RETIREMENT

Most Canadians think retirement investing simply means saving, but it can be much more than that. Saving keeps money safe; investing may help it grow fast enough to keep up with inflation and support a person's lifestyle decades from now. Understanding the basics early can make the difference between worrying about retirement and feeling prepared.

In this guide, you'll learn:

• How Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs) really work in 2026
• How to estimate what you'll need
• How the Canadian Pension Plan (CPP), Old Age Security (OAS), and personal accounts can fit together

What Retirement Investing Really Means (and Why It's Not Just Saving)

Retirement saving and retirement investing are often used interchangeably, but they're not the same. For many Canadians, saving is usually about parking money and keeping it safe and accessible, usually in a bank account. Investing is about growing that money through the markets so it keeps its purchasing power decades from now. To retire comfortably, most Canadians need both, but long-term investing does the heavy lifting.

A key reason is compounding. When investments earn returns, those returns also begin to earn returns. For example, if you invest $10,000 at an average of 6% per year, after 30 years it grows to about $57,000 (without adding another dollar). That's the power of time.

Meanwhile, inflation quietly erodes the value of money. If prices rise 2-3% per year, cash sitting in a savings account will lose purchasing power over time. Investing can help your money grow faster than inflation, so your future lifestyle doesn't shrink.

Retirement investing can also require a long-term mindset. Market ups and downs are normal. What matters most is time in the market, not trying to time the market. Staying invested, even during downturns, is historically the most reliable way to grow wealth.

In Canada, retirement income can come from three pillars:

• Government benefits (CPP, OAS)
• Employer plans (pensions, group RRSPs)
• Personal investments (RRSP, TFSA, non-registered accounts)

Together, they can form the backbone of a complete retirement plan.

Accounts in Canada

Retirement investing isn't only about choosing the right investments; it often is also about choosing between accounts. In Canada, the type of account one uses can determine how their money is taxed, how fast it grows, and how much they keep later in life. Broadly, there are two categories:

• Tax-sheltered accounts like the TFSA and RRSP allow one's investments to grow shielded from annual taxes.
• Taxable (non-registered) accounts, which offer flexibility but no special tax protection.

Understanding how these accounts work (and when to use each) may improve long-term results. Below, we break down TFSA rules, RRSP mechanics, spousal strategies, and how other accounts like Locked-In Retirement Account (LIRA), Life Income Fund (LIF), Registered Education Savings Plan (RESP) transfers, and non-registered accounts fit into a complete retirement plan.

TFSA: 2026 Limit, Carry-Forward, Withdrawals & Penalties

The Tax-Free Savings Account (TFSA) can be a flexible and powerful retirement-saving tool.

• 2026 TFSA annual limit: $7,000 (indexed to inflation; adjusted each year).
• Lifetime total since 2009: For someone eligible every year, the total room in 2026 is about $109,000.

Carry-Forward Room

• Unused contribution room rolls forward indefinitely.
• Example: If one contributed only $5,000 in 2024, the unused $2,000 is added to their 2025 room, allowing $9,000 of available space.

Withdrawals

• Withdraw anytime, tax-free.
• Any amount withdrawn gets added back to the TFSA room on January 1 of the following year.
• Re-contributing within the same year causes an over-contribution.

Over-Contribution Penalty

• Canada Revenue Agency (CRA) charges 1% per month on excess amounts until removed or until new room opens.

Ideal TFSA Investments

Since all growth is tax-free, many investors use TFSAs for higher-growth assets like:

• Broad market exchange-traded funds (ETFs)
• Stocks
• Balanced ETF portfolios
• Guaranteed investment certificates (GICs) (for shorter-term goals)

TFSA Pro Tip

• Always check the TFSA room through CRA My Account. Avoiding multiple transfers or withdrawals within a short period is often followed, as CRA reporting delays can cause accidental over-contributions.

TFSA Best Uses

• Emergency fund
• Saving for a home
• Long-term, tax-free retirement income

RRSP: 2026 Limit, Deductions, Spousal Strategies & Withdrawals

The Registered Retirement Savings Plan (RRSP) is designed to reduce taxes while you're working and help you withdraw income during retirement.

2026 RRSP Contribution Limit

• Contribute up to 18% of your earned income, capped at about $33,810 for 2025.
• Personal limit appears on an individual's CRA Notice of Assessment.

