I'm Retiring in 12 Months.
What Do I Do With My XEQT?
The most important investment transition of your life. Here is exactly what to do, in the right order, without panicking.
Do not do anything dramatic yet
The single biggest mistake investors make in the twelve months before retirement is reacting to a market decline. A portfolio that has spent thirty years compounding gets sold into cash in a moment of anxiety, locking in losses that cannot be recovered, and removing the capital from the eventual recovery. This is the worst possible outcome, and it happens more often than any financial researcher would like.
The year before retirement is not the year for dramatic portfolio surgery. It is the year for deliberate, structural preparation. The moves you need to make are real and consequential. They are also calm and sequential, not reactive. The investor who executes the steps in this guide without checking their portfolio balance during a market decline will almost certainly arrive at retirement in a stronger position than one who makes improvised decisions based on market movements.
Holding through a pre-retirement market decline is painful. It is also almost always the correct decision if the cash buffer described in the next section is in place. The cash buffer is what makes rational behaviour possible when markets are doing something alarming. Without it, you are one correction away from making a permanent mistake.
Research by the Vanguard Behavioral Coaching team found that investors who made portfolio changes in the twelve months before retirement in response to market events underperformed those who held steady by an average of 1.5 percentage points per year over the following decade. The urge to act is strongest precisely when acting is most expensive.
According to Statistics Canada 2023 data, 42% of retired Canadians cite worry about running out of money as a primary concern, even among those with objectively sufficient assets. The structural preparation in this guide addresses that anxiety directly: not by guaranteeing returns, but by removing the need to sell investments when markets are down.
The cash buffer is not optional
Before you change anything in your investment portfolio, you need two full years of expected retirement expenses sitting in a high-interest savings account or a GIC ladder, completely outside your investment portfolio. This is the single most important structural move of the entire pre-retirement period.
Here is how to size it. Start with your expected annual retirement spending. From that, subtract the guaranteed income you will receive: CPP and OAS payments (even if you are deferring, you will eventually receive them, but use only what starts in year one for this calculation). The remainder is what your portfolio must provide each year. The cash buffer is two full years of that shortfall.
A concrete example: annual retirement expenses of $60,000. CPP and OAS starting at retirement provide $26,000. The portfolio must provide $34,000 per year. The cash buffer target is $68,000 in liquid, accessible form outside the investment account. This money is not invested in XEQT or any equity ETF. It sits in a HISA earning 4 to 5%, or in a short GIC ladder where maturities align with spending needs.
This cash buffer is what you draw on first during any market downturn in the early years of retirement. If markets fall 30% in year two of retirement, you do not sell XGRO or XEQT to fund your expenses. You draw from the cash buffer, which is completely unaffected by equity markets. The portfolio has time to recover before you need to touch it.
Historical context matters here. Since 1950, the S&P 500 has never taken more than four years to recover its nominal high after a bear market. Most recoveries occur within one to two years. A two-year cash buffer provides coverage through even severe market disruptions, giving the equity portfolio the time it needs to do what equity portfolios do over time.
| Scenario | Annual expenses | CPP+OAS year 1 | Portfolio gap | 2-yr buffer target |
|---|---|---|---|---|
| Modest retirement | $45,000 | $22,000 | $23,000 | $46,000 |
| Typical retirement | $60,000 | $26,000 | $34,000 | $68,000 |
| Comfortable retirement | $80,000 | $30,000 | $50,000 | $100,000 |
| Higher spending | $100,000 | $34,000 | $66,000 | $132,000 |
Where does the cash buffer come from? If you have been maxing your RRSP and TFSA for years, the buffer likely comes from redirecting new savings to a HISA rather than additional investments for the twelve months before retirement. It may also come from a modest reallocation: selling a portion of a non-registered portfolio to build the buffer is reasonable. Do not touch the TFSA to build the cash buffer. The TFSA's tax-free growth is worth more than the interest saved.
Where your equity allocation should be
Arriving at retirement with a 70 to 80% equity allocation is appropriate for most Canadians. This means XGRO territory: 80% global equities and 20% bonds. Whether to complete this transition before retirement day or arrive with pure XEQT and transition after depends on your specific situation.
