How much do you need to live off dividends?
Yes, investing for income has risks but this doesn’t invalidate many who might desire to live off dividends or distributions to some extent as part of their retirement income plan.
How much do you need to live off dividends?
This post will share some perspectives.
How much do you need to live off dividends?
As any DIY investor who has decades of investing experience will attest, history has consistently demonstrated the critical role that dividends (or distributions) and reinvesting those dividends and distributions can play as part of total return.
Stock market returns can be generally distilled down to three main components, according to the huge asset manager BlackRock who agrees with yours truly:
- dividend yield,
- dividend growth, and of potentially higher importance,
- the change in stock price over time.
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With these features in mind, some investors are more focused on dividends while others seek capital appreciation.
Personally, I’ve always liked a blend of both as a “hybrid investor” – owning stocks that pay dividends, those same stocks offer growth potential, and when in doubt I’ve always owned Exchange Traded Funds (ETFs) that focus on delivering higher prices over time along with some minor income via distributions too.
So, I can summarize things this way:
- Dividends can be a path to obtain income, helping to add stability, and supporting long-term compounding.
- Capital appreciation is always good, offering upside – though often with higher price volatility, and so,
- Total return blends these components.
Unquestionably, dividends can be helpful but are they more important than company earnings?
I mean, you need earnings to pay dividends and then the Board of Directors can decide to pay out those earnings to shareholders like you and me…
More earnings and higher earnings over time usually means more dividends paid out – depending on the company direction. You can see how this is good for the DIY dividend investor who has a strong bias to dividend stocks.
But the same DIY investor can also just sell some of their favourite stocks or ETFs too, to generate income.
Consider the graphic below from CIBC:
I believe the real challenge lies in trying to determine when strong earnings are going to occur – when to sell your stocks and ETFs at higher prices for income – which brings us back to the volatility that some DIY investors (including those in retirement) simply don’t care for.
Earnings are less stable than dividends. But earnings drive prices/price appreciation and the abilitiy to pay dividends.
This makes dividends are part of total return very important but not everything.
How much do you need to live off dividends?
As someone who has taken a hybrid approach to investing for almost 20 years now, I think I have some wisdom to share that this hybrid approach can work well and work wonders over time.
We realized financial independence in 2024.
My wife retired in 2025 because we became financially independent the year before.
I am retiring this year, in a few more weeks, in 2026.
To answer today’s question for you, I feel you must consider the mix of individual stocks (or ETFs) that generate dividends or distributions across your portfolio and determine if that income stream is sufficient to meet your annual expenses.
Ideally, I guess to be really safe as part of any retirement income planning, net income generated by the portfolio (after taxes) should be > than expenses with some buffer, if you want to live off just dividends and distributions. That might take a large portfolio value. (Many My Own Advisor (MOA) readers have just that though – they have saved and invested diligently over many years to amass a few milllion dollars in their stock portfolios. Pretty amazing to read those comments.)
Say you have a $1.5 million investment portfolio at age 55 and no debt. Say that portfolio has an overall yield of 5% in a mix of Canadian stocks (banks, pipelines, utilities and telcos, among other sectors). 5% of $1.5 million generates $75,000 pre-tax. A great start to retirement income planning no doubt but that $75,000 pre-tax income may or may not meet your desired annual spending needs.
Beyond that, the 5% portfolio yield in this brief example is not static and therefore subject to change – and if you focus on just the current yield your portfolio generates you’re also missing out on the other two components of total return that could be used for retirement income planning: dividend growth and price appreciation.
Equities are growth assets – companies tend to grow their revenues, profits and, yes, earnings with time. Earnings can, you guessed it, reward shareholders with higher dividend payments. A good example was just this week: oil and gas giant Canadian Natural Resources hiked their dividend by 6%. (Disclosure: I remain a shareholder current to the time of this post and I’ve been buying and holding more CNQ for many years now.)
Yet dividend growth is never guaranteed.
Companies (example: see BCE in 2025, a former dividend darling) can be forced to cut their dividend at times if their cash flows cannot sustain shareholder payout obligations. Telus (T) might be next this year…we shall see.
