Hello everyone, and welcome to the Retiring Canada Podcast!
In today’s episode, we’re diving into 5 mistakes to avoid in your first year of retirement.
Specifically, we’ll cover:
The importance of having a tax plan
Ways to optimize your retirement income
How proper asset allocation impacts your long-term prospects
The risks of being too conservative
And why, if the numbers work, you should consider retiring today
We'll also wrap up with a few action items to help you move forward.
The decisions you make in that first year of retirement are critical. Choices—or even inaction—can have a lasting impact on your ability to stay retired for the long haul.
And in the worst case? You might find yourself re-entering the workforce. No thanks!
Some of these topics should ideally be addressed before you retire, but it’s worth emphasizing that even years of planning can unravel if you don't take proper steps early on.
Let’s get into it.
Mistake # 1: Poor Tax Planning
Unique tax opportunities arise in your first year of retirement. Missing them can mean leaving money on the table—or worse, putting your long-term retirement and estate plan at risk.
Examples: If you or your spouse had high income in your final working year, this could be the perfect time to top up your RRSPs or Spousal RRSPs before the deadline. This is especially important if a severance or bonus bumped you into a higher tax bracket.
Alternatively, some retirees may benefit from withdrawing from an RRSP or RRIF in their first year of retirement—even if they don’t need the money right away. Why? Because with lower income, you might fall into a lower tax bracket.
You might wonder: "Are you saying to contribute to an RRSP in January and withdraw money from it by year-end?" The answer is—maybe.
Here’s an example:
You make $200,000 in your final working year and contribute $50,000 to an RRSP in January.
With a 40% marginal tax rate, you save $20,000 in taxes.
Later in the year, you withdraw $50,000 from your RRSP, but now with a lower 20% tax rate. You pay just $10,000 in taxes.
That’s $10,000 in permanent tax savings—just by being strategic. If you apply this type of planning to your early retirement years, you’ll set the stage for both short-term benefits and long-term tax efficiency.
Mistake # 2: Taking CPP Too Early
Many retirees assume they should start their Canada Pension Plan (CPP) benefits as soon as possible, sometimes at age 60. But the optimal start date for CPP depends on your specific situation.
Considerations include:
Health and family history
Size of your retirement savings
Whether you or your spouse continues to work
Single vs. married status
The size of your RRSP or other retirement accounts
Delaying CPP isn’t just about maximizing your monthly benefit—it can also unlock valuable tax-planning strategies. For those with large RRSPs, LIRAs, or defined-contribution pensions over $1 million, these early retirement years offer a prime window to reduce your overall lifetime tax bill and improve retirement longevity.
This is a crucial part of our Fundamental Retirement Plan (FRP) process. Visit our website to learn more.
Mistake # 3: Poor Asset Allocation
Too often, I see portfolios overweight in Canadian equities or packed with high-fee mutual funds that don’t align with a coherent strategy. Without proper asset allocation, you could miss growth opportunities—or worse, expose your retirement savings to unnecessary risks.
A simpler, low-cost approach that focuses on tax efficiency and income optimization is usually best.
Also, avoid applying the same asset allocation across all accounts. Here’s an example:
Imagine your household has:
$250,000 in a non-registered account
Two maxed-out TFSAs worth $250,000
$1,000,000 in RRSPs and LIRAs
If your TFSAs won’t be touched for 20+ years, it makes sense to assume more risk in those accounts to maximize long-term growth potential. But every plan is unique, so speak with a professional to ensure your strategy aligns with your goals and risk tolerance.
Mistake # 4: Not Having a Retirement Income Plan
Your retirement income plan must include:
All income sources—investments, CPP, OAS, part-time work, etc.
The tax implications of each income source and your marginal tax bracket.
Income-splitting opportunities and non-refundable tax credits.
Planning for inevitable market downturns is also essential. If your retirement spans 30 years or more, you’ll likely experience multiple market corrections.
Consider this scenario:
You have a $1 million portfolio and withdraw $50,000 annually (5%).
In your first year, the market drops 10%, shrinking your portfolio to $850,000.
To recover to $1 million and still withdraw $50,000, your portfolio needs to grow over 20% the following year—just to break even!
A proper income plan accounts for these downturns by pivoting to cash reserves, high-interest savings, laddered bonds, or other alternatives when needed.
Mistake # 5: Becoming Too Conservative
It’s tempting to shift entirely to GICs and high-interest savings accounts for safety, but this can expose you to inflation risk. Over 20-25 years, your purchasing power could erode significantly, even if your principal remains intact.
While equity risk is necessary for most retirement portfolios, it’s essential to balance this with your need for stability. A well-structured income plan will help you weather market fluctuations while keeping your long-term goals in focus.
Bonus: Not Retiring Early Enough
If your numbers make sense and you feel confident in your plan—just retire!
Take that trip to Europe, go on the cruise with your grandkids, or catch that baseball game in the U.S. Waiting too long might mean missing out on experiences while you’re still healthy and active.
When you’re 75, 80, or 85, will you value having an extra $250,000 in your estate—or the memories of a life well lived? You get to decide.
Action Items for Today’s Episode
Review your portfolio: Check if the same asset allocation is applied across all accounts. If it is, it’s time for a review.
Address the 5 mistakes: Make a plan to avoid each of these pitfalls. If you need help, visit our website and learn about our Fundamental Retirement Plan (FRP) process.
That wraps up today’s episode!
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And remember—don’t take chances with your retirement.
Make a plan so YOU can retire with confidence.
All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.