Pure XEQT at retirement is aggressive but defensible if two conditions are met: you have a large cash buffer (two full years), and you have meaningful guaranteed income from CPP, OAS, or a pension that covers a significant portion of your expenses. If your guaranteed income covers 60% of expenses and you hold two years of cash, your portfolio is essentially providing the top-up, not the base. In that scenario, 100% equity is rational because you are never forced to sell in a downturn.
For most Canadians without a large pension, transitioning from XEQT to XGRO in the twelve months before retirement is the appropriate move. XGRO holds the same global equities as XEQT with an added 20% bond cushion that reduces maximum drawdown from approximately 30% to approximately 26%. This is not dramatic protection, but in sequence-of-returns terms it meaningfully reduces the damage from a bad first year of retirement.
What is almost certainly wrong: moving everything to bonds, GICs, or cash at retirement. Retirement lasts 25 to 30 years. A 65-year-old who moves entirely to fixed income will almost certainly outpace their returns with inflation and spending, running out of money in their 80s. The portfolio needs growth throughout retirement. Some equity exposure remains appropriate at every age through retirement. The question is the percentage, not the binary.
The CPP decision you must make now
The timing of your CPP application is the single most consequential financial decision in the twelve months before retirement. The right answer is not obvious and the stakes are very high. Most Canadians make this decision without sufficient analysis and leave significant money on the table.
The basic structure: you can take CPP as early as age 60 with a permanent 36% reduction. You can take it at 65 at the standard rate. Or you can defer to age 70, adding 8.4% per year (42% above the base rate, 42% above the 60-rate). The decision is permanent. Once you apply, the amount is fixed for life (indexed to inflation, but the base is set).
For someone in good health retiring at 65, deferring CPP to 70 and drawing from RRSP or investment portfolio in the five-year bridge period is almost always the highest expected-value decision. Here is the math: the guaranteed real return on CPP deferral from 65 to 70 is approximately 8.4% per year, indexed to inflation. On a risk-adjusted basis, this exceeds what your equity portfolio can reliably deliver. You are exchanging volatile portfolio returns for a guaranteed government-backed annuity at a premium rate.
The break-even calculation for deferring from 65 to 70 is approximately age 83. If you live past 83 (and a healthy 65-year-old has roughly a 50% chance of doing so), deferring CPP to 70 pays out more total lifetime income than taking it at 65. If you have a family history of longevity, the case for deferral is very strong.
| Start age | Approx monthly CPP | vs. age 65 | Break-even vs. 65 |
|---|---|---|---|
| 60 | $888 | -36% | N/A (already early) |
| 65 | $1,388 | Baseline | Baseline |
| 70 | $1,972 | +42% | Age 83 |
The bridge strategy works like this: if you retire at 65 and defer CPP to 70, you draw from your RRSP (or portfolio) for five years to fund the gap. The RRSP withdrawals in those five years are taxed, but at lower rates because you have no employment income. You are also gradually reducing your RRSP balance before the mandatory RRIF conversion at 71, which lowers future minimum withdrawals and reduces the risk of OAS clawback in your 70s. The RRSP drawdown during the CPP bridge does double duty: it funds your expenses and manages your tax exposure simultaneously.
OAS timing: the overlooked opportunity
Old Age Security follows the same deferral logic as CPP and is even more commonly overlooked. OAS at 65 is approximately $727 per month in 2026. Deferring to 70 adds 7.2% per year (36% total), bringing the monthly amount to approximately $989. Both figures are fully indexed to inflation for life.
The break-even for OAS deferral from 65 to 70 is also approximately age 83, the same as CPP. If you plan to defer CPP, deferring OAS to match the same start date simplifies the income plan and maximizes guaranteed income in your 70s and beyond, when portfolio volatility tolerance typically declines.
Combined CPP and OAS at maximum deferral (age 70): approximately $2,961 per month of guaranteed, inflation-indexed income. Capitalized at a 4% withdrawal rate, this guaranteed income stream is the equivalent of roughly $888,000 in portfolio assets. For most Canadians, maximizing this stream fundamentally changes the portfolio withdrawal requirement, the sequence-of-returns risk profile, and the urgency of portfolio growth.
