I Have $3M in my RRSP. Here's My Tax Bill (and How I Avoid It)

Added: 2026-05-09

[00:00:00]In this video, I'm going to show you exactly what happens when someone retires with 3 million bucks in their RRSP and why the way most Canadians handle that situation can quietly create a massive tax problem. Cuz you see, earlier this week, I had a conversation with a gentleman, we'll call him Randy, who found the channel, he booked a call, and within the first few minutes, he said something that kind of stuck with me. He said, "I seriously wish that we had just met 12 years ago." He's 72 years old today. Between him and his wife, they've got 3 million bucks in in their RRIF accounts and another 2 million bucks of non-registered assets, and they're now staring at a tax situation that's going to be very difficult to unwind. And the hard part is he didn't really do anything wrong.

[00:00:40]Like, he saved diligently, he invested consistently, and he did what most people are told to do. But no one ever showed him how to use the system once he got there. So, in this video, I'm going to do two things. First, I'm going to show you exactly what his situation looks like today, the income, the tax bill, and where the problems are going to start to show up. Then, we're going to hop in a little bit of a time machine, going to go back to his age 60.

[00:01:02]And I'm going to show you what I would have done differently if we had met back then. Without changing their lifestyle, just by making a few better decisions kind of on timing, structure, and how their income was created. And when you see the difference between these two paths, you'll understand why this matters so much. Let's get right into it. By the way, if we haven't ever met, I'm Steve Wyllems, a senior wealth advisor with the Wyllems Wealth Planning Group out here in BC, and the sad soul who finds this stuff absolutely fascinatingly fun. On this channel, I help Canadians plan smarter retirements, reduce their taxes, and make better decisions in the years that matter most.

[00:01:35]All right, so let's start with where things actually sit today. So, Randy and Brenda, they're both 72. I've changed their names. Uh they've done what most people would consider an excellent job of saving. Between the two of them, they've got 3 million bucks in their RRIF accounts, another 2 million dollars in non-registered investments, plus they have their TFSAs and their home. This is what some people might call a champagne problem. And to be clear, like this guy was not complaining, like not really at all, but he was regretful. Because as we started kind of talking through the numbers of his situation, he could pretty quickly see that while the plan does technically work, it's just not working as efficiently as it could. Now, part of the reason for that is basically like he followed the default playbook, and he called that out himself. They took CPP early at the age of 60 because that's what most people do. They built a dividend-focused Canadian equity portfolio in their non-registered account. Again, very common. Which just means that a lot of that income's going to be grossed up and it's now showing up as higher taxable income than they probably realize. And they largely just left their RRSPs alone. They kind of let them grow. They didn't really touch them at all until they're forced to. None of these decisions are all that unusual. In fact, they're probably the most common path that I see. Thus, this video. Now, when we layer all of that stuff together, here's what it actually looks like at here at his age 72. I'm expecting that they're going to be generating about $316,000 of taxable income here this year. That's going to be coming from their RIF minimum withdrawals, which are going to be kicking in this year. The CPP that they started early. The OAS is essentially a non-factor cuz they're so far through clawback that they're not going to be keeping any of it. And that dividend-heavy kind of investment non-registered portfolio that's inflating the taxable income up along the way. The result then is about a $74,000 annual tax bill here starting this year.

[00:03:32]And then continuing every single year into the future. If we look at the first chart here, you'll see kind of what I'm talking about. We'll see their kind of annual cash outflow. The purple is for their lifestyle spending. You'll kind of see it ticking along here. We're going to kind of transition from the go-go phase kind of for a few more years, and then we're going to step down to the slow-go phase. Then we're going to drop it down to the no go phase. The red bars is my expectation of their annual tax bill is going to be based on their investment mix, how much they got in each of these different accounts, and trying to be as honest as I can to the tax attributes of the investment portfolio. What stands out pretty quickly here is that tax becomes the largest expense in their entire plan.

