How much do you need to retire on $7,000 per month?
In previous posts on my site, I highlighted how much you need to save to retire on $5,000 per month AND $6,000 per month.
I’ll link to those detailed case studies at the end!
Personally, I think spending $6,000 per month, after-tax, is a great retirement spend sustained with inflation.
But what about if you wanted to spend more: what about $7,000 per month = a tidy $84,000 per year?
Inspired by even more reader questions, emails and comments since those other case studies were published, this post is about how much do you need to retire on $7,000 per month.
How much do you need to retire? It’s all about what you intend to spend
I believe retirement planning is a multi-step process that evolves over time.
I also believe to have a secure (and fun) retirement, you need to strongly consider your income needs and wants, including looking at your entire portfolio to see how that portfolio could fund your lifestyle, how hobby or part-time income could support your needs, and how you might be forced to navigate any sequence of returns risk.
Why is mitigating sequence of returns risk important?
Because timing in life – matters.
As you know, a retirement portfolio generally isn’t just a lump of cash. Any well-constructed retirement portfolio beyond some cash is very likely to include a mix of assets that deliver income, growth and thwart some inflationary risks. Ideally, the growth will replenish at least a portion of what you withdraw over time, making your withdrawals more sustainable over the period of time you’ve planned for…
But (and there’s always a but when it comes to any planning in life!), a major market drop or a poor sequence of market returns typically in the first five (5) years or so of retirement can really cripple any income needs and wants. If you must tap your portfolio to cover your expenses, and that portfolio is losing value as well; you have to sell more investments to raise a set amount of cash to fund your lifestyle.
This creates two major problems if you need to do that:
- Not only do you need to drain your portfolio faster during a poor series of market returns,
- It leaves your portfolio lower in value that can generate future growth and returns if/when the market recovers.
Check out this visual aid from BlackRock to clarify this risk:
How much do you need to retire on $7,000 per month? Ask yourself questions…
As you explore options for your retirement plan, here are some questions to consider:
- Can you pay off your mortgage (and other debts) before you retire? (I would vote a resounding “Do It!”)
- How much travel or discretionary expenses do you have planned? When?
- What health issues or taxes might derail your plan?
- Do you have any ambitions to change your location, if only temporary, or downsize your home?
Stephanie and Zack want to spend $7,000 per month in retirement – how much is enough?
In our case study today, Stephanie and Zack want to retire younger than most. Kudos!
Like other case study examples on my site, this couple intends to retire without any debt early next year. (Smart.)
Second, they’ve worked hard with high salaries to maximize contributions to their Tax Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). They needed to. Without any workplace pensions to rely on and the desire to retire early, funding retirement is on them and them alone so they needed to be very aggressive with saving and investing since they landed some professional jobs at the age of 25.
Can they retire at age 51 with what they have?
How much do you need to retire on $7,000 per month, increasing year-after-year, due to inflation?
Here are Stephanie and Zack’s assumptions…
Retirement Assets/Liabilities and Assumptions:
- My fictional couple wants to retire next year at age 51.
- They have zero debt. Amazing.
- Like many people these days, they remain worried about inflation, so they’ve planned for 3% sustained inflation until age 95 for their spending.
- Stephanie and Zack keep cash but they also hold some GICs now that rates for GICs are higher. They keep their portfolio in a 90/10 stock/fixed income mix. While they own a few individual stocks they are mostly index investors. We’ll assume with their long-term 90/10 asset allocation they can earn about 5.5% annualized returns going forward throughout retirement but no more.
- Because they fired their financial money manager years ago, they pay next to nothing in ongoing money management fees.
- Stephanie and Zack will keep some cash on hand, but not very much, about $15k in total. They intend to rely on these GIC assets if they need some cash in a pinch. I have not included this amount in their drawdown plan.
- They will both take CPP at age 70 = 50% of max contributions (because they are early retirees and had only a few maximum contribution years towards this government benefit).
- They will both take OAS at age 65.
- Stephanie and Zack own their home in Nova Scotia. They have no plans to sell their house near-term nor downsize. Like some Canadians, they see their house in their 80s or 90s is part of their “nuclear” plan to fund any older-age retirement income needs.
- We’ll assume their Nova Scotia home is worth about $650,000 on the water. They anticipate the real estate should appreciate by 2% at mininum over the coming decades. Maybe it’s more, who knows?!
