Taking only the RRIF minimum can quietly cost you later
Your RRSP must become a RRIF by the end of the year you turn 71, and from then on you must withdraw a minimum each year that rises with age and is fully taxable. Taking only that minimum is allowed, but it can quietly push more tax into your later years and onto your estate.
Here is the trap. The minimum is designed to leave a lot in the account early on. As you age, the required percentage climbs, so those withdrawals — stacked on top of CPP, OAS and any pensions — can land in higher tax brackets exactly when you have the least flexibility to manage them.
Two side effects make it worse. Larger taxable income later in life raises the odds of an OAS clawback, which kicks in once income passes a threshold that adjusts over time. And whatever remains in the RRIF when the second spouse dies is generally taxed all at once, which can take a sizeable bite out of what reaches your heirs.
The alternative is not to drain the account in a panic. It is to look for low-income years — often early retirement, before CPP and OAS are flowing at full strength — and draw a little more than the minimum then, while you are in a lower bracket. You can spend it, move it into a TFSA where future growth is tax-free, or simply smooth your taxable income across the years.
None of this is one-size-fits-all. The right amount depends on your other income, your spouse's situation, your bracket today versus what you expect later, and what you want to leave behind. The mistake is treating the minimum as the answer rather than as the floor.
The RRIF minimum is the least you are allowed to take, not the least tax you will pay — sometimes drawing more, sooner, costs less overall.
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