RRSP Meltdowns and the Math of Delaying CPP/OAS

Why are more retirees taking RRSP withdrawals earlier and delaying CPP and OAS? Dave and Brenda Hiscock explain the strategy.

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Now what about the RRSP meltdown strategy? You must be getting asked a lot about that and the software obviously in many instances pushes it and our listeners are becoming acquainted with it. But it’s the basic argument, you’re trying to smooth out your income. I’m oversimplifying this to optimize from a tax perspective.

In many instances, it makes sense to start taking monies out of your RRSP before we traditionally did post age 71 and trying to even out the income and then delaying taking the CPP and the OAS. Again, the software often says that’s the best way to go and I’m sure you’re using the software that the industry has embraced.

Are you seeing more and more of your clients understanding that saying, “Yes, I think that makes sense for me”?

Yes. Um, the, uh, it really, in almost all cases, taking the RSPs earlier and delaying the CPP and the OAS will generally come out better numbers-wise. It can be difficult for people to wrap their heads around taking money out of their RSPs when they don’t need it for cash flow. But again, when you’ve got a plan and you’re showing them, and I’ll show them, “If you delay your CP…

your RSPs till seventy-one, this is what your tax rates are going to look like. But if we start taking it up here at age sixty when you’re retiring, we’ve drawn down quite a bit by the time your CPP and OAS kick in. Now we’ve got streamlined tax rates. You’re paying much less tax over the course of your life.”

So I think it’s important to show them the why behind the advice instead of just, “Do this, do that.” It’s like, “Here’s the difference in outcomes if you go either way.”

Yeah, and you can avoid the clawback obviously on the OAS, which can make a very big different in your, uh, difference in your effective tax rate, et cetera.