How to draw down a portfolio using Variable Percentage Withdrawal (VPW)

How to draw down a portfolio using Variable Percentage Withdrawal (VPW)

This post turns the 4% rule on its head – how and why you should consider drawing down your portfolio using Variable Percentage Withdrawal (VPW).

Asset accumulation is easy. Sort of.

  1. Put money into lower-cost, diversified, equity solutions (stocks or funds).
  2. Keep contributing regularly to such solutions for 30+ years.
  3. Retire with some money in the bank.

Easy as 1-2-3, or thereabouts.

Asset decumulation is much more difficult.

  • Do I even have enough to fund my retirement?
  • When should I start drawing down my portfolio?
  • How much should I even withdraw so I don’t outlive my money?
  • In what order should I draw down my accounts or take my benefits?
  • Should I work part-time to supplement my retirement income?

…and the list goes on.

But there is a better way than the 4% rule to draw down your portfolio: How to draw down a portfolio using Variable Percentage Withdrawal (VPW)

Traditional retirement planning without Variable Percentage Withdrawal (VPW)

With traditional retirement planning advice, some that I continue to follow myself, we are told to:

save early, save often, and keep saving.

Heck, our goal is to own a million-dollar portfolio (or close to it) for semi-retirement.  It takes time and a massive dose of patience to build a portfolio like that…

So, while there is a wealth of information about asset accumulation, how to save within your registered and non-registered accounts to plan for retirement, there is far less information about asset decumulation including managing retirement income.

Thankfully there are a few great resources available to aspiring retirees including those I’ve written about below.

My retirement income articles:

Cash Wedge

Canada Pension Plan (CPP) articles:

Dividend income articles:

Under the banner of “did they save enough?” articles:

How to draw down a portfolio using Variable Percentage Withdrawal (VPW)

A great approach and tool to help answer some of the leading questions I posed above, is the use of Variable Percentage Withdrawal (VPW).

I previously wrote about VPW here, but this is the Coles Notes version.  This approach works because:

  • It combines the best ideas associated with constant-dollar withdrawal and constant-percentage withdrawal strategies (e.g., the 4% rule).
  • It adapts your withdrawals to market/portfolio returns so effectively you don’t drawdown your portfolio too quickly.
  • It uses a variable, and an increasing percentage to determine withdrawals so effectively you don’t hoard your money “until the end”. Spending is always variable and not linear. 
  • This is one of the best approaches I’ve seen that allow you to essentially:
  1. increase your spending in “good years” and, 
  2. decrease your spending in “bad years” therefore giving investors psychological ease.

Retirement withdrawal assumptions – if we ever get to the $1 M dream?

Since I’m always very aspirational on this site…I figure I would use the VPW approach and tool for my own retirement dreams and see how VPW might be useful to manage our draw down plans.

In using this tool/spreadsheet – I clicked on the VPW tab and:

    1. Entered the Start Year and Start Age of my retirement. (For me, I used stopping full time work at age 55 – hopefully sooner!)  I entered my Asset Allocation. 
    2. Each year:
      1. I made up a fictitious balance. I was rather pessimistic with my assumptions given I used a 100% risky-equity portfolio that never grew in value over the first 10 years of retirement.
      2. I fictitiously entered some actual withdrawals and/or took the Suggested Withdrawal.

Here are the results for the first 15-years of retirement and how that might compare with actual results over the last 40+ years from data within the same tool.

Table 1 – My hypothetical, very pessimistic, VPW where my account never gains anything in value:

Table 1 VPW

Table 2 – A far more realistic VPW.  Compare my table above with a 4% constant dollar withdrawal sum AND against actual stock market returns from 1972 to 2005:

Table 2 VPW

You’ll see in the table above…

  • Over many years of investing, thanks to the VPW approach, while you should expect to die-broke you can also enjoy what you’ve worked so hard for – starting with a $1 M portfolio. (I’ve highlighted the almost insane amount of money you’re able to withdraw (>$300,000 per year) in the latter years of retirement using a VPW approach.  While inflation-adjusted it’s an incredible amount of money.)
  • Compared to a simplified 4% Constant Dollar Withdrawal (CDW) approach, you’ll see you can enjoy more of your capital during retirement using VPW without arriving at some ridiculous capital balance at age 100 or more.

First-person use / case study in practice by an actual retiree!

I reached out to one reader of this site (RBull) who uses the VPW approach and tool to manage his draw down approach.  Here is what he told me:

Hey Mark,

Just so your readers know… I’m celebrating five (5) years of full retirement this second week of May! (My wife retired a couple of years earlier.) I discovered VPW about 4 years ago. I entered the data for the beginning of my retirement (asset balance, 1st year withdrawal – like you instructed above) so it reflected our full 5 years of retirement including all withdrawals and balances to date.

