Are you hoping to retire at 60 with $850K in your RRSP? Here’s important information to help make your money last

When you compare this sum against what Canadians actually spend, the difference is startling. According to Statistics Canada's most recent (2023) Survey of Household Spending, the average Canadian household spends about $76,750 annually — or roughly $6,395 per month (2). Even when taking into account a leaner retirement lifestyle, $34,000 a year is unlikely to cover expenses on its own — especially in the years before Old Age Security (OAS) kicks in. It's also worth noting that the Canada Pension Plan (CPP) can be accessed as early as age 60, but collecting before 65 reduces your benefit by 7.2% annually — up to a maximum 36% reduction if you start at 60.

It gets worse when you factor in the new withdrawal rate some financial planners are now recommending. Based on volatile markets and global economic uncertainty, financial planners are now advising a more conservative withdrawal rate between 3% to 3.5% — particularly if you’re retiring before age 65 (3). Based on this new withdrawal rate, a retiree could withdraw approximately $25,500 to $29,750 in that first year of retirement, based on an RRSP balance of $850K.

Why the updated withdrawal rate? The logic is to spend less early on in retirement, so you don't risk running short if markets dip or if you live longer than expected.

If you have a spouse who plans to keep working, that can ease some pressure as their income reduces the need to draw heavily on your RRSP in the early years. It could also mean ongoing access to employer group benefits, which is a meaningful perk in Canada, even with universal health care. Provincial plans don't always cover prescription drugs, dental or vision for early retirees.

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According to PolicyMe, the cost for supplemental health coverage (for expenses not included under provincial plans) falls between $75 to $150 or more per month for retirees (4). Actual costs are highly dependent on your plan tier, age and province.

The gap years: Before CPP and OAS

For anyone retiring at age 60, the trickiest stretch is the years between leaving work and when government benefits begin. CPP can start as early as age 60, but collecting early comes at a permanent cost. Delay collecting CPP until after age 65 and you add 0.7% to your monthly payments — or 8.4% per year — up to 42% at age 70.

OAS doesn't begin until age 65 at the earliest and can be deferred to age 70 for a 0.6% monthly increase — a 36% premium if you wait (5). Most financial planners suggest deferring OAS and CPP as long as you can afford to, using RRSP or TFSA withdrawals to bridge the gap between leaving the workforce and collecting benefits.

The main takeaway for early retirees is that your portfolio is working the hardest in the first 5 to 10 years you retire — before CPP and OAS can be optimized. Keeping withdrawals deliberately low in those years significantly improves the odds of making your savings last.

A smart tax strategy can make a difference

Retiring at 60 can open a short-lived — and often underused — tax opportunity. If you have little to no employment income, you'll fall into a lower tax bracket than you likely will in later retirement.

Drawing down RRSP funds while your income is low and moving the after-tax proceeds into a Tax-Free Savings Account (TFSA) is one of the smartest moves you can make. By withdrawing from your RRSPs when you're in a lower tax bracket, you reduce the overall tax you'll pay on those funds. Parking it in a TFSA lets you grow that money tax-free, giving you a more flexible pool of savings to draw from later in retirement when your income — and your tax rate — may be higher.

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The Canada Revenue Agency (CRA) treats every dollar you withdraw from an RRSP as taxable income in the year it's received. Still, if your withdrawals are modest, you may be taxed at a lower marginal rate than withdrawing that money at age 71, when Registered Retirement Income Fund (RRIF) minimum withdrawals kick in.

Another reason to be careful about income levels in retirement: The OAS clawback. The CRA states that if your net income exceeds $93,454 for the 2025 income year, OAS benefits are reduced by 15 cents for every dollar above that amount — and clawed back entirely above $152,062 for those aged 65 to 74, and $157,923 for those aged 75 and older. Triggering large RRSP withdrawals or investment income in a single year can push retirees above that threshold.

What looks like a smart tax move on paper can come with hidden costs if it's not carefully managed.

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What about passing money to your children?

Some retirees consider moving money into accounts in their children's names as a way to pass along wealth early and reduce their own tax exposure at death. In Canada, an in-trust account can help with this — but it comes with some trade-offs.

As the Bank of Montreal (BMO) notes, once you place money in an in-trust account for a minor, it legally belongs to the child (6). That means you give up the control and flexibility you may need later. Attribution rules under the Income Tax Act can also apply — meaning interest and dividends the account earns may still be taxed in your hands, though capital gains are generally not attributed back to the contributor.

For many families, a better approach may be to keep assets in the parents’ registered accounts until death or transfer, taking advantage of the spousal RRSP rollover — which allows a surviving spouse to receive an RRSP or RRIF as a tax-deferred transfer — or naming beneficiaries directly on registered accounts to avoid probate.

Timing adds another layer of risk. If you retire just before or during a market downturn, it could permanently damage your portfolio. Pulling money out while investments are down locks in losses and reduces the chance of recovery. Financial planners will often suggest you maintain a cash cushion — or keep a portion in lower-risk fixed income — so that you aren't forced to make RRSP and TFSA withdrawals during a market decline.

For someone with $850,000 in an RRSP and a plan to retire at 60, the goal is about more than simply reaching the finish line — it means staying flexible enough to adjust when your plan becomes real. Remember that taxes, markets and life don't follow a script.

What can Canadians do now?

If you're approaching early retirement with a strong RRSP balance, here are practical steps worth taking before you hand in your notice: