Money Makeover – Retired with a small pension, now what?

Money Makeover – Retired with a small pension, now what?

I liken preparing for retirement like organizing ourselves for one of our big international trips – a little planning can go a lonnng way.

While any financial plan is not perfect (it will be subject to change many times over) it’s the process of planning that’s important to my wife and I – that process is helping us reach our destination.  Maybe that same thinking will help you too.

What should my financial plan cover?

What are your investing goals?

Plans and goals and all that fun stuff might be good, but what if you woke up and “you made it”?  Meaning, you’re retired – now the heck what?

Recently a reader wrote me and asked that very question.  With her permission I’ve included some of her financial details along with the premise of her email to me below.

For today’s post I thought I would offer my take as it relates to how we’re investing long-term and potential considerations for her portfolio, to speak to a financial professional about.  No doubt other readers will have some perspectives as well.

Reader:  Made it (to retirement) Mary

Mark, thanks for your site.  Now that we’re retired (finally, yes!!!) it’s a bit overwhelming to go from savings mode to spending mode.  In doing some thinking on this I’m now at the paralysis by analysis stage.  We have good problems to have.  We want to spend ~6 months per year in the U.S. for the next 10 years.  When it comes to needing U.S. dollars, what should we consider?  How should be consider structuring our portfolio to assist with that?  Thanks for your articles and I look forward to reading more on your site.

Made it (to retirement) Mary family goals for cash-flow and tax and risk:

  • Net $30,000 CAD
  • Net $20,000 USD
  • maximize total return and minimize income tax like everyone else!

Made it (to retirement) Mary financial situation (late-50s):

Income:

  • NET $22,000 from non-indexed defined benefit (DB) pension 
  • Gross $16,500 from Canadian dividends
  • Balance needed for required income: TBD

Investments (in Canada):

  • CAD Cash:  $74,500
  • USD Cash:  $16,300
  • Non-registered Canadian portfolio: $505,000
  • RRSP/LIRA: $517,300
  • TFSAs (x2): $129,400

Makeover Mission

Without knowing lots of information about goals, including estate plans, and for many other reasons – I can’t provide a concrete plan but here are my brief observations based on your questions:

When it comes to needing U.S. dollars, what should we consider? 

How should be consider structuring our portfolio to assist with that?  

In a taxable account, be wary of the tax hit on any U.S.-dollar savings or chequing accounts.  My understanding is any foreign-currency gains (or losses) in excess of $200 in any tax year are reportable to CRA (Canada Revenue Agency).  These reportables are null and void when money just sits in a U.S.-dollar account – it’s the trading back and forth you need to worry about.  The capital gain (or loss) is triggered when you convert funds from a foreign currency into Canadian dollars or another foreign currency.  You can visit/Google CRA for more details on this subject.

In a registered account, such as your TFSA, I think it could make sense to potentially leverage the U.S.-dollar side of your self-directed TFSA for some tax-free U.S. dollar withdrawals for your travel.  You can consider owning Canadian inter-listed stocks that pay dividends in USD $$ or you can consider owning U.S.-listed ETFs or U.S. stocks inside that account.  Just be mindful for the latter, for non-Canadian dividends including those paid by U.S. stocks or ETFs, those dividends are subject to 15% foreign withholding tax inside your TFSA – a subject I wrote about here.

In addition, I would consider these things as well with U.S. content in your TFSAs:

  • any receipts or withdrawals for tax purposes will actually be in the Canadian dollar equivalent.
  • any contributions you make will be recorded in Canadian dollars, so when keeping track of your TFSA contribution room, make sure you are working with Canadian amounts!

When it comes to our portfolio, I’ve started to consider the U.S.-dollar portion of our TFSAs to hold a bunch of U.S. cash and use it that money, tax-free, for winter vacations.

Regarding your RRSP, you can also consider owning U.S.-listed assets for foreign exposure and income but when it comes to RRSP withdrawals in USD $$, my understanding is, this is at the discretion of your financial institution.  You might want to call around and ask since many brokerages will only allow withdrawals in Canadian money or if you want U.S. dollars you’ll need to make the withdrawals in Canadian funds and then convert to U.S. paying the bank’s spot rate.

