Canada Retirement: CPP, OAS, RRIF, and the 4% Rule
Public pensions, RRSP-to-RRIF rules, and how withdrawal planning differs in Canada from the US.
By Prosperics Editorial Board · DIGITI LLC
Prosperics is published by DIGITI LLC, a California company. Calculators and guides are written and maintained by the Prosperics editorial board. Figures are checked against primary sources — IRS, CRA, SSA, and central bank publications — and each page shows the date it was last reviewed.
CPP and OAS: Your Public Pension Pillars
Canadians have two main public pensions: the Canada Pension Plan (CPP) and Old Age Security (OAS).
**CPP:** - Based on your contributions during your working years. - Standard age is 65, but you can take it as early as 60 (reduced 0.6% per month) or delay to 70 (increased 0.7% per month). - Taking it at 70 results in 42% more than at 65. Taking it at 60 results in 36% less.
**OAS:** - Based on residency in Canada (must live here 10+ years after age 18). - Starts at 65, can be delayed to 70 (increased 0.6% per month). - Unlike CPP, OAS is "clawed back" if your income is too high (over ~$90k).
Optimizing when to take these can significantly impact your retirement income. Delaying to 70 acts as "longevity insurance"—providing higher guaranteed income if you live a long time.
Key takeaways
- ✓CPP is contribution-based; OAS is residency-based
- ✓Both can be delayed to age 70 for significantly higher payments
- ✓OAS has a clawback for high-income seniors
Converting RRSP to RRIF
You can contribute to your RRSP until the end of the year you turn 71. At that point, you must convert it to a Registered Retirement Income Fund (RRIF) or buy an annuity.
Once converted to a RRIF, you must make minimum annual withdrawals. The government sets a minimum percentage based on your age (e.g., 5.28% at age 71). This ensures the government eventually collects taxes on the deferred income.
Withdrawals are taxed as regular income. Planning your withdrawals is key to avoiding higher tax brackets or OAS clawback. You can withdraw more than the minimum, but never less.
Key takeaways
- ✓Must convert RRSP by age 71
- ✓RRIF requires mandatory annual minimum withdrawals
- ✓Withdrawals are fully taxable income
The 4% Rule in Canada
The 4% rule (withdraw 4% of your portfolio in year 1, adjust for inflation) works similarly in Canada, but with some considerations.
Canadians typically pay higher investment fees (MERs) than Americans, which eats into returns. If your fees are high, a 4% withdrawal rate might be too risky—consider 3.5%.
However, Canadians also have CPP/OAS which are inflation-indexed annuities. This guaranteed income floor may allow you to take more risk or withdraw more from your personal portfolio.
Remember to account for taxes. Unlike a TFSA, RRSP withdrawals are taxable. To spend $40,000 from an RRSP, you might need to withdraw $55,000 depending on your tax rate.
Key takeaways
- ✓Watch out for high investment fees (MERs)
- ✓Account for taxes on RRSP withdrawals
- ✓CPP/OAS provide a stable, indexed income base
Sources
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Educational content only. Not financial, legal, or tax advice.