- A reminder they have no workplace pensions at all.
- CPP and OAS are both indexed to inflation.
- Finally, Stephanie and Zack have amassed a lofty ~$1.7 million in portfolio assets at the time of this post. The majority of their assets are inside their RRSPs, the rest remains inside their TFSAs ($250,000 combined to date) and non-registered assets owned between them.
- They will also work, they need to, part-time in their 50s and 60s. Stephanie is going to continue to teach yoga to earn about $24,000 per year before taxes. Zack has decided he wants to drive for Uber every few weeks. He also believes he can earn up to $24,000 per year in his 50s and 60s. I’ve assumed they will stop this hobby income by age 65 when OAS kicks in.
How much do you need to retire on $7,000 per month results
After running some math, I can conclude Stephanie and Zack can retire – they have enough assets to spend $7,000 per month at 3% inflation until age 95 with $1.7 invested – provided they have some hobby income and that side-income that is sustained until age 65!
You can see from the financial assets chart above, Stephanie and Zack essentially “die-broke” at age 95 with only the real estate asset left to manage for the estate – as the real estate itself appreciates in value over time.
When it comes to cashflow, be warned with 3% sustained inflation, spending needs and wants go WAY up over time:
Inflation as Larry Bates highlights here is one of three wealth-killers to watch out for.
Spending $84,000 early next year, out of the retirement gate, is a very lofty spend indeed but that desired spend balloons to $130k per year at age 65 with 3% sustained inflation.
If they want to keep spending that way, great, but at age 88 that desired income spend doubles to $260k per year!
What happens if Stephanie or Zack don’t work until age 65? Can they still retire on $7,000 per month?
Stephanie and Zack will run into a modest cashflow shortfall if their side-income assumptions don’t work out in their 50s and 60s as planned.
For example, if only one of them works in their 50s and 60s, even if that one assumption comes true, they cannot meet their desired $7,000 per month spend.
Instead, they will need to consider spending closer to $78,000 per year (on average) starting at age 51 to avoid running out of money in retirement and incur a lifestyle shortfall:
How much do you need to retire on $7,000 per month without working at all?
In playing with some numbers, if you wanted to spend-it-all, assuming 5.5% rates of return and sustained 3% inflation, you’d need to have a whopping $2.15 M invested at age 51 to float your $7,000 per month spend from ages 51 to 95, assuming all assumptions come true of course in perfect, linear fashion!
How much do you need to retire on $7,000 per month results – drawdown ideas
Most couples, who have been smart and focusing on maxing out contributions to their TFSAs and RRSPs for decades on end (like Stephanie and Zack have), even if they have no workplace pension whatsoever, should be just fine in retirement to say the last although their desired spend of $7,000 per month might be higher than many couples?!
The keys beyond saving and investing with equities of course is keeping your money management fees away from greedy financial piranhas, being very selectful of your retirement drawdown order, and ensuring you’re smart with CPP and OAS benefits decisions.
As part of Stephanie and Zack’s drawdown plan some things for you to consider:
- This couple knows that while $1.7 million invested is a bundle by age 51 to say the least, most won’tand cannot save that much, it would be very important to have some spending guardrails in place such that if they didn’t need to spend this much they could get by anyhow with spending far less. The ability to ratch-down your spending wants in retirement, for potentialy a few years if needed, should be designed-in.
- While there is no perfect drawdown order (there are always pros and cons with income needs and balancing taxation and navigating inflationary pressures), it could make sense for many couples to consider a drawdown order of NRT (non-registered (N) first blended with slow RRSPs/RRIFs (R) withdrawals but ultimately leaving TFSAs (T) “until the end” to smooth out taxation over time with the outcome to enjoy a lower-level of average taxation as you age when you can least afford lumpy tax hits as your portfolio dwindles in value.
Note: TaxTips.ca has information related to age credits and age credit clawbacks starting here.
Thanks for your readership and do consider sharing this detailed case study with others!
I look forward to your comments, as always, on my content.
Do you have some ideas for a case study? Got something on your mind? Leave a comment and ask away. I will do my best to accommodate some more over time.
Disclosure: this case study and all images are for illustration and education purposes only.
How much do you need to retire on $5,000 per month?
How much do you need to retire on $6,000 per month at age 50?
