$400,000 sitting in cash at 65: the two mistakes to avoid
A big cash pile near retirement feels safe, but idle money and a careless drawdown order quietly cost tens of thousands. Here's the decumulation logic that protects it.
A recurring question from families: a parent is around 65 with a large sum — say $400,000 — just sitting in a chequing account, and nobody's sure what to do with it. It feels prudent. In practice, leaving it there and then drawing it down without a plan are two of the more expensive "safe" choices in retirement.
Mistake one: cash drag
Money in a chequing account earns roughly nothing. The same $400,000 in even a conservative holding returning 3.5% would generate about $14,000 a year — so idle cash isn't risk-free, it's a guaranteed ~$14,000 annual cost in forgone growth. Over five years, compounding, that's roughly $75,000 left on the table. Safety you can quantify is just an expense in disguise.
"Cash feels safe" is the most expensive sentence in retirement planning. The risk isn't that the number drops — it's that it never grows while everything around it does.
Mistake two: drawing accounts in the wrong order
When you do start spending, which account you draw from changes your lifetime tax bill and whether you trip the OAS clawback. The clawback (officially the pension recovery tax) starts once net income passes roughly $95,000, and claws back 15 cents of OAS for every dollar above it. It's not catastrophic at first — at $100,000 of net income you'd lose only about $700 of OAS — but it compounds with every other tax decision.
The order that usually works:
- Taxable accounts and RRSP/RRIF early, while your other income is low, to "fill" the low tax brackets before government benefits start.
- TFSA last — withdrawals are tax-free and don't count toward the OAS clawback, making it the most valuable account to preserve.
- Keep an eye on the ~$95,000 line in years you take large withdrawals.
Run with a deliberate, bracket-aware drawdown, a retiree can often keep lifetime OAS clawback at $0 — versus thousands lost by defaulting to "spend the cash first, touch the RRSP last."
Put real numbers on it
These thresholds only mean something against your own balances. Model the sequencing with the RRSP meltdown calculator, check how close a given income gets to the clawback with the OAS clawback calculator, and size the overall target with the retirement calculator.
The takeaway
A $400,000 cash cushion isn't a plan — it's a parked decision. Get it earning something, then spend it down in an order that fills low brackets and leaves the TFSA for last. The difference between a careful drawdown and a careless one is measured in tens of thousands, and it's entirely within your control.
Retirement, drawdown, and OAS figures delivered by Metrestick. Underlying data: CRA 2026 tax parameters with OAS/GIS/CPP figures (Open Government Licence – Canada), 2026. Growth figures are illustrative.