OK, so, why do I like this?  Who is it for?  A number of reasons in no particular order:

  • VPW is logical, intuitive and simple. Suggested withdrawals from assets will adjust annually based on market returns.  An alternative method like the Safe Withdrawal Rate (SWR) isn’t safe nor logical nor intuitive.  With SWR your spending is based on a set percentage (e.g., 4% rule) based on initial balance and adjusts only for inflation. With the 4% rule you’ll likely either run out of money or have a huge amount unspent when you die.  Neither of those outcomes work for us and with VPW we can avoid it from happening!
  • We’re planning to utilize a significant portion of our assets for retirement and desire a method to safely accomplish and monitor this to upgrade lifestyle.
  • We have a sizeable steady income from work pension, reliable income from equity and fixed income assets to cover all basic needs (and more) without considering capital, or future OAS/CPP. It’s a great tool for that situation.
  • It’s intuitive and logical as you say Mark – our overall asset withdrawals would adjust annually with the performance results and the size of our asset base, where the main effect of this for us would be on discretionary spending (like travel).
  • All of my career I have worked with pay for performance variable income, so we are easily able to adjust accordingly.
  • It’s incredibly simple to update the tool with an end of year asset balance to generate a suggested withdrawal amount. Assuming you have a steady income base, you can therefore choose to withdraw more or less than what is suggested or when it might be more favourable to utilize certain assets, and this will be reflected accordingly in future suggested withdrawals.

For anyone interested, our 5-year VPW suggested these withdrawals on my conservative assumptions followed by actual withdrawals.  Funny enough, we have yet to walk-the-talk on upgrading our lifestyle – some habits are hard to change! 

VPW Suggested WithdrawalsActual Withdrawals

I would say in closing Mark to help fellow or aspiring retires – our conservative nature is winning out and keeping us well below suggested withdrawals but at the end of the day – it’s a great approach and tool for folks to consider as part of asset decumulation.

Thanks RBull.

So, how might we draw down our portfolio? These are my plans!

Potentially the following order based on what I’ve learned:

  1. Start drawing down our RRSPs/RRIFs + spend/drawdown non-registered dividends in our 50s and 60s
  • In our 50s, while working part-time, we’ll withdraw assets from RRSPs (x2) depending on income needed. 
  • Part-time work in our 50s is also expected to cover some semi-retirement “fun stuff” like travel. 
  • By withdrawing assets from our RRSPs earlier than necessary, before our 70s I mean, it will reduce our deferred tax liability that is our RRSPs/RRIFs before any workplace pensions kick in.
  1. Deplete RRSPs/RRIFs in our 60s and spend other assets
  • In our 60s, we’ll continue to deplete our RRSP assets.
  • In our 60s, we’ll also continue to spend any non-registered dividend income.
  • In this decade we’re planning on starting our workplace pension plans or commute my pension.
  • I figure around age 65, we’ll start taking our Canada Pension Plan (CPP) and/or also Old Age Security (OAS) government benefits. There is the real potential for us to delay our CPP or OAS until age 70.

Read on why you should defer your CPP to age 65 or even age 70.

  1. In our 70s+ deplete assets and spend TFSAs “until the end”
  • With RRSP assets likely depleted or close to it in our 70s; with the non-registered account winding down; with workplace and government pensions now in full swing – we figure this is a rock-solid approach to take CPP, OAS and TFSA assets into old age. 

How to draw down a portfolio using Variable Percentage Withdrawal (VPW) summary

The more I read about how to manage our portfolio in semi-retirement or full-on retirement, I more I consider other options beyond simply trying to live off dividends or distributions – even though this remains a huge goal of mine.

When you consider taxation, inflation, longevity risk, portfolio risk, changing spending needs and much more – there is far from any one-size-fits-all approach to draw down a portfolio.

I hope this post about Variable Percentage Withdrawal (VPW) helped you with your draw down plan. I think it’s a solid one to consider.

Here are some key resources from various sites including some FREE calculators to dive deeper.

You can find more handy (and free) money and retirement calculators on this page here.

Bogleheads VPW

Canadian financial wiki, variable percentage withdrawal

What’s your income plan for retirement?  Do you have one?  Are you already there and accomplishing your needs and wants? 

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.

59 Responses to "How to draw down a portfolio using Variable Percentage Withdrawal (VPW)"

    1. Thanks longinvest. Great forum over there and a big fan of your expertise. Yes, good point about the nominal column.

      This approach has opened my eyes a bit in that although I never planned to strictly “live off dividends”, I find it rather incredible how much $1 M (my personal portfolio goal) might last and you’ll never need to worry about running out of money. If you have no plans to leave an estate (and we don’t), it seems that portfolio value ($1 M) should definitely be enough money.