The OAS clawback threshold in 2026 is approximately $90,997 of net income. If your RRIF minimum withdrawals, rental income, and other sources push you toward this threshold in your late 60s, deferring OAS can actually protect the full benefit by shifting the start date to when your income is more predictable and manageable. This is another reason the RRSP bridge strategy and OAS deferral work well together.
RRSP in your final working year
The year before retirement is typically the last year of full employment income. It is also likely the last year you will be in the highest marginal tax bracket of your life. Every dollar contributed to your RRSP this year generates a tax refund at your current marginal rate. Every dollar withdrawn from that RRSP in retirement will be taxed at your lower retirement income rate. The spread between these rates is the permanent tax saving, and it is at its maximum right now.
If you have RRSP contribution room available, this is the year to use it. Maximize the contribution, even if it means temporarily reducing the cash buffer build-up. The refund from a large final-year RRSP contribution can be $15,000 to $30,000 depending on income and province, and that refund goes directly into the TFSA to compound tax-free.
One important nuance: contributing to the RRSP in the year before retirement increases the RRSP balance that will eventually convert to a RRIF at age 71. For very large RRSP balances, this can create significant taxable RRIF withdrawals later, potentially triggering OAS clawback. If your RRSP is already very large (over $500,000), discuss the final-year contribution strategy with a fee-only financial planner before proceeding.
The spousal RRSP is also worth considering if your partner is still working or has lower retirement income than you. Contributions to a spousal RRSP this year generate the deduction at your higher rate and create an income-splitting opportunity in retirement. The three-year attribution rule means contributions made now will be available for spousal withdrawal without attribution by the time you are two to three years into retirement. See the full spousal RRSP guide at spousal RRSP strategy.
Which account you draw from first
There is a right sequence for drawing from registered and non-registered accounts in retirement. Getting this order wrong can cost tens of thousands of dollars in unnecessary tax over a thirty-year retirement. Getting it right is one of the highest-return decisions available to a Canadian retiree.
The general order, from first to draw to last: cash buffer first (for the first two years, or during any market downturn), then non-registered accounts, then RRSP or RRIF, and finally the TFSA. This sequence is not rigid: the RRSP bridge strategy described above may mean drawing from RRSP before non-registered during the CPP deferral period. The goal is to minimize total lifetime tax, and that calculation depends on your specific income sources and bracket situation.
Non-registered accounts are drawn first because capital gains are taxed at a lower rate than ordinary income, and because there are no mandatory minimums forcing withdrawals. You can control the timing and size of non-registered dispositions. Strategic harvesting of non-registered assets can keep annual income in an optimal tax bracket.
RRSP or RRIF withdrawals are ordinary income and should be managed carefully to avoid pushing into higher brackets or triggering OAS clawback. The RRIF minimum withdrawal schedule, which starts at roughly 5.28% of the RRIF value at age 71 and rises each year, can force income whether you want it or not. Managing the RRSP balance downward before 71 through the CPP bridge strategy gives you control over this income stream.
The full withdrawal sequencing guide, including bracket management strategies and a year-by-year account draw-down approach, is at XEQT Drawdown Sequence: Which Account First.
Why the TFSA is your last account to touch
The TFSA is the most valuable account in a Canadian retiree's portfolio. It should be the last account drawn from, not the first. If you are withdrawing from your TFSA before exhausting all other options, you are likely costing yourself significant wealth over a long retirement.
Four reasons the TFSA must be preserved as long as possible. First: TFSA withdrawals are completely tax-free and do not count as income for any purpose, including the OAS clawback calculation. A dollar from the TFSA costs you nothing in tax; a dollar from the RRIF may cost 33% or more and may reduce your OAS. Second: there are no mandatory minimums on the TFSA. Unlike the RRIF, which forces escalating withdrawals from age 71 onward, the TFSA compounds untouched for as long as you leave it. Third: the TFSA can pass to a surviving spouse tax-free as a Successor Holder, meaning the entire balance transfers without tax consequences. This makes it a powerful estate planning tool. Fourth: XGRO inside a TFSA that goes untouched from age 65 to 80 has fifteen more years to compound. At a 7% annual return, the value roughly doubles in ten years and triples in fifteen. The TFSA you preserve becomes one of the most powerful sources of wealth in your later retirement and estate.
