The average Registered Retirement Savings Plan (RRSP) balance of Canadians over 65 is $756,497, as per 2023 data from Statistics Canada. Is this sufficient for retirement? Not exactly. But the RRSP is not the only source of income in retirement.
Remember, the Canada Revenue Agency (CRA) created RRSPs to encourage individuals to save for retirement by offering them the option to deduct contributions from taxable income.
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When an RRSP matters the most
The RRSP matters the most when you have a high income, as it can help you save tax. You can contribute to an RRSP and keep carrying forward the unused contribution to use all the accumulated unused contribution in the years you earn significant taxable income.
When an RRSP doesn’t matter much
However, the RRSP balance doesn’t matter much after retirement, as withdrawals are taxable. Moreover, you cannot completely control RRSP withdrawals after retirement. An RRSP is active till age 71, after which you have to transfer to a Registered Retirement Income Fund (RRIF) to avoid getting taxed on your RRSP balance. The RRIF has a minimum withdrawal amount, which is determined by your age and RRIF balance, and is taxable income. You can withdraw more, but a withholding tax will apply.
Also, RRIF withdrawals can affect your Old Age Security (OAS) pension amount, which depends on your taxable income.
Overall, RRSPs are not quite tax-efficient after retirement.
Three things that matter more than an RRSP in retirement
TFSA
A better and more tax-efficient withdrawal option in retirement is the Tax-Free Savings Plan (TFSA). TFSA withdrawals are not included in taxable income, and you can continue contributing and withdrawing from a TFSA even after age 71. This account helps you invest even after you retire, while the RRSP doesn’t. So, if you see an opportunity whereby a $2,000 investment can grow to $3,000 in a year because of a cyclical upturn, you can invest in a TFSA, irrespective of your age.
At present, Lundin Gold and Shopify (TSX: SHOP) have such an opportunity. Shopify can give you a 50% upside this holiday season as it integrates artificial intelligence (AI) to help merchants sell more. Merchants opting for AI solutions will help Shopify earn more revenue from merchant solutions and tap new channels for optimizing the shopping experience. The stock has dipped in March because of seasonality, like every normal year, creating a buying opportunity. Retirees can allocate a small portion towards such growth stocks.
CPP
Another thing that matters the most after retirement is the CPP. The CRA determines the CPP payout depending on the best 39 years of your contributions, but you can choose when to start your payout. The ideal age is 65. If you take an early payout at 60, the amount will reduce by 7.2% per year, and if you postpone till 70, it will increase by 8.4% annually.
OAS
You made contributions for CPP, RRSP, and an employer pension. However, OAS is a benefit funded by the CRA, and you don’t want to miss it. OAS payments are significant and taxable. The monthly payment for the January to March 2026 period is $742.31, which you can get if your 2024 taxable income was less than $148,451. Any income beyond this threshold might trigger the OAS clawback.
Investor takeaway
Retirement planning is not just about having a high RRSP balance. You also have to consider post-retirement taxes and diversify the income streams that give you control over your payout. Combining an RRSP with a TFSA, CPP, and OAS ensures more control over payouts and a tax‑efficient retirement strategy.
