Decumulation in Retirement: A Drawdown-Sequencing Playbook

The question everyone gets wrong

Most retirees assume the right move is to spend their non-registered savings first, let the RRSP and TFSA keep growing tax-sheltered, and only touch registered accounts when they have to. It's intuitive — but it's frequently the most expensive choice. The "default" order ignores the tax bracket you'll be pushed into once mandatory RRIF withdrawals begin, and it ignores how OAS clawback interacts with every dollar of taxable income after age 65.

A drawdown plan should be designed around three questions: what bracket are you in this year, what bracket will you be in once CPP, OAS, and forced RRIF withdrawals all stack on top of each other, and what do you want the estate to look like.

The bracket-smoothing principle

The cleanest way to think about decumulation is to imagine your tax brackets as a set of shelves. Every year you have room to fill the lower shelves at low rates before income spills onto a higher one. If your retirement income later in life will be high enough to fill several shelves, the cheapest tax outcome is usually to start drawing from the RRSP earlier — even before you "need" the money — to use the lower shelves while they're empty.

A common pattern: retire at 62, defer CPP and OAS to 70, and use those eight years to systematically melt down the RRSP at modest rates (often the second federal bracket plus the corresponding provincial bracket). By the time CPP, OAS, and the mandatory RRIF minimum all arrive at 72, the RRSP is materially smaller and the lifetime tax bill is meaningfully lower.

Where the TFSA fits

The TFSA is the most flexible tool in retirement, and it's almost always wrong to drain it first. Two reasons:

1. TFSA withdrawals don't show up as income, so they're the only lever that lets you take a large lump sum (a new roof, a car, a trip with the family) without triggering OAS clawback or jumping a bracket.
2. The TFSA is the most tax-efficient asset to leave to a spouse or to adult children — there's no deemed disposition tax on death, and it transfers cleanly through a successor holder or beneficiary designation.

In most plans we build, the TFSA is the last account spent and the first account topped up whenever a low-tax window opens (for example, after a year with unusually low income).

Where the non-registered account fits

Non-registered (taxable) accounts have one quirk that changes the sequencing math: only the gain is taxed, and only half of that gain at that. They also receive a step-up at death — well, technically, a deemed disposition is triggered, but the resulting tax can often be deferred to a surviving spouse or absorbed by a charitable bequest. If a meaningful portion of your portfolio is in unrealized gains and your estate plans include a spouse or charity, draining the non-registered account first can be the wrong call.

The general rule we use: realize gains gradually whenever there's bracket room, but don't sprint to liquidate a non-registered account that's working efficiently and will eventually pass to a spouse.

OAS clawback is the silent constraint

OAS begins to claw back at roughly $93,000 of net income (2025 figures) and is fully eliminated near $151,000. For a single retiree with a pension, CPP, OAS, and a sizeable RRIF, it's surprisingly easy to land in the clawback zone — and once you're there, every additional dollar of RRIF withdrawal effectively costs you 15 cents of OAS on top of the marginal tax. That's why blending a partial RRSP/RRIF withdrawal with a TFSA top-up often beats drawing only from the RRIF.

For couples, pension income splitting (RRIF withdrawals after 65 qualify) can shift up to 50% of eligible pension income to the lower-bracket spouse. That alone can keep both partners under the clawback threshold and is worth modelling carefully every year.

A simple ordering framework

There is no single right answer, but here is the framework we walk most clients through:

1. In the early retirement years (pre-CPP/OAS): Draw from the RRSP/RRIF up to a target bracket — usually whatever bracket you'll be in once CPP and OAS start. This is the bracket-smoothing window.
2. Once CPP/OAS begin: Reassess. The RRIF minimum is now mandatory and may already fill the target bracket. Layer non-registered withdrawals on top, harvesting capital gains in low-income years.
3. Spend the TFSA last — and use it surgically for one-time spikes that would otherwise push you over the OAS clawback or into a higher bracket.
4. Coordinate around major one-time events: a downsize, a sale of a rental, a large charitable gift. These are the years where the sequencing matters most.

The estate question changes everything

If your goal is to spend your last dollar on your last day, the math above is the math. If your goal is to leave a meaningful inheritance, the order changes — registered accounts are the most expensive to die with (a fully taxable RRSP collapses into the final return, which can mean 50%+ of the balance going to tax), so the case for drawing them down earlier is even stronger. The TFSA, by contrast, is the most efficient asset to leave behind.

This is the kind of work we do

Decumulation planning rewards modelling — small changes to the order can mean five- and six-figure differences in lifetime tax. We build personalized drawdown projections that account for your specific accounts, your spouse's accounts, your pension, and your estate intentions. Book a complimentary consultation if you'd like to see what the right sequence looks like for your situation.