[00:04:10]It's just growing over time. Not because they're doing anything wrong today, but because of how everything was kind of set up leading into this specific phase of life. Now, at the same time, like if we zoom out and look at their overall net worth, both today and then projected, this is where things can get a little bit deceptive, right? Because the plan looks fantastic, right? Their assets are continuing to grow. The portfolio is compounding. By the time they reach age 90, on paper they've got 11 million bucks on the balance sheet.

[00:04:40]Like an incredible spot to be in. On paper, this looks like a huge success.

[00:04:44]But here's the catch. A large portion of that money is still actually sitting inside their riff account even at their age 90. So, when we run the estate scenario, if both of them were to pass at the age of 90, that's going to be triggering a estate tax of about 1.1 million dollars. And that's the part that most people don't see coming.

[00:05:03]Because while they were alive, everything looked fine. The income was there. The portfolio was growing. The plans were working. But under the surface, what's really happening is that that income is being pushed out later and later into a phase when they have less control, which results in higher tax rates and just fewer options. Now, to be fair, there are still a handful of things that Randy and his wife can still do at this stage to improve their situation. But the reality is the the options just really start to narrow. And that's actually where our conversation shifted, right? Like we kind of both looked at each other. We kind of chuckled. We kind of groaned a little bit just looking at these numbers. And that's where he said that thing. Like, I just wish that we had met 12 years ago and we could have fixed this earlier.

[00:05:45]So, let's do exactly that. Let's Marty McFly this thing. Let's rewind the clock and let's go back to their age 60. Now, before we do this, I want to be quite clear about something. As you remember, with Marty McFly, like time travel is dangerous. So, I don't actually know what their life looked like between the age of 60 and 72. All I knew was the version of him that presented in this meeting at the age of 72. I don't know how much they spent. I don't know how they drew their income. I don't know what their tax returns look like. I don't know what their portfolios look like year over year. Like I I have no clue. And neither do they. So, I'm not going to pretend like I can go and actually recreate this perfectly. This is going to be a bit of a just a thought exercise. Instead, what I've done is something just much simpler and probably hopefully more useful. In this case, I'm going to say like what if we go back to the age of 60 and just try to get a handful of these big decisions right.

[00:06:37]And in order to do that, I'm going to have to make some assumptions. And I'm going to intentionally try to make them conservative assumptions. I'm going to cut their starting portfolio in half.

[00:06:46]So, instead of trying to reverse engineer exactly how they got to five and a half million dollars here at the age of 72, I'm going to say, "Hey, let's just assume that they have half of that at their age 60." So, about 2.7 million bucks. And then we'll grow it forward at a reasonable rate. So, I'm not stacking the deck in favor of the better plan here. If anything, I'm actually handicapping it because off of that base, I'm also going to assume that they're ambitiously spending, perhaps even more ambitiously than they actually did. And this is where it's a bit like one of those time travel movies. Like if you think about like something like Back to the Future or Inception, if you really try to pull on every single thread, it kind of starts to fall apart a little bit.

[00:07:25]Right? These timelines aren't going to perfectly match up. The math here isn't going to be precise. That is not the point. The point is to just try to isolate what happens when you change a handful of these key decisions. So, in this version, I'm going to keep their lifestyle spending the same. Again, that's probably a conservative assumption. My hunch was that they massively underspent over the last 12 years. Same spending, so same goals.

[00:07:48]I've just fixed the things that we know are going to matter. So, number one, I'm going to delay CPP out to age 65 instead of taking it early at the age of 60. And I'm going to adjust the adjustments that need to happen on those benefit payments. We're going to clean up the investment strategy. Before the capital gains accrue, I'm going to move away from kind of a Canadian dividend heavy focused approach to something just more tax efficient with lower turnover and a greater emphasis on unrealized capital gains across global markets. And most importantly, we're going to start drawing down the RSP earlier. I'm going to draw about $108,000 per year combined between the two of them, which isn't going to be like overly aggressive, not trying to outsmart anything, just like flat static draws until those accounts are depleted. We're going to do that intentionally through their 60s instead of kind of letting everything pile up like it was before. That's it. I'm going to change those three things. There's no fancy tricks. There's no extreme assumptions, just hopefully better decisions around timing, structure, and how this income's going to be created.

