Financial Independence Update

Financial Independence Update

Hey Folks!

Hard to believe how time flies…and with summer 2024 approaching fast, I figured it would be a good time to check-in on this pillar post: our financial independence update.

I look forward to your comments…as always.

Asset Accumulation vs. Asset Decumulation

The path to wealth-building can take many roads for many people.

Some investors enjoy wealth-building via real estate.

Others are into private equity.

Still others are entrepreneurs and enjoy building and growing a business. I know I do. 

There is no one right path. 

When it comes to our financial independence plans, I/we have chosen to invest in a few common stocks that deliver growing dividend income and low-cost Exchange Traded Funds (ETFs) that deliver primarily growth.

We have landed on this approach (as mentioned many times on this site) largely because it aligns with our long-term financial goals and lifestyle choices.

For example, we don’t want to engage in the risks that come with owning multiple properties. We’ve been a landlord and really didn’t like it. Private equity seemed like (and still feels like) too much risk.

Our multi-decade financial indepdendence path instead has been basically a simple one-two debt reduction and investing punch:

  1. Buy and pay off our home/condo. (Done – we are now mortgage-free).
  2. Invest for income and growth until we don’t have to any longer.

Because of this long-term path, our semi-retirement dreams are very, very close.

Mortgage free!!! Now what???

Why Asset Accumulation is Easy Street

Our path to asset accumulation has been rather easy to explain and follow.

It’s also an approach most Canadians can likely replicate as they wish:

  1. We save early and often. We strive to max out contributions to our TFSAs and RRSPs every year.
  2. We keep our investing costs low. We don’t own any high priced nutual funds and we ditched our financial advisor almost 20 years ago.   
  3. We diversify our equity investments. We own many dividend growth stocks from Canada, a few from the U.S. and index invest everything else.   
  4. We stay invested. We know markets rise and fall. So, if we stay invested, we’ll avoid being out the market when big gains do happen. 

That’s essentially it. You can replicate that as you wish. Just four easy steps. 

Further Reading:

You can read about how I built my dividend income portfolio here/below:

How I built my dividend portfolio

Why Asset Decumulation is a Tougher Road

While the process of asset accumulation has served us well, I have been seriously thinking about asset decumulation in recent years – posting lots of articles on this site.

Here are a few of them:

How and when to withdraw from RRSP and TFSA

And…back in October 2023:

Overlooked retirement income and planning considerations

Having a portfolio drawdown plan is very important. You don’t have to take my word for it!

“Drawing down one’s savings in retirement is something very few retirees do well, even with the help of professional advisors.” – Fred Vettese, author: Retirement Income for Life; retirement expert.

The asset decumulation puzzle can be complex for some:

Asset Accumulation Principles
Asset Decumulation Questions
1.       Save early, save often
1.       When should I take my workplace pension?
2.       Keep your investing costs low
2.       If I have no pension, how do I know I have saved enough money?
3.       Consider asset diversification to reduce losses
3.       How much money should I have to retire?
4.       Stay invested
4.       How do I avoiding outliving my money? 
5.       What do I do if my investments drop and I’m no longer working to recover?
6.       How much cash should I have or keep during retirement?
7.       How do I fight inflation in retirement?
8.       When should I take my government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS)?
9.       What mix of stocks and bonds should I keep in retirement, will that asset mix be enough?
10.   Should I keep an emergency fund in retirement?
11.   How can I generate income from my retirement portfolio?
12.   What accounts should I draw on first?
13.   And more and more!! 

The good news is for you dear reader, we’ve been working towards answers to all these asset decumulation questions and much more. 

Today’s post will provide updated answers (current to the time of this post) and what you might want to consider as well.

Again, I look forward to your comments…as always!

Financial Independence Update Q&A to yours truly…

Q to Mark: When should I take my workplace pension (or our workplace pensions)?

I’m very grateful I have a defined benefit (DB) pension from work. I can receive pension benefits as early as age 55 but with penalties in the form of pension income reductions. I’ve been contributing to this plan with the following formula:

1.6% x your Best Average Earnings x years of pensionable service.

Here are my pension terms, word-for-word:

DB Pension Terms

Until this year, I thought about commuting my pension.

Should I take the commuted value of my pension?

At the time of this post, I’m more inclined to keep my DB workplace pension and take this income at age 65.

My wife is very fortunate to have a defined contribution (DC) pension from work. With her 22+ years of contributions into that DC plan, we keep my wife’s portfolio in the available low-cost indexed funds to choose from.

When she leaves her organization, she will take her DC pension assets in the form of a LIRA (Locked-In Retirement Account) and turn her LIRA into a LIF at age 55.

You can read up about a LIRA including how I invest in my own very small LIRA here.

Q to Mark: How much money should I have to retire?

To answer this question, I always believe you need to know where you are starting from.

You need know what you intend to spend for your “enough” number. 

Consider what you spend for your enough number

Here are some very quick (and FREE) ways to find your financial independence number. 

I’ve/we’ve calculated our number. 

