Canadians have heard it over and over again throughout the decades: save more to retire. And that piece of advice was nearly almost too successful. Statistics Canada shows that an increasing proportion of retirees are retiring with larger registered savings balances than the baby boomers, especially within RRSPs. Meanwhile, federal statistics indicate that the average income in retirement has been steadily rising over the last 2 decades, which is mainly due to the registered plans and personal savings.
That sounds like a win. However, this is the unpleasant reality that many individuals do not recognize until it is too late: excessive cash in retirement, especially in improper accounts, can, silently, cause tax, cash-flow, and planning issues.
This isn’t about fear. It is about knowing how retirement planning in Canada would work in the real world as opposed to on paper.
The Traditional Retirement Narrative And Where It Breaks Down
The classic retirement playbook is simple:
- Max out RRSPs
- Defer taxes as long as possible
- Retire, withdraw slowly, and enjoy lower tax rates
That narrative assumes three things:
- Tax rates will always be lower in retirement
- Withdrawals will be modest and controlled
- Government benefits won’t be affected
All those assumptions are no longer true for most Canadians.
The math has changed due to longer lifespan, larger RRSPs, higher tax brackets, and increased taxes on government benefits. The effect is that a retirement savings account that is already in excess, and particularly one that is taxable in totality, may be a curse instead of a blessing.
Why “Too Much” Money Can Be A Real Retirement Problem
Let’s be clear: having savings is not the problem. How and where those savings are held is the issue.
When a large portion of retirement wealth sits inside RRSPs or RRIFs, every dollar withdrawn is treated as ordinary income. That income stacks on top of:
- CPP
- OAS
- Employer pensions
- Investment income
This can push retirees into higher tax brackets than they expected, sometimes higher than when they were working.
At that point, “too much money” doesn’t feel like abundance. It feels like inefficiency.
RRSP Contribution Limits: A Tool, Not A Commandment
The government limits the amount of money to can be contributed to the RRSPs to limit the amount of income that can be deferred in the current year. This limit is computed to be 18 percent of earned income, subject to a maximum per annum.
What is not understood is the following: simply because you can contribute does not necessarily mean you must.
It will work against maximizing the RRSPs without regard to future withdrawals, marginal tax rates, and retirement income structure. With high earners who keep on making aggressive contributions up to their late 50s and early 60s, the balances in RRSPs can accrue to the extent that they are compelled to make huge taxable withdrawals in the future.
At such a stage, the deferral becomes acceleration.
The Tax Trap Waiting At Age 71
By the end of the year you turn 71, RRSPs must be:
- Converted to a RRIF
- Used to purchase an annuity
- Withdrawn as a lump sum
Most people choose a RRIF. Here’s the catch: RRIFs come with mandatory minimum withdrawals, and those withdrawals increase with age.
At 72, the minimum is over 5%.
By your 80s, it’s well above 7%.
For large RRIF balances, that can mean forced income, whether you need it or not—income that’s fully taxable.
Withdrawing Funds From RRSP: Timing Is Everything
Knowing when to withdraw funds from RRSP accounts matters just as much as how much you saved.
Many Canadians delay withdrawals until they’re “forced” to start. That often results in:
- Higher marginal tax rates later
- Reduced flexibility
- Larger OAS clawbacks
Strategic withdrawals earlier—sometimes even before retirement—can smooth income, reduce lifetime taxes, and preserve government benefits.
This is where retirement planning in Canada has shifted from accumulation to orchestration.
Government Benefits And The Clawback Reality
Old Age Security (OAS) is income-tested. Once your net income crosses a certain threshold, benefits begin to claw back.
Large RRSP or RRIF withdrawals can:
- Trigger partial or full OAS clawbacks
- Increase taxable income beyond expectations
- Reduce after-tax retirement income
Ironically, people with “too much” registered savings often receive less government support than those with more balanced income sources.
The Cost Of Retirement Planning In Canada Isn’t Just Fees
When people hear about the cost of retirement planning in Canada, they usually think of advisor fees or product costs.
But the highest cost is often invisible:
- Lifetime taxes are paid unnecessarily
- Lost government benefits
- Poor withdrawal sequencing
- Forced income at the wrong time
A retirement plan that ignores tax efficiency can cost far more than any advisory fee ever would.
When High Retirement Income Becomes A Spending Problem
Another overlooked issue: cash flow discipline.
Retirees with large taxable withdrawals sometimes use that excess cash inefficiently. One common example is paying credit card debt with retirement funds.
On the surface, it sounds smart—clear high-interest debt. But if those funds are withdrawn from RRSPs:
- The withdrawal is taxable
- The tax bill reduces the net benefit
- You may end up paying more in tax than the interest you avoided
Debt should ideally be addressed before retirement, not with forced taxable withdrawals after.
Best Retirement Income Options Canada: Diversification Matters
The most effective retirement plans rely on multiple income sources, not just RRSPs.
The best retirement income options Canada offers typically include a mix of:
- Taxable investment income
- Tax-deferred income
- Tax-free income
- Government benefits
This diversification allows retirees to:
- Control taxable income each year
- Avoid benefit clawbacks
- Adapt to tax rule changes
- Maintain flexibility
Over-reliance on any single bucket—especially a fully taxable one—creates risk.
Psychological Stress Of “Too Much” Money
There’s also a human side to this issue.
Large retirement balances can create:
- Anxiety about taxes
- Confusion around withdrawals
- Fear of making mistakes
- Paralysis in decision-making
Many retirees delay decisions because they’re worried about triggering taxes or penalties. Ironically, that delay often makes outcomes worse.
Money should create security, not stress.
Inflation, Longevity, And Why Balance Still Matters
Yes, people are living longer.
Yes, inflation erodes purchasing power.
Yes, savings are important.
But modern retirement planning isn’t about hoarding as much as possible. It’s about aligning savings with spending needs, tax efficiency, and longevity risk.
Too little money is a problem.
Too much, in the wrong structure, is also a problem.
What Smart Retirement Planning Looks Like Today
Effective retirement planning in Canada today focuses on:
- Managing taxable income, not just net worth
- Planning withdrawals before they’re mandatory
- Coordinating registered and non-registered assets
- Reducing lifetime tax, not just annual tax
It’s less about hitting a “magic number” and more about designing a sustainable income system.
Final Perspective
Therefore, can excessive money in retirement be a financial risk that goes unnoticed?
It is subject to—when that money is clumped, untimely, and taxable.
The goal isn’t to save less. This is aimed at saving deliberately, retiring strategically, and creating income on retirement, not with the tax system, but rather working with it.
In the modern world, it is not exhaustion of the means of livelihood during the night that poses the actual threat. It is gradually losing all the excess of it–year by year–and not knowing what to attribute the excess to.
Learn More: Life Annuities vs. Other Retirement Income Options in Canada: Which One Gives You the Most Security?