      To think we could potentially be withdrawing inflation-adjusted money (to keep up with inflation); to adjust to market returns, makes me feel MUCH better about our portfolio goal.

      How are things?

      All the best,

  1. My *plan* is to let my tax brackets guide how much and when to withdraw from the RRSPs. I’m not concerned in the least about what happens after we are gone. My major concern is to ensure to the extent possible that if I were to go before the wife, she would have ample resources to allow for a living arrangement that looks after her. OAS clawback is but a minor issue and I’m not going to let that tail wag the dog.

    1. “OAS clawback is but a minor issue and I’m not going to let that tail wag the dog.”


      That would be like I don’t want to make more income because I’ll be taxed on it. Makes little sense really.

      1. “don’t want to make more income because I’ll be taxed on it”

        Reminds me of the time I was fueling aircraft as a part time thing on my days off in Thompson. More than a few guys at work commented that I’d be paying huge taxes on it. I actually used some of it to fund RRSPs and pay down the mortgage faster. I don’t regret it at all, plus it was very interesting and actually fun some days.

  2. Great ideas shared! Mark thanks for sharing all these good ideas.

    I have a slightly different situation. Mid 30’s only work 8hrs a week. I don’t plan on changing this at any age unless I’m forced to. Have saved enough to cover a basic retirement starting @ 50 if I choose. Low tax rates work wonders:)

    There are two things I often see presented in discussions pertaining to withdrawal approaches that I have ‘yet’ seen the logic to. 1. Why would you keep a selection of dividend stocks in a tax sheltered acct? All income is taxed equally (rrsp) or not at all Tfsa , seems like a smarter than the market approach which seems dubious and more complex. 2. Unless you’re hitting through the oas ceiling which may or may not be around 30 years from now why would you give up a tax free compounding option early? I’ve read and worked through a number of different number sets and even considering the oas clawback the compounding rrsp would more than offset the cost of early redemption.

    I do appreciate the difficulty of a large rrsp upon death but rarely do I hear this being a reason to wind one down early. Also if you’re planning on GIS RRSPs would be unwelcome. Or if you need the $ to live eg waiting for pension to start.

    Just my thoughts, just looking through the options like many others here.

    1. Thanks for the kind words Phil!

      I can only answer these questions for me, but even with tax-sheltered accounts (TFSA, RRSP) I believe the combination of dividends and growth (=total return) is still a great way to invest since I can potentially “live off some dividends” to a degree via TFSA and/or RRSP withdrawals.

      I don’t intend to hit any OAS cap myself. That would be a ridiculous amount of money if/when my complete OAS is clawed back (>$120,000 net income). Sure, a nice goal but totally unrealistic for me and my assets. My wife and I figure we can live very comfortably off about $70k (net income) per year and likely much less. We hope to realize that goal in the next 5-10 years with some market help. 🙂


      1. I agree it’s a good way to invest and prepare for retirement!

        I am certain you won’t have any worries about having a very comfortable retirement. Yes 70K net is a good number.

        1. I hope so!

          Just updated on my Dividends page – but largely ignores drawing down the capital from non-reg + TFSAs:

          “As RRSP assets disappear throughout our 50s and 60s (we’ll be drawing them down) we’ll replace that income with our workplace pensions. We intend to take our workplace pensions in our 60s to avoid any early retirement withdrawal penalties. As of 2019, my defined benefit workplace pension should payout just north of $30,000 per year at age 65, indexed for life. As of 2019, my wife’s pension should at least be half that amount.

          So, starting in our 50s:

          $30,000 per year in dividend income (from non-reg. + TFSAs) to cover all basic necessities.
          $20,000 per year withdrawn from our RRSPs (x2) in our 50s and 60s to cover some additional needs and wants (additional healthcare?, international travel).
          $10,000-$20,000 per year (each) in part-time work.

          = semi-retirement earning ~ $70,000 or so per year. We can and will absolutely live on that.”

          1. It’s likely rather than tap TSA divvys you’ll just increase RRSP or LIF withdrawal amounts for “income” and build TFSA’s more, as I’m doing. Not sure when that will stop but maybe age 70 or so. Who knows?

            1. That might be the ideal draw down plan. Kill off RRSP / RRIF assets entirely instead of using any TFSA withdrawals at all until we both have no RRSP assets left.

          2. Could well be. Lots to consider with db pension (or commuted value) amounts, amounts and timing of CPP/OAS and amounts and duration of PT work income, unregistered income/drawdown amounts, amounts of registered drawdowns. Integrating it all to consider best tax outcome at different retirement stages is where the rubber hits the road. When you’re closer to semi retiring and better know amounts of PT work income and asset/income numbers the pieces of the puzzle will start to come together.