As part of our assumptions, you might be interested to know we use the following in our personal projections:

  • 5% annualized rate of return i.e., over the coming decades.
  • 3% sustained inflation.
  • MAX 50% CPP at age 65 and MAX OAS at age 65 given OAS is a residency formula. 

We review our projections every 3-6 months although best practice (in retirement) is likely closer to once per year. 

We figure we’ll spend an average of about $70,000 to $75,000 per year after-tax, increasing year-over-year with inflation.

Financial Independence Update - My Own Advisor - Cashflow April 2024

Image: from Cashflows & Portfolios projections work. 

Q to Mark: How much cash should I have or keep in retirement?

That depends!

I believe there is no one right answer. 

I do believe it should be a risk-based decision. 

At the time of this post, here is our thinking and plans for the rest of the 2024 calendar year:

  • Keep ~ 1-years’ worth of cash/expenses in cash at all times. This cash will cover all basics (pays for condo fees, property taxes, utilities and groceries, etc.) such that we could effectively live for an entire year, on cash, without touching our portfolio income let alone no work at all…although we intend to work part-time in the coming years. More on that in a bit. 

We organize our cash, this way:

  1. Taxable accounts – cash is available to fund any spending beyond our standing emergency fund (like an international trip this fall),
  2. TFSAs – cash is available to be strategic to buy more equities when those assets go on sale, and
  3. RRSPs – cash/cash equivalents is becoming a home to fund one if not two-years’ worth upcoming withdrawals without touching the portfolio. (We have Year 1 ready for 2025, if needed.)
  4. Corporation – we keep a growing cash position inside my corporation account, just in case.

Again, one reason to keep cash on hand, beyond near-term spending plans or your standing emergency fund is to help manage market volatility at any age and this is especially important to us since we’ll have a bias to owning mostly equities in retirement. Your mileage may vary.

The Cash Wedge – Managing market volatility

Q to Mark: When should I take my government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS)?

I know my answer now for now…see above.

Our plan is to take both CPP and OAS at age 65 but we’ll have the option and potentially defer CPP benefits to age 70.

These are our key reasons to defer CPP and these might apply to you too:

  • OAS does not offer survivorship benefits. CPP does. Unlike the CPP, OAS payments do not transfer over to a surviving spouse. If the surviving spouse is also receiving OAS, that continues; however, the payments being made to the deceased spouse stop.
  • CPP incentivizes retirees who delay their payments past age 65 by 0.7% each month or 8.4% per year. This translates to a 42% income boost in CPP payments at the age of 70 compared to age 65 (and for life!). Where else are you going to find inflation-protected, fixed income, rising by 8.4% per year for doing nothing?
  • When we hit age 65, we’ll already have other income streams: taxable dividend income, LIRA turned to LIF income, RRSP/RRIF withdrawals, and potentially, still, some small hobby or part-time work. Delaying CPP to age 70 will allow us to “smooth out taxes” where possible while getting the most from our CPP government benefits.

Q to Mark: How can I generate income from my retirement portfolio?

Via dividends of course!

Kidding, only a bit. 

But look at this chart? It’s a thing of beauty!

My Dividends March 2024

While dividends are great, they are just part of our total return.

Assuming all goes well in the coming years, we hope to start this drawdown order while working part-time.

“NRT” = Non-Registered (N) then RRSPs (R) then TFSAs (T).

What does that mean?

N – Regarding non-registered accounts – We intend to work part-time in our 50s and “live off dividends” for the most part. We will sell stocks over time too.  

R – Regarding RRSPs/RRIFs – In our 50s and 60s, we’re going to do something unconventional – we’ll start withdrawing assets, slowly, from our RRSPs. Our RRSPs might be gone in our 70s. 

T – Regarding TFSAs – We don’t intend to touch our TFSA assets in any early retirement. We will let our TFSA assets compound over time into our 70s. Then, in our 70s, with part-time work done, with most of our RRSP/RRIF assets likely gone, our plan is to live off income from mainly any government benefits (CPP and OAS) and tax-free TFSA income/withdrawals.

This is a great time to remind you I run a very Helpful Site called Cashflows & Portfolios that can help answer some very important retirement income planning and cashflow management questions.

Subscribe for free and hit me up with a comment on one of our case studies!

Cashflows and Portfolios Banner

Q to Mark: As you approach semi-retirement, are you going to change your portfolio? Own more ETFs? Own more stocks? Own more bonds? Other?

Well, I/we have no plans to own any bonds near-term for sure. 

However, I can see us doing the following more and more for 2025+ investing:

  1. Own more low-cost ETF XAW for diversification beyond Canadian borders.
  2. Increasing our cash position such that if we need/want to make any registered withdrawals from our RRSPs in particular, in the coming years, the cash will be there for that and we won’t need to sell any equities/stocks at all.
  3. Investing in more lower-yielding Canadian dividend paying stocks in our taxable accounts when we have the money to do so. 

Financial Independence Update Summary

As subscribers to this site may know for well over a decade now, we invest this way:

  1. We invest in many Canadian and some U.S. dividend paying stocks for ever growing dividend income. 
  2. We also invest in low-cost ETFs for extra diversification.

