion, while adjusted diluted earnings per share (EPS) climbed 11.9%. Discount stores, pharmacy demand, e-commerce, and share repurchases can keep lifting per-share results, allowing TFSA investors to pursue growth without creating another taxable retirement-income stream.
Loblaw stock traded near 26 times trailing earnings at writing. That valuation expects continued execution. Food inflation, political scrutiny, tougher competition, or weaker pharmacy growth could compress the multiple even if Canadians keep buying groceries. Investors should build gradually rather than confuse an essential business with an essential price.
Bottom line
A large RRIF remains a lovely problem to have, sure, but it becomes costlier when every decision is postponed until 71. Mapping withdrawals, pensions, OAS, and available TFSA room years earlier can spread taxable income more deliberately. Understanding how an RRIF works won’t eliminate tax, although it can stop a future minimum from making all the introductions at once.