    2. Hi Phil,

      We are using a total return approach, with a bias towards dividend paying stocks for equity investments, plus fixed income assets to provide a floor of income (in bad times). Our retirement funding currently comes from RRSP withdrawals (started@ age 55), LIF payment, unregistered dividends, work pension and cash from HISA as needed. OAS and CPP will come later. We reinvest in TFSAs and unregistered from RRSP withdrawals currently and expect to for years to come. I think the key is to utilize the accounts to create tax efficient long term retirement cash flow, considering the balances in them, maintaining an acceptable asset allocation, integrating OAS/CPP when/as appropriate. I would expect our RRSP & LIF to be wound down sometime in our early 80’s. OAS clawback isn’t expected to be an issue, and GIS certainly isn’t. That’s the plan but life often has some forks in the road.

      I’ve used the Morneau Shepell calculator as well as one from Cascades, and a couple of others I’ve picked up. They all come up with similar numbers but have some quirks or limitations to them. I see these as simply guides for rough projections to help corroberate a plan. VPW is my working model now.

      1. Utilizing GIS seems to be a more common theme I’ve seen plans for lately for a period of time; done in combination with TFSA withdrawals to matintain higher income. Hold off on RRSPs or use them before qualifying for GIS, OAS.

        Overhaul time for income/asset testing on GIS, OAS, TFSA etc?

        1. “Overhaul time…”

          Ya, might as well pocket all the pennies from the “leave a penny” plates too. I don’t have a lot of respect for that kind of “planning”. Sooner or later a government will likely step in and fix some of these issues. I can see some kind of lifetime cap on TFSA contributions as well as closing the loophole on TFSA income not being taken into account for OAS/GIS qualifications.

          1. LOL, so true,

            Ditto here re planning respect.

            Ya, I sure hope so. Money is sorely needed for those who truly need it, not for some who use it this way.

            But the fault lies with government until they get the courage and smarts to clean it up. I’m getting that message to my representative and the opposition.

            Totally agree on the TFSA income testing thing.

          2. Same. I wouldn’t be surprised to see a lifetime contribution cap on TFSAs. I could see it happening with the next government although I really, really hope that does not happen.

            There are various reports that say TFSAs have not fulfilled their intention re: help low-income folks. That might be true because low-income folks, who are struggling financially, can’t save money in the first place.

  3. Thanks Mark and RBull for the very helpful and inspiring post.

    RBull is in a very enviable position that you have pension covering your basic needs. I think the most challenging part with the VPW is that how flexible one can be with the budget? I expect to retire before the kids leaving home, which means for the first few retirement years, my budget will be pretty much fixed and can not be reduced too much.

    I think this might be mitigated by having a cash bucket, a higher percentage of fixed income assets, and enough investment income like dividends. So if market goes down, I don’t need to sell too much equities thus the impact of market volatile being reduced.

    Lots of things to think about and carefully plan before retirement.

    1. Thank you May.

      To be clear my wife has the pension. It has 60% survivor benefits. It is not likely to be indexed (7 years so far and not) and will be reduced by about 22% (loss of bridge benefit) when she is 65. Still good but over time won’t cover our basics.

      “I think this might be mitigated by having a cash bucket, a higher percentage of fixed income assets, and enough investment income like dividends. So if market goes down, I don’t need to sell too much equities thus the impact of market volatile being reduced.

      Yes. I agree. If VPW suggests 4% withdrawal and your income generates 3.5% for example the difference could be made up from FI instead of equity during a bad period. Or if a good portion of your spending is discretionary you may also choose to withdraw 3.5% only (no capital) and wait for better days. This may well come into play for us.

    2. Yes, he is!

      Fair point re: “I think the most challenging part with the VPW is that how flexible one can be with the budget?” But the good thing is, if you’re a saver, and have been saving for many years now, that means you’ve already developed good habits in how to cut back / spend where and when you don’t need to.

      Ultimately, for a margin of error, once the portfolio (stocks, bonds, fixed incomes, pension, etc.) can generate enough income to cover all daily expenses (i.e., a Crossover Point) then I believe most investors/aspiring retirees have “enough”.

      You’re on your way!

      1. The investment income, however, is not always up. One of my stock, HLF, just cut its dividend from 0.145 to 0.05. The distribution from FI will fluctuate, the dividend might be cut, and stock price might fall down. And one may have unexpected expense that can not be predicted.

        Crossover point really only works as a reference I think, at this point we don’t need to try too hard to keep the jobs and thus less stress from the work. I am suspicious that means “enough”. But I am on the conservative side I guess.