The third element of an equity market’s return is the change in valuation that occurs over a holding period. Established DIY investors will know that near-term price volatility is the price you pay for long-term gains. Equities are volatile. Price swings will happen due to irrational buying and selling. This investor sentiment constantly drives fear and greed, hope and despair in stock market prices.
Over long investing periods however, we all know the rules: irrational investor behaviour settles, it normalizes, such that in the long run prices rise and often quite a bit.
How much do you need to live off dividends?
Dividends and distributions earned from an income-oriented approach continue to support a big part of my investing discipline: owning many Canadian stocks keep me engaged and inspired to invest. Often to buy more.
Simply put, expected returns = current market prices + expected future cash flows.
As perfectly rational investors, every DIY investor would own stocks, thousands of them, in absence of whether or not they pay a dividend. That’s precisely the mantra from index investors. To be agnostic on any one stock.
But we don’t live life in a perfectly rational investing world and if anything, index investing is creating some opportunities over time. If everyone bought only index funds, there would be no more price discovery, where prices would reflect real value or real performance. The market would actually become more inefficient creating artificial bubbles in index-heavy stocks.
Indexing has benefits that I have always appreciated but I like getting paid without doing anything and I like the fact that a Board of Directors makes the dividend decision for me/us usually every quarter.
In our Financial Independence Budget, I shared our base expenses with some minor discretionary spending are in the following range:
“Including “the basics” for spending on things like food, shelter and clothing and some minor discretionary spending like travel / day trips I believe our total annual retirement spending needs will be in the range of $70,000 to $75,000 per year after-tax increasing year-over-year with inflation. In that spending assumption, we’ve also included a 10% higher spending buffer just in case. A margin for error if you will to spend closer to $85,000 if we want.”
Our mix of individual stocks and low-cost ETFs delivers dividends and distribution income every year close to our after-tax base expenses.
If our expenses were lower, a lower portfolio value could have accelerated our path to financial independence. If our expenses were higher than the above, we probably would have worked a few more years to save and invest more before retirement.
How much you need to have invested to live off dividends and distributions will be personal.
How much you need to have invested to live off your portfolio will depend on many factors: your portfolio yield to cover your unique expenses, your mix of stocks / equities that deliver passive income, the stability of that portfolio to generate consistent income, the dividend growth that should occur from your portfolio to match inflation/expenses, your tax rate including where you hold income-oriented assets, and other factors that will be unique to you.
There is no one answer to this question but I do believe the answer is rooted in determining your annual after-tax expenses.
I/we remain a dividend and ETF investors since we believe our hybrid mix offers everything we need for retirement income in 2026 and beyond:
- Cashflow: dividends are real, there is income flowing in without the need to sell holdings, personally, since the Board of Directors does this forced sale for us.
- Growth: dividends can be reinvested or not, to buy more shares, potentially compounding returns over time.
- Stability: companies that consistently pay and grow dividends are often seen as financially healthy and resilient during market downturns – it offers some income comfort knowing our mix of stocks and ETFs will pay us in some tough times ahead.
A hyper-focused dividend only approach has never been me because higher-yield dividend-only stocks will always have some risks and I’ve know for 20+ years that price gains matter too. I wouldn’t be retiring without those gains.
To me/for us, on the cusp of complete retirement in our early 50s (far younger than most…) living off dividends is not about high-yield but instead directly aligned to owning a collection of stocks and ETFs that offer a durable and rising income stream in all types of stock market climates.
It will be interesting to see how a dream about living off dividends and distributions close to 20 years ago becomes a real-world reality this year.
Mark
I have a question about the cash wedge of $50,000. If you were to say, use $25,000 towards a car or home renovations (I hope I have the purpose correct), how do you replenish the wedge back to $50,000. after said purchase?
Personally, if I have a $25k capital expense, I would try and plan for that in advance, have it 1-2 years’ out when I need the money.
We keep a standing emergency fund / break-glass-in case of emergency at $10k. Any capital expenses such as home reno or car wouldn’t be an emergency for us.
In our case, if I need that $25k in 2027, I would likely sell some equities in 2026, have that set aside, and let equities ride as part of my bucket approach. We have a few big trips planned for 2029-2030 so we’re planning to sell some equities in 2027? TBC for that. Otherwise, letting all dividends and distributions flow-in as cash and letting the cash build up for future expenses.
That’s our approach – try to plan 1-2 years in advance of what we need the money.
