I have a gap between retirement and CPP/OAS where I want to deliberately draw down RRSPs beyond spending needs to optimize lifetime tax — melting as much as possible at a lower bracket before government benefits fill it. Proceeds should route to TFSA and non-registered, not spending.

Two questions:

1. Does the bracket top-up entry actually force withdrawals when there's no spending deficit, or does it only fire when cash is needed?
2. If I want to control meltdown pace more aggressively than bracket top-up allows — e.g. target a specific annual withdrawal amount regardless of spending — what's the recommended way to set that up while routing surplus to savings vehicles rather than the spending bucket?

What I've tried so far:

• Bracket top-up entry on the RRSP — unclear whether it's actually firing in gap years where spending is already covered by minimums
• Forced spending buckets paired with matching automatic savings entries into TFSA — this moved money but routed it through spending rather than cleanly repositioning it, which distorts the plan's accuracy
• Fixed dollar withdrawal entries — workable but requires manually estimating the right amount rather than letting MR optimize dynamically

gregariousApples0 wrote:

I have a gap between retirement and CPP/OAS where I want to deliberately draw down RRSPs beyond spending needs to optimize lifetime tax — melting as much as possible at a lower bracket before government benefits fill it. Proceeds should route to TFSA and non-registered, not spending.

Two questions:

1. Does the bracket top-up entry actually force withdrawals when there's no spending deficit, or does it only fire when cash is needed?
2. If I want to control meltdown pace more aggressively than bracket top-up allows — e.g. target a specific annual withdrawal amount regardless of spending — what's the recommended way to set that up while routing surplus to savings vehicles rather than the spending bucket?

What I've tried so far:

• Bracket top-up entry on the RRSP — unclear whether it's actually firing in gap years where spending is already covered by minimums
• Forced spending buckets paired with matching automatic savings entries into TFSA — this moved money but routed it through spending rather than cleanly repositioning it, which distorts the plan's accuracy
• Fixed dollar withdrawal entries — workable but requires manually estimating the right amount rather than letting MR optimize dynamically

1. Does the bracket top-up entry actually force withdrawals when there's no spending deficit, or does it only fire when cash is needed?
   It will force a withdrawal to the top of the tax bracket, whether needed for spending or not. Note that it may not make additional withdrawals if the account has already been converted to an RRIF and the Required Minimum withdrawal has already brought you up to the top of the tax bracket before that minimum withdrawal.
2. If you want to force more then you  can set up an Automatic Withdrawal of the RRSP for a specific amount.
   
   You can also set up automatic savings to the TFSA to make sure it's funded. Not sure what you mean by forced spending buckets.
   
   If the account withdrawals are not needed for spending or savings, then you'll have a surplus after all is done, and your Deposit Priorities will determine which accounts the surplus goes to, probably TFSA, then Non-registered if TFSA maxed out. The Spending priority limit should be 0 so that there's no extra spending.
   
   The best way to optimize your strategy after retirement is to run the Withdrawal Optimizer to see if and how it comes up with a better strategy.
   
   To optimize the RRSP withdrawals specifically for yourself without knowing the exact amount, you can run a SCAN on the Automatic Withdrawal amount and see what does best.
   
   Several things come into play with RRSP melting. You have the differential tax brackets, and people get that it's better to make withdrawals when in a lower tax bracket. What is harder to grasp is that such prepayment of taxes can be costly, as that money that could have been invested and grown tax-free is gone early. So it's not just tax rates to consider, it's also growth rates and time.  Thankfully, the TIME MACHINE and Withdrawal Optimizer are good at these calculations!
   
   
   

Thanks for the detailed response. I followed your suggestions and have some follow-up findings.

I added both a bracket top-up entry and a $40,000/yr fixed withdrawal on the RRSP for the gap years, with TFSA first in my deposit priorities. However, when I compare projections with and without the forced draw, the RRSP balances are virtually identical — the difference is under $100/yr. The Withdrawal Optimizer appears to be offsetting the manual forced withdrawal by reducing draws elsewhere rather than stacking on top of them.

Is this expected behaviour? And if so, is there a way to set a minimum withdrawal floor on a specific account that the optimizer must respect?

On the growth point: I take your point about losing tax-sheltered compounding by withdrawing early. However, in my situation the withdrawn funds route directly to TFSA (TFSA is first in my deposit priorities and I have contribution room). The growth continues sheltered — just in a different account. So the net tax-sheltered compounding should be roughly equivalent, while the meltdown reduces future forced RRIF minimums that would otherwise be taxed at higher rates once CPP/OAS arrive. I'd expect the optimizer to recognize this equivalence and draw more aggressively, but it doesn't appear to be doing so.

The Withdrawal Optimizer ignores your settings for the Automatic Withdrawals/Deposits and Priorities in years after retirement, and does its own thing if it can do better than what you had set up. Sounds like this is the case here.
Just run a regular TIME MACHINE to see what your setup would do on its own.

For the funds that get withdrawn obviously, they do need to be moved to an account with at least the same after-tax equivalent growth rate.  I was making a point about the funds that go to pay the taxes on those earlier withdrawals, as they don't get to grow anywhere. 

Thanks for the clarification — that explained a lot.

I ran both scenarios. The optimizer leads by about 4% of net worth through the gap years, but the manual meltdown catches up by year 15 as lower RRIF minimums reduce later taxes. Long-term difference is under 0.5% either way. Based on my growth rate assumptions the optimizer wins, so I'm comfortable letting it run — good to have the validation.

On the growth rate point: my withdrawn funds route to TFSA first, so compounding stays sheltered. The real cost is tax on early withdrawals, which the numbers confirm is the dominant factor at my assumed rates.

I've put quite a few hours into this tool and will be renewing my license. Looking forward to comparing the output against my CFP's Snap Projections plan.

Great work. It is very satisfying to understand the why and have it validated. I'm happy to help.