  4. To your question, I haven’t really done the “live off the dividends approach”. I definitely do use the dividends when they get issued now that we’re in retirement, but I’m also ready to sell portions of the portfolio when needed to cover the deficit. Currently what I’m doing is making sure we have enough in our ‘safe’ bucket too so that if the markets take a hit (like they have recently) then I have some available cash to supplement what the dividends are giving us every quarter.

    For sure, there are arguments to be made that it’s also inefficient to sit on cash like this, but considering that it’s our first year of full retirement, I get a ridiculous amount of piece-of-mind knowing that I have a cushion (even if that means leaving some money on the table).

    I’m currently fine-tuning and reading lots of research on the different variable withdraw strategies so I think in the not too distant future I’ll feel more comfortable with not having any regular paycheques from jobs coming, and then I can consider trimming the ‘safe’ portion a bit. We’ll see. It’s pretty fun trying to optimize for all of this.

    Regarding your plan: Yeah for sure, I can totally see that working. The two main levers that can be pulled is either cut your expenses or earn more income (portfolio or side income) so if you have enough that you can cut for 3-5 years and not be dreading it (i.e. if it doesn’t really impact your standard of living that much), then I think you’re fine.

    It’ll be interesting to see what you end up doing, especially since for a time it sounds like you still like the “living from dividends” approach. With that, it’s likely your portfolio will end up being enormous long term, so it’ll be interesting to see how you decide to implement selling off a portion of the portfolio in the future to take some of those capital gains and principal off the table.

    1. Oi. After reading MOA’s article and the comments, I now have something new to worry about in my 1st year of retirement: different variable withdrawal strategies. My plan is very loosy goosy.
      Let’s see how the 1st year goes trying to live on the defined benefit pension of 80% of my salary. Save 10% of pension by automatic transfer to purchase annual tfsa. So I’m living on 70% of annual salary. No debt. No real “budget” per se. Really loosy goosy. I’m not a big spender to begin with, and now that I’ve got the “pensioner” mentality, I’m more conscious of my discretionary spending. I’ll have to figure out how to deaccumulate at some point, for sure when my bridged pension decreases at 60 and again at 65. Too much to think about….time to go outside and plant something ?

      1. No debt is ideal Bonnie. That is your key.

        Also, you have a pension. Bonus #2.

        So, if you can determine you can live off your DB pension in year #1 and/or year #2 for retirement and learn to use your other assets as discretionary spending, you will most likely have enough.

        You don’t have to use a VPW strategy or a constant withdrawal strategy (4%) or any other strategy. You could always consider a fee-only-planner to help you run some numbers and determine a good withdrawal strategy.

        Otherwise, stay outside and enjoy life – you’re in a great place I think and kudos!

    2. I think it’s smart Kornel to use a total return approach for your portfolio. I recall you hold some indexed funds?
      -XIC + VUN/VFV + XEF + XEC?

      You might have switched them up since we talked…

      I know for us, we’re thinking about employing some sort of “bucket approach” to fund our semi-retirement while we work part-time.

      I shared that one here and I will write a separate “bucket approach” article soon:

      I figure our $50k per year cash spending can come from our portfolio each year ( ~ $1 M); we’ll keep $50k in cash savings as a modest emergency fund; and then basically, slowly, draw down the portfolio over time. Our order? 1) RRSPs first, 2) then non-reg., 3) then TFSAs.

      We also intend to work part-time in our 50s and that should provide income for any discretionary travel or cover major expenses now and then.

      Those are our ideas for now. We’ll see in time of course!

      Assuming I work full-time for another 5-years, not sure what, then my wife and I should be done. The anchor for us now is really debt and our mortgage now. Now that we’re moving into our condo, things should stabilize and I’m optimistic all debt will be gone in another couple of years.

      It will definitely be interesting to see what we’re doing…I want to know too 🙂

      1. Hi Mark.
        Yes, these are still the ETFs that I hold. The one major change is that in my RRSP, I switched from VFV/VUN to VTI using Norbert’s Gambit to get away from those withholding taxes on dividends. I still hold VFV/VUN in our TFSA and taxable accounts though as there isn’t sufficient advantage to making that switch in those accounts too.

        I’ve been considering switching to HXT from XIC in our taxable accounts (for tax optimization) but with the new government budget, that tax advantage might disappear so I’m just holding onto the XIC for now until I get some more news if it’s still worth it to switch.

        Awesome to hear about you guys downsizing to a condo. We downsized too and it really helped with our early retirement. It’s like, you don’t need to live in a $500k+ house in an expensive area because it’s close to your work if you no longer have to commute to work. I think more people should consider this as it can shave off years before pulling the retirement trigger. Also, early retirees tend to travel a lot more so it’s not like they are really going to be staying at the house constantly.