Mark
Congrats Mark on the upcoming retirement! How do you feel about retiring in an environment where equity valuations are so high? Having a portfolio that generates enough dividend income to cover expenses would give me peace of mind. Knowing that even with a correction the dividend income allows you to not have to sell equities during a period of depressed prices.
Joe
Thanks, Joe!
Ideally, cashflow from the portfolio will be greater than our expenses but that’s going to take a LOT of capital to get there so I considered myself financially independent when our annual investment income (total return) exceeded our expenses. I used a 5% return rate for that.
https://www.myownadvisor.ca/faqs/
This way, whether that was 5% yield or 5% total return, we figured we’d be OK!
In terms of retiring now, well, I will keep a cash wedge in place for near-term spending so if the market drops -10% or so in the coming year, it won’t impact our spending plans.
https://www.myownadvisor.ca/the-cash-wedge-managing-market-volatility/
Thoughts?
Mark
Thanks or the reply Mark. I hope to make the call on early retirement soon, so I’ve been doing lots of reading on the subject. I’ll highlight some of the key points I’ve taken away. I’d love to hear thoughts from yourself or other readers.
– The Shiller CAPE ratio is near an all time high. This historically has meant low returns for the markets in the coming years. For anyone who wants to read more on the subject. Karsten Jeske has done some excellent work on the subject on his blog earlyretirementnow.com.
– I’m considering employing some of the measures below to guard against sequence of returns risk.
– I have been reducing my equity exposure in the years leading up to retirement. I’m currently at a 60/40 stock/bond ratio.
– I’ll raise the equity exposure by 1% a year in the first 10 years of retirement to get back to a 70/30 mix.(Reverse glide path)
– I have set guard rails for withdrawal rates. A base rate, safe rate and max rate. I’ll start with a base withdrawal rate. If the markets start to tank, I’ll revert to the safe rate.
-Similar to your comments. The yield on my portfolio does cover my expenses. For this reason I’m a little less concerned about a cash bucket. I’ll use my bonds if necessary.
– Finally as an early retiree I’ll likely find a stress free p/t job once I start to get bored.
Some folks may think I’m way too conservative. I would rather air on the side of caution and sleep better at night during retirement. I’ve had enough stress and worry during my working career. Thanks again for providing such a great resource for canadian financial information.
Cheers,
Joe
All sounds very prudent, a few thoughts!!
-Yes, markets are at all-time highs, etc. but you can continue to buy stocks at all-time highs if your holding period is measured in many years. That’s my plan, buy more when I can.
-Yes, Karsten Jeske is great and I have referenced his work many times over the years here.
-Sequence of returns risks can be mitigated via the following: 1. be flexible, 2. having more cash wedge earlier in retirement, 3. having enough cashflow delivered from the portfolio to cover expenses (if possible), 4. using equity glide path, 5. use guardrails/lower withdrawal rate/use variable percentage withdrawal rates for the first 3-5 years.
Worse case, multi-year bear market, work at something even a few hours part-time. 🙂
Like you, I prefer to use a mix of those risk migitation tools.
In a really terrible set of years, I know the yield from our portfolio is almost covering all expenses – so that’s helpful for us.
https://www.myownadvisor.ca/january-2026-dividend-income-update/
I appreciate your very thoughtful comments and kind words.
Mark
Thanks Mark. I’m glad to hear were on the same page.
Living off Dividends vs total return is fun to debate, and I don’t think there is a magic answer that works for everyone.
The one thing I think most of us can agree on would be the simple formula that built investment wealth in the first place “spend less than you make and invest the difference”!
These debates are fierce from some. Maybe a need to be correct/right? Who knows? I’m just not into telling other people how to invest their money – lots of successful ways to invest.
Thanks for your comment!
Mark
Really enjoyed this, Mark. The idea that there’s no universal ‘number’ for living off dividends is spot on. Everyone’s mix of spending, taxation, and risk tolerance is different. I’m curious, in your experience, have you found a particular withdrawal strategy (like variable percentage or guardrails) that pairs especially well with a dividend‑heavy portfolio? Always appreciate your insights.
Very kind. 🙂
Everyone is different.