Can this couple retire at age 55, with $800,000 in their RRSPs?
All figures, tables and assumptions above are for educational and illustrative purposes only and never implies any financial or tax advice. I look forward to posting more case studies over time.
There are other case studies on my Retirement page here.
Need help or support with your retirement projections? I can help!
If you are interested in obtaining private projections for your financial scenario, check out all the details here!
I look forward to helping you out!
I have 8 US companies in my portfolio. But the dividend increases are from CDN companies this year. Canadian banks, Utilities, Telcos, are the most reliable dividend payers and growers. Just hold and harvest. it’s been a good year for dividends.
Thank you for responding.
I’ve gotta come out and say it as someone who reads these scenarios and has digested personal finance blogs for over a decade, these huge spending lifestyles are just crazy to me. I enjoy my lifestyle greatly, I do lots of activities and dine out a lot plus still have a mortgage payment but yet spend only about 2/3 of this.
At 51 with zero debt what does a 84,000 per year budget look like?, how does one spend $7000 per month? Often this is why I don’t share some of the portfolio projections or case studies, it is just a lifestyle I feel is out of reach for most of the country. But then again your readership is wealthy and often high income dual earning families that this seems normal to.
I enjoy reading your awesome posts for the breakdowns as I can overlay them on my smaller needs because the math is transferable, so at least those of us on different trajectory or perspective can apply to our journey. For some reason I felt I needed to share this with you today Mark as a long term reader and a thought that always comes up.
Cheers (and Happy Holidays)
Chris, love the feedback.
I have a few lower-cost case studies on my site and I intend to write more in 2023.
With rising inflation, you would be surprised how many folks might need to budget for at least $5k per month in the coming decade for spending, although $7k per month is more wealthy and luxurious for sure.
FWIW, I’m targeting a monthly spend without debt of about $5k per month and up to $6k per month for some variable spending. We’ll see if we can make that happen.
I hope you have a very good holiday with family and I appreciate your updates and perspectives 🙂
This is something I really struggle with myself. I’ve set a retirement budget that could potentially be way too high.
I would say the largest discretionary expense is planning for 2-3 months a year in Florida / Arizona plus one to two major overseas trips (Europe / Australia, etc) per year.
For us I predict a higher monthly amount as an average to cover the travel.
Maybe I am way overestimating but I guess I prefer that to the opposite.
I often wonder how much I might be over doing it.
My hunch is, 2-3 months per year = a good $10k per year in another location. Let’s say $12k per year with some buffer for the travel.
So, if any base spending is about $4k per month without debt, you’re easily into $5k per year with inflation with travel and then on top of that, you might have a few other needs and wants as you age.
It doesn’t take too much more to get to $6k per month in retirement – again – my/our projection with travel with some extra contingencies built-in.
Everyone is different of course and I could be over doing it too!
When Chris says he doesn’t understand how we can spend $7000 a month a look at basic needs helps explain it – living in Canada is more than expensive- home taxes $6500, utilities $4000 , food $10,000, still supporting kids living at home etc just add up really fast. I would like to see a case which says based on what you have today here is what you can spend and here is how you should de-accumulate.
I have been a huge saver all my life- I want to know if I can learn to spend a bit more beyond our basic needs. We do have a lake house so basics essentially double to over $20,000 so I am not complaining just wonder if running the reverse scenario would be helpful to anyone other than me?
Nice to see if you have 1.7 million you’ll be good to go but I need more clarity than that. Also does the $7000/mos
include on-going contributions to TFSA?
With a net worth of 3.7 million I still can’t seem to get this right. I follow ESI and many members want much more than 3.7 million to retire! We used a no fee financial advisor but I think his draw down was not tax friendly! Is there any software I can use to re-run some numbers?
Thanks for your comment…the reality is, everyone is different.
I know folks that can comfortably spend $5k per month, and never run out of money.
I also know folks who want to spend $7k per month, like this post.
I also know others that might want to spend closer to $10k per month.
To each their own….
Decumulation studies are complex but generally speaking, anyone with $1.7 M in this post, based on these assumptions, can easily spend $7k per month. No ongoing savings or contributions to investing at all – in this case study – just spending what they have.
A net worth of millions is not always relevant to what you can spend from your portfolio.
There is a link on my homepage here with some free tools to use:
It might have been clearer if you had titled your article “How much do you need to retire on $7000 per month using a total return approach”.
