The Withdrawal Order Myth

Withdrawal Order Myth:

Which Account First?

"Hey Richard & Matt — I've got an RRSP, a TFSA, and a non-registered account. Which one do I touch first?"

We get some version of that question from almost every client in the year or two before they retire. And it's a good question, because most of us spend thirty or forty years being told, over and over, to save. Nobody spends nearly as much time teaching us how to spend it back — in what order, and why it actually matters.

Here's the part that surprises people: the order you draw from isn't a minor detail. Get it wrong and you can hand thousands of dollars to the government that you didn't need to, push yourself into a higher tax bracket without realizing it, or trigger clawbacks on benefits like Old Age Security. Same total savings, same retirement — a meaningfully different outcome, just based on the order you pulled the money out.

Most people default to one of two instincts, and both can cost you:

Instinct one: spend the non-registered money first, leave the RRSP alone.

It feels responsible — don't touch the "real" retirement account. And for some clients, that instinct is actually the right call: if your income is already going to be high in retirement, or you're planning to leave the RRIF to a spouse tax-deferred, there may be good reason to let it ride. But for others, RRSPs and RRIFs eventually force mandatory withdrawals, and all of it is taxed as income. Let that account grow untouched for years while spending everything else, and you can walk straight into a much bigger tax bill later, at exactly the age when your income — and your tax bracket — should be dropping, not climbing. There's no universal answer here; it depends entirely on the shape of your other income.

Instinct two: spend the TFSA last, because it feels like the "treat."

We understand the impulse. And sometimes it's the right one — if you expect a large expense later, or want tax-free room preserved for your estate, holding the TFSA back can make good sense. But for many people, a TFSA is the one account where withdrawals are entirely tax-free and have zero impact on income-tested benefits. Saving it for last, in those cases, often means paying more tax than necessary in the early retirement years just to preserve an account that would have cost nothing to spend from. Again — it depends on the picture, not a rule of thumb.

There's no single "right" order that works for everyone — it depends on your other income, your age, whether you're still working part-time, and what your estate goals look like. But a few principles hold up for most people:

1. Look at your tax bracket each year, not just your account balance. The goal is to smooth your income out over your whole retirement, not to protect any one account for its own sake.
2. Watch for the "hump." Mandatory RRIF withdrawals combined with CPP and OAS can push you into a higher bracket in your 70s than you were in your 60s — the opposite of what most people expect.
3. Non-registered accounts often make sense to draw from early, since capital gains are typically taxed more favourably than fully taxable income — but not always, and not indefinitely.
4. TFSAs are flexible for exactly the reason you don't want to burn them off too early — keep some dry powder there for large expenses, tax-bracket-smoothing years, or your estate.
5. This isn't a "set it once" decision. The right order in the first year of retirement often isn't the right order five years later. It needs to be revisited, not just decided.

The honest answer to "which account first" is: it depends, and it should be modelled out, not guessed at. This is exactly the kind of decision that tends to fall through the cracks between advisors — your accountant sees last year's tax return, your investment advisor sees the portfolio, and nobody's necessarily looking at the multi-year sequence together.

That's one of the questions built directly into our 15-point Coordinated Advice checklist — because knowing which account to draw from first, and why, shouldn't be a guess.

[Download the Coordinated Advice Checklist]

You spent decades learning how to save. It's worth spending a little time learning how to spend it back properly, too.

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