I will do a mix of things in my withdrawal strategy that starts this year.
https://www.myownadvisor.ca/rrsp-withdrawal-strategies-before-age-71/
1. Withdraw from RRSPs in my 50s and 60s.
2. Spend non-registered dividends including non-reg. corporte portfolio.
3. Go from there. 🙂
I do like VPW quite a bit and will use some form of it for sure.
https://www.myownadvisor.ca/how-to-draw-down-a-portfolio-using-variable-percentage-withdrawal-vpw/
You?
Where are you on your dividend or total return journey?
Cheers,
Mark
The benefit of dividends is that you don’t have to decide when to sell shares. Sometimes you may need cash when the market is down, that will impact your future returns. With dividends you just use them when they come in, and don’t worry too much about the ups and downs of the share price. What happened during the financial crises of 2008? Banks kept paying dividends even when share prices fell by more that 20%. Everything turned out well.
That’s part of the benefit I wrote about in this post: the Board of Directors decides when to pay me a dividend and how much, it’s a forced sale per se and I’m happy they know more about the company’s long-term earnings and growth prospects than I do – I’m not at the decision table. 🙂
Are you buying anything this year, Div?
Mark
Mostly just adding to what we already own. We are overwaited in financials already, so topping up on SOBO, and bought some Northwest Healthcare UN. I just moved portions of our accounts to Questrade for the 4% cash bonus. Free money. Just back from a trip to New Zealand and planning what to do with dividends next.
WARNING!! Curmudgeon attitude below!
“How much do you need to live off dividends?”
I feel the question is incorrect. It ought to be boiled down to “How much income do you need to live?”
Work out your sources of income and *then* deal with the complexity/risk factor/taxation of where it might be derived. Heck, CPP/OAS and a workplace pension might already cover the needed income for some folks.
I’ve grown so weary of the debate about the Nth degree of efficiency of the various investing techniques. I think I might even get “Close enough for government work” tattooed on my butt. 😉
LOL.
Unfortunately I have to write these posts because some investors don’t believe this is possible – I want to share how real some DIY investor success stories have been made with this approach. I wouldn’t have met and learned this approach was possible almost 20 years ago if I didn’t have this blog and had the chance to interact with some DIY investors/great people…
I know folks that are earning >$100k per year from their portlio, growing every year, and in some rare cases I know of a few folks now earning well over $200k per year from the cashflow (via dividends and distributions) their portfolio generates. That cashflow also grows every year thanks to revinested dividends or distributions and/or the dividend growth I talked about in the post.
Pretty amazing stuff if you ask me!!
Yet time and time again some individuals will bash those success stories in claims there are much better ways to invest, there is a definite need for bonds for everyone, etc.
Forcing one way to invest has always seemed totally bonkers to me but I do try to keep an open mind on this site and welcome as many comments and email questions as I can!!
Devil’s advocate would ask to see the pathway all these people used to get to where they are. Just having a large portfolio income towards the latter part of life is meaningless without the context of how it was achieved and the stage of life it represents.
That is what is nice about your journey, we’ve been able to watch it develop and evolve. As an example, one required the context in order to comprehend the recent large increase displayed in your annual income chart. Without it, a reader is left wondering where the heck that jump came from.
People tend to forget the importance of time and composition. Reinvesting dividends in surplus of adding fresh money makes wonders on a 20-25 years period. It took me 5-6 years to reach 10K in dividends, then 3 years to get to 20K. Afterwards, I reached a new 10K multiple every 2 years, until retirement.
After a certain time, investments due to fresh money are dwarfed by reinvested dividend. As an example, 3 years before retiring, dividends received in my RRSP reached the double of my (maximized) contribution.
Exactly Alex. It is important to be able to understand the context of a large income from a portfolio if one is attempting to replicate it or is using it as an example to aspire to. There is a large difference between a person who built a portfolio over 30-50 years versus a person who took a large commuted value of a DB at age 50. Inheritances, sold businesses, or other windfall type events make context even more critical when discussing investing techniques.
IOW, it isn’t enough to just make the claim that a large portfolio income at age 75 is proof that a currently used technique works. Odds are, the technique has changed over the years.
Agreed. There are many, many factors in any individual’s financial journey.
20+ years ago, I could not have predicted what our portfolio would look like today, any DB plan money, any DC plan money, our house/condo value or lack thereof for any of this…life happens.