Of course, I would swap the title to “using a less optimal total return approach”. 🙂
I don’t want to sound too harsh but this really does sound like an article from a bad financial advisor pushing his goods and trying to scare people into thinking they need a professional to properly manage their money.
Divinvestor, Bernie, and I are all saying the same thing. With a $1.7M portfolio, there is absolutely no need to withdraw any capital, let alone have to work part time,, let alone run out of money at age 95.
Very fair, Don. I can update and be more clear in future articles and case studies. I certainly don’t want to scare folks into thinking they need such money to fund their lifestyle, they likely don’t since 5.5% returns and 3% inflation sounds pretty dire for 45 years!
I appreciate this feedback but hope you got some value out of this all the same, at least a chance for a rebuttal. 🙂
I have a bad habit of using aviation analogies sometimes. If a person is planning an IFR flight, they have to consider several variables when they plan their fuel load (savings). It isn’t just a simple case of how much fuel ($$) do I need to get to my destination (death). One is generally required to have sufficient fuel to reach the destination airport, then the alternate airport, *plus* 45 minutes of flying time. *Then* one has to consider weather (especially upper winds) and other anticipated delays that will increase the required fuel on board (savings). Often a pilot may even add a fudge factor amount on top of that just because.
After all that, it may also be possible to consider landing short for more fuel (part time work) or other options.
In any event, I’ve known only one pilot who elected to go with bare minimum fuel and while it did work out, it brought him a good deal of grief in the end.
Personally, I ain’t gonna plan my flight using bare minimums and no options. YMMV.
Very good analogy. I hope to continue my plan with a margin of safety (i.e., cash wedge) in the coming years. I will chronicle how it goes here for you and others, Lloyd!
I hope I am not being risky myself!
Happy Holidays to you.
I should have read the rest of the article before making my comment. If most of the 90% equity portion of Stephanie and Zack’s holdings are in index funds they will probably have to sell portions of their holdings to achieve their goal income. This would make them far more vulnerable to the sequence of returns risk and to inflation. I can’t really answer the question here and certainly wouldn’t want to suggest what I did, prior to and in retirement, because I don’t really know their story or risk tolerances. From age 57 to my current age 72 I have been very close to 100% content in dividend growth stocks in all 3 of my investment accounts. I retired at age 61. My strategy has served me well to date. I can’t predict the future but at this point I don’t foresee any future need to sell any portions of my holdings. I would be majorly stressed If, by some chance, I had to liquidate my savings and then HAD to harvest some of my investments.
Correct. I believe not being income investors and focusing on just capital gains, puts Stephanie and Zack in a tricky situation. Can you imagine drawing down 5-6% of your capital, now, for the coming years?? I couldn’t stomach that. Some investors will be forced to do so however since we might be entering a period of lower returns and lower growth.
Back to you and me, still in my late-40s for now and I don’t want to worry about selling assets at all in semi-retirement. I have worked for the better part of 25 years to date on my portfolio such that I could effectively “live off dividends” + work part-time in a few years. I won’t even touch my/our TFSAs (x2), my small pension nor my wife’s smallish pension to do so.
I have been (so) inspired by folks like you, many others too that are avid readers and subscribers, that have done so well with investing that I aspire to not touch the capital associated with my portfolio in my 50s and maybe beyond – I’ve designed my portfolio to be more income-based with a mix of growth – although I will eventually draw assets down over time…
Back to you: even though you cannot predict the future, I find it hard to imagine a world whereby all your dividend stocks stop paying a dividend and/or deliver some growth over time to fight inflation. If that happens, our world has bigger issues…
I have no doubt your strategy has served you very well and will continue to do so.
Write back when you can, I enjoy the dialogue.
I think you’re looking at this all wrong. Its a whole lot less stressful if you focus on achieving the $7K per month ($84K per year) rather than some ball park meaningless capital balance. I’d suggest going all-in on quality dividend growth stocks to fund what you require for your budget post all your other income streams. Once you get to what you seek, ie; $7K per month ($84K per year) retire on the dividend stream income and let the dividend growth take care of inflation.
I will reply to your other comment 🙂
I totally agree with the “focus on income” vs. portfolio balance. I mean, any couple that has $1.7 M in invested assets is in outstanding retirement shape without any debt. I hope to be there soon….