This “hybrid investing” approach has worked so well that I’m pleased to announce at least one of us…is starting to fulfill their semi-retirement dreams this month!!!

via GIPHY

More life-work balance.

Not the other way around…

My wife is now working three-days per week (for the coming months in 2024) with the potential to continue that arrangement in 2025. We hope so!

While I continue to work full-time for now including this summer, I do have my eyes on semi-retirement to catch up to my wife’s latest life-work plans. I will continue to assess that over the coming year….

Years ago, we had a plan:

  1. Kill the mortgage.
  2. Invest for income and growth until we didn’t need to save for retirement any longer.

#1 is done. 

#2 is in motion and under a transition. 

I’ll keep you posted how we navigate the dawn of semi-retirement / our transition year in the workplace. 

Change is good.

Mark

Related Financial Independence Reading

What are my Top-5 stocks that deliver income and growth? Read on.

This is how your part-time job can support your retirement dreams:

How your part-time job can support your retirement

How much do you need to retire on $6,000 per month? I have a clear answer:

How much do you need to retire on $6,000 per month?

What about $7,000 per month? This is another answer for that spending need:

How much do you need to retire on $7,000 per month?

Thanks for reading.

Mark

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

55 Responses to "Financial Independence Update"

    1. Great question. I actually looked at my RRSP holdings for the last 10+ years and since XAW was launched, in 2016, I’ve actually done fairly well vs. XAW even though I own XAW in my RRSP. I’ll answer that as part of a reader question of the week in the coming weeks since that’s a very good one. 🙂

      How is your investing coming along? I recall you’re mostly indexed funds?

      What’s your take on owning XAW long-term?

      Cheers,
      Mark

      Reply
  1. As always Mark, a very interesting post, with equally insightful comments.

    In your list of decumulation items you have “4. How do I avoid outliving my money?”, and although you have a catch-all in number 13, you might want to consider adding the opposite of number 4 i.e. X. How do I avoid my money outliving me?

    When I considered our answer to the proposed question, it concluded with a 12% increase, over inflation, of our after tax spending budget. Around 50% of that increase falls into the category of giving with a warm hand. I also now have a “traffic light” style notification built into my tracking sheet that currently states “Portfolio at age 85 is Too High!” and aside that, the projected amount in today’s value, reminding me frequently that we have room to increase our spending and gifting further.

    Reply
    1. Great point. I hope that’s not the case….with earlier retirement per se = we will be starting to spend the money sooner than later.

      Our projections both go to age 95, we are “fine” spending $70k-$75k per year with 3% inflation over time but it would be interesting to rerun some math for age 90 or even age 85. I suspect our spending would go up quite a bit from that, likely by $10k per year or so. Our projections also do not have us moving or downsizing even further although anything is possible over time. We like our 2-bed, 2-bath condo and we have about 1,200 sq. ft inside and more (250+ sq. ft) outside so that’s a nice size for us overall approaching 1,500 sq. ft total.

      If we can increase our spending and gifting as we age, even better. I hope we can do both.

      I appreciate your comment,
      Mark

      Reply
    2. Lloyd (64, retired at 55) · Edit

      “How do I avoid my money outliving me?”

      For us, this has no consideration in any plan or thoughts we may have. It’s just not something we have any level of concern over. I suspect this is a hugely personal decision for many.

      Having said that, we have increased our philanthropic endeavours as we aged and the likelihood of using all the financial assets decreases.

      Granted I have occasionally joked about bouncing the cheque to the undertaker though. 🙂

      Reply
  2. Hi Mark:

    Nice to know about your progress towards semi-retirement / at your own terms.

    You noted TFSAs – cash available to be strategic to buy more equities when those assets go on sale. What magnitude of uninvested cash does one have in there and where do you park the cash while in the waiting?

    Rick

    Reply
    1. Thanks very much, Rick.

      Our cash balance inside our TFSAs isn’t that high to be honest, a few $k only across both TFSAs, so I’m not too concerned about that near-term and if I don’t put that money into a money market fund or ISA product near-term, I will likely just get some more XAW there.

      You? What do you do inside your TFSAs?
      Mark

      Reply
    1. Ah, very kind Zasid!
      I’m just trying to do my best: save, invest and then live my life to be honest.
      I do appreciate the comments and feedback from everyone on this site including you.

      All my best back,
      Mark

      Reply
  3. Lloyd (64, retired at 55) · Edit

    You’ve done well Mark. I have to keep reminding myself that you are still young. 🙂

    Looking at the Cash Flow projection chart, is it safe to infer that the “Pension Plans” are not indexed? And also with that chart, do you run projections for an early demise of one of the participants? I’m guessing the “Pension Plans” have 100% survivor benefits based on the last year depiction so it would only be the “Government Benefits” that get impacted.

    I wish I had done more real planning in the early years versus just shoveling more into the accounts each year. It worked out well enough but it was luck and circumstance versus foresight.

    Reply
    1. Thanks very much, Lloyd. Newsletter on this one will go out tomorrow to everyone else. 🙂

      Yes, still young-ish.

      My DB pension is partially indexed, but it really depends on CPI and then a rule kicks-in. I prefer to leave it out to be conservative.