Deduction Mechanics

• RRSP contributions reduce the taxable income dollar-for-dollar.
• Many Canadians receive sizable refunds because of this.
• One can delay claiming your deduction to use it in a higher-income year.

Carry-Forward Room

Unused RRSP room accumulates indefinitely, giving flexibility to contribute more in future higher-earning years.

Withdrawals

• Regular withdrawals are fully taxable as income.
• Two exceptions:

• Home Buyers' Plan (HBP): Withdraw up to $35,000 for a first home; repay over 15 years.
• Lifelong Learning Plan (LLP): Withdraw up to $20,000 for education; repay over 10 years.

Conversion Deadline

Canadians must convert their RRSP to a Registered Retirement Income Fund (RRIF) or annuity by December 31 of the year you turn 71.

Spousal RRSPs

• Designed for couples with unequal incomes.
• The higher-earning spouse contributes to a Spousal RRSP, but the lower-income spouse owns the account.
• Goal: Many investors use it to lower the couple's overall taxable income in retirement through income splitting.

Attribution Rule

If the spouse withdraws money within three years of a contribution, it is taxed back to the contributor.

Benefits

• Balances retirement income between partners
• Reduces future tax brackets
• Allows continued RRSP contributions for a younger spouse after the older spouse reaches age 71

Other Accounts: RESP Transfers, LIRA/LIF, Non-Registered Basics

Several other accounts may also play supporting roles in retirement planning.

RESP Transfers

Those with leftover funds in a Registered Education Savings Plan offer:

• Transfer up to $50,000 of accumulated income to the RRSP if there is available RRSP room. This prevents the income from being taxed at a high rate.
• Government grants and bonds must be repaid when not used for education.

Locked-In Retirement Accounts (LIRA) & Life Income Funds (LIF)

These accounts hold pension money when you leave a job with a defined-benefit or defined-contribution plan.

• LIRA: Money is locked in until retirement age. It cannot be withdrawn freely.
• LIF: The retirement phase of a LIRA. You must withdraw a minimum each year, similar to a RRIF, but also face a maximum withdrawal limit.

Non-Registered (Taxable) Accounts

• These accounts have no contribution limits and no tax shelter.
• You pay taxes on interest, dividends, and capital gains.
• They offer full liquidity and no withdrawal restrictions.

Picking Investments (ETFs, Mutual Funds, Bonds, Guaranteed Investment Certificates, Dividend Stocks)

Understanding Core Investment Types

Retirement investing often begins with understanding the main investment building blocks available to Canadians. Each asset type plays a different role, e.g., growth, stability, income, or diversification, and the right mix depends on your goals and risk tolerance.

ETFs (Exchange-Traded Funds)

• ETFs pool together dozens or hundreds of securities, such as stocks, bonds, or both, into a single investment
• Can provide diversification across sectors or global markets
• Typically feature low management fees, especially index-based ETFs
• Trade on exchanges throughout the day, making them highly liquid
• Preferred by investors with long-term, passive investing strategies

Mutual Funds

• Mutual funds are professionally managed investment pools that may follow active or passive strategies
• Offer expert management and easy hands-off investing
• Often carry higher management expense ratios (MERs) than ETFs
• Bought and sold at end-of-day prices, not intraday

Bonds & GICs

• These investments focus on stability and predictable income
• Bonds fluctuate with interest rates but offer steady income
• GICs guarantee a fixed return, making them safe but less flexible

Dividend Stocks

• Dividend-paying stocks offer a combination of income and long-term growth
• Pay regular cash dividends
• Provide potential capital appreciation

Balanced Portfolios

• Balanced portfolios blend multiple asset classes, e.g., stocks for growth, bonds for stability, and cash for liquidity
• Reduce volatility compared to all-stock portfolios
• Often align with risk tolerance and timeline

Robo Advisors

• Robo advisors use ETFs to build diversified portfolios automatically
• Handle rebalancing, risk assessment, and tax efficiency

Investing Considerations

Common Investment Targets & Savings Benchmarks

Determining how much to invest for retirement begins with understanding what income one may need later in life. Many investors aim to replace 70-80% of their pre-retirement income to maintain a comfortable lifestyle. Each investor's ideal number may vary depending on housing costs, debt levels, CPP/OAS benefits, and whether they plan a more modest or more travel-heavy retirement.

