Seven criteria to consider for optimizing your retirement withdrawals
Good planning when it comes to withdrawals can result in higher retirement income.
September 24th, 2025
If you are nearing retirement, you probably have an idea of how much capital you will have at your disposal when the time comes. But did you know that how you draw down these savings could have an impact on your standard of living and your retirement plans?
Here are seven criteria to keep in mind when setting up your optimal strategy.
1. Your needs
In theory, everyone would like to have a steady, predictable income until the day they die. In practice, you might have plans you want to finance early in your retirement, while you’re still healthy. Your goal in that case wouldn’t be a steady income, but an income that would change over time and provide enough money for each stage. That could require more meticulous planning than a simple linear projection of your withdrawals.
Which brings us to the second criteria.
2. The amounts
According to one theory, if you withdraw 4% of your capital each year, adjusted for inflation, a balanced portfolio will provide you with enough savings for 30 years, the estimated duration of retirement. This rule provides a benchmark, but is not universally supported, for two reasons in particular. The first is that needs may vary over time, as mentioned in point 1. The second is the risk associated with the sequence of returns.
Let’s say that you have $100,000, you withdraw $10,000 per year, and your annual return on investment is 5% for four years, then negative 5% in the fifth year. Now suppose that this negative year is the first one in the sequence. Surprise: you would end up with $4,300 less, due to the withdrawals made at the start of the sequence. Knowing that, you might want to maintain some flexibility in your disbursements to minimize unfavourable withdrawals.
3. Tax and withdrawal order
Not all retirement income is taxed in the same way. For instance, tax-free savings account (TFSA) withdrawals aren’t taxable, but withdrawals from registered plans (such as your registered retirement savings plan, or RRSP) are. And in a non-registered account, capital gains, dividends and interest are all taxed differently.
Consequently, one optimization strategy (scenario 1, below), consists of drawing on non-registered accounts, followed by registered accounts and finally the TFSA, which preserves tax-sheltered investments for as long as possible. However, you risk seeing your tax increase when you start making withdrawals exclusively from your registered investments. Another risk: When you turn 71, you have to convert your RRSP and begin making mandatory withdrawals. If you still have a substantial RRSP balance at that point, high mandatory withdrawals could lead to equally high taxes.
Another strategy (scenario 2), consists of making withdrawals from all types of accounts every year, which would spread the tax burden over time. As well, this approach makes it possible to use non-taxable TFSA withdrawals as necessary to avoid ending up in a higher tax bracket or losing your Old Age Security benefits (see point 5).
The appeal of each method depends on your situation.
4. Government benefits
Starting at age 65, you’ll be eligible for the Old Age Security (OAS) benefit and, if you have worked, Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) benefits. In each case, the longer you delay your application, the higher your benefits will be. Thus, your OAS will be 36% higher if you wait until age 70 before applying. As for the CPP and QPP, you can apply early (allowed as of age 60), but your income will be reduced. On the other hand, it will be increased if you wait: for example, your monthly CPP benefit could be 42% higher if you apply at age 70 instead of 65. At first glance, it would seem best to wait. However, it’s also important to calculate when the improved pension will balance out all the years of unpaid income. Your advisor can help you estimate this based on your personal situation.
5. Income recovery threshold
The Old Age Security pension has an “income recovery threshold,” which is $93,454 for 2025.
Your payments will be reduced by 15% of each dollar of taxable income above this threshold. Once your income reaches $151,778 ($157,490 if you are 75 or older), 100% of your OAS pension will be “clawed back.” So if you want to retain your OAS benefits, your strategy should take this threshold into account.
6. Income splitting
Pension income splitting allows a couple where one partner earns a much higher income than the other to reduce their combined income tax by attributing some of the higher income to the other spouse. Your strategy might also take this provision into consideration. Note that a spousal RRSP can also be used for this purpose.
7. Investment strategy
Finally, it’s a common belief that a retired person should have a very conservative investment strategy. However, retirement can last 30 to 35 years, a horizon compatible with a more balanced portfolio. For example, if you were to start withdrawing 4% per year at age 65, a conservative portfolio of fixed income securities alone could be exhausted by the time you turned 85, while a portfolio with 30% equities might last beyond age 95. Finding the right balance between market risk and longevity risk could be key.
Obviously, any withdrawal strategy covers many elements. But with professional support, you’ll can easily establish your strategy and move ahead with the plans you’ve been dreaming about for so long.
The following sources were used to prepare this article:
BlackRock, “Retirement withdrawal rules and strategies for financial success.”
Boomer and Echo, “Why We Stopped Saving So Much and Started Living.”
Fidelity, “Tax-savvy withdrawals in retirement.”
Government of Canada, “Old Age Security payment amounts”; “How much you could receive”; “Old Age Security pension recovery tax”; “Pension income splitting.”
Investopedia, “Safe Withdrawal Rate (SWR) Method: Calculations and Limitations.”
Morningstar, “Can You Safely Spend More Early in Retirement?”; “What’s a Safe Withdrawal Rate Today?”
OriginalMacGuy, “Breaking the Habit: Learning to Spend Money in Retirement.”
PlanEasy, “Retirement Income: Start With RRSP, Non-Reg or TFSA?.”
Retraite Québec, “Liquidity risk”; “At what age should you apply for your retirement pension under the Québec Pension Plan?”; “Withdrawal strategy: postpone your retirement pension under the QPP, your Old Age Security (OAS) pension or your retirement?”
Vanguard, “A guide to retirement withdrawal strategies.”