All financial journeys have a host of factors involved which make outcomes very unique, some very successful, some not so much and folks in between.
Mark
Well done, Alex, money can certainly compound over time!
Mark
Very good points and you are skeptical it seems for how folks have amassed their wealth, which is probably very wise.
I know for me/us to date, it was largely due to a high savings rate although we made investing mistakes along the way – but what I’ve written about here is both public and very real. And yes, spikes in income do happen but I can explain it all. 🙂
I will continue to report my income journey in retiremento show the impacts as they may occur.
Mark
My non-registered dividend yield is hurt by my large holding of XIU which is currently paying a 2.3% trailing yield (I’ve been in XIU for 25 years so a lot of capital gain pain for me to ease out, I do harvest gains when I sell shares like BCE/AQN at a loss); the individual shares I hold in my own hybrid portfolio have a larger yield but mainly 3%+ (banks, utilities, etc) so it does take a larger amount to yield a decent dividend income when you consider “safer” securities rather than high yield stocks/ETFs.
Meh, XIU offers a great mix of lower income but much higher growth and is very tax efficient in a non-reg. account so I don’t blame you one bit for owning any “large holding of XIU” in any account really!! Smart!!
And, if you don’t harvest some XIU gains now and then the portfolio will simply grow in value which may or may not be part of your estate planning.
Many DIY investors own Canadian banks, pipelines and utilities – not surprising at all. They are in the top-10 or 20 in XIU for a reason.
Thanks for your comment,
Mark
Its all about total return and risk management. And total return depends on future profits.
Dividends are not a meaningful factor and dividend focus reduces diversification/ increases risk without improving expected returns.
That’s maths but if it helps psychologically to stay invested then its ok; there are worse sins.
I don’t agree with the statement dividend focus reduces diversification/ increases risk without improving expected returns. Diversification is over rated in the Canadian market. Our banks are the best in the world, diversified into our entire economy. Along with some utilities and pipelines, we are doing very well. Dividend paying companies are generally better managed. We are still 100% equities, mostly Canadian dividend payers and have a 13% average total return over 23 years. Also have an average 9.13% dividend increase annual over that same period. Even the last 8 years of retirement, using a lot of dividends, we keep getting increases in both portfolio value and dividends.
Too much diversification can lead to mediocre returns.
The “market” is not Canadian. Canada makes up 2 or 3% of the market.
You are confusing “mediocre” and “average”.
Examples of poorly managed companies according to your claim include:
• Amazon
• Alphabet Inc.
• Berkshire Hathaway
Also, there is a difference between just owning “dividend paying companies” and picking companies which pay high dividends. Dividend investing tend to mean the latter, which particularly bad for diversification.
In this community, dividend investing does not mean picking companies which pay high dividends. At least not exclusively. Not sure how you could come to your conclusion given the blog posts, or the comments from readers.
Alright; in that case almost everyone is a “dividend investor”. All my ETFs pay dividends.
No argument here.
I would 100% agree with you.
I own many stocks that barely pay any dividends. Over the years, I’ve owned some stocks that pay no dividends at all.
I’ve mentioned this for about 17 years on this site. 🙂
These blogs, and other headlines are created to generate discussion. And that is good. Mostly we hear the same thing over and over, and mostly conventional wisdom. So when someone comes along and challenges the conventional, I’m in. I want to hear something new and refreshing. May not change my way of investing, but I’m listening and learning.
We are Canadian investors. My comment was about the Canadian market, not the world. “mediocre” and “average” almost mean the same thing. I am not saying that dividends are the only way to go, but is a very good strategy in our country because we have very good companies. You don’t pick just high paying dividends, good companies like our banks.
We still own Berkshire, and Amazon and Alphabet put our son through college with all expenses paid, including a car. But how do you pick the next Apple, Tesla, and the above mentioned companies? Sure you can try, and should, but a proven strategy that has beaten the ‘Canadian Market” over a long period is the BTSX (Beat The TSX) Not chasing high dividends, buying good companies that pay dividends. But this is not for everyone, and some do very well in their chosen way, but not everyone.
Well said. You’re one of the folks I was referencing indirectly in this post. 🙂
You’ve done exceptionally well owning many BTSX stocks.