      I also use 5% RoR as a bit conservative since who knows what the financial future holds…even though I’ve been getting closer to 7-8% over the last decade.

      I do…re: early demise. 1. My wife will get 66% of my DB pension if/when I pass and 2. she will also get some survivor benefits from CPP as well. Her lifestyle might be reduced based on both of those, a bit, but not by leaps and bounds.

      We’ll continue to max out our TFSAs in 2025, that’s the plan, but not sure how much more RRSP investing we need to do to be honest – hence the transition happening this year.

      I look forward to keeping you updated and I enjoy your updates too.
      Mark

      Reply
      1. CJ (57, will retire at 59) · Edit

        Hi,
        Somewhat related to our discussion. What would we do without our modern day spreadsheet software to track this stuff? I’ve been using Excel for longer than I care to admit and would be lost without it. Sorry for being off topic.
        CJ

        Reply
        1. How true, right?
          I’ve been using Excel for years for some of our stuff and although my spreadsheets are far from automated and detailed, they do the job for me.

          Are you an Excel whiz, CJ?

          Cheers,
          Mark

          Reply
  4. Hi Mark,
    Something I noticed in your discussion above that I thought I should check for our own situation. You said: “OAS does not offer survivorship benefits. CPP does. Unlike the CPP, OAS payments do not transfer over to a surviving spouse. If the surviving spouse is also receiving OAS, that continues; however, the payments being made to the deceased spouse stop.”

    If both spouses worked and contributed to CPP, as I understand it (and could be wrong): There will be no CPP survivor benefits to surviving spouse if the surviving spouse is already receiving the maximum CPP pension. If they are receiving less, then they will receive an amount that at most will bring the total up to the max retirement pension.

    So you are correct in that CPP does include survivor benefits. But they could be quite limited.

    BTW, if applicable, one spouse can claim child rearing credit and thereby increase CPP payments.

    Reply
  5. Love your updates Mark!
    Can you elaborate on your recent decision to change your mind on the delayed pension versus commuted value? I assume the commuted value is way down due to interest rates and that has swayed your decision, but has anything else factored in? I’m in the same boat with a coming decision on delayed pension versus commuted value… it just saddens me when I look at the delayed pension value and know that it wouldn’t be adjusted for inflation until I start to receive it at 60 (22 years from now).

    Reply
    1. Thanks, Blair! Yes, definitely part of it: higher interest rates now = lower commuted value.

      I’m now also of the mindset that as I age, it might be great to avoid being so hands on with my portfolio. The ability to have a pension + CPP + OAS = three income streams I don’t need to think about is very appealing. There are also survivorship benefits for my wife which factors into the decision as well.

      Thoughts?
      https://www.myownadvisor.ca/should-i-take-the-commuted-value-of-my-pension/

      What are you leaning on doing?
      Mark

      Reply
      1. Re. “I’m now also of the mindset that as I age, it might be great to avoid being so hands on with my portfolio.”

        Excellent thinking, and often an ignored consideration. Once we start getting into our most senior years we should have already planned for our very natural drop in cognitive functioning. An illness, such as a stroke can bring this on overnight. For those with a partner, the question is, can they manage the portfolio without you!

        Also, it’s much easier to be scammed out of your $500,000 TFSA assets, than it is your regular pension income – just watch a few episodes of CBC’s Marketplace on scams pulled on elderly people – that could be you or your partner one day, but for sure, if you have money, you ARE a target!

        Reply
        1. Thanks, Bob.

          I figure it’s a “big bond” = DB pension, that I’ve referenced before and because of that small DB pension I have, I take on my equity risk with my personal portfolio (almost 100% stocks/equities) and to your point, as I age, I might not want to be as hands-on with things in my 70s as I am now just starting my 50s. At least for my wife, there are survivorship benefits as well…

          Very sad how much, how often and who is being scammed these days. It’s only going to get worse I suspect.

          Any plans for investing in 2024? Staying the course?
          Mark

          Reply
          1. We’re in our fourth year of retirement (my wife’s 7th) and I’ve learned a lot. The most important lesson being the value of a steady income source, evenly split for minimizing tax, plus a good backup plan; kinda like a seat-belt – when your head is about to hit the windshield, it’s too late!

            My commuted value was just over $1 million, but, and it’s a big But, $610K of it had to be paid out as cash! With no RRSP room, I would have made a very generous contribution to CRA, especially as my marginal rate was already at 50% with all my final payouts. I’d already decided I wasn’t commuting the pension before discovering this bombshell. It’s also worth noting that a DB income can be split with your spouse from age 55.

            So, 50% of our income is from the DB pension, 20% from dividends, 5-10% from various cashbacks/rewards and occasional consultancy work, and the rest is from selling RRSP/RRIF ETFs. The investment strategy is steady as she goes. Keeping it simple, even though I know I MIGHT be able to squeeze out a little more. This is where we have things right now, and it’s well worth the peace of mind.

