Don’t Wait Until 70: The Costly Retirement Planning Trap

A recent Financial Post Family Finance column profiled a 71-year-old woman who found herself in a financial mess. She owned two rental properties, was forced into mandatory RRIF withdrawals, and was receiving CPP and OAS. The result? A giant tax bill and a lot of frustration.

Her mistake was waiting until her 70s to get serious about planning.

By then it’s too late. RRIF withdrawals are locked in, government benefits are already in pay, and your flexibility is gone. This story is far from unique.

Every week I hear from readers or clients who waited until 70 to get advice and now they’re boxed in by the rules. The good news is that you don’t have to end up in the same spot. The decade before 70—your 60s—is the sweet spot for proactive financial planning.

The 60s Are Your Planning Sweet Spot

Your 60s are a golden window of opportunity to set up the retirement you want.

You can draw down RRSPs strategically so even modest withdrawals in your early 60s prevent giant RRIF minimums later and smooth your taxable income.

You can sell a rental property at the right time, triggering capital gains in your 60s before RRIF withdrawals and OAS are layered on top, which often means a much smaller tax hit. If you still have unused RRSP room you can use contributions to help shelter a chunk of the capital gain from a property sale, an option that disappears once you hit 71.

You can delay CPP and OAS to age 70 to lock in higher guaranteed benefits, but only if you have managed your income in the years leading up to it.

And you can shift from accumulation to decumulation, moving from simply growing investments to creating a reliable, tax-efficient income stream that will last.

A Perfect Example

Consider Jim and Carol, both age 63, who decide to retire at the end of the year.

In their first year of retirement they sell a rental property and realize a $120,000 capital gain. Because only half of a capital gain is taxable, that creates $60,000 of taxable income. They split the gain so that each reports $30,000.

Jim has $30,000 of unused RRSP room carried forward from his final year of work and contributes the full amount to his RRSP, completely offsetting his share of the gain. Carol has $15,000 of unused RRSP room and contributes that amount, leaving her with a small taxable gain but no other employment or pension income so the tax hit is minimal.

At 65 they convert their RRSPs to RRIFs and begin fairly significant withdrawals that qualify for the pension income credit and allow them to split income between spouses.

This strategy keeps their taxable income steady and their spending high enough to fund their go-go retirement years.

With CPP and OAS deferred to age 70 they enjoy a larger window for tax-efficient withdrawals from their RRIFs and non-registered accounts, and when those government benefits finally start they are larger and more secure.

Why You Can’t Rely on the Banks

If you walk into your bank branch expecting help with this kind of planning you are likely out of luck. Most big-bank advisors are shackled by proprietary software that assumes you will leave your RRSP untouched until 71.

I have seen too many clients get misinformed in ways that cost them real money.

Some were told they could not make a small withdrawal from a RRIF without collapsing the entire account. Others were told they could not contribute to a younger spouse’s spousal RRSP after turning 72, which is simply wrong.

Many are steered into taking CPP at 60 or 65 simply because “that’s what everyone does.”

These are not small oversights. They are fundamental errors. And these are the same people who show up in the Globe and Mail comment sections years later venting about OAS clawbacks and complaining that RRIF minimums are too high. They did not plan in their 60s. They relied on bad advice or worse, no plan at all.

Don’t Leave It Too Late

Once you hit 70 the government’s rules start to take over.

RRIF withdrawals are mandatory after the end of the year in which you turn 71.

CPP and OAS are already in pay.

Selling a property at that point just stacks capital gains on top of everything else. Your flexibility is gone and all you can do is manage the mess.

Good planning in your 60s prevents this inevitable collision of taxable income.

It creates steady predictable income, avoids or reduces OAS clawbacks, and keeps more of your money in your pocket instead of Ottawa’s.

The Takeaway

Don’t wait until the CRA is calling the shots. Don’t wait until you are boxed in by RRIF minimums and OAS clawbacks. And please don’t rely solely on your bank advisor’s software or cookie-cutter recommendations.

The right time to build a financial plan is in your 60s before the mandatory rules of retirement income kick in. That is when you still have choices and those choices can save you thousands in taxes and frustration.