Life-stage guide
Tax Planning for Retirement in Canada
Retirement tax planning in Canada is more complex than accumulation. You are now drawing down assets rather than building them, managing multiple income streams (CPP, OAS, RRIF, pension, investment income), and making decisions whose consequences compound over 20–30 years. The difference between good and poor planning in retirement can easily be $100,000 or more in lifetime taxes. This guide covers the most important decisions.
RRSP to RRIF conversion
You must convert your RRSP to a Registered Retirement Income Fund (RRIF), an annuity, or a combination by December 31 of the year you turn 71. If your RRSP still exists on January 1 of the year after you turn 71, the entire balance is deregistered and included in your income — a catastrophic tax outcome.
What happens at conversion
Converting to a RRIF is not a taxable event — it is a restructuring of the account. Your investments transfer directly from the RRSP to the RRIF with no disposition. The RRIF operates similarly to the RRSP except that you must withdraw a minimum amount each year (see below), and you cannot make new contributions.
Should you convert early?
You can convert to a RRIF at any time before 71. Some retirees convert early to access the RRIF's pension income tax credit — RRIF payments after age 65 qualify as pension income (eligible for the pension income tax credit of $300+) and for pension income splitting with a spouse. RRSP withdrawals before conversion do not qualify. If you have no other pension income in your early 60s, converting a portion of your RRSP to a RRIF can create pension income credit eligibility.
RRIF minimum withdrawal rules
Starting in the year after conversion, you must withdraw at least the minimum amount from your RRIF each year. The minimum is a percentage of the RRIF's market value on January 1 of that year.
| Age | Minimum withdrawal % |
|---|---|
| 71 | 5.28% |
| 72 | 5.40% |
| 75 | 5.82% |
| 80 | 6.82% |
| 85 | 8.51% |
| 90 | 11.92% |
| 95+ | 20.00% |
Strategy: use a younger spouse's age
If your spouse is younger, you can elect to base RRIF minimums on your spouse's age rather than yours. Since the percentage rises with age, using a younger spouse's age results in lower mandatory minimums each year, leaving more in the RRIF to grow. This election is made at the time of conversion and cannot be changed later.
Withdrawals above the minimum
You can always withdraw more than the minimum. The excess is subject to withholding tax (10% on amounts up to $5,000, 20% up to $15,000, 30% above $15,000). All withdrawals are included in your income for the year. Strategic excess withdrawals in lower-income years (perhaps before CPP and OAS begin) can spread the RRIF balance over more years at lower marginal rates.
Pension income splitting
Up to 50% of eligible pension income can be allocated from the higher-income spouse to the lower-income spouse using Form T1032. The allocating spouse deducts the transferred amount from their income; the receiving spouse includes it.
Eligible pension income at age 65+
- RRIF withdrawals
- Life annuity payments from an RRSP, DPSP, or RPP
- Registered pension plan (RPP) payments
- Certain annuity payments
Eligible pension income at any age
- RPP payments (defined benefit pension)
- Annuity payments from an RPP
Note: CPP and OAS are not eligible for pension income splitting. They are reported individually. QPP is technically eligible for splitting between spouses under the CPP rules, through credit splitting.
The pension income tax credit
Both spouses can claim the pension income tax credit (line 31400) on up to $2,000 of eligible pension income at 15% federal ($300 credit each). If the receiving spouse has no other pension income, the allocated pension income lets them also claim this credit — doubling the household's credit.
CPP: the timing decision
You can start receiving Canada Pension Plan retirement benefits as early as age 60 or as late as age 70. The decision significantly affects your lifetime CPP income.
| Start age | Adjustment vs. age 65 |
|---|---|
| 60 | −36% (−0.6%/month before 65) |
| 65 | Base amount (100%) |
| 70 | +42% (+0.7%/month after 65) |
Break-even analysis
Taking CPP at 70 versus 65 requires living past approximately age 82–83 to break even (receiving more total lifetime CPP dollars). The average life expectancy for a 65-year-old Canadian is currently 85+. Statistically, most people live past the break-even age.
Factors that favour early CPP (60–65)
- Poor health or reduced life expectancy
- No other income — you need the money now
- Planning to invest the CPP proceeds at a return that beats the actuarial adjustment
Factors that favour late CPP (65–70)
- Good health and family longevity
- Other income to bridge the gap
- Desire for longevity insurance — CPP is the most cost-effective inflation-indexed lifetime income guarantee available
- Surviving spouse benefit: larger CPP means a larger survivor benefit for your partner
OAS: deferral and the clawback
Old Age Security is available at age 65 (to Canadians with at least 10 years of Canadian residency after age 18). Maximum OAS at 65 in 2026 is approximately $8,854/year ($737/month).
Deferral benefit
Like CPP, you can defer OAS up to age 70, receiving a 0.6% increase per month of deferral (7.2% per year, up to 36% more at age 70). This provides longevity insurance for those who do not need OAS income at 65.
The clawback (OAS recovery tax)
If your net income exceeds approximately $90,997 in 2026, CRA recovers 15 cents of OAS per dollar of net income above the threshold. OAS is fully recovered when net income reaches approximately $148,000.
The clawback is assessed on your current year's income and collected through reduced OAS payments or instalment payments in the following year.