Here are some other general observations and considerations:

  1. I have to start with this one – well done with the investing! Owning a $1 million-dollar portfolio is very impressive in your late-50s (excluding your pension).  I hope we get there too!
  2. I would consider your non-indexed pension like a big-bond. This way, you can take more risks with investing in equities over time, taking advantage of rising markets over time while still meeting some basic income needs.
  3. I think you are very smart to keep a cash wedge of at least one year’s worth of retirement expenses – throughout retirement. Changes and emergencies happen. Cash is a buffer to help you in those times.   I plan to do something similar here.
  4. Looking at your assets, although you may have other ideas, I would be deferring Canada Pension Plan (CPP) payments for a few years, at least until age 65.

You can read a detailed post here about when to take CCP – the pros and cons.

  1. Related to #4, I would give some consideration to drawing down tax deferred money (inside the RRSP/LIRA) first, and moving any funds not needed for living expenses into the tax-free TFSA. This way, when it comes to accepting CPP and/or OAS income you could be in a better position tax-wise.
  2. In terms of “Balance needed for required income: TBD” have you considered the following?
  • Draw down RRSP/LIRA in your 50s and 60s, while spending tax efficient Canadian dividends?
  • Spend and draw down Canadian dividends in your 70s and 80s?
  • What are your estate plans and do you really need to keep so much capital into your golden years?

To help you play with the numbers, I wrote a post about Variable Percentage Withdrawals (VPW) here – including some links to free calculators to use to play with some numbers.

Here is another great calculator to play with.  I took some liberties, took the middle-age between 55 and 60, and showed you how much you could safely withdraw for about the next 15-20 years from your RRSP/LIRA; assuming you’re starting now (deferring CPP, OAS; not spending the capital of your Canadian dividend stocks, etc.).  You’ll see you won’t run out of money for decades even with modest returns and inflation!

Money Makeover July 2018

  1. I think preserving your TFSA capital, for the most part, could be a smart thing to do as you get older (i.e., into your 70s or beyond) since it can be part of your estate plans and/or all withdrawals from this account are not income-tested. Based on current TFSA rules, interest, dividends and capital gains (as you probably know) are not considered income; benefits and credits such OAS and the Guaranteed Income Supplement (should you ever need it) will not be reduced as a result of investment growth inside this account.  Something to consider, drawing down all other accounts before spending the capital inside your TFSA(s).
  2. Have you considered owing a U.S. dollar account in the U.S.?  That could have tax implications though.  Here is a comprehensive RBC article on investing in the U.S. as a Canadian. 

Our game plan:

Like I wrote above, you’re in great shape!  Having a complex drawdown problem or some complex tax issues to navigate are EXCELLENT problems to have – all things considered – in retirement.  It means you have enough money.  🙂

Now, for what it’s worth, here are other things we’re considering in our investing future for a comparable.

  1. We will continue to invest in our RRSPs. I will continue to own U.S. stocks and U.S. ETFs inside our RRSPs to diversify and, for a blend of dividend income and growth.  We hope to have $500,000 invested (combined) inside our RRSPs, in addition to a small LIRA, between the ages 50-55 to start semi-retirement with.
  2. We intend to start drawing down our RRSPs in our 50s and 60s. Although our plans might change I could see us having $0 assets inside our RRSPs by age 70.
  3. We will continue to invest inside our TFSAs – striving to max out contributions to these accounts in the coming 5 years while working. We hope to have > $250,000 invested inside our TFSAs by age 50.
  4. I will continue to invest in Canadian dividend paying stocks in a non-registered account to take advantage of the Canadian dividend tax credit. We hope to have close to $300,000 invested in this account by age 50 or so.  We will spend/live off the dividends earned from owning these Canadian stocks in the early years of semi-retirement.  We figure $300k invested should yield close to $15,000 in tax efficient money for decades to come.

No doubt this post could go on, including sharing our situation but that’s what this blog is about anyhow!   I hope this feedback provided you with some things to think about even if you make other decisions.

Readers – what do you make of Mary’s next steps?  Retirees who are used to using U.S. dollars for various travel abroad what advice do you have for her?  Share away in a comment below.

