How RRSP contributions today affect your OAS clawback in retirement

Every dollar you contribute to your RRSP today becomes taxable income when you withdraw it in retirement. That includes the mandatory withdrawals from your RRIF after age 73. What most Canadians don't realize: those withdrawals can trigger Old Age Security (OAS) clawbacks that eat into the government pension you've been counting on.

The OAS clawback kicks in when your net income hits $90,997 in 2025. For every dollar above that threshold, you lose 15 cents of OAS. At $148,451, your entire OAS payment disappears - roughly $8,400 per year gone.

Here's where RRSP math gets complicated. That $500,000 RRSP balance looks great at 65. But the mandatory RRIF withdrawals start small and grow each year. At 75, you're required to withdraw 5.82% of the balance. On $500,000, that's $29,100 per year - before any voluntary withdrawals you might need.

Add CPP, investment income, maybe some pension income, and you can easily cross the OAS threshold without meaning to. Someone with $600,000 in RRIFs, receiving full CPP ($16,375 in 2025), and earning $15,000 from other investments is already at $81,000 in retirement income. The RRIF withdrawal alone puts them over the clawback line.

The catch: you can't undo decades of RRSP contributions once you're in retirement. Your TFSA doesn't create this problem - withdrawals don't count as income, so they can't trigger OAS clawbacks. But most high earners max out their RRSP room first and treat the TFSA as secondary.

This doesn't mean avoiding RRSPs entirely. The immediate tax refund still matters, especially if you're earning $80,000+ and facing marginal rates above 30%. At that income level in Ontario, a $10,000 RRSP contribution saves roughly $3,150 in taxes today. The question is whether that upfront benefit outweighs the retirement penalty.

The math depends on your expected retirement income. If you're likely to stay below the OAS threshold - maybe you don't have a workplace pension, or you're planning to retire with less than $70,000 in total income - the RRSP still works. But if you're on track for retirement income above $90,000, every additional RRSP dollar makes the OAS clawback worse.

One strategy: split large RRSPs with your spouse through spousal contributions. The income gets spread across two people in retirement, potentially keeping both of you below the clawback threshold. Another option: if you're 10-15 years from retirement and expect OAS issues, prioritize TFSA contributions over additional RRSP room.

TaxSplit.ca can model your current tax refund, but estimating retirement income 20-30 years out requires guesswork. Most financial advisors use 70-80% of pre-retirement income as a baseline. If that puts you near $90,000, the OAS clawback math matters more than the immediate RRSP refund.

If you're earning $100,000+ today, assume your RRSPs will create some OAS clawback in retirement. The higher your income now, the bigger that future problem becomes.