When my dad retired, he didn’t have a pension waiting for him—but he did have the foresight to build one for himself.
Years before his last day of work, he mapped the bills, stacked CPP/OAS with planned RRSP withdrawals, set aside a small cash wedge, and automated two deposits a month: one for essentials, one for living well.
It wasn’t fancy, but it felt like a paycheque—steady, predictable, and sized to his life—so he could ignore headlines and enjoy his days.
This idea has always stuck with me. Not everyone is fortunate enough to end their career with a cushy pension waiting for them.
Here’s how you can create the same kind of retirement paycheque for yourself.
Step 1: Know your base number
List your core monthly expenses (housing, food, utilities, insurance, transportation, healthcare extras). That’s the target your retirement paycheque must cover after tax. Keep “fun” and one-offs (travel, gifts, hobbies) separate so essentials are never at risk.
Step 2: Stack your guaranteed income first
Start with the income you can’t outlive:
- Defined benefit pensions (employer plans, OPG/OMERS, etc.). Note survivor benefits and whether indexing (cost-of-living increases) applies.
- Government benefits (CPP/QPP and OAS). Decide when to start—delaying can increase payments, which helps with longevity and inflation risk.
These sources are the backbone of your paycheque. If they cover your base number, you’ve built a strong floor. If not, move to Step 3.
Step 3: Top up from your savings—on purpose
Use registered and non-registered accounts to fill the gap:
- RRSP/RRIF/LIF: tax-deferred accounts that become taxable when withdrawn. Plan your conversion and withdrawal pace to avoid bracket spikes later.
- TFSA: flexible, tax-free top-ups—great for discretionary spending and managing taxes.
- Non-registered: dividends, interest, and capital gains—each taxed differently, so placement matters.
A common approach is to build a cash wedge (6–12 months of withdrawals) so your investment portfolio isn’t sold during a downturn. Refill the wedge once or twice a year from the accounts above.
Step 4: Automate the paycheque
Set your sources to deposit on a schedule (e.g., the 1st and 15th). Many retirees prefer two deposits: one that covers essentials and one “lifestyle” deposit. Automation lowers stress and reduces the urge to tinker.
Step 5: Use a simple withdrawal order (and adjust as needed)
There’s no universal order, but these guidelines help:
- Meet minimums (RRIF/LIF) and ensure the essentials are funded.
- Fill to a target tax bracket using RRIF or non-registered withdrawals—smoothing income across years is usually better than big spikes later.
- Use TFSA for top-ups or larger one-time goals (tax-free and flexible).
If you’re retiring before pensions begin, you might draw more from RRSP/RRIF early (“melting down” balances) to reduce future tax and OAS clawback risk.
Step 6: Plan for inflation—quietly but firmly
Even modest inflation erodes purchasing power. Index-linked pensions help; if yours isn’t fully indexed, build periodic raises into your paycheque (e.g., 2% annually) and review investment growth to fund them. Keep some equities for long-term inflation defense, balanced with fixed income for stability.
Step 7: Add guardrails so spending stays on track
A practical way to keep freedom and discipline:
- Green years: when markets are strong and your portfolio is ahead of plan, you can nudge lifestyle spending up (e.g., an extra trip).
- Amber years: hold spending steady.
- Red years: skip big extras and let the portfolio recover.
Pre-setting these rules turns volatility into simple adjustments instead of anxiety.
Step 8: Make taxes part of the design
A predictable paycheque can still be tax-smart:
- Set appropriate withholding on RRIF/LIF withdrawals so you’re not surprised next April.
- Use pension income splitting where eligible.
- Decide which account funds lump-sum goals (e.g., home projects) with tax in mind.
- Harvest capital gains or losses thoughtfully to manage brackets over time.
Step 9: Protect the survivor
Model what happens if one spouse dies: which pensions reduce, which benefits change, what taxes shift. Right-size insurance, survivor RRIF strategies, and TFSA positioning so the remaining paycheque still meets the base number without stress.
Step 10: Keep records and review annually
Each year, review:
- Next 12 months of withdrawals vs. base number.
- Cash wedge refill plan and portfolio rebalancing.
- Benefit/tax changes (CPP/OAS, RRIF minimums, credits).
- Any life changes that alter the paycheque (moves, health, helping family).
Common pitfalls (and easy fixes)
- All-equity or all-cash extremes: Blend growth and stability so income is dependable and keeps pace with inflation.
- One big account for everything: Separate essentials from discretionary spending; it clarifies choices.
- Ignoring RRSP/RRIF until mandatory withdrawals: Can create higher lifetime tax. Consider planned, earlier draws.
- No plan for big one-offs: Use a separate “projects” bucket so the monthly paycheque isn’t disrupted.
A retirement paycheque turns a pile of accounts into a life well lived.
Cover essentials with guarantees, top up systematically, protect against inflation, and set guardrails so good years feel good and tough years don’t derail you.
With a little structure—and a cash wedge for confidence—you can spend more time living the life you planned and less time watching the market ticker.