How to Build a Retirement Income Plan in Ontario

Saving for Retirement Is Only Half the Problem

Most of the people I sit down with in London, Ontario have done a solid job of saving. They have RRSPs. They have TFSAs. Some have employer pensions. A few have rental properties or non-registered investments. And almost all of them ask me the same question: how do I actually turn all of this into income I can live on for the next 25 or 30 years?

That question is the entire point of a retirement income plan. It is not about how much you have saved. It is about how you draw it down, from which accounts, in what order, at what pace, and at what tax cost. Two people with identical net worth can have wildly different outcomes in retirement depending on how they structure their withdrawals. I have seen it firsthand, and the difference can be hundreds of thousands of dollars over a lifetime.

This guide walks through the Ontario-specific process of building a retirement income plan that actually works. If you are within a few years of retirement, or already retired and winging it, this is the framework that matters.

Every Income Source You Need to Coordinate

The first step in any retirement income plan is understanding what you have to work with. Most Ontario retirees have some combination of the following income sources, and each one comes with its own rules, tax treatment, and timing decisions.

Canada Pension Plan (CPP)

CPP is based on your contribution history. The maximum retirement pension at age 65 in 2026 is approximately $1,364 per month ($16,375 per year). The average is closer to $830 per month. You can start as early as 60 with a permanent 36 percent reduction, or delay until 70 for a 42 percent increase.

The timing decision alone can swing your lifetime CPP income by over $100,000. For most people with sufficient savings, delaying CPP past 65 is worth serious consideration. I walk through the full analysis in our CPP timing guide.

Old Age Security (OAS)

OAS provides up to approximately $727 per month ($8,724 per year) starting at age 65. It is not contribution-based — most Canadians who have lived in Canada for 40 years after age 18 receive the full amount.

The catch is the clawback. Once your net income exceeds roughly $90,997, you start losing 15 cents of OAS for every dollar above that threshold. Your OAS is fully eliminated at about $148,065. A proper income plan keeps you below that clawback line whenever possible. Our OAS optimization guide covers the strategies in detail, and if you are newly retired, the first-year retirement checklist walks through when and how to apply.

Employer Pensions

If you have a defined benefit (DB) pension, you have guaranteed income for life, which is a significant advantage. The key decisions involve bridging benefits (some DB plans top you up until CPP starts), survivor benefit elections, and whether to commute the pension value to a personal plan.

Defined contribution (DC) pensions give you a lump sum at retirement that you need to manage yourself. The money typically moves into a locked-in retirement account (LIRA) or a life income fund (LIF), and you need to decide how to invest it and how much to withdraw each year within prescribed limits.

RRSPs and RRIFs

Your RRSP is likely your largest retirement account, and every dollar you withdraw is taxable as income. At age 71, you must convert your RRSP to a RRIF and begin mandatory minimum withdrawals. Those minimums increase each year as a percentage of your balance, which means your taxable income from RRIFs grows whether you need the money or not.

This is why the RRSP meltdown strategy is so valuable. Drawing down your RRSP in the low-income years before CPP and OAS start can save Ontario retirees $40,000 to $80,000 in lifetime taxes.

TFSAs

TFSA withdrawals are completely tax-free and do not count as income for any government benefit calculation. This makes TFSAs one of the most powerful tools in your retirement income plan. You can use them to top up income in any year without affecting your OAS, GIS eligibility, or tax bracket.

The flexibility of TFSAs also makes them ideal as a reserve for unexpected expenses or for managing income in specific years when you need to stay under a clawback threshold. I covered this in depth in our TFSA withdrawal strategy guide.

Non-Registered Investments

Taxable investment accounts receive favourable treatment on capital gains — only 50 percent of the gain is included in income (for the first $250,000 in capital gains per year). Dividends from Canadian corporations receive a dividend tax credit. This tax treatment makes non-registered accounts a useful layer in your income plan, particularly for managing your marginal tax rate.

The key consideration is the adjusted cost base of your holdings. Selling investments with a high cost base generates less taxable income than selling those with large accumulated gains.

