Drawdown Order: RRSP First or Non-Registered First in Retirement?

One of the most overlooked retirement planning questions in Canada is not how much money you have saved — it's what order you spend it in. Whether you draw from your RRSP or your non-registered account first can mean tens of thousands of dollars in extra taxes over a 20 or 30-year retirement. There is no universal right answer, but understanding the trade-offs puts you in a much stronger position to make a decision that actually fits your life.

Why the Order You Draw From Accounts Matters

Every dollar you pull out of an RRSP — or a RRIF, which your RRSP converts to by age 71 — is fully taxable as ordinary income in the year you take it. Every dollar you pull from a non-registered account may trigger a capital gain, but only a portion of that gain is added to your taxable income under current Canadian tax rules. Interest income earned in a non-registered account, however, is fully taxable each year regardless — similar to an RRSP withdrawal.

This asymmetry is why the order matters. Drawing from the wrong account at the wrong time can push you into a higher tax bracket, reduce your Old Age Security benefit through the clawback, or create a much larger tax bill at death than your family is expecting.

The Case for Drawing from Your RRSP Earlier

Many retirees in Canada retire in their early to mid-sixties, before CPP and OAS begin. This window — often somewhere between age 60 and 70 — is frequently a lower-income period where your marginal tax rate may be the lowest it will ever be in retirement.

Drawing from your RRSP during this window means paying tax at a lower rate than you might face later, when CPP, OAS, and mandatory RRIF minimums all stack on top of each other. This approach is sometimes called an "RRSP meltdown," and the goal is to smooth your income over time rather than face a spike in taxable income down the road.

There's also an estate planning angle. When you pass away without a surviving spouse or a financially dependent child, your entire RRSP or RRIF balance is treated as income in the year of death. A large registered account at death can result in a very significant tax bill, leaving your estate with considerably less than you may have planned.

The Case for Drawing from Non-Registered Accounts First

If your non-registered account holds investments with significant built-in capital gains, withdrawing from it forces you to realize those gains. In a year when your income is already high, that can be expensive. In a lower-income year, triggering a capital gain is far more manageable and may be taxed at a lower effective rate.

Holding non-registered investments longer means you keep deferring the capital gain — effectively a form of tax deferral that costs you nothing to maintain. Meanwhile, your RRSP continues to grow on a tax-sheltered basis, which has value over a long time horizon.

If your non-registered account is heavy in interest-generating investments — such as GICs, bonds, or high-interest savings — those produce fully taxable income every year regardless of whether you withdraw anything. In that case, drawing down non-registered assets first can actually reduce your annual tax bill even before you touch a dollar.

The Role of TFSA Withdrawals and the OAS Clawback

Most retirement drawdown plans in Canada involve three account types: RRSP or RRIF, non-registered, and TFSA. Tax-Free Savings Account withdrawals are completely tax-free and, importantly, they do not count as income for any purpose — including the OAS clawback calculation. For that reason, drawing TFSA funds last, or using them selectively to fill income gaps, is a strategy worth understanding.

The OAS clawback — formally called the OAS pension recovery tax — begins once your net income crosses a threshold that is adjusted by the federal government each year. For every dollar above that threshold, 15 cents of OAS is repaid. For retirees who have large RRSP or RRIF balances, unplanned or uncoordinated withdrawals can push income above that line and cost hundreds or thousands of dollars per year in reduced OAS.

TFSA withdrawals avoid this problem entirely. They give you a way to supplement your income without moving the OAS needle.

The Real Answer: A Year-by-Year Strategy

For most Ontarians, the best drawdown order is not "RRSP first" or "non-registered first" as a blanket rule applied for life. It is a blend that shifts from year to year based on your income, your account balances, your age, your tax bracket, and any income-tested benefits you receive or may receive.

A common approach is to draw from RRSP or RRIF in amounts that keep your income just below a critical threshold — the top of a lower tax bracket, the OAS clawback trigger, or the income limit for benefits like the Guaranteed Income Supplement. Filling those brackets deliberately each year, rather than reactively, is how retirees typically minimize lifetime taxes rather than just minimizing this year's bill.

Marc Pineault, a financial planner in London, Ontario, works with retirees and pre-retirees to model different drawdown sequences and identify the approach that keeps more money in their hands over the long run. The math is personal — it depends on your numbers, your household situation, and your goals.

If you are within five to ten years of retirement, or already in it, your drawdown order is worth a serious look. Book a consultation with Marc to work through your specific accounts and build a withdrawal strategy designed around your actual situation.

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This article is for educational purposes only and does not constitute personalized financial advice. Please consult a qualified financial planner before making any financial decisions.