[00:08:46]And now, with that in place, let's fast forward back to the present age of the age of 72. Again, same people, same lifestyle, but with two very different financial setups. This is where things get interesting. And again, just keep in mind, keep us grounded here, like time travel gets messy. In this improved situation, they don't actually show up ahead. They show up behind. What do I mean by that? I'm now showing them going into this age 72 with about $3,050,000 of financial assets compared to roughly $5.5 million in the actual scenario. And that's entirely because of the assumptions that we made about what happened before we met. Assumed lower starting values. I assumed that we were actually starting using their money earlier, that they didn't take CPP at 60, so we had to bridge that a little bit. We assumed that they're drawing on their RSP s along the way, all of that type of stuff. So, this version is carrying a pretty significant handicap like right out of the gate. And honestly, it's important that you be aware of that because what we're going to look at isn't actually driven by having more money. It's driven by having a better structure. So, now let's look at what happens from this age to age 72 forward. From age of 72 to 90, in the original scenario, the one we looked at first, they were projected to pay an aggregate amount of 1.16 million dollars of total annual tax.

[00:10:07]Like if we add up their annual tax bills for those 18 years, that was going to be the cumulative bill. Same people, right?

[00:10:14]Just following the default path. Now, if we look at the time machine version, even after giving up that $2 million head start, that number drops to about $324,000 cumulative. That's over $800,000 of tax difference with nothing different about their lifestyle in this period of time.

[00:10:34]Now, if we look at it another way, just kind of like normalize it, we can compare their average effective tax rates again over this same period of time. In the original plan, they're sitting on about 17.8% average effective tax rate. In the improved version, that's going to be dropping down to 13%. Now, that might not sound like a huge difference on the surface, but again, over an 18-year retirement window on that level of income, it adds up very And then there's OAS. In the base scenario, it's fully gone, like fully clawed back every single year. Once that income stacking kicks in, there's just no way to recover it. But in the improved scenario, because we've managed that income earlier, because we've smoothed things out, we've avoided kind of a big pile up later on, they're actually able to preserve all of their OAS. So, again, this isn't about finding some magical investment. It's not about earning higher returns. I'm keeping the rate of return consistent here. I'm only changing the tax characteristics of that return. It's simply about when that income shows up and how it layers on top of other income over time. And when you get that right, even with less money, you can end up keeping a lot more of it.

[00:11:41]Now, let's take this one step further because there is a second tax bill that's going to be even bigger and most people don't see it coming. And that's what happens at the end. If we fast-forward all the way out to age 90 in the original scenario, the one where everything was deferred, RRSPs were left untouched, right? The income was pushed out later. You see that there was $2 million sitting inside their combined RIF accounts at their age 90, which on the surface might look like a good thing, but remember that money hasn't ever been taxed yet. So, when both of them passed, that entire amount is going to get collapsed onto a single terminal tax return, and the result is an estate tax bill of just over $1.1 million.

[00:12:18]One check, gone. And the government doesn't even name a road after you for giving them $1.1 million bucks. This is where people are often surprised because for years, again, everything looked fine, right? The you know, nominally, the portfolio was growing, the income was there, they could do the things that they wanted, and they felt like the prudent thing was continuing to defer.

[00:12:37]But what they were really doing was just concentrating a massive tax liability into a single moment at the worst possible time. Now, let's compare that back to the time machine version.

[00:12:46]Because we started drawing down on the RRSP earlier, because we smoothed out that income, because we didn't let that pile build up unchecked, and we fixed the non-registered investment strategy earlier on, by the time we reach 90, there is nothing left inside the registered accounts. Those were eliminated a couple of years earlier.