Other Sources: Rental Income, Part-Time Work, Inheritance

Rental income from investment properties is fully taxable but can be offset by expenses like maintenance, property taxes, and mortgage interest. If you are considering downsizing your home in retirement, the proceeds from your principal residence sale are tax-free and can significantly strengthen your income plan.

Part-time work or consulting income provides taxable income but can allow you to delay drawing from registered accounts. Inheritances or insurance payouts can change your plan entirely, which is why a retirement income plan needs to be flexible enough to adapt.

Income Layering: The Core Concept

Income layering is the strategy that ties all of these pieces together. Instead of drawing from one account until it is empty and then moving to the next, you coordinate withdrawals from multiple sources each year to stay in the lowest tax brackets possible.

Here is what income layering looks like in practice for an Ontario retiree:

Layer 1: Guaranteed Base Income

Start with your guaranteed sources: CPP, OAS, and any employer pension. These provide your floor. For a couple both receiving average CPP and full OAS, this base might be $30,000 to $45,000 per year combined.

Layer 2: RRSP/RRIF Withdrawals to Fill the Bracket

Next, withdraw from your RRSP or RRIF to fill up the lower tax brackets. In Ontario, the combined federal and provincial tax rates for 2026 look roughly like this:

• First ~$16,129: Covered by basic personal amounts. Effectively 0%.
• $16,129 to ~$57,375: Combined rate of approximately 20.05%.
• $57,375 to ~$106,717: Combined rate of approximately 29.65%.
• Above $106,717: Rates climb rapidly to 33.89%, then 43.41%, and higher.

If your guaranteed income puts you at $25,000, you might withdraw $32,000 from your RRSP to fill up the 20.05 percent bracket (to roughly $57,375 total). Every dollar above that bracket costs nearly 50 percent more in tax. Staying aware of where the brackets fall is central to an efficient plan.

Layer 3: Tax-Free TFSA Top-Up

If you need more than your guaranteed income plus your RRSP withdrawal provides, pull the difference from your TFSA. Since TFSA withdrawals are tax-free, this extra income does not push you into a higher bracket, does not trigger OAS clawback, and does not affect any income-tested benefits.

Layer 4: Non-Registered Accounts for Flexibility

Non-registered accounts serve as a flexible buffer. You can manage the timing and size of capital gains to control your tax hit in any given year. In years where your other income is unusually low, you might realize more gains. In years where other income is high, you hold off.

Why This Works

The power of layering is that it prevents the most common and most expensive mistake I see: pulling too much from one source. When you drain your RRSP quickly, you spike your income and pay tax at the highest rates. When you ignore your RRSP until forced withdrawals start, the mandatory RRIF minimums stack on top of CPP and OAS, pushing you into higher brackets and triggering OAS clawbacks.

Layering keeps you in control. It smooths your tax bill across retirement instead of front-loading or back-loading the pain.

Couples Have Even More Opportunities

If you are planning retirement as a couple, the opportunities multiply. Income splitting is one of the most effective tax strategies available to Ontario retirees, and it is built right into the tax code.

Pension income from a DB plan, RRIF withdrawals (after age 65), and certain annuity payments can be split between spouses. This means a higher-earning spouse can allocate up to 50 percent of their eligible pension income to the lower-income spouse, effectively shifting income into a lower tax bracket.

For a couple where one spouse has a large pension and the other has minimal retirement income, pension income splitting can save $5,000 to $15,000 per year in taxes. I covered the mechanics and strategies in our pension income splitting guide.

Beyond income splitting, couples need to coordinate their CPP start dates, OAS timing, and withdrawal sequencing together. Two separate plans optimized individually will almost always produce a worse result than a single coordinated plan optimized as a household. Our retirement planning guide for couples walks through the full framework.

Common Mistakes That Cost Ontario Retirees Money

Over the years, I have seen the same costly mistakes come up repeatedly. Here are the ones that do the most damage.

Taking CPP Too Early Without Doing the Math

Starting CPP at 60 because "you might not live long enough" sounds logical on the surface, but the math says otherwise. For someone in reasonable health, delaying CPP to 65 or later almost always results in higher lifetime income. The guaranteed 8.4 percent annual increase for delaying is hard to beat.