Strategies to reduce or avoid the clawback
- TFSA withdrawals: Do not count as income — use TFSA to fund needs in high-income years
- Pension income splitting: Reduce the higher-income spouse's net income by allocating eligible pension income to the lower-income spouse
- RRIF meltdown: Take larger RRIF withdrawals in years before OAS begins, reducing the RRIF balance and future mandatory minimums — front-load withdrawals when income (and OAS exposure) is lower
- Defer OAS if high income expected early: If you expect to be in the clawback range for several years post-65, deferring OAS avoids both forfeiting OAS to clawback and gets you the deferral bonus
TFSA in retirement: underused and undervalued
TFSAs are not just a savings vehicle for young people. They are arguably more valuable in retirement because:
- Withdrawals are completely tax-free and do not count as income
- Withdrawals do not affect OAS clawback, GIS eligibility, or the age amount credit
- No mandatory withdrawal requirements (unlike RRIF)
- Contribution room continues to accumulate every year after age 18 while you are a Canadian resident
- At death, the full value can transfer to a surviving spouse's TFSA without affecting their contribution room
TFSA contribution room at retirement
If you have never used your TFSA (or have significant unused room), the cumulative room available in 2026 for someone who was 18 in 2009 or earlier is approximately $102,000. Use low-income early retirement years to maximize TFSA contributions — drawing down RRIF above minimums and routing the after-tax proceeds into your TFSA creates a tax-efficient conversion from a fully-taxable account to a tax-free one.
Prescribed annuities: longevity planning
A prescribed annuity is an annuity purchased with non-registered funds that receives favorable tax treatment. Unlike a regular annuity where a large portion of early payments is treated as interest income, a prescribed annuity blends the return of capital and interest evenly across all payments.
This means a larger portion of each payment is treated as non-taxable return of capital, reducing the income reported for tax purposes — and therefore reducing OAS clawback exposure. Prescribed annuities are also permanent income, providing longevity insurance against outliving your assets.
They are not suitable for everyone — the trade-off is irrevocability (you cannot access the capital once the annuity is purchased) and inflation risk (most are fixed payments). They work well as a component of a diversified retirement income plan.
Estate planning basics: RRSP/RRIF at death
Canada does not have an estate tax or inheritance tax. However, the deemed disposition rules on death can generate significant taxes on the terminal return.
RRSP/RRIF on death
The full fair market value of your RRSP or RRIF is included in your income on your terminal (year-of-death) return — unless:
- You named your spouse or common-law partner as beneficiary: the RRSP/RRIF rolls over to their plan tax-free
- You named a financially dependent child or grandchild as beneficiary: special rules allow rollovers to the child's RRSP, RRIF, or annuity depending on the circumstances
Name your spouse as RRSP/RRIF beneficiary directly (not through your estate) to bypass probate and ensure the tax-free rollover. An estate beneficiary designation may still work but adds complexity and potential probate fees.
Capital property on death
Capital property (investments, real estate other than principal residence) is deemed disposed at fair market value on the date of death, triggering any accrued capital gains. The gain is included in the terminal return and taxed at applicable capital gains inclusion rates. See our complete estate and final return guide for full details.
Frequently asked questions
What happens if I do not convert my RRSP to a RRIF by December 31 of the year I turn 71?
If your RRSP still exists on January 1 of the year you turn 72, the entire balance is deregistered and included in your income for the year you turned 71. This creates a massive tax bill — potentially at the highest marginal rate. You must convert to a RRIF (or purchase an annuity) by December 31 of the year you turn 71, not December 31 of the year you turn 72. The deadline is easy to miss if you think the deadline is "when you turn 72."
If I delay CPP to 70, will I get back what I put in?
For most people who are reasonably healthy, yes. The break-even age compared to taking CPP at 65 is approximately age 82–83. If you live past that age — which is likely for a healthy 65-year-old — the higher CPP payments from deferral more than compensate for the 5 years of foregone benefits. Taking CPP early (at 60) makes sense if you have serious health issues, need the money, or have no other income. For those in good health with other assets to fund ages 60–70, deferral to 70 typically results in the highest lifetime income.
What is the OAS clawback and how do I avoid it?
The OAS recovery tax (clawback) reduces your OAS by 15 cents for every dollar of net income above the threshold (~$90,997 in 2026). The clawback is calculated on Schedule 1 of your T1 and recovered through instalments or withholding the following year. To reduce exposure: use your TFSA in high-income years (TFSA withdrawals don't count as income), time RRIF withdrawals strategically, elect pension income splitting with a lower-income spouse, defer OAS until 70 (if you expect high income only in the early retirement years), or consider prescribed annuities that blend return of capital into income.
Can I contribute to a TFSA after I retire?
Yes. TFSA contribution room accumulates as long as you are a Canadian resident aged 18 or older, regardless of whether you have income or are retired. You can contribute and withdraw from your TFSA indefinitely throughout retirement. In fact, TFSAs are particularly valuable in retirement because withdrawals do not count as income for the purposes of OAS clawback, GIS eligibility, or income-tested benefit calculations.
My spouse is younger and still working. Can I still do pension income splitting?
Yes. Pension income splitting is available to spouses of any age combination, provided the pension income is eligible. You elect to split on Form T1032 and both spouses must sign it. The lower-income spouse reports the allocated pension income and pays tax on it at their marginal rate. If your spouse is still working and has significant employment income, pension splitting may not save much tax — you need the split income to land in a lower tax bracket on their return than it occupied on yours.