            Should the equity markets crash, a combination of our cash wedge + dividends (less 15%) will mean we don’t have to sell any equity for 2.5 years. Then we could shift to bonds for another 2.5 years. My spreadsheet looks five years ahead and tells me when I need to top up the cash or bonds, or sell bonds too!

            In nine more years, the DB pension + government pensions should cover all of our expenses, with a little room to spare.

            Reply
            1. Bob, outstanding – congrats on your retirement planning and retirement success!

              That’s a HUGE commuted value – mine is nowhere even close to that but I’m not likely to take commuted value anyhow.

              You have a few income sources, which is great, and the most successful retirees we see at Cashflows & Portfolios are exactly those folks that have multiple, dependable, income streams that do not rely heavily on any particular withdrawal strategy.

              The ability to have a cash wedge, rely on it if needed, is undoutedly giving you a great “sleep at night” factor and something I’ve written about and building myself. By the middle of 2024, (May/June?) we will have our own 1-year’s worth of key expenses saved in cash/cash ETFs across our portfolio including my corporation saved up to buffer anything. We want that as we enter part-time work or work on own terms. This way, if we need $30k, $40k or other, we don’t even blink – it’s there.

              We are very likely to build that up to about 2-year’s worth before full-time retirement but we’ll see. I need to see how semi-retirement goes first! 🙂

              You’re in great, sound, financial shape. So many retirees I read about and hear from (via email) on this site have done so well. Kudos.
              Mark

              Reply
      2. I think I am still team commuted value, even though I have seen a 46% reduction in the value of my lump sum.
        Commuted value $324,093
        Delayed pension $2,856/month starting at 60

        If I invest the commuted value in dividend paying stocks with an initial yield of 5% and annual dividend growth of 5% (not an unreasonable ask) for 22 years, at the time I would be eligible for my pension this would be paying approx. $3,760/month in dividends and I would have collected approx. $624,000 over that period (not even factoring in dividend reinvestment and any capital appreciation). I suppose if I want to be hands off at any point I could use some of it to buy an annuity.

        I do appreciate the approach of using one’s pension like the “bond” component of their portfolio.
        Having the ability to buy into the health plan is also an extra consideration to keep the pension, but again, not being able to use the health plan for 22 years is kind of a buzz kill.

        Reply
        1. Nice to hear back on this, Blair.

          I got my commuted value after much teeth-pulling to be honest, and interestingly enough, my delayed pension compared to yours is higher at age 65 but my commuted value is lower. Go figure. 🙂 Maybe they did the math wrong. Ha.

          So, based on that, I’m not sure that works out well for me but it could work out well for you!!

          I think if my commuted value was higher, I would have a better decision to make – I will get them to do the math again if/when I leave work of course.

          Totally on the buzz kill but at least you have the option! Keep me posted on your decision. Always great to see what others do in such situations.
          Mark

          Reply
  6. Hi Mark, Im glad to see you doing well.
    I have been checking up from time to time and remember first coming here 10 years ago and happy for your progress and journey.
    The compounding is real and it’s a powerful dividend snowball now.
    Keep up the great work and lets continue to be the best we can be.
    I will remain in the shadows but your site and Tawcan’s are the 2 I really enjoy.

    Reply
    1. Very kind – very nice to hear from you.

      Yes, the snowballing effect is real – just trying to stay out of my own way now! 😉

      I appreciate your note and comment. How is your investing journey these days?
      Mark

      Reply
  7. Hi Mark: I like all your points. Not having wheels until I was 34 made it easy to save money. I remember once we were down at my brother’s, and I was down in the den playing with his kids and dad was up in the living room talking to my brother and dad said that the stock market was pretty good and that I was doing well by it. He said “Ya, but he isn’t doing that well”. Dad said that I had $232,000.00. This made my brother sit up and take notice. This was in 1982. Also, I think you will find that you don’t need as much money when you retire if you work it right. I had almost $400,000.00 on the nose when I was laid off in Jan. of ’92. ($400,560.00). By the second week of Sept.1997 I had gone over the one million mark. I had to laugh when I saw Norman Rothery’s Monster Dividend portfolio. It took off like a rocket but started at 1990 and I found that part rather flat. As you can see above, I found the ’90s very rewarding. I say this because in the summer I used to golf twice a week and, in the winter, I would bowl twice a week and curl once a week plus bonspiels. Also, we would travel to the Caribbean in the late fall or winter for a week to ten days. Once we went to Hawaii in the spring for two weeks. We also did river cruises in Europe. The good thing about being retired is you can do what you want when you want. I remember once I got out of the GE early to go over to get my license plate sticker but when I got to the door it was locked as it appears they quit at 4:30PM also. Now I can do it any time I want. If you keep investing, I’m sure you will have enough to live on and if you need something to do, I’m sure your wife will have a to do list for you.

    Reply
  8. Why wouldn’t you withdraw your money out of the TFSA first rather than your RRSP? It’s all non-taxable and you can replenish it every January using the funds from RRIF (if you are 71+). I’m leaning strongly in that direction but haven’t made a final decision.

