A new roof can cost $20,000. Pull the money from a Registered Retirement Income Fund (RRIF) at the wrong time; however, Ottawa may quietly add another bill by shrinking your Old Age Security (OAS).
The problem isn’t the purchase. Every dollar withdrawn from an RRIF is generally taxable income, whether it funds groceries, a cruise, or one spectacularly unglamorous roof. That income can push a retiree into the OAS recovery tax, making the timing and source of a withdrawal almost as important as its size.
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One withdrawal can shrink OAS
For the 2026 income year, OAS recovery begins when net world income exceeds $95,323. The government claws back 15% of income above that threshold, with the resulting reduction applied to OAS payments from July 2027 through June 2028.
Imagine a retiree expects $90,000 of net income, including OAS, pension income, and planned RRIF withdrawals. One extra $20,000 RRIF withdrawal lifts that total to $110,000. The amount above the threshold is $14,677, creating roughly $2,202 of OAS recovery tax. The withdrawal is still theirs, but some of its spending power has wandered off wearing a government name tag.
Tax withheld by the financial institution doesn’t solve this problem. It’s merely a prepayment toward the final tax bill, while the full taxable withdrawal still enters the income calculation. RRIF owners must also take an annual minimum beginning the year after opening the account, so avoiding taxable withdrawals forever isn’t an option.
Boost OAS instead
Canadians who haven’t started OAS can delay it from age 65 to as late as 70. The payment rises 0.6% for every month delayed, or 36% after five years. Using the July-to-September 2026 maximum, that could lift monthly OAS from $751.97 at 65 to $1,022.68 at 70.
Delaying won’t suit everyone. Someone eligible for the Guaranteed Income Supplement (GIS), needing income immediately, or facing a shorter life expectancy may be better served by starting at 65. For a healthy retiree with other assets, though, the waiting years can become a tax-planning window. Drawing down some Registered Retirement Savings Plan (RRSP) or RRIF money earlier may reduce forced withdrawals later, while withdrawals and investment income inside a Tax-Free Savings Account (TFSA) won’t increase taxable income or trigger OAS recovery.
Look to Sun Life
Sun Life Financial (TSX: SLF) offers one way to build that bridge. It provides insurance, wealth management, health benefits, and asset-management services across Canada, the United States, and Asia. Those businesses can keep earning as populations age, and more households need retirement and protection products.
First-quarter underlying earnings per share (EPS) rose 4% year over year to $1.89, while Sun Life stock maintained a strong 143% Life Insurance Capital Adequacy Test capital ratio. Management also increased the quarterly dividend from $0.92 to $0.96. At a recent TSX price near $114.72, the annualized payout yields roughly 3.3%, and the shares trade near 15 times annualized underlying earnings.
That isn’t bargain-bin territory, and reported profit fell sharply as interest-rate effects and acquisition and legal charges hit the quarter. Market swings and asset-management outflows remain risks, while no dividend is guaranteed. A diversified collection of Canadian dividend stocks makes more sense than asking Sun Life stock to fund every retirement adventure.
Bottom line
Held in a TFSA, however, a growing dividend can supply cash without nudging income toward the OAS threshold. That gives retirees a useful combination: fewer surprise clawbacks today, a potentially larger OAS cheque tomorrow, and more control over where the next dollar comes from.