*Update* from Mary on July 25:

“We are in the process of transforming and diversifying our portfolio in dividend paying stocks & ETFs,  and ditching our mutual funds which are mostly Div Growth or Div income in RRSP, TFSA and about $65,000 in non registered.  The cash wedge is in High int Saving and in checking accounts (CAD & some in USD). No interest in Total Return Strategy at this point.”
“Dividends are actually $17,600 (just doubled checked), presently all from Canadian banks only, $450,000, non registered.”
“We intend to take CPP and OAS at 70.”

My Own Advisor disclaimer – the information posted on this site are the opinions of the author and should never be considered professional financial advice.  I am an amateur investor. My Own Advisor is not a financial professional, tax expert, insurance guru or accounting whiz. Please consider consulting a financial professional before making any important investment decisions.

Mark Seed is the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've grown our portfolio to over $500,000 - but there's more work to do! Our next big goal is to own a $1 million investment portfolio for an early retirement. Subscribe and join the journey!

67 Responses to "Money Makeover – Retired with a small pension, now what?"

  1. Quick thought. Why collapse a tax-advantaged account when there is $500K taxable account? I have all my accounts split into USD and CAD portions. Not all institutions allow this with registered accounts but they all do with non-registered, and there is no need to set up a US account in the US. Thus I would split the non-registered into CAD and USD sides. Any foreign stocks currently held in the account can be transferred in-kind to the US side with no exchange, as its already been paid. When I get to travelling more I plan on opening a USD savings account at my institution. Then I can transfer money from my taxable USD account to the USD savings account, go to the bank and withdraw USD from the savings account without exchange fee. Banks charge about 1.5% on exchange so best to avoid fees. If you sold a US stock in a CAD account there would be 1.5% fee when selling, then when you go to the bank to get USD there would be another 1.5% to convert back to USD for a total of 3%.

    Reply
    1. My thinking about using up tax-deferred vs. taxable account is potentially, depending on assets (numbers need to be run far more than this blogpost) CPP + OAS payment could put some retirees into OAS clawback territory.

      In putting USD assets into a taxable account there is a tax headache to deal with because for CDN income tax filing, all assets must be calculated in CDN $$.

      “When I get to travelling more I plan on opening a USD savings account at my institution.” I intend to do the same.

      I think my path to fund my USD travel $$ will be to own CDN stocks that pay dividends in USD $$ – take a major withdrawal from those accounts once per year and simply keep money in the USD $$ travel fund. My understanding is if you keep a USD cash savings account and don’t keep currency conversions going in and out of that account you do not need to worry about capital gains or losses.

      Reply
  2. @Mark, you mentioned: You can consider owning Canadian inter-listed stocks that pay dividends in USD $$ or you can consider owning U.S.-listed ETFs or U.S. stocks inside that account.

    I think you mean holding a stock like TD in USD account? I always have the question regarding to the way dividend being paid. I assume dividend will be paid as USD? How is the amount of dividend calculated? Will TD decides how much it should be? Or will the brokerage use their own exchange rate to convert the Canadian dividend into USD?

    Many thanks for the answer from Mark or anyone with the experience.

    Reply
    1. Some examples of CDN stocks that pay dividends in USD $$ are many Brookfield companies, Magna, Algonquin Power, to name a few.

      Correct May. There are also about 30 companies that trade on a US exchange and declare their dividend in Canadian dollars. When holding them on a US exchange (e.g., TD in a USD RRSP or TFSA or other) the Canadian dividend will be converted to US currency. So, it’s never perfect 😉

      To avoid CDN to USD or vice-versa currency conversion fees you can do/perform Norbert’s Gambit. Basically – use some Horizon’s ETFs: one is DLR, that is bought and sold in Canadian dollars, while the second, DLR.U, trades in US dollars. Other folks I know use RY or other stocks to do the same thing.

      Reply
  3. RBull (59, retired, married, rural coastal NS) · Edit

    Made it Mary looks like she is in very good shape for retirement. Nicely done.

    Re USD funds to spend in retirement (which make up a large part of our spending and over half our equity holdings) this is what I do FWIW:

    We use 1 bank for all our banking and broker needs. Have no USD div payers in TFSA or unregistered anymore. Have enough right now in RRSP with US & INT ETFs. For example I switched BPY on the USD side to CDN- BPY.un – Brookfield converts to CDN $ using bank of Canada rates as of record date. No rate loss or broker fees.