    Greg

    Reply
    1. That is something I have considered Greg, but I’m also concerned about taxation long-term as I age. Keeping pension income alive, and CPP income, with OAS income, and RRSP/RRIF income is all taxed highly vs. TFSA not-taxed at all as I age. So, I prefer to have less taxation as I get older for my wife and I since I don’t see taxation coming down. The math proves for me that keeping the TFSA “near the end” works.

      You might also want to read about this:
      https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/

      Thoughts?
      Mark

      Reply
  9. For me, it’s actually quite simple: If you need CPP/OAS, take it. If you don’t, delay it.
    In my case, CPP/OAS are the only fixed income “investments” I have, so want to make sure there is a decent cushion on top of other investments that rise and fall. So I will delay!

    Reply
  10. Great info not on this article but I find most articles informative and somewhat Applicable to our situation thank you. One thing you should research and be prepared for is our generation will not get OAS at 65 it’s been moved to 67 starting in I think 2029. Have a look.

    Reply
    1. Thanks Stu. No, OAS is at age 65 now, but to your point – eligibility for the OAS pension and the GIS benefit will, over a six-year period, gradually increase from the age of 65 to 67, and be fully implemented by January 2029. This change affects people born on April 1, 1958 or later. The government will do what the government will do!

      Reply
      1. That OAS change was proposed by the Harper Conservatives in a 2012 budget and scrapped by the Trudeau Liberals in 2016. At this point we are back to age 65 for everyone but who knows what future governments will do. I am one of those born in 1962 so have followed this closely.

        Reply
  11. I am one of the few who aren’t DIY investors. I have my investments run by Betterment, Personal Capital and Vanguard. They do the rebalancing, tax loss harvesting, etc. Betterment and Vanguard use Index ETF’s. Personal Capital uses individual stocks evenly weighted across a whole bunch of sectors. They are higher fee than the others at 0.79% for million dollar plus accounts. But I like having some diversity in investment approach. Betterment is like 0.14% and Vanguard is around 0.3%. I’m too lazy and don’t want to make a costly careless mistake so I’m willing to pay some fees. Plus I have surplus of invested assets compared to what we need. Social Security uses the 35 highest paid years of work in their benefit calcs. I started my first year at the maximum contribution and exceeded the amount that is taxable every year for 38 years. So that results in the maximum benefit. My wife worked fewer years at lower pay so while she is taking hers now she will switch to half of mine when I start taking my benefit. (Not half of what I’ll get at 70 but half of what I would have gotten at FRA) I did have a pretty highly paid job as a chemical engineer and later as a corporate executive. I admit we live pretty large on six figures but we only spent a fraction of my pay, maybe 25% of it my last year. We also always gave more than 10% of our gross to nonprofits. I could have retired much earlier than I did but I liked my job a lot, until I didn’t and then retired.

    Reply
    1. That’s awesome. Yes, I recall SS uses the 35 highest paid years of work so if you’re at the max for those years – amazing!!

      No interest in becoming DIY? I suppose Betterment does a fine job in keeping you in low-cost funds 🙂 Nothing wrong with paying for investing support when there is value-added to the investor.

      Cheers,
      Mark

      Reply
  12. Congratulations Mark. The most valuable take away is that you have created options for your financial future.

    Re: Commuting Pension: I think in your case that is a smart move. You have the knowledge and experience to handle it where most people don’t. I didn’t commute (came close), but I could qualify for a pension at 55. Not sure it’s worth waiting until 65 and the penalties are heavy for taking it early. If you can manage your wife’s LIRA why couldn’t you also manage your own? (rhetorical) Of course you can.

    Re: CPP I love presenting alternative views – not to create discourse but discussion. Glad you said you could change your answer when to take CPP. These comments are on taking CPP at 65 vs 70 using $714 CPP average at age 65, but the same logic holds true for any age combination. At least I hope it’s logical!

    Thought 1 – If you both take CPP at 65 that represents 20 763/75 000 = 0.277 27.7% of your income is bond like inflation protected going forward and takes some of the strain off of personal assets. If you delay you have to create the same fixed income portion from you personal assets for another five years. Is it not better to create more fixed income earlier then later in retirement?

    Thought 2 – I think the more important metric is how do you make up the potential income lost by taking CPP early? Do you really need too? The cross over point (65 vs 70) is in your 79th year. If you live to 85 you leave about 30K on table. If you live to 90 you leave about 60K on the table.
    If you take just a portion of your monthly CPP and invest it you can close that gap significantly. $200 invested monthly at 4.5% should create about 29K in 20 years (age 85) and 49K in 30 years (age 90). That almost wipes out the shortfalls and I would suggest makes them insignificant. You don’t have to invest to beat the the 8.4% annual CPP return, you have to invest to create enough income to make up the shortfall from age 79 to death.
    I think that everyone should consider the delay CPP strategy. When it comes time to make that decision get as accurate numbers as possible and know how much you could potentially leave on the table.

    Reply
    1. Thanks Gruff. It’s great to see that financial flexibility shine through in my posts – it’s exactly what I’ve been working so hard for all these years.

      We hope to have a post on Cashflows & Portfolios coming soon about CPP. It’s not an easy decision. I believe, and the math will prove this of course, but before taxes are considered I think you have to earn something like 7-8% YoY / every year, if taking CPP at age 60 or age 65 to “catch up” to what your fixed income, inflation-protected income would be at age 70.

