The engine performs a year-by-year cash flow simulation from your current age until your projected life expectancy (or your spouse's, whichever is later). Each year, the engine looks at:

• Inflow: employment, CPP, OAS, mandatory RRIF minimums, optional RRSP melt withdrawals, investment income from non-registered accounts, and any one-time inflows. One-time inflows and expenses happen in the year you (the first person) reach the age you set, and their amounts are in today's dollars, so they grow with inflation to that year.
• Gap analysis: compares net cash to your "Target Spend".
• Drawdown: pulls from accounts per your selected strategy if there's a deficit.
• Reinvestment: fills TFSA room, then RRSP room, then invests the rest in your designated non-registered surplus account.
• Growth: applies investment returns to remaining balances.

When one spouse dies, their accounts pass to the survivor tax-free and keep their cost base. When the last person dies, the estate is taxed as if everything were sold: the remaining RRSP/RRIF counts as income, and unrealized capital gains are taxed.

RRSP last (defer taxes): spends non-registered savings first, then TFSA, and leaves the RRSP for last. The RRSP grows tax-free for longer, but that makes the forced RRIF withdrawals from 72 bigger, and whatever is left is fully taxed at death.

RRSP first: spends the RRSP before the other accounts, while your income is lower. That shrinks later RRIF withdrawals and the tax at death, but the money leaves the tax shelter sooner.

Neither order always wins. Paying less tax over your lifetime doesn't guarantee a bigger estate — in our test plans, the order with the lowest total tax sometimes left less behind. The RRSP Meltdown Optimizer tries both on your own numbers.

These two options only set which account pays for your spending first. You change it with the Fund spending from RRSP first switch in Settings. They are not the RRSP meltdown. The meltdown is the separate RRSP Melt Amount for each person: a fixed withdrawal every year from its start age to 71, whether you need the money or not. It is the same dollar amount each year and is not adjusted for inflation. The tool keeps your RRSP as an RRSP until it becomes a RRIF at 71, so melt withdrawals don't get the pension income credit and can't be split with a spouse. (Converting to a RRIF earlier, from 65, would make them eligible. The tool doesn't model that yet.) You can use both. The meltdown comes out first, and anything still needed for spending is drawn in the order you picked.

For couples, the engine works out each year how much eligible pension income to "split": up to half of one spouse's eligible pension income can be taxed in the other spouse's hands, when that lowers your combined tax. Eligible here means a workplace (defined-benefit) pension at any age, and RRIF withdrawals from 72, the first year after the tool converts your RRSP to a RRIF. RRSP withdrawals, including the melt, aren't eligible. Neither are CPP and OAS. (Couples can share CPP through a separate application to Service Canada, which the tool doesn't model.)

• Optimization: tests splitting percentages up to 50% to minimize the household's combined tax bill.
• OAS impact: considers whether splitting helps a spouse avoid or reduce OAS clawback.
• Credits: preserves credits like the Age Amount where beneficial.

Assets grow based on the return rates set in the Rates of Return panel. The engine separates yield (dividends and interest, entered as the Non-Reg Dividend, Foreign and Cash Interest rates) from price growth (Non-Reg Growth (price only)).

• RRSP/TFSA: each account grows at its own whole-account return, reinvested and tax-sheltered — no yield/gains split needed.
• Non-Registered:
  • Dividends and interest are paid out as cash and taxed each year.
  • Equity grows at the full Non-Reg Growth rate.
  • Dividend stocks' prices grow at 85% of whatever the Non-Reg Growth rate is above their dividend yield. Counting the dividend, their total return is a little lower than pure growth equity.
  • Bonds and cash pay interest only; their value doesn't change.
  • Growth doesn't raise your ACB, so gains build up until a sale, Fund Turnover or death realizes them.

Multiple non-registered accounts

Each person can hold several non-registered accounts (e.g. a GIC ladder, a dividend portfolio, a growth ETF account):

• Withdrawals minimize realized gains: sells first from the account with the smallest unrealized gain relative to its value, so each dollar withdrawn triggers as little taxable gain as possible.
• Surplus goes to one account: leftover cash each year is invested into the account marked Surplus.
• At death: a surviving spouse inherits each account as-is, keeping its own ACB and mix.

Rebalancing vs. drift

With Rebalance Annually on, each account resets to your chosen mix every year. With it off, the mix drifts toward equity, because equity grows fastest and bonds and cash don't grow at all. Fund Turnover is separate: it models the yearly tax from funds that sell holdings internally, and it applies either way.