April 2018 Dividend Income Update
Welcome to my latest dividend income update.
For those of you new to these posts on my site, every month I discuss our approach to investing focusing on Canadian dividend paying stocks. We believe buying and holding a number of Canadian dividend-paying stocks in our tax-free (thanks TFSA!) and non-registered accounts will, over time, provide some steady monthly income for future wants and needs in retirement.
To summarize those wants and needs, my wife and I have calculated our “enough” income number. We believe an income level of about $4,000 or so (net) per month should cover most expenses. That income, in today’s dollars mind you, includes the following big bucket items:
- Condo expenses (property taxes; utilities such as heat, hydro, water and internet; and condo fees)
- Personal expenses (healthcare, food, clothing; a few hundred bucks per month for contingency therein)
- Auto expenses (assuming 1 car that consumes gas, maintenance and licensing; includes saving for another newer car every 10 years)
- General savings/contingency money/fun money up to $500 or so per month.
This cost of our happiness reminded me of this article from MoneySense a few years ago. In that article, here was a breakdown of three different retirement budgets and how they might help you figure out your number:
Image courtesy of MoneySense.
This makes our potential retirement expenses not far from “Phil and Sarah Statscan” but certainly far below any moderately wealthy couple.
How are we going to cover these expenses? There are four key sources:
- Workplace pensions. We’re lucky to have both defined benefit and defined contribution pension plans in our house – one of each. The defined benefit plan is estimated to pay out just north of $28,000 per year, indexed to inflation, starting at age 65 without penalties – for life. That’s good. My wife’s plan based on contributions to date should easily yield $12,000 per year as long as she lives; should we never draw down that capital (…but of course we will). If a) work would have us and b) we worked full-time until age 65, I believe our pensions alone would be enough to cover our basic retirement expenses. But that’s not our plan…
- Government benefits. Canada Pension Plan (CPP) and Old Age Security (OAS) will kick in eventually for us, also in our mid-60s, but that’s more than 20 years away. We estimate we’ll earn about $1,000 per month each from those programs at that age. Those programs could change however. Beyond that, based on our expenses above we certainly can’t rely on just CPP and OAS to cover all expenses, it wouldn’t be enough. So, we save on our own using #3 and #4 below….
- Registered Retirement Savings Plans (RRSPs). RRSPs are a great tax-deferred vehicle so we try and maximize those accounts out. We’re optimistic if we do that, we can grow our RRSPs to $500,000 within another 10 years. That should provide some modest income to draw down in our 50s and 60s before taking our pensions at age 65 along with…
- Dividends from Canadian dividend paying stocks. That’s what these updates are all about! Our goal is no secret: we want to earn $30,000 per year from our Canadian companies (most of it tax-free thanks TFSA). We some hard work over the last decade that goal is getting closer every month. In doing some math recently, I have a great deal of confidence if we can reach this dividend income goal of earning $30,000 per year from those accounts, and have no debt whatsoever – we’ll be free and clear to semi-retire in our 50s given other assets and future government benefits.
Our method to saving and investing, while carrying some mortgage debt, might not work for some. Geez, I mean we’re far from perfect people with our money. For example, if we never bought a house (or a condo recently) we could be semi-retired today in our mid-40s let alone potentially not working at all outside running this blog. But that’s not our plan either. We’re slowly doing things our own way that includes condo/home ownership. Your mileage might vary.
Thanks to more cash flowing in from the companies we own, we’re on pace to earn just over $16,200 this calendar year from the Canadian dividend paying stocks held in our tax-free (TFSA) and non-registered accounts. That means we’re more than halfway to our goal to largely “live off dividends” (or 54% there to be exact) and I think we have an outside chance of reaching $16,500 this year due to reinvested dividends alone – no new money added. Recent dividend increases like the one from Sun Life are an example of that!
We save, invest, pay down debt and live our lives. Stay tuned for my next dividend income update in June and thanks for reading.