      Of course, to your point, the decision in taking CPP I believe comes down to two very important factors if known:
      1. Do you need the money, to live from, and/or
      2. How long might you expect to live?

      If you need #1 – then you can’t take CPP and invest it, you need the money to live from first and foremost.
      #2 is a massive wildcard but I totally get the break-even stuff 🙂

      I’m of the mindset that you should really consider deferring CPP to age 70 unless you need the income for living expenses. There is no other way that I know of whereby you can get a 8.4% annual income increase on fixed income by deferring CPP.

      When it comes to my DB pension, I don’t think I have any choice at my workplace. I must commute if I leave my employer before age 55 in my case so I figure that’s a decision that might already be made for me!! We’ll see.

      When you are taking CPP? 🙂
      Mark

      Reply
      1. I am taking CPP at 60. Cross over 60 vs 65 is in my 76th year. Money left on table at age 80 death is $17K, age 90 is $57K. I plan to take a portion of my CPP and invest in TFSA to close that gap. Our target income at age 60 will be >80K and almost 85% of that comes from inflation protected fixed income type assets like pensions.

        My factors became:
        1. When am I the mostly likely to make the best use of CPP money?
        2. How much money was I willing to leave on the table?
        3. Wife is older (5 years)
        4. We spend less as we age, not more. I want to spend more early in retirement. ( the go go years)
        5. Seen too many people die young (parent, cousin, students, colleagues, friends)
        6. I stopped contributing to CPP mid 50’s and had used up all my drop out years.
        7. We have a secure DB pension
        8. Taking CPP at 60 gives a 14% boost to income.
        9. I’ll pay less tax on the money when I can split CPP early and more tax when one of us passes. We were a single income family. Two people pay substantially less tax on 80K income vs a single person.
        10. I still have a mortgage. Even though we have enough income to meet living expenses in retirement, I would like to lower the debt over time.

        Had Doug run my numbers 60 vs 65. I never had any intention of delaying CPP to 70.
        Keep up the fantastic work.

        Reply
        1. Doug is a sharp guy. I need to have him back on my site 🙂

          When I think of taking CPP at age 60 vs. 65 vs. 70, I think of the following:

          1. Do you need the money to support living expenses? (If so, must take!)… If you’re going to invest the money, that’s good, but that means you’ll need to earn at least 7-8% per year on average to get ahead.

          2. What is your current health, family health history or any disabilities to work through? (If concerns to fight longevity, defer. If you believe you will die in your 70s or even early 80s, take the money.)

          The crossover point sounds about right.
          https://www.myownadvisor.ca/when-to-take-your-canada-pension-plan-benefit/

          “If you believe your genes are good, and you have a strong chance to live beyond age 85, then depending if you need the cash it may be beneficial to defer CPP until age 70. This is only if you can afford to defer the income until age 70.
          If not, if you can’t afford to defer and you need the money of course then take CPP when you can at age 60.”

          Investing your CPP income is a totally different game since you’re taking bond-like income and converting that to more % equities. So, it can make sense to take CPP and invest the money but you need to make a decent return. I suspect a secure pension has made this decision an easy one for you – which is awesome of course my friend!

          Reply
          1. Trust me the decision was not easy and only time will determine if it was the best decision! Having the DB pension does change the thought process.

            If you need the money absolutely take it, but what if you don’t?

            Investing all or part of the CPP does move a portion from bond like income to equities exposing some of it to market risk. You are however still receiving bond like income for the rest of your life, perhaps just a smaller amount. That somewhat negates the longevity risk (outliving your money) advantage. By delaying from age 60 to 70 are you now not taking on the unpredictability of life risk before collecting CPP? That’s 10 years of avoiding the wife not murdering me in my sleep because I’m home so much.

            Depending what investment vehicle I use also determines the amount of equity exposure. I don’t believe you need 7-8% annual return YOY to make up the shortfall. I think it’s much lower.

            I’ll refer to my earlier example using average CPP at 65 of $714/month. I also used the taxtips CPP calculator.
            Assuming a 15% tax deduction that would leave $607 to invest.
            If I die at 90 and take CPP at 60 I leave 140K behind, take CPP at 65 and that is 60K left behind vs delaying and taking CPP at 70.
            If I invest all $607 of the after tax money monthly I only need an average annual return of 3.1% to make up the 140K shortfall over 30 years. This might be because the advantage of delaying stops at age 70 yet I continue to feed the investment pile for an additional 20 years. Lots of investment instruments can beat 3.1%.
            If I invest half of the CPP ($300), I then only need 5.1% annualized return over 30 years.

            I recognize that not everyone has the privilege of being able to be flexible with what to do with CPP. I also appreciate the validity of delaying CPP by using your personal assets, especially if you have large RRSP’s. I’m just not convinced that delaying CPP to age 70 is that big of an advantage. Life is just way to unpredictable.