I believe Mordko doesn’t believe any of this is possible.
My very best,
Mark
Nope, that’s not what I “believe” or said. All sorts of things are possible.
Some people did extremely well and beat the TSX by investing most of what they had in gold. Others did great by putting everything in houses. I just don’t think its an efficient approach in terms of risk/return balance.
You mentioned: “Dividends are not a meaningful factor and dividend focus reduces diversification/ increases risk without improving expected returns.”
If you can hold a basket of dividend stocks that can Beat the TSX, and that income or growth meets an investor’s objectives including their tolerance for risk, what’s the issue again?
I know you dislike dividend investing. That’s OK. More than OK with me. Nobody is forcing anyone to invest a certain way. Not me anyhow.
You can hold literally anything to meet your objectives. Like stocks starting with A, if that is the objective. I consider this type of objective random; aka “not meaningful”. But thats also ok with me; merely pointing it out.
For comparison, factor investing does have scientific basis behind it, but “dividends” isn’t one of the factors. Dividends are somewhat related to “value” yet its a poor criterion for value.
The bit that really does not make any mathematical sense is “living off dividends”. To me its like “living off your back pocket”. The question isn’t whether it can be done but “why?” Thats the bit you haven’t touched.
Well, not all stocks that begin with the letter “A” have decades of established criteria, higher earnings, ROI, dividends, capital gains, etc.
Otherwise, I would likely buy many. 🙂
The debates on rent vs. buy, dividends or not, Coke vs. Pepsi, etc. have no end.
My TWRR based on the mix of non-reg. stocks I own is Beating the TSX.
When in doubt, I buy XIU.
Those decisions may or may not be right for you. I can’t answer that question.
I know I have met some of my investing objectives by owning a basket of Canadian stocks over the last 20 years and I will be retiring sooner than most largely because of my savings rate and my approach. Those are facts.
Everyone else’s journey is different. That’s OK. Even if my objectives don’t make mathematical sense to you, all good!
No, “mediocre” and “average” do NOT mean the same thing.
MSCI ACWI (world stock market) returned 8.9% annualized, about +450% cumulative over the last 20 years. That’s your annualized “average” return. Not “mediocre” (aka “not very good”) in any way shape or form. Its the exact opposite.
And the key is that these days one can achieve it without any effort and with maximum diversification/minimum risk. Talking about returns without talking about risk is kind of mediocre.
This blog, and most of it’s commentors have different approaches to their investments. And it seems to me most have done well above average. They make a plan, assess the risk, and execute. That is why we discuss and learn. You can quote many different indicators on how they have fared over time, but the question is “how have you done with your investments?
One of my former bosses once told me that if we wanted average, anyone could do the job. You said it yourself, “And the key is that these days one can achieve it without any effort and with maximum diversification/minimum risk.” That is average, or not very good.
I don’t trust self-reported claims of returns. Most people can’t tell the difference between time weighted and money weighted rate of returns, and nobody is even mentioning the type of return when boasting here.
And then there is the fact that talking about returns per se isn’t meaningful. Its all about performance against benchmarks accounting for the extra risk one is taking.
And thats not even the main problem. Anecdotal claims of market beating returns from a few individuals tell me nothing at all. All those who got burned ain’t gonna boast about it so we are seeing a small subset of people self-reporting great returns they can’t properly report or calculate.
For proper numbers you go to studies looking at large numbers of investors who attempt to beat the market vs market averages executed by people who can add up and know the difference between average and mediocre. And I think you know what they say.
Mordko, that’s very fair, re: TWRR or other forms of computing returns.
I can’t speak to what people do or do not post – what is real or not – my journey is very real and I share as much as I can to be helpful.
Lots of folks share all kinds of things these days online. Some of it quite bad.
Yes, total return is very important of course and I included that in my post – a few different references.
Thanks!
Mark
I know the CIBC graph above is for simplicity sake, however the CAP gain side would have to sell 8 shares to realize $1 profit because CIBC charges $6.99 per trade. So, in this illustration, the CAP side is left with 2 shares and $1.01 cash whereas the DIV side still has the 10 shares plus $1 profit. I’ll take the div side in this example.
So you need a fairly large stock holding to, at the very least, cancel out the trading fees.