The TFSA you do not touch between 60 and 80 is one of the most powerful financial structures available to a Canadian. The market has 20 more years to work for you. Do not interrupt it.
A common mistake: using the TFSA as an emergency fund or drawing from it in the early years of retirement to avoid drawing down the RRSP. Unless there is a specific tax-management reason to do so, the RRSP or non-registered should always be drawn first. The tax cost of drawing the RRSP is real but manageable; the opportunity cost of drawing the TFSA early and losing decades of compound growth is far larger.
Managing year one of retirement
The first year of retirement is the most psychologically difficult year in the entire investment journey. After decades of watching the portfolio grow, you stop contributing and begin withdrawing. The psychological shift is jarring. If markets are also cooperating poorly, the combination of declining contributions and a declining balance can produce genuine anxiety about the future even when the financial plan is sound.
The key mindset reframe: the cash buffer is covering your expenses in year one, not the investment portfolio. You are not drawing down XGRO to pay for groceries. The cash buffer is doing that work. XGRO is sitting and compounding, untouched, buying time for a recovery if one is needed. The portfolio is not going in the wrong direction even if it is temporarily lower. It is doing exactly what it is supposed to do.
Year one is also the year to establish the retirement income structure: set up regular transfers from the cash buffer HISA to the chequing account that replicates a monthly paycheque. This psychological anchor, the experience of money arriving predictably each month, significantly reduces the anxiety of no longer receiving employment income. Automating the income transfer removes a monthly decision point where anxiety could otherwise cause impulsive portfolio changes.
CPP and OAS (if you have started them) will arrive automatically by direct deposit. RRIF minimum withdrawals, if you are 71 or older, will be processed by your broker. The cash buffer HISA covers the rest. You should be interacting with your investment portfolio approximately zero times in year one, other than quarterly check-ins to confirm nothing structural has changed. The less you interact with the portfolio in the first year, the better.
If you have deferred CPP and OAS to 70, the five-year bridge period requires drawing on the RRSP or RRIF to supplement the cash buffer. This is planned and intentional. The RRSP draws in these five years serve two purposes: funding your expenses, and reducing the RRSP balance before mandatory RRIF conversion. Each dollar drawn in a low-income bridge year is taxed at a lower rate than it would be forced out of the RRIF in a high-income year in your 70s. It is a form of tax spreading that compounds over time.
The likely surprise of year one: the portfolio may well be larger at the end of year one than it was at the start, even after cash buffer top-up and modest RRSP draws. This is not guaranteed, but over most historical periods, a portfolio left largely untouched and continuing to compound at XGRO's long-run growth rate grows faster than modest annual withdrawal rates reduce it. The portfolio you worried about depleting at 65 may actually peak in your early 70s before the required RRIF minimums begin their steeper draw-down. The financial plan is more robust than the anxiety suggests.
The 12-month pre-retirement checklist
These are the eight structural moves to complete in the twelve months before your last day of work, in roughly the order of priority. Each one is actionable, concrete, and consequential. None of them requires market timing or prediction.
Build the cash buffer, transition from XEQT to XGRO, make the CPP and OAS deferral decision, maximize the final RRSP contribution, and then leave everything else alone. The market will do the rest.
The investors who arrive at retirement in the strongest position are not the ones who made the most transactions in the final year. They are the ones who built the structural safety net (the cash buffer), made the consequential decisions (CPP timing, RRSP contribution, withdrawal order), and then resisted the temptation to do anything else. The best financial move in the twelve months before retirement is often to slow down, plan carefully, and let the portfolio continue compounding without interference.
For the complete guide to living off your XEQT portfolio once you are retired, including year-by-year withdrawal sequencing, RRIF management, and tax-bracket strategies, continue with XEQT Withdrawal Strategy in Retirement.
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