            As always personal finance is personal. I learned that from you.
            With respect – Gruff

            Reply
            1. Ha, I almost spit out my beer when I read this!
              “That’s 10 years of avoiding the wife not murdering me in my sleep because I’m home so much.”

              LOL

              You might be interested in this – just published today thanks to your inputs 🙂
              https://www.cashflowsandportfolios.com/when-is-the-best-time-to-start-collecting-cpp/

              Of course, we made a number of assumptions but you can see that delay does have some advantages for sure.

              You bet my friend, personal finance is personal. Time will tell if I too make the right decision. Heck, I might just take CPP at the traditional age of 65 to “have fun”. I’ve earned it 🙂

              Much respect,
              Mark

              Reply
            2. That is both a humorous post, and fresh way to look at this. I always say, it’s usually quite easy to create a simple savings portfolio, in whatever way you are personally comfortable. In the end if one persons strategy gets them 2% more than another’s, it really isn’t the end of the world. However IMO, solid tax strategy going into retirement, or thinking out of the box like you have here, is even more important. If you have a nice sized portfolio and you don’t start dealing with it a few years pre retirement, you could lose more money then you have to, to taxes, just from ignorance of tax laws and legal strategies that you may miss utilizing.

              Reply
  13. Great post as always Mark. Sounds like we’re on a similar trajectory… you’re aiming for 2024 while we’re aiming for 2025. Having DB and DC pensions from work will make the planning and transition a bit easier.

    It would certainly be nice to get the $10k TFSA contribution limit again but I don’t see that ever happening.

    What’s your plan with the 1-year worth of expense saving? Put the money in a high savings account or are you planning to utilize the GIC ladder?

    Reply
    1. Thanks very much my friend. We’re trending 🙂

      Ya, I don’t think we’ll see a TFSA contribution bump to that, they didn’t even increase it by inflation this year like they said they would.
      The government will do what the government will do!!

      The plan for 1-years’ worth of cash savings is just that – keep that $$ in my corporation or in something like EQ Bank and draw on if/when needed. Not entirely sure what account I will use, could be a mix of personal and corporation cash but it will be cash, no GICs, no GIC-ladder, no bonds, no bond ETFs, etc. since I don’t want to worry about redemptions or other. Simply, if I want the cash for an emergency or other during my part-time life, I have it.

      Thoughts?

      Reply
      1. Hi Mark,
        We put our emergency cash in a one-year redeemable GIC. Not the best interest, but a bit while we wait for the sky to fall. By the way, I have been retired for the past 10 years and have only occasionally needed to dip into this cash, and I have been able to replace it. I have a practice of adding a small monthly amount to our emergency stash, and it is amazing how quickly that small amount builds. For most of our married lives, we had only one income, with a modest DB pension. I had no alternative but to take CPP and retire early because of poor health at the time. The good news is that my health has improved greatly since having more time to exercise and prepare healthy meals in retirement, so I don’t regret the financial decisions I made.

        Reply
        1. Awesome, Jo. I enjoyed reading this part:
          “The good news is that my health has improved greatly since having more time to exercise and prepare healthy meals in retirement, so I don’t regret the financial decisions I made.”

          Well done…

          As for the 1-year GIC, I think that’s a great idea and every bit of interest can be valuable when it comes to cash/savings set aside.

          Kudos,
          Mark

          Reply
      2. I have our 1 year cash in a HISA – able to earn 4-5% through Wealthsimple. I think EQBank also has a high rate account too. I used to have it there.

        Reply
        1. Excellent. We have a mix of cash in ISAs, money market funds inside RRSPs, use of CBIL ETF, and more.

          It will be great to have, later this year, 1-years’ worth of expenses in cash across various accounts ready to go as needed to enter 2025 with.

          Even with interest rates slowly coming down, I believe some cash on hand is important.

          Mark

          Reply
  14. Great plan, not unlike ours but yours is more sophisticated and I suspect also better than mine. Upon retirement we withdrew zero income from our portfolio because I could do about one day a week of light consulting to fund our $100K pre-tax annual spending. That worked great for the first five years and we stayed in balance with our income and spending. Starting this year I’m fully retired and we have Vanguard send us $5,000 each month from my IRA and Personal Capital send us $4,000 from our taxable brokerage account. So far that’s too much money so we may need to trim it back. In four years we’ll cut it back a bunch because our Social Security benefits will start at $72,000 a year (in 2021 dollars). We’ll then be at a less than one percent withdrawal rate. I haven’t done any tax optimization but do plan to do some ROTH conversions starting next year when my earned income will be very low.

    Reply
    1. Thanks Steve!

      That’s impressive to have any $100K pre-tax annual spending.

      Are you using exclusively broad-market funds or ETFs to help keep growth alive in retirement? VTI/VOO or other?

      I’m way too young for any social security/old age security in Canada so I will need to rely on my portfolio to fund semi-retirement for the next 20 years or thereabouts.

      If your Social Security benefits are $72,000 per year, my goodness, that is good. What did you do to earn that?? 🙂 I suspect you would have had to have a high-paying job for many years for that since SS is a combination of max. income to a threshold and years of high income service.

      Kudos 🙂
      Mark

      Reply

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