Ignoring the RRSP Meltdown Window

The years between retirement and age 65 (or 72) are a golden opportunity to withdraw from your RRSP at low tax rates. Once CPP and OAS start flowing, your base income rises and every RRSP dollar is taxed at a higher rate. Waiting too long to start the meltdown is one of the most expensive mistakes in retirement planning.

Drawing Exclusively from One Account

Some retirees drain their non-registered accounts first, then their RRSPs, then their TFSAs. This sequential approach ignores tax bracket management entirely. A coordinated multi-account strategy almost always produces better after-tax income.

Ignoring Sequence of Returns Risk

The order in which your investments earn returns matters enormously in retirement. A market downturn in the first few years of retirement, combined with ongoing withdrawals, can permanently damage your portfolio. Your income plan needs to account for this by maintaining a cash buffer or conservative allocation in the portion of your portfolio you will draw from in the next two to three years.

Not Planning for Inflation

A retirement that lasts 25 or 30 years means your expenses will roughly double due to inflation. Your income plan needs to grow over time, not stay flat. CPP and OAS are indexed to inflation, but your RRSP withdrawals and non-registered income are not automatically adjusted. This is something the plan needs to build in.

Triggering OAS Clawbacks Unnecessarily

With some forethought, many retirees can keep their income below the OAS clawback threshold every year. Without a plan, it is easy to trigger the clawback in some years while having room to spare in others. Smoothing your income across years is a key function of a proper retirement income plan.

Why This Matters More Than You Think

Here is the part that makes retirement income planning so different from the accumulation phase. When you are saving, a suboptimal strategy means slightly lower returns. When you are spending, a suboptimal strategy means running out of money, paying tens of thousands in unnecessary taxes, or losing government benefits you were entitled to.

The stakes are higher because the decisions are largely irreversible. You cannot un-start CPP. You cannot un-trigger a clawback. You cannot un-sell investments at the bottom of a market downturn. The plan you put in place before retirement, and the adjustments you make in the first few years, set the trajectory for the next three decades.

This is where working with a financial advisor who specializes in retirement income makes a meaningful difference. Not because the individual concepts are impossibly complex, but because the interactions between them are. CPP timing affects OAS clawback. RRSP withdrawal amounts affect your marginal tax rate, which affects the after-tax value of your non-registered withdrawals. Pension income splitting changes the optimal RRSP meltdown amount for both spouses. Every piece connects to every other piece.

A proper retirement income plan models all of these interactions across a 30-year time horizon, tests them against different market scenarios, and produces a year-by-year withdrawal strategy that tells you exactly which accounts to draw from, how much to take, and when.

Building Your Plan: Where to Start

If you are approaching retirement and do not yet have a written income plan, here is the starting point:

1. Inventory all income sources. List every account, pension, government benefit, and other income source you will have in retirement. Include balances, projected growth, and start dates.

2. Estimate your spending. Be honest about what you need and what you want. Include fixed costs, discretionary spending, travel, healthcare, and a buffer for the unexpected.

3. Map out your income timeline. Plot when each income source starts and stops. Identify the gap years where you have no government benefits and must fund everything from savings.

4. Build the tax layer. Using Ontario tax brackets, figure out the optimal amount to withdraw from each account each year to minimize your lifetime tax bill.

5. Stress test the plan. What happens if the market drops 30 percent in year two of retirement? What if you live to 95? What if one spouse dies early? A plan that only works in the best-case scenario is not a plan.

6. Revisit annually. Tax rules change. Markets move. Spending patterns evolve. Your retirement income plan is a living document, not a one-time exercise.

You can start exploring the numbers yourself with our Ontario retirement calculator, which gives you a rough picture of how your income sources interact.

For the full analysis, including tax planning across all income sources, stress testing, and a year-by-year withdrawal roadmap, that is the work we do with clients every day. If you want to talk through your situation, you can learn more about how we work on our financial advisor page or reach out directly. There is no pressure and no obligation. Just a conversation about whether a formal plan makes sense for where you are right now.