Does the RRSP work against low-income retirees?

An RRSP does not automatically work against a low-income retiree, but money withdrawn from an RRSP or RRIF is generally taxable income. That extra income can increase income tax and may reduce income-tested benefits such as the Guaranteed Income Supplement.

GIS is usually calculated using your income from the previous calendar year—or combined income if you have a spouse or common-law partner. A large registered-account withdrawal can therefore affect a later GIS payment period. The result depends on the amount withdrawn, your other income, your relationship status, and the rules that apply to your situation. Review the current GIS calculation and income thresholds.

A TFSA works differently: TFSA withdrawals are not reported as taxable income and do not affect federal income-tested benefits such as GIS. See the Government of Canada comparison of TFSAs and federal benefits.

The practical question is not simply whether an RRSP is good or bad. It is when to contribute, when to withdraw, and how much to take each year. Before making a large withdrawal, compare the tax and benefit effects over several years and consider advice from a qualified financial or tax professional.