This case study did assume, for the masses that love indexing, that this couple invests in a 90/10 mix with low-cost ETFs that earn 5.5% over time whereby they are forced to sell assets to fund their retirement spending inline with 3% sustained inflation.
I totally appreciate, this may not be the same, if your portfolio of dividend stocks not only pays you 4-5% yield but you also get some 1 or 2 or 3% income raises and/or capital appreciation over time. Believe me, I have 30 dividend paying stocks for that reason. LOL.
Hi Mark: I know this is a fictional case study but Stephane and Zack will not be spending $7000.00 per month when they are 88 unless inflation has caught up to them. The reason is simple. the older you get the less you do. I still golf and bowl but that is problematic at 88. I don’t plan on dying broke and I never believed in RRSP’s. I asked my brother how much he had and he said about $3.4 mil. I said is it all in RRSP’s and he said nah about a third so I did the math and that works out to a withdrawal of $51,000.00 the first year. Not a pleasant thought. My RRIF is small and the rate this year is a little over $7700.00. Most of my money is in non registered accounts and I will pay the tax as I go and the dividends will increase next year so with money coming in the direction of the market doesn’t matter. All of my nieces and nephews will get a nice sum some day and my brother will get the majority of it. With a recession coming there should be more stocks to buy and consequently more dividends to get. The withdrawal from the RRIF and from my cash account to top up my checking account for the instalment payment are the only withdrawals I make so my portfolio should continue to increase. Merry Christmas and a happy new year.
Yes, having a fat RRSP/RRIF in your 80s is not tax smart for sure.
Soooo many Canadians need to get rid of their RRSPs/RRIFs by age 80 and I would argue, before that, to funnel money into tax-free TFSAs first and then non-reg. tax efficient asset choices.
At 88, being in good health is first and foremost incredible but also having $3.4 M and needing to withdraw hundreds of thousands of dollars from your RRIF is not tax-smart either – although a tremendous bad problem to have. 🙂
You seem very tax-savvy and I continue to believe to remove the RRSP/RRIF liability, sooner in life (in your 60s and 70s) is smart – at least it will be for us such that we will live off tax-efficient dividends and tax-free money (TFSAs) as we age. If I have my way, all RRSP/RRIF assets are gone, spent and/or TFSAs are maxed out of contribution room over the coming 20-30 years.
I will have an update to share in 2023 that tells folks we have surpassed $12,000 per year in tax-free money, growing every month. Love it.
Thanks for your comments and details.
I wish you a Merry Christmas back and Happy New Year too!
Hi Mark, advocating for the single folk here & wondering if you would consider creating a case study that doesn’t involve a couple? – i.e. just one CPP, OAS, no income splitting opportunities and less likely to have a defined pension, but with some reduced expenses compared to a couple and no real need to leave a substantial estate either.
Great comment, Maha.
I have this one but I have plans to post another one in the spring 2023, for a single individual.
Thoughts on the inputs?
-no income splitting
What is the desired spend at what retirement age with what inflation? 🙂
Thanks for the inputs,
Hi Mark, excellent article and I always enjoy reading these. If I read the article correctly, you need $1.7M to be able to withdrawal $78K per year and $2,150M to withdrawal $84 per year. Therefore you need an additional $450,000 just to withdrawal $6,000 per year (1.33%) – which seems pretty low. Am I missing something.
Not quite. You have to remember that $450,000, a good portion of that (over 50% of that), is inside their RRSPs/RRIFs and not technically their money – it goes to taxation.
Generally speaking, the punchline is: with 3% inflation spending rising for almost 45 years, if you have $2 M invested at the time of retirement then folks are MORE than good to spend $84k per year and rising over time.
I hope that helps! Great question 🙂
Hi Mark, love the various scenarios you present. One question: I understand and intend the wait to collect CPP at age 70 but you suggest here that they take OAS at 65. Wouldn’t it be better to take OAS at 70?
Another great question!
They could. I played with the numbers and if they take CPP and OAS, both benefits, at 70, it actually only increases their spend to about $85,000 per year but it also increases their taxation by a few % per year in their 80s and 90s as well. Always tradeoffs 🙂
Generally speaking, if you are going to defer any government benefits, the one to defer is CPP vs. OAS.