    All USD comes from RRSP withdrawals presently. This is currently done as USD cash. Simple as a few clicks with mouse and conversion rate/totals in CDN $ equivalent for tax purposes all shown and recorded in bank/broker transaction. Slips come showing CDN $ amounts. I move these funds into USD account at our CDN bank. We also have a US bank acccount/debit & credit card (no costs) through our same CDN bank to access for USD travel expenses that we can transfer back and forth to. It’s seamless and everything accessible – all investment/bank/cc cards visible with one log in. In next few years will be starting some transfers in kind of USD assets to either unregistered or TFSA to the USD side of these accounts.

    I also do some gambits in RRSP from USD at times for larger amounts to CDN $, particularly when rates are favourable. Have used DLR and other times RY, and at my broker journaling is instantaneous.

    Reply
    1. They have it made like other people I know!

      Although I can see Herman’s point (re: split CDN and US stocks in taxable accounts) I wouldn’t do it myself because of the tax headaches with reporting in CDN $$.

      So, like you, I would have no USD div payers in non-registered. I would consider putting USD payers inside the USD $$ side of the TFSA though – although the 15% withholding taxes on U.S. dividends would apply but at least that would likely be less than their tax rate.

      I agree the RRSP/LIRA is likely the best place for U.S. and INT ETFs.

      “For example I switched BPY on the USD side to CDN- BPY.un – Brookfield converts to CDN $ using bank of Canada rates as of record date. No rate loss or broker fees.” I think the challenge is not all brokerages do that at BoC spot rates but I could be wrong. It might be big green TD does not do that.

      “All USD comes from RRSP withdrawals presently. This is currently done as USD cash. Simple as a few clicks with mouse and conversion rate/totals in CDN $ equivalent for tax purposes all shown and recorded in bank/broker transaction. Slips come showing CDN $ amounts.”

      That’s perfect and ideal.

      Thanks for sharing those details. I suspect that type of respond will allow Mary to see how she can potentially do the same or at least consider it as part of her needs.

      Reply
      1. RBull (59, retired, married, rural coastal NS) · Edit

        “So, like you, I would have no USD div payers in non-registered. I would consider putting USD payers inside the USD $$ side of the TFSA though – although the 15% withholding taxes on U.S. dividends would apply but at least that would likely be less than their tax rate.” In years past I have held 1 US listed ETF in my unregistered. It’s been a while but don’t recall it being onerous at all-(didn’t drip). I expect I’ll probably have a combo in future – some USD assets going to TFSA and some to unregistered in order to maintain some level of global equity balance overall as RRSP gets partially drawn down before CPP/OAS & RRIF required.

        My BPY example is the opposite of what was being asked (how to generate USD)- just used as a reverse example of no exchange issue. To me this isn’t a broker issue. It’s the way Brookfield handles it (converted by them with interlisted BPY.un) I’m quite sure any US interlisted stock is going to simply pay in USD (no fees or exchange rates apply) if your broker has a USD side of your account. For example my original BPY paid dividends in US cash into the USD side of my TFSA. Easy for anyone to check what they’re receiving vs. company web site payout info. Very sure it will be the same.

        You’re welcome. If someone gets something out of it great!

        Reply
        1. I have bought BIP.UN on CA side of my account, and had it journal over after the record date. So the first dividend was paid in CAD. I looked at the number and did some calculation and figured it’s calculated by the broker using their exchange rate. That’s why I am wondering what would happen if I hold, e.g. RY in USD side of my account. According to the agent at TD I talked with, it will be converted from CAD to USD by the broker, just as what happened to BIP.UN.

          Reply
          1. RBull (59, retired, married, rural coastal NS) · Edit

            May, I also own BIP.un on CDN side of my TFSA and conversions are done at bank rate. Let us check that out for you. My last dividend payment June 29 was @ .6085 CDN. Record date is May 31. BOC rate on that day was 1.2948. BIP.un pays .47 in USD
            .47×1.2948 =60.85XX CDN which is what my payment is.
            If this is the same for you TD agent is wrong (see below at bottom last sentence). If your payment in CDN is less they’re taking something in fee/exchange etc.

            https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/?series%5B%5D=FXUSDCAD&lookupPage=lookup_daily_exchange_rates_2017.php&startRange=2008-07-24&rangeType=range&rangeValue=&dFrom=2018-05-31&dTo=2018-05-31&submit_button=Submit

            From BIP website:
            “The quarterly distributions payable on the Partnership’s LP Units are declared in U.S. dollars.