        Very interesting about the bucket strategy. I’m definitely doing a nice emergency fund too (at least in the beginning while getting used to no steady paycheque in different market environments). There are some interesting insights on how it’s not ideal because of the opportunity cost. This was a good podcast on it:

        But, despite the inefficiency, I feel I really need it at this point just for the piece-of-mind that even if we have another 2008 tomorrow, we’ll be okay for the 5ish years. So, I get what you’re saying about wanting to do the bucket strategy with a nice cushion.

        On a total side note: You linked to that article I was in on your site. I think in it we mentioned that I was doing financial planning for people but I don’t do that anymore (felt too much like work) so feel free to take that off.

        Super fun to talk to you and the community about this stuff. Gives me my ‘optimizing’ fix for the week 😉


        1. Good stuff, re: low-cost ETFs.

          I hold a few hundred units of VYM myself at 0.06% MER in my RRSP. I also hold a bit of HDV too in my LIRA.

          Yes, we’ll see what the new rules may or may not be for swap-based funds. Personally, I don’t think anything you can’t easily explain should be held as an asset but I have a simple brain.

          Have you thought about changing your ETFs to higher-yield assets?
          e.g., XIU for Canada + VYM or HDV for U.S. market + IDV for international?

          Well, we are definitely downsizing. The condo will be just less than 1,200 sq. feet two bedroom. We move in a month.

          LOL about living in a $500k+ house…. Condo is valued at more than that in Ottawa. Some larger condos closer to 1,500 sq. feet sell for > $1 M including those in my newer building…

          But, I can walk to work and get rid of one car in a month – so that will save $3,000 or so per year right there.

          I don’t think my wife and I will need more than $50k in cash in retirement; in a savings account. As you know, there are opportunity costs.

          Ultimately if you feel you need that, or more, who I am to argue? Your plan and if that works for you then that’s all that really matters…no?


          1. Sorry for the delayed reply Mark. To answer your question about switching to higher yield ETFs:

            It is definitely tempting, but in all the research that I’ve seen thus far, the conclusion seems to consistently be to go for the total return approach instead of tilting the portfolio for more yield. Hence, I’m currently sticking with trying to maximize total return, and “being agnostic towards dividends” as Buffett says.

            With that said, I find the temptation is always there, and I have to keep reminding myself to not tweak for yield. Something about human psychology there how we get comfort from the somewhat reliable dividends, instead of hoping that the markets go up enough so that we can harvest capital gains and ideally not eat into principal.

            Especially in my case since I’m in my 30s and within the first 5 years of retirement so the sequence of returns risk is high, and it’s especially important that I don’t eat into my principal this early on.

            The following link and series has been a very interesting read about the subject:

            1. Thanks for that.

              Maybe I should have you back on the site – how can you not eat into your capital with a total return approach? re: “…I don’t eat into my principal this early on.”

              This is why I like dividends so much. I get a portion of my total return to spend as I please and the other portion is growth I don’t touch.

              Totally agree with the human psychology!

  5. Kornel, you made some good points. I’m a fan of Wade Pfau and have been subscribing and reading his material for 4 years or so. I haven’t read that book but have read the theories you mentioned.

    When you mention VPW @4% did you mean SWR? The VPW start percentages vary by age at retirement start and change to grow over time. In a 2008 scenario your suggested draw percentage would follow the same pattern but the suggested $ amount would decline by whatever your portfolio declined. This may be ignored or followed as an investor wishes. Some factors for determining what to do might be – what is the affect on portfolio income generated, how much capital are you withdrawing beyond income generated, do you have FI to draw from to replace equity, ability and desire to ride it out etc. The finiki VPW link Mark provided has a paragraph dedicated that suggests having a strong guaranteed base income (OAS, CPP, Annuity? and GICs) until these arrive if retiring at a younger age.

    We have a work pension that covers all basic needs+, as well enough FI capital (HISA, GICs, bonds) that could sustain us for 10+ years at current withdrawal levels without considering any income from investments. This is our fall back for a large market dump or even dividend cuts that is sustained over many years. However I am also going against the grain by gradually increasing my equity allocation as I age so this FI will shrink and be replaced by CPP & OAS income in 5-10 years.

    1. I think that’s very smart – if you can have access to such FI in early or long-term retirement.

      Basically, have “foundational” money via FI (= guaranteed base income (workplace pension + CPP + OAS + annuity + GICs; or any combination of that) and then use personal assets for other spending.

      I think that would be ideal. However, not sure ideal is reality for most. Most folks don’t have a pension anymore. CPP and OAS is at least age 60 for one. Annuities might not be a good option until at least age 75. GICs don’t make sense at 3% for significant income.

