A $1 million Registered Retirement Savings Plan (RRSP) feels like reaching the top of the retirement mountain. Then age 71 arrives, and Ottawa politely installs a turnstile on the way down.
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The million-dollar problem
The CRA says Canadians must close their RRSP by December 31 of the year they turn 71. Most investors transfer the money to a Registered Retirement Income Fund (RRIF), which keeps investments tax-deferred.
The catch arrives the following year, when minimum withdrawals become mandatory and fully taxable.
At age 72, the current minimum factor is 5.40%. If the RRIF is worth $1 million on January 1, that means withdrawing at least $54,000 during the year.
The timing gets more important once Old Age Security (OAS) joins the conversation. The estimated 2026 OAS recovery threshold is $95,323, with 15% of income above that level generally repaid.
A $54,000 RRIF withdrawal plus an illustrative $60,000 from the Canada Pension Plan (CPP), Old Age Security (OAS), pensions, and other taxable income would reach $114,000. That could create roughly $2,802 of OAS recovery tax before regular income tax has finished introducing itself.
Before the deadline
This is why waiting until 71 can be expensive. Retirees with lower-income years before CPP, OAS, and mandatory RRIF withdrawals begin may consider taking some RRSP income earlier. Couples can potentially split up to 50% of eligible pension income, while a RRIF can use a younger spouse’s age to calculate smaller minimums if that election is made when the account is established.
After paying tax, surplus withdrawals can also be moved into a Tax-Free Savings Account (TFSA) when contribution room is available. Future growth and withdrawals are generally tax-free and don’t affect federal income-tested benefits. The original RRSP withdrawal remains taxable, so nobody has discovered a trapdoor beneath the CRA.
Future growth
For long-term TFSA money, Manulife Financial (TSX: MFC) offers a useful blend of income and growth. Manulife stock earns from insurance, wealth management, and retirement products across Canada, the United States, and Asia, giving investors more than one engine for future earnings.
Second-quarter core earnings rose 12% year over year to $1.92 billion. Manulife also agreed to transfer biometric risk on $3.2 billion of long-term-care reserves to Munich Re. Once completed, its three recent transactions are expected to have reduced legacy long-term care risk by roughly 24%.
Manulife pays $0.485 quarterly, or $1.94 annually. It recently traded at $59.19, with a yield near 3.3%. If you were to invest $7,000 and reinvest dividends for just three years, here’s what that might look like with the company’s approximate 12.3% share-price compound annual growth rate (CAGR) from the last decade.
| PERIOD | PROJECTED SHARE PRICE | SHARE-PRICE CAGR | DIVIDEND INCOME | SHARES BOUGHT WITH DIVIDENDS | TOTAL SHARES | CASH REMAINING | PROJECTED TOTAL VALUE | PROJECTED GAIN |
|---|---|---|---|---|---|---|---|---|
| Today | $59.19 | 12.3% | — | — | 118 | $15.58 | $7,000.00 | — |
| 1 year | $66.47 | 12.3% | $228.92 | 3 | 121 | $45.09 | $8,088.00 | $1,088.00 |
| 2 years | $74.65 | 12.3% | $234.74 | 3 | 124 | $55.89 | $9,312.02 | $2,312.02 |
| 3 years | $83.83 | 12.3% | $240.56 | 3 | 127 | $44.97 | $10,691.09 | $3,691.09 |
Bottom line
Insurance claims, credit losses, market declines, and interest rate changes can pressure Manulife stock’s earnings, while today’s valuation leaves less room for disappointment.
A dividend isn’t guaranteed, either, which is why it belongs among diversified Canadian dividend stocks, not as the entire retirement plan.
A seven-figure RRSP is still an excellent achievement. The smarter move is making sure age 71 doesn’t decide the tax schedule for you.