A glaring problem everyone seems to.over look is the provision of the Feds who require a percentage draw down from your registered retirement account at age 71. This draw down.increases every year and is mandatory. This alone can be very problematic as the percentages are quite high. They figured it out so you will die poor and probably before you die you will be totally broke if you live into your 90s
Yup, excellent point. This means removing the tax liability that is the RRSP/RRIF, sooner than later, is ideal in any drawdown strategy. Just my opinion but the math also seems to back that up. See NRT or RNT withdrawal orders for that reason.
Thanks for your comment!
All the best of the season Mark!
I got one for you- What would a couple need to retire on $12,000 per month? From age 60 to 90.
I will leave that with you!
Love it. Consider it work in progress for early 2023 🙂
A concern with drawing down the RRSP or RRIF early is the tax liability if you are in a higher tax bracket than when you retire. This may occur if you take a part time job to stretch you further into retirement. I see really no way out of this tax situation unless you fully retire with no other job and then draw down the funds as required from the RRIF or RRSP so then you are not making as much money so in a lower bracket. The govt is hell bent on getting the tax money no matter what. I know it is an individual situation but when drawing the CPP and OAS this will then increase your taxes and watch out for the OAS clawback. But the bracket for this drawback is actually fairly high as it’s on an individual personal income basis.
If there is a good strategy for saving taxes I am all in. I haven’t found any really good strategy and believe me I have tried.
Thanks for your comment.
I’ve always written on my site that having a “tax problem” in any retirement is a good problem to have. Of course, none of us, myself included, want to pay any more taxes than what is absolutely necessary…
The best way to minimize taxation, in general terms, is a combination of:
1. non-reg = invest in Canadian dividend stocks and/or just for capital gains only
2. take out money from RRSPs/RRIFs when you have the least amount of other income
3. live off dividends and/or distributions from your TFSAs as long as possible without any other income.
“The govt is hell bent on getting the tax money no matter what.”
That means when you take CPP or OAS or both, regardless of the amount, you want to have the most tax-efficient income stream as possible.
This is why if you read my case studies carefully, you see I post NRT or RNT drawdown orders to consider.
Slow, drawdowns over time of non-reg. and RRSPs/RRIFs smooth out taxation such that if you are lucky and plan carefully, in your 70s and 80s assuming no changes to the TFSA structure occur, you could be living off tens of thousands of dollars per year tax-free from the TFSA while taking CPP and OAS benefits.
This is not tax advice nor a strategy that works for everyone, but something to consider.
Write back and let me know your thoughts 🙂
This was a good one. I also am aligned with Don G, and that’s basically our plan (sort of – read on……).
Lately I have been contemplating, in order to accelerate our retirement, I am considering a slightly different path. I’m thinking more along the lines of having $9,000 / month for the first 10 years, $8,000 / month for the next 10 years, and then $6,000 / month for the remainder.
Since I have a lofty starting target, and a declining income need I am strongly considering utilizing some split funds and high yield ETFs top up my “go-go” phase. If I choose this path, it will be “eyes wide open” knowing that for this portion of my holdings there will be no increase to my distributions, and some tax issues (ROC / Capital Gains) to deal with. I’m thinking something along the lines of a 60/40 or 70/30 split where the 60 or 70 is my core BTSXish stocks and the remainder is centered around funds like ENS, FTN, HYLD, etc.
Between the dividend raises that I will get with my core holdings, and the increased income I’ll get at the start, I think I might be able to achieve a higher starting income, be able to get close to accommodating inflation for the first 10 years, and then once my “slow-go” transition starts the inflation kind of takes care of itself because of the significant drop in anticipated income.
Just something I’m contemplating. I recently compared a couple of funds (LBS and EIT.UN which I previously thought were too risky) with XIU on portfolio visualizer and I admit I was pleasantly shocked at how much better they did than XIU over the last several years. It has given me some additional food for thought on how we might be capable of entering retirement a year or two earlier than previously thought.
No decisions just yet, and I’m not switching now (although I do already own ENS as it’s out performance to ENB is pretty clear), but this is something I am going to do a deeper dive in.
Also, Mark, I would like to see you incorporate some models that have the declining spend approach – the so-called “go-go, slow-go and no-go” phases. I get it that medical/health care concerns can be a fly in the ointment, but I for one know that we will aggressively travel in the first 10-12 years (and more if we can retire earlier) but that this will wane once we get into our late 70’s and early 80’s – so I think it’s a valid option to run some scenarios on.