      Very challenging puzzle!

      re: “However I am also going against the grain by gradually increasing my equity allocation as I age so this FI will shrink and be replaced by CPP & OAS income in 5-10 years.”

      I think this is very smart since CPP + OAS is very pension-like. I would argue most retirees should really learn to live with stocks beyond their pension and/or CPP + OAS. Create an income stream from your portfolio, keep a cash wedge, and let the stocks run!

      1. Yes, having FI foundational money for basic needs is great but many won’t have that much especially those who want to retire early (no CPP/OAS, and probably not DB pension) I see GICs (and bonds/HISA) as a hedge against market swoons or prolonged weak periods rather than for significant income. Enough to meet or slightly exceed inflation and stocks to provide higher returns over time.

        RE rising equity glide path it seems sensible to me since OAS/CPP are near guaranteed & indexed so I can easily live with greater equity exposure, although a nagging question is do I really need to?

        I’m much less sure most retirees should or even could learn to accept a 100% equity porfolio with cash wedge, along with govt benefits as they apply. I do think a 70/30 might be the new normal vs a 60/40 allocation. I would argue the answer for each individual investor is always – IT DEPENDS – many factors all of which have been mentioned on here many times. In my case I learned the opposite. I didn’t want to live with my 100% equity when I moved into retirement. So far no regrets even with this never ending bull driven by QE, big govt debt, record consumer debt, high corporate debt, and record low interest rates. I remain open to someone telling me and learning why I should be 100% equity + cash wedge given our situation and goals.

        1. Very much so eh? “It depends” is my favourite answer for any question – let alone personal finance one.

          The reality is, good investors only take on the risk they need to (re: % of equities) and nothing more. Your plan is more than sound.

          1. Ha true. It depends is a good answer for lots of things, and I use it a lot too.

            It’s okay for us, at least for now. Truth is everyone wants to do well. Weighing off pros and cons is a good exercise, and ideas often change over time.

    2. Hi RBull. Thanks for your insights and sharing your strategy.

      To answer your question, by VPW @4%, I did not mean 4% SWR (in the context of the 4% rule). I did mean variable percentage withdrawal. Where I’m coming from here is just another strategy that I’ve read up on where one option/strategy is to just use 4% on whatever your portfolio is at that time. So similar to what you are doing, but never actually deviating from 4%.

      Then strategy/option 2 would be more like what you’re doing where it’s still 4% VPW, but the % increases to an estimated sustainable amount as you get older. From what I’ve seen, I believe this is the Bogleheads approach.
      I’m referring to this:

      So method one allowing for arguably higher portfolio preservation but lower cashflow, and method 2 allowing for higher cashflow since withdrawal percentage increases as you get older, but with that comes some higher risk of portfolio depletion.

      I’m super intrigued by the Bogleheads approach (i.e. What you’re doing) and would like to potentially implement it too. I just have to do some more research on it to figure out exactly how they calculate those higher safe withdraw percentages.

      I’m in my 30s too and the table starts at age 40, plus my allocation is more than 70% stocks (whereas their table stops at 70 stocks) so I’m trying to figure out if for example, I can stay at almost all equities + cash cushion, and whether I should use something like 4% until turning 40.

      Still early in my VPW journey so bear with me 🙂

      A big thanks again for your insights.


      1. Hi Kornel,

        By it’s name and by design VPW withdrawal percentages vary and rise as you age. The rise depends on your start age vs expired age- ie (number of years planned for retirement). Maintaining a constant 4% withdrawal rate would therefore mean you’re referring to something else – not VPW.

        I suggest downloading the spreadsheet from the Canadian finiki site and playing with it. The chart you refer to is only an example. You can choose any percent of equities you want up to 100% on the spreadsheet, which will affect the $ amounts of suggested withdrawals.

        The methodology for the withdrawal rates is based on math and input assumptions. It’s similar to numbers used for RRIFs. In my case our VPW suggested percentages are lower (4% start) than Marks at a similar age (5.4% start) due to me overiding the VPW parameters with more conservative return assumptions than the defaults. Using defaults ours would run from 5.4% to 5.5% for first 5 years retired vs 4.0% to 4.2%. So you can see there is significant variability built in if desired. With VPW you won’t run out of money or leave behind large amounts, but you may not have enough money (depending on needs) if returns are consistently less than the assumptions based on historical info.

        You can see I am utilizing VPW only for information purposes to this point as we are not withdrawing amounts that match the suggestions. Some of this comes from being somewhat conservative but much is due to markets being kind and assets growing during the last 5 years. ie with larger asset balances we do not need or want to utilize withdrawals to the max. This is intuitive to me and helps prepare us better for rainy days too, as this trend will no doubt change when markets reverse.

        Good luck in your search for a method to help your retirement.

