How Different Retirement Income Sources Affect Government Benefits

Retirement income planning is not just about ensuring you have enough to live on—it’s also about managing how your income affects government benefits like Old Age Security (OAS) and the Guaranteed Income Supplement (GIS). These benefits are income-tested, meaning that withdrawals from certain accounts — especially RRSPs and RRIFs — can unintentionally reduce or eliminate the support you receive.

At Optimize, we help you coordinate your retirement income sources in a way that maximizes your after-tax income while protecting access to government benefits. Understanding how RRSP and RRIF withdrawals affect your eligibility is key to long-term financial security in retirement.

How OAS Clawback Works: The Basics

Old Age Security (OAS) is a monthly benefit available to most Canadians over age 65. However, it is subject to an income-tested clawback—officially called the OAS Recovery Tax. Each year, the federal government sets an income threshold for this clawback.

If your net income exceeds the clawback threshold, you must repay a portion of your OAS—typically 15 cents for every dollar above the limit.
If your income reaches a higher threshold, your OAS benefit may be fully clawed back.

The exact thresholds are adjusted annually for inflation. The key takeaway is that higher taxable income—especially from large RRSP or RRIF withdrawals—can reduce or eliminate your OAS payments.

How RRSP Withdrawals Affect OAS

Withdrawals from your Registered Retirement Savings Plan (RRSP) are fully taxable. This means the full amount is added to your net income in the year you withdraw it. Unlike TFSA withdrawals, which are tax-free and do not affect income-tested benefits, RRSP withdrawals can push your income above the OAS clawback threshold.

Example: If you withdraw a large amount from your RRSP in a year when your other income is already substantial, your total income could exceed the OAS threshold—triggering a partial or full reduction of your benefits.

At Optimize, we forecast these scenarios in advance so you can manage RRSP withdrawals in a way that minimizes unintended clawbacks and preserves more of your retirement benefits.

How RRIF Withdrawals Affect OAS and GIS

Once you convert your RRSP to a Registered Retirement Income Fund (RRIF), you are required to take annual minimum withdrawals. These are also fully taxable and therefore contribute to your net income for OAS and GIS purposes.

This means large RRIF withdrawals can:

Reduce or eliminate your OAS through the clawback mechanism.
Disqualify you from GIS, which supports lower-income seniors and has much tighter income limits than OAS.

Note: Even if GIS is not currently part of your plan, RRIF withdrawals can still have significant ripple effects on benefit eligibility, especially for households with variable or modest retirement income.

Strategies to Manage RRSP and RRIF Income Impact

While RRSP and RRIF withdrawals are often necessary, you can reduce their impact with thoughtful planning. Strategies include:

Strategy	Benefit
Start early RRSP withdrawals	Smooths out taxable income before RRIF conversion.
Early RRIF conversion	Enables gradual withdrawals before mandatory minimums apply.
Use spouse’s age for RRIF	Younger spouse’s age reduces required minimum withdrawals.
Prioritize TFSA withdrawals	Provides income without affecting OAS/GIS.
Pension income splitting	Reduces income reported for each spouse, lowering clawback risk.
Spread withdrawals	Avoids income spikes by spreading withdrawals across multiple years.

At Optimize, we tailor these tactics to your specific financial picture—ensuring RRSP and RRIF income supports your lifestyle while protecting as many benefits as possible.

How Optimize Helps You Protect Government Benefits

Optimize takes a comprehensive approach to coordinating your retirement income, ensuring RRSP and RRIF withdrawals are handled with care and clarity. Our support includes:

Projecting your future income and modeling how it affects OAS and GIS eligibility.
Designing tax-efficient withdrawal schedules that provide income without triggering unnecessary clawbacks.
Coordinating across all account types—RRSPs, RRIFs, TFSAs, and non-registered assets—to balance your net income.
Advising on income-splitting strategies to lower household tax exposure.
Reviewing and adjusting your plan annually, so it adapts as your retirement evolves.

By managing your RRSP and RRIF drawdowns in the context of benefit rules, Optimize helps you keep more of what you’ve earned—supporting a retirement that’s both financially secure and benefit-aware.