We have many clients on Cashflows and Portfolios that want the go-go vs. slower-go years in their projections.
In future case studies, I will include that.
Personally, I’m going to stick with my XIU proxies and own CDN stocks and some U.S. stocks directly for growing income.
That approach has gotten me close to $30k per year in some accounts, excluding RRSPs, LIRAs, etc.
XIU is a great fund but I prefer to own XIU assets directly but I don’t dabble in split funds and likely won’t.
I will keep you posted on future case studies, James!
This type of analysis is sort of interesting and lots of numbers flying around but I always think that if they just invested in TSX tax favoured dividend growth/income stocks, they could just sit back and live off their dividends. I just copied a few columns from my portfolio spreadsheet and limited it to “safer” companies that traditionally raise their divy each year. If they took their $1.7M and bought equal amounts of the 11 stocks I’ve listed, they’d get an average yield of 5.42% (using today’s data). On a $1.7m portfolio, the annual dividend income would be $92,140 far exceeding their $84k target.
They could continually withdraw their dividend income from their TFSAs and non-registered accounts and then top up and add new annual contributions to their TFSAs in January with their RRIF withdrawals (after they turn 72). They iwll slaos have their OAS and CPP as an even bigger buffer.
Seems way easier to me.
Here’s the table.
Yes, excellent stuff, mind you there are tax implications related to their desired $84k per year (not all tax-free) but to your point, $1.7 M is a LOT of money and if invested in a diverse basket of dividend paying stocks, one could argue as long as those stocks paid dividends and increased their dividends over time – this couple would have very little worries to say the least.
So many successful retirees like yourself, Don, invest in a manner that you know, with conviction and stick to a long-term plan.
I picked 5.5% for a simple 90/10 asset portfolio but you could also consider this portfolio return somewhat conservative given your current yield is already 5.42% and should be subject to some capital gains over time too!
XIU as a proxy for many dividend income portfolio benchmarks should return 7% or more over 20 years, and has.
Thanks Don – onwards and upwards for you when it comes to your portfolio!
I was actually thinking about the inflation side a bit more so decided to see what kind of dividend increase the 11 stocks got this year. I was quite pleased to see it was an average of 5.73% (going from a total of $36.27 per single unit of each stock to $38.82). I’ve attached the table below.
I also think the tax situation would be quite “splendid” with the tax free TFSA withdrawals and the tax favoured Cdn eligible dividends from the non-reg accounts. I actually think they’d want to do some RRSP withdrawals before they need to convert to a RRIF and put them into their TFSAs and non-reg accounts to get into a slightly higher tax bracket to reduce lifetime taxes and potential OAS clawbacks.
Ticker 220101 221220
BCE 3.50 3.68
BMO 5.32 5.72
BNS 4.00 4.12
EMA 2.65 2.76
ENB 3.44 3.55
FTS 2.14 2.26
PPL 2.52 2.61
RY 4.80 5.28
T 1.31 1.40
TD 3.56 3.84
TRP 3.48 3.60
Total 36.72 38.82
Yup, we own every single one of those stocks as well. 🙂 Happy to get those raises in 2022 and likely to buy more of those stocks in 2023 as well. If you can get 5-6% dividend raises, on average, a nice way to hedge inflation for sure.
Did you see this on my site? 🙂
Based on my thesis above, you’ll find the following sectors should help fight or beat inflation:
Consumer staples (think products you buy or use every day)
You could argue in Canada telcos are utilities per se. We need ’em.
Exactly, this column is very convoluted with numbers that can make your head spin. That is why people go to advisors to do their investing. I just looked at my all stock portfolio and see it is yielding 4.99% in dividends now. Your number is even better Don. With 1.7 million you have your 85,000 income. In the last 10 years my average annual dividend increase is 9%, not counting 2022 where it increased by 13%.
Any income from part time work and CPP and OAS is all extra. So, keep it simple and enjoy retirement.
I’m not disagreeing, this is more of total return approach vs. dividends or capital gains case study.
I also know with $1.7 M in the bank, if that’s your portfolio, I suspect life will be very good!
Hi Divinvestor, Thanks for your comment. Is the average annual dividend increase coming from Canadian stocks? Or, are you invested in US stocks as well?