Case Study: Choosing the Order to Draw Down Retirement Accounts

This is an illustrative composite scenario. The retiree, the account balances, and all figures below are fictional and are presented only to show how drawdown order can be approached. It is not a real client and not personal advice; every number is a hypothetical example, and your own plan would differ.

Consider a retiree we will call Susan, aged 66 and recently retired in Ottawa. She has accumulated a healthy mix of accounts over her career and now faces a question that feels deceptively simple: which one should she spend first? She assumed she would simply draw from whichever was convenient, until she learned that the order itself can change how much tax she pays over her whole retirement.

The situation

Susan has three pools of money: a RRIF converted from her RRSP, a non-registered investment account, and a TFSA. She also receives CPP and will begin OAS shortly. Her spending is steady, and her accounts together are more than enough to fund it. The challenge is not whether she has enough, but how to withdraw it intelligently.

Left to intuition, many people spend their most accessible money first and leave their registered accounts untouched as long as possible. That feels prudent but can backfire, because registered accounts do not stay untouched forever; the RRIF forces ever-larger taxable withdrawals as Susan ages.

The issue and the risk

The issue is that each account is taxed differently, and the sequence of withdrawals determines how those differences play out over decades.

• RRIF minimums rise with age. A RRIF carries an age-based minimum withdrawal that grows over time. Leaving the RRIF to compound untouched can create very large, fully taxable withdrawals in her eighties.
• Benefit clawbacks. High taxable income in later years can trigger the OAS recovery tax, as explained in the OAS clawback.
• The estate angle. Whatever remains in the RRIF at death is fully taxable on the final return, so an untouched RRIF can leave a heavy tax bill for the estate.

The risk, then, is not running out of money but paying far more tax than necessary by deferring registered withdrawals thoughtlessly.

Options considered

Susan’s advisor compared three broad sequencing philosophies.

Approach	Draw first	Likely effect
Non-registered first	Taxable account	Defers RRIF tax, but RRIF minimums balloon later
Registered first	RRIF beyond the minimum	Levels income, reduces future minimums and estate tax
Blended, income-smoothing	A mix each year	Targets a steady taxable income, preserves TFSA

The blended, income-smoothing approach is often the most effective, because it treats the whole retirement as one tax problem rather than optimising a single year. The general principles are set out in retirement withdrawal order.

The approach and illustrative figures

The team modelled Susan’s income over her full expected retirement rather than year by year. The figures below are hypothetical examples to show the logic, not projections or recommendations.

The plan aimed to keep Susan’s taxable income reasonably level and moderate every year, rather than low now and very high later. In the early years, before her RRIF minimums grow large, she deliberately draws somewhat more from the RRIF than the minimum requires, filling up the lower tax brackets. This voluntary early drawdown shrinks the future RRIF balance, which in turn shrinks the large forced withdrawals, and the tax on them, in her eighties.

To fund her spending without pushing her into a higher bracket, she tops up with her non-registered account, managing the taxable capital gains as she goes. Her TFSA is preserved and used selectively for higher-spending years, because its tax-free withdrawals do not raise her taxable income or threaten her OAS. The coordination with CPP and OAS timing draws on how to generate retirement income.

In the illustration, this smoothing produces a lower lifetime tax bill than either deferring the RRIF entirely or draining it early, and it reduces the chance of an OAS clawback and a large taxable RRIF at death. The exact savings depend on balances, returns, and tax rules, all of which vary.

The outcome and lessons

In the scenario, Susan ends up paying tax at steadier, moderate rates across her retirement instead of facing a spike late in life, keeps more of her OAS, and leaves a smaller taxable RRIF to her estate. None of this changed how much she could spend; it changed how much of her money survived the tax system.

The lessons generalise to most retirees with a mix of accounts:

• Think in decades, not years. The best single-year tax outcome is often the worst lifetime outcome.
• Do not fear early registered withdrawals. Drawing RRIF income in low-income years can prevent painful minimums later.
• Preserve the TFSA’s flexibility. Tax-free, benefit-neutral withdrawals are valuable late in retirement and for the estate.
• Model, do not guess. The right order depends on your specific balances, income, and goals.

Benefit timing and staying flexible

The drawdown order does not exist in a vacuum; it interacts with when Susan takes CPP and OAS. Because deferring these benefits increases their eventual amount, a retiree who defers often draws more heavily on registered and non-registered accounts in the early years to bridge the gap. That early portfolio drawdown can conveniently double as the voluntary RRIF withdrawal that shrinks future minimums.

In Susan’s case, coordinating the two decisions produced a better result than treating them separately. Drawing down registered money in her sixties, while deferring part of her government income, both reduced her future RRIF minimums and raised her later guaranteed, inflation-linked income. The sequence and the benefit timing reinforced each other rather than working at cross purposes. This is why a drawdown plan built around CPP and OAS, rather than alongside them, tends to be the more efficient one.

A drawdown strategy is a plan, not a contract, and the best ones leave room to adapt. Markets rise and fall, tax rules change, spending needs shift, and health events can rewrite priorities. Susan’s plan set a target taxable income each year but allowed the specific mix of accounts to flex around it, so that a strong market year or an unexpected expense could be accommodated without abandoning the overall strategy.

The TFSA is central to this flexibility. Because its withdrawals are tax-free and do not affect benefits, it serves as a release valve: in a year with an unusual expense, Susan can draw on it without pushing her taxable income into a higher bracket or triggering the OAS clawback. Preserving that flexibility is itself a reason to lean on taxable accounts earlier and the TFSA later, a point worth weighing against the pure tax arithmetic.

It is also worth revisiting the plan after any significant change, whether in tax rules, markets, health, or spending. A drawdown strategy set at 65 and never reviewed can drift badly out of alignment by 75, so Susan treats hers as a standing item to revisit each year with her advisor rather than a decision made once and filed away.

How this applies to your own situation

If you are approaching or in retirement with more than one type of account, the order you draw them down deserves deliberate thought rather than convenience. Look at where your taxable income will be now and where RRIF minimums will push it later, consider your OAS exposure, and think about what you want to leave behind. Often the counterintuitive move, drawing some registered money sooner, produces the best lifetime result.

Drawdown sequencing is one of the highest-value exercises in retirement planning, and one that genuinely requires modelling. Our retirement planning and tax planning work maps your accounts, income, and benefits into a coherent withdrawal strategy.

Next step

Getting the drawdown order right can quietly add years of spending to a retirement by keeping more of your money out of the tax system. If you would like yours modelled, book a private consultation and we will build the sequence around your numbers.