Typical Savings Rate Benchmarks

Financial planners often recommend saving 10-15% of the annual income throughout the working years. If one starts later, wants to retire early, or expect higher living costs, they may need to increase their savings rate. Even small increases, such as 1-2% per year, could improve long-term outcomes.

Online Calculators

Tools like the Government of Canada Retirement Income Calculator can help model contribution rates, projected investment returns, CPP/OAS estimates, and inflation. These calculators are useful for converting "how much should I save?" into real, actionable numbers.

Inflation-Adjusted Targets

Financial planning frequently utilizes current-day currency values rather than inflated future values. Since inflation reduces purchasing power, investments need to grow faster than rising prices to maintain the lifestyle.

Lump-Sum vs. Periodic Investing

• Lump-sum investing: Putting money in all at once
• Periodic investing (DCA): Investing regularly (e.g., monthly or bi-weekly)

Government Benefits and the Plan

Canadian Pension Plan (CPP)/Québec Pension Plan (QPP) & Old Age Security (OAS) Overview

Government benefits form the foundation of retirement income for many Canadians. Understanding how the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) and Old Age Security (OAS) work, and how they interact with your personal savings, may help investors build a more accurate and tax-efficient plan.

CPP/QPP (Canada/Quebec Pension Plan)

• CPP/QPP is funded through contributions made from both employers and employees during their active working years (or entirely by you if self-employed).
• Claiming age: Can start as early as 60 or delay up to 70.
• Early claiming reduces the monthly amount permanently.

OAS (Old Age Security)

• OAS is funded from general government revenue and does not depend on your work history
• Eligibility: Age 65+ with at least 10 years of residency in Canada.
• Clawback threshold: Begins around $90,000 of net income; higher incomes may see partial or full clawback.

Interaction with Private Retirement Savings

OAS entitlement can be affected by how much taxable income one generates from sources such as RRSP/RRIF withdrawals, pensions, and non-registered investments. Smart timing of withdrawals or delaying government benefits can help minimize taxes and clawbacks.

Decumulation 101: RRIF/LIF, Sequence Risk & OAS Clawback

RRIFs and LIFs Overview

Decumulation, which is the phase when one begins living off their savings, may require careful planning to ensure the money lasts. Two important vehicles in this stage are RRIFs (Registered Retirement Income Funds) and LIFs (Life Income Funds), each with specific rules that shape the withdrawal strategy.

RRSP to RRIF Conversion

By December 31 of the year one turns 71, they must convert your RRSP into a RRIF or an annuity. RRIFs require minimum annual withdrawals, calculated using age and account value. Withdrawals are fully taxable as income in the year they're taken. There's no maximum withdrawal, only a required minimum that increases over time.

LIFs (Life Income Funds)

If the retirement assets come from a locked-in pension plan, they must be transferred into a LIF.

• LIFs include both minimum and maximum withdrawal limits.
• Rules vary by province, but the structure aims to turn pension savings into income while preserving long-term growth.

Sequence-of-Returns Risk

If markets drop early in retirement while an investor is withdrawing income, their portfolio could shrink faster than it can recover. This risk is most acute in the first 10 years of retirement, when returns may have an outsized impact on long-term sustainability.

OAS Clawback Management

Since RRIF withdrawals increase taxable income, large withdrawals can trigger the OAS clawback. Smooth withdrawals, strategic timing, or drawing down RRSPs gently before age 71 can reduce future clawback exposure.

RRIF Minimum Withdrawals

RRIF payouts rise with age. One must withdraw at least the CRA-defined minimum each year or can face penalties. As these minimums increase over time, the taxable income may also rise, potentially affecting OAS and marginal tax rates.

Start Saving for Retirement Today

Retirement investing doesn't have to feel overwhelming. By understanding the core building blocks, e.g., accounts (TFSA, RRSP, non-registered), investment mix, and how government benefits fit into the picture, one can build a plan that grows steadily over time. The keys are consistency, diversification, and a long-term mindset. Small contributions, automated deposits, and disciplined rebalancing often matter more than picking the "perfect" fund or timing the market.

Whether you're starting with the first contribution or refining a mature portfolio, now is the right time to take the next step. Review your TFSA and RRSP room, compare low-fee investing options, explore retirement calculators, and build the habits that support long-term success. Open an account with Questrade today.