[00:13:03]And as a result, when we run that same estate scenario, the tax bill is going to be dropping down from $1.1 million bucks down to about 125,000.

[00:13:12]Again, not changing anything on their lifestyle here. They didn't spend less, they didn't take more risk, they didn't need a better return on the investment strategy.

[00:13:21]We just avoided letting too much income pile up at the wrong place at the wrong time. And this is the part that almost nobody plans for because while you're alive deferring taxes feels like you're winning. But at some point the bill does come due. And if you haven't managed it along the way, it tends to show up all at once. So, let's just be really clear on what actually drove this difference here. Because when you see an $800,000 cumulative tax gap during their lifetime, right, and nearly a $1 million difference on the estate side, it's natural to assume that there's been something complex going on. But there really wasn't. This came down to just a few key decisions. First it had to do with the timing of the withdrawals.

[00:13:58]Instead of letting everything kind of sit inside the RRSPs and grow untouched, we started just drawing down them earlier. Not aggressively, not trying to force anything, but very deliberately.

[00:14:07]That alone is going to reduce how much gets forced out later when the tax rates are going to be higher and the options are going to be fewer. The second had to do with CPP timing. In the original plan, they did what most people do, they took it early, they took it at 60, which felt, again, like a good idea at the moment, but it did permanently reduce that benefit and it added taxable income earlier than was necessary. In version, we just delayed that out a couple years to the age of 65. That allowed for more flexibility. In those earlier years it allowed us to create a more stable, kind of predictable income base layer without stacking that income too early. The third had to do with the tax efficiency of the portfolio. And this one flies under the radar for a lot of people.

[00:14:43]That dividend heavy, kind of Canadian strategy sounds great on the surface, but the way those dividends are grossed up for tax purposes inflate your taxable income more than many people expect. And so even if the cash flow from those dividends feels modest, the tax system sees something much larger. And again, I understand that there's the dividend tax credit, but that does not matter in terms of the calculation of your OAS.

[00:15:05]So, instead of shifting towards a kind of lower turnover total return approach, kind of targeting more capital gains, less forced income, we're going to reduce how that shows up on the tax return every single year. And we're going to do that before we feel trapped with a strategy that's got giant capital gains in it. That's going to give us more control. That's it. No exotic strategies, no complex structures, just better decisions about when the income shows up and how it's taxed when it does. So, what should you take away from this? Well, if you're somewhere in your kind of mid-50s to your mid-60s, this is your window. This is the phase where your income is often the lowest once you've already stepped away from work, right? Your flexibility is the highest and your future tax problem is still fixable. If you've got a growing RSP, if you're not really drawing from it yet, if your plan is just to kind of wait and see until maybe 65 or 71, that's exactly the setup that created this kind of outcome. And again, the goal here isn't to necessarily avoid tax altogether.

[00:16:00]That's not realistic. The goal is to get deliberate about when you pay it. And when you do, you tend to pay a whole lot less. Because if you don't make that decision intentionally, the system has a way of making that decision for you. And that tends to not be in your favor. So, let's go back to where we started on this grand like time machine adventure.

[00:16:17]So, Randy and I, we wrapped up the call and after going through this, he kind of paused and he said, "Yeah, you know what?

[00:16:24]We'll be fine. I just wish that I had known this earlier." And I think that's probably the point I'm trying to drive home today. This isn't about whether or not you're going to be okay or like, you know, do I have enough? This is about how efficiently you get there and how many options you have along the way. If you're in your 50s or your early 60s, this is the window where these decisions do matter the most. And hey, if you want help kind of making sure that you're not sitting in the same spot or even a worse spot 10 years from now, I'll put a link in the description below to book a call.

[00:16:49]Don't be my next Randy. Let's chat.

[00:16:52]Let's figure this stuff out together. My team and I, we do this stuff every single day. We'd be happy to walk through it with you, too. Otherwise, that's all for now. I hope you find that helpful. Thanks for watching. I'll see you in the next one.