Some would argue that divs and cap gains are basically the same in that the divs diminish the stocks value. While I agree with this premise, market timing ( a dirty word) influences both the div payout ratio as well as cap gains Buy low – sell high is good for cap gains. Buy low with a good div payout and hold is also good for continued div payout, as long as divs are maintained.
RICARDO
Hi Ricardo – fortunately, now there are platforms out there with no trading fees eg. Wealthsimple, Questrade. Even the banks are getting in on things – eg. TD Direct bringing fees to 0$ for certain ETFs, funds.
Yes, good call on that.
Ya, some might argue that divs and cap gains are basically the same but when you look at how different income is taxed in Canada we know that it is not. In some cases, based on your total taxable income, dividends are VERY efficient and capital gains not as much. The inverse is true when other income streams are taken into consideration.
“It depends”. 🙂
Do you think Telus I referenced in my post will cut their dividend sometime in 2026? I think they will at some point.
Mark
I’M sure T is looking at how things are going for BCE after their cut.
Will they play follow the leader? Wouldn’t surprise me but I haven’t looked at their cash flow/payout as I don’t hold any T in my portfolios.
RICARDO
Ya, we own a small bit of Telus and would be impacted, in a minor way, with any pending dividend cut.
We shall see!?
Mark
Hey Mark!
Living off of dividends is a key tenet to our retirement plan. At least as far as non-registered dividends go. We don’t plan on spending our TFSA dividends, instead choosing to continue DRIP / reinvest them. We plan on melting down our RSPs from the start of retirement to age 70 so that involves not just spending our dividends generated inside our RSPs, but also selling units over time.
So far, so good.
As you know I used leverage in the form of our HELOC to stake a significant majority of our non-registered account. As a result, the interest payable on the HELOC is tax deductible. As of February, our non-registered portfolio is worth 2.72 x what we borrowed, and the dividends received is 2.68 x the interest costs. We got there with some luck and also determination. I’m very pleased with the outcome.
However there are some challenges that I’m starting to contemplate. I used to think within a year or two of retirement we would sell our home and downsize such that the delta between selling and buying would cover paying off the HELOC – we’d pay it off and then we would be free to utilize the funds in our non-registered account as we see fit. However, with the real estate downturn it seem less and less likely that there will be a big enough delta to accomplish this goal (maybe not even half the HELOC). Also, it seems we are less motivated to move from our current location in our early retirement years.
That kind of leaves me with two main options: 1) Post retirement, sell enough equity from the non-registered portfolio to pay off the HELOC and pay the capital gains associated with those sales. Back of the napkin math suggests that would incur a $41,000 capital gains tax liability. Coming up with that probably means selling even more. 2) Keep the HELOC, keep paying the interest, and to avoid interest deductibility issues, only withdraw dividends from the non-registered account. This approach means we cannot withdraw more than the dividends from the non-registered account without affecting the tax deductibility. That may impact our planned spend. A third option is some kind of hybrid of the original plan. Eventually sell our current home, buy something for less, and then whatever shortfall there is to pay off the HELOC sell enough equity from the non-registered account to pay off the HELOC and the associated taxes.
Not sure what we’ll do yet, but still plenty of time to form a strategy. I have no regrets. If we move into retirement with the “status quo” our pre-tax, pre HELOC payment retirement budget would be plenty to have a fruitful retirement, but some compromises in budget would need to be made.
Much to consider in the coming year and a bit!!
Thanks, James!
Being debt-free along with the ability to live off dividends and distributions was always part of our personal finance plan for as long as I can remember.
You might already know from my previous replies or FAQs page but all DRIPs are turned off in all accounts except for TFSAs.
https://www.myownadvisor.ca/faqs/
So, living off of dividends and distributions has always been key for us – cashflow is king is one of my mantras.
Our RRSPs/RRIFs will likely be gone by mid-70s or 80s.
CPP and OAS will come online almost 15 years from now in our mid-60s.
We’ll continue to grow TFSAs in the meantime. Might be worth well over $1M by then…
Very simple, for us, really! 🙂
Continue to take down that HELOC to $0 and you’ll find a world of spending and cashflow freedom will open up for you in 2027 or whenever your retirement date is!! Especially true for you since your wife has a DB pension I recall – which is golden.
Continued success,
Mark