A retiree can live comfortably without feeling remotely wealthy, yet the tax system may look at the same income and politely disagree.
That’s because Old Age Security (OAS) doesn’t care whether the roof needs replacing, the grocery bill has doubled, or adult children occasionally mistake retirement savings for a family emergency fund. Once individual net income crosses the recovery threshold, part of the benefit starts heading back to the government.
A large registered retirement income fund (RRIF) can push someone across that line before the lifestyle feels especially luxurious.
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How the clawback sneaks up
For 2026, the OAS recovery range begins when net world income exceeds $95,323. The recovery tax generally equals 15% of income above that threshold until the benefit has been fully repaid.
The calculation becomes more important after an RRSP is converted into an RRIF. Withdrawals are taxable, and annual minimum payments begin the year after the RRIF is established.
At age 72, the standard minimum withdrawal factor is 5.4%. A retiree beginning the year with $1 million in an RRIF would therefore need to withdraw $54,000, even if considerably less money was required for spending.
Add approximately $18,000 from CPP, $9,000 from OAS, and a $20,000 workplace pension, and total income reaches roughly $101,000. That’s $5,677 above the 2026 threshold, potentially creating an OAS repayment of approximately $852.
Start before the RRIF does
The most useful planning may happen during the years between retirement and mandatory RRIF withdrawals. Someone who stops working at 62 but delays CPP or OAS could have several relatively low-income years.
Strategic RRSP withdrawals during that period may reduce the balance eventually transferred into the RRIF. That can mean paying some tax earlier to avoid larger taxable withdrawals and benefit reductions later.
Couples can also examine pension-income splitting, while the RRIF minimum can be calculated using a younger spouse’s age if that election is made when the account is established.
Keep growth inside the plan
One stock I’d consider for a long-term position is Canadian National Railway (TSX: CNR). CNR stock owns an approximately 20,000-mile rail network connecting Canada’s Atlantic and Pacific coasts with the United States Gulf Coast.
CNR stock holds a wide economic moat because duplicating that network would be enormously expensive and difficult. Rail can also move heavy freight more efficiently than trucks over long distances, creating a durable cost advantage.
Second-quarter revenue increased 11% year over year to $4.8 billion. Adjusted earnings per share (EPS) rose 11% to $2.08, while free cash flow reached $942 million.
That cash supports network investment, dividends, and share repurchases. CNR stock’s approximately 2.2% yield won’t create the largest immediate RRIF income stream, but retirement investors should care about total return and dividend growth rather than collecting the fattest available yield.
Considerations
Near $169.11, CNR stock trades around 22 times trailing earnings. That isn’t bargain territory. The stock also sits above a $159 fair-value estimate, making gradual purchases preferable to investing a large amount immediately.
The railway faces tariff-sensitive freight weakness, wage inflation, harsh winter weather, and possible labour disruptions. Its adjusted operating ratio also worsened to 62.2% during the latest quarter, meaning expenses consumed a slightly larger percentage of revenue.
I’d therefore hold CNR stock alongside cash, bonds, and globally diversified equities rather than expecting one railway to carry retirement across the country.
Foolish takeaway
RRIF withdrawals can cover regular spending, while Tax-Free Savings Account (TFSA) withdrawals provide tax-free flexibility for large purchases without increasing net income. Keeping a cash reserve can also prevent retirees from taking extra taxable withdrawals.
The OAS recovery tax isn’t limited to people who feel wealthy. A large RRIF withdrawal combined with CPP, OAS, and a pension may be enough to trigger it.
Gradual RRSP withdrawals, thoughtful account coordination, and long-term holdings such as CNR stock can help retirement savings provide income without creating avoidable tax surprises. The goal isn’t preserving every dollar of OAS at any cost. It’s ensuring the entire retirement plan produces the most useful after-tax income.
