Which money to use first in retirement (and the taxes)

Topic: Retirement · Part 10 of 13 · 🔴 Advanced

In one sentence

When you retire with money in several accounts, the order you take it out can change how much tax you pay and how much OAS you keep, so this post explains the common approaches in plain steps.

Words to know

Non-registered account: a normal investment account with no special tax rules. You pay tax each year on interest, dividends and gains.
Tax bracket: a range of income taxed at one rate. Income above the range is taxed at a higher rate.
Taxable income: the income the CRA uses to work out your tax.
OAS clawback (OAS recovery tax): if your net income is above a set level, you pay back 15% of the amount over that level from your OAS.
Pension income splitting: moving up to half of eligible pension income to your spouse’s tax return.

Step 1: List your money by how it is taxed

Each account is taxed in a different way when you take money out. This is the key to the whole plan.

Money source	Tax when you take it out	Counts as income for OAS clawback?
CPP, OAS, workplace pension	Fully taxable	Yes
RRSP / RRIF	Fully taxable	Yes
Non-registered account	Only the yearly interest, dividends and part of any gain	Yes, that taxable part
TFSA	No tax	No

Step 2: Know the common approaches

There is no single right order. These are the approaches people often compare.

“Traditional” order: non-registered first, then RRSP/RRIF, then TFSA. The idea is to keep tax-sheltered money growing as long as possible. Risk: your RRIF can grow large, and big forced minimums later can push your income up when you are older.
RRSP/RRIF early, in small amounts. Some people take RRSP money in the years between retiring and starting CPP or OAS, when their income is low. This can lower the RRIF balance before minimums grow.
A mix every year. Take some taxable money to “fill” a low tax bracket, then use TFSA money for the rest. This is often called bracket filling.

Step 3: Look at your tax brackets

For 2026, the lowest federal bracket is 14% on taxable income up to $58,523. The next bracket is 20.5%, up to $117,045. Your province adds its own tax on top.

Many retirees try to keep each year’s taxable income in a low bracket, instead of having a few years with very high income. The 2026 federal basic personal amount is $16,452, and people 65 and over may get an age amount too. These lower your tax at the low end.

Step 4: Watch the OAS clawback

For 2026 income, the clawback starts at a net income of $95,323. For each dollar above that, you repay 15 cents of OAS. The repayment is taken from your OAS payments from July 2027 to June 2028.

A large one-time RRIF withdrawal can push you over the line for one year. TFSA withdrawals do not count. Spreading taxable withdrawals over several years is one way people try to stay under it.

If your income is low and you receive the Guaranteed Income Supplement (GIS), RRIF withdrawals can reduce your GIS. TFSA withdrawals do not.

Step 5: Use pension income splitting if you have a spouse

Couples can move up to 50% of eligible pension income to the lower-income spouse’s return. RRIF income counts once the person receiving it is 65 or older by year end. Workplace pension payments (from a registered pension plan) generally qualify at any age. CPP and OAS cannot be split this way. You both sign Form T1032 each year you want to split.

Splitting can bring both incomes into lower brackets. It can also help keep one spouse under the OAS clawback line.

Example

Assumptions: a single person, age 66, living outside Quebec, tax year 2026. CPP and OAS together pay $20,000 a year. They want $50,000 a year before tax. They have an RRIF and a TFSA. We look only at federal brackets, to keep it simple.

Plan A, RRIF only: take $30,000 from the RRIF. Taxable income: $20,000 + $30,000 = $50,000. That is inside the 14% federal bracket, which ends at $58,523.
Room left in that bracket: $58,523 − $50,000 = $8,523.
Plan B, bracket filling: take $38,000 from the RRIF instead. Taxable income: $20,000 + $38,000 = $58,000, still under $58,523. They spend $50,000 and move what is left of the extra $8,000, after tax, into the TFSA (if they have room). Later, that money comes out tax-free.
Plan C, one big year: they take $80,000 from the RRIF in 2026 for a large expense. Income: $20,000 + $80,000 = $100,000. Over the line: $100,000 − $95,323 = $4,677. OAS repaid: $4,677 × 15% = $701.55. Using $30,000 from the TFSA instead of the RRIF would have kept income at $70,000, with no clawback.

This example only shows how the rules work. Your real numbers depend on your province, credits, other income and life expectancy.

Common mistakes

Looking only at this year’s tax, and forgetting that large RRIF minimums later can raise tax and trigger the clawback.
Emptying the TFSA first, then having only taxable money left when a big expense comes.
Forgetting that a spouse’s death moves all income onto one return, often at higher rates.
Not filing Form T1032 with both returns, so the pension split doesn’t happen.

✅ My checklist

☐ I listed each account and how its withdrawals are taxed
☐ I know roughly which tax bracket my income falls in
☐ I checked my income against the OAS clawback line
☐ I asked whether pension income splitting helps us
☐ I will review my plan with a tax professional or fee-only planner

Next in this topic → Part 11: Health care and benefits for seniors

Back to the topic → Retirement

There are no affiliate or referral links in this post. This is general information, not financial, tax or legal advice; everyone’s situation is different. Figures were checked in October 2026 and can change.

Sources: CRA: Personal income tax rates 2026 · CRA: Indexation adjustment for 2026 amounts · Canada.ca: OAS pension recovery tax · CRA: Pension income splitting · CRA: Line 31400 Pension income amount