        1. Hi RBull. Thanks again for your insights! I took your advice and played around with the spreadsheet a lot over the past week, and it was great for running different scenarios in the ‘backtesting’ section too. What a great tool. Thanks for suggesting it, they did an amazing job. It actually got me to reconsider my stock allocation in an effort to not make the withdrawals during horrible years not as troublesome.

          Something else that got me thinking when you and Mark were speaking about asset allocations: It seems that in the industry, a person’s stock/bond allocation is pretty subjective. Yes, there are things like different age rules to give a guideline, as well as the questionnaires, but in the end a lot of it seems to revolve around how much volatility you think you can handle.

          So I’m thinking, to get a more concrete answer about how much bond/GIC/HISA you need, wouldn’t it make more sense to find out how much money you would need to sustain you for ~5 years (I use 5 years so that you can most likely ride out 2008 type events), and use that as a basis for your bond/HISA/GIC allocation?

          For example, if you need $30,000 a year and have a $1,000,000 portfolio, then 30k*5= $150,000.
          $150,000 would be 15% of your portfolio in this case so your asset allocation is 85/15 (stocks to safety). Where “safety” can be typical bond ETFs, or some combination of GICs and HISA.

          What do you guys think?


          1. Kornel, I think that’s a solid idea…re: if your desire is to keep a cash cushion of 5 years.

            So, by simply multiplying expenses needed per year x # of desired cash years = cash cushion. Cash could be just that, or GICs, or fixed income or other I suppose, it really depends on the person.

            Personally, my wife and I have figured out that a spend of ~ $50k per year + $50k in cash (HISA) is “enough”. Our goal is to live off dividends to a degree with a $1 M portfolio (excluding pensions or CPP or OAS). So, I/we feel there is an opportunity cost if 15% of that portfolio is maintained in cash – too much. I would rather have income generated from the portfolio, spend that, and lean on $50k in cash or cut back expenses if things got nutty.

            That’s just me though – opportunity costs for most things in life!

            Thoughts back?

          2. Hey Kornel,

            Kornel, great that you found the VPW a great tool. I agree.

            I think there’s nothing wrong with choosing your allocation that way. In fact I have been planning to move more that way myself over time after determining an amount and a number of years hedging we’re comfortable with. I have a combination of all those FI assets. Pretty sure now in retirement it’s never going to be up to 85% equity however, as I have more interest in capital preservation/need to take risk vs opportunity costs/maximizing potential return. I’ve experienced a 50% peel off on a large $ amount and I wouldn’t be comfortable with that even if it’s possible investment income and pension(s) would continue to flow.

  6. Nothing like pre-planning, but why not start with Expected Income sources, then one only needs to estimate expected spending, subtract and you arrive at cash-flow needed. Where it comes from depends upon on ones savings or investments.
    I suggest investing for Income so that one can see their annual investment income growing as their investments grow and they can see how close it is to their estimated future cash-flow estimate. As time passes update all figures.
    If one is already in retirement the calculations would not change, unless one investment income is low and then one has to worry about the market, as it dropped today because of the US/China trade dispute (something income investors don’t have to worry about).

    1. I’m a big fan of determining income needs (for retirement) and then coming up with a plan related to how to meet those income needs. I guess this is why I have gravitated to dividend investing AND low-cost ETF investing – I figure I’m getting the best of both worlds (income now, to spend) and longer-term growth to spend later.

      Once we reach our Crossover Point (i.e., income derived from portfolio is > than expenses) I will have confidence we have saved enough.

      Onwards and upwards. Thanks for your comment.

      1. Mark: ” and longer-term growth to spend later”
        Are you referring to Capital you’ve accumulated or the future growth of the ETFs?

      2. Pretty much the way we viewed it and that continues to be our plan. I’m a little extra conservative with the FI stash as well.

        Spend income generated from investments and pension(s). Utilize capital prudently per VPW as reasonable and desired. No worrying over markets and no mountain left later.

        Time will tell how it all unfolds.

        1. Appreciate your input on the article and site – as always. Yes, time will tell for you but the fact you can live off your assets, pension – use VPW to maintain your draw down plans – without taking any CPP or OAS at this time is an outstanding position to be in.

          Well done!!

          1. Thanks, I appreciate that. Thank you for the opportunity to present one persons experiences, plans and ideas.

            So far work pension only and less than income generated from investments, but I don’t see that continuing now that we’ve entered our 60’s.

        2. Thanks for contributing RBull. It’s great to hear how others have done it. I’m just in the process of transitioning from a 3.5%/4% rule (i.e. Static with set withdraws) to a variable approach so sharing your experience has been very helpful.

          Are there any resources/books/article/sites etc. that you found really helpful?



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