            Registered unitholders who are U.S. residents receive their dividends in U.S. dollars, unless they request the Cdn. dollar equivalent. Beginning with the Q4 2016 distribution, registered unitholders who are Canadian residents and beneficial unitholders whose units are registered in the name of CDS or a name other than their own name (i.e., generally those holding their LP Units with a Canadian brokerage),will receive their dividends in the Canadian dollar equivalent, unless they request to receive dividends in U.S. dollars. The Canadian dollar equivalent of the quarterly dividend is based on the Bank of Canada closing exchange rate on the record date for the dividend.”

          2. Good that if you hold BIP.UN (CDN asset) then you get the CDN-dollar equivalent via BoC spot rate.

            Alternatively because BIP.UN is interlisted as BIP then you can hold BIP as a U.S. asset and get the USD dividend without any hassles inside a USD $$ RRSP. You can also take advantage of currency fluctuations this way and therefore hold more USD money as you wish, moving assets between CDN and USD via an interlisted stock.

          3. Thanks a lot, RBull. You are always so helpful.

            I went back to check my statement, I might have wronged TD. I have 200 shares of BIP.UN, and I got four different distributions, add them together, I got CAD$123.08.

            I am wondering if they use the same exchange rate for dividend paid in CAD that needs to convert to USD.

          4. RBull (59, retired, married, rural coastal NS) · Edit

            You’re welcome May.

            According to your numbers somehow you’re receiving .6194 – more than what you should, if everything is correct and we’re talking about the most recent distribution! Weird if TDDI is calculating it and still doesn’t explain the difference which would equal as if ~202.26 shares. I wonder if this has to do with them not having a USD side to the RRSP accts (farting around with manual journaling???) if that’s where some of yours is held. I guess the good news is it appears you got more than the rest of us.

            The rate being paid should be somewhere on your acct. You shouldn’t have to calculate, other than adding up shares if in different accounts. That might explain your variation. In mine at RBCDI it’s under “ACTIVITY” showing # shares x .6085 (rate). I have another line which shows number of equal shares reinvested (DRIP) and the cash balance remaining. I don’t see anything online re this until after payment date other than a reminder email a little before exdiv date with all details.

            Yes, the distribution of .47 USD is what is used as the base to calculate the Canadian $ payout based on their policy I pasted. That’s why it’s exactly correct for me.

          5. Yes, it’s the latest June distribution. It’s in my taxable account. They actually now have USD account in RRSP, but still not in RRIF. Also, I heard they charge fees for RRSP withdrawal not matter what’s the net asset hold in the account. I don’t want to pay $25 everytime I withdraw so I am considering maybe transferring everything out at retirement time.

          6. If you have a President’s Account with them maybe you can lobby to cut those fees? How often do you intend to withdraw from your RRSP each year? $25 is a pain though.

          7. Because Brookfield companies like BIP.UN / BIP are interlisted, and they pay their dividends in USD, wouldn’t it make sense to own BIP on the USD $$ side of your RRSP May?

            If you hold RY (a CDN stock that is interlisted that pays dividends in CDN), you’ll either need to incur the BoC spot rate to convert dividends from CDN to USD $$ for RY held in USD $$ side of RRSP OR worse still, pay the bank’s spot rate every time the dividend is paid.

          8. RBull (59, retired, married, rural coastal NS) · Edit

            Still strange to me your conversion isnt’ consistent with Brookfield policy and what I received.

            I guess what I was thinking on USD RRSP’s is reading you still can’t do Norbert Gambits online yourself with instantaneous settlements.

            TDDI will likely change/eliminate their RRSP withdrawal charges in time. If not, you’re right- just c’mon over when you’re ready.

          9. Mark, I actually own BIP in USD accounts both in RRSP and taxable accounts. The reason I want to own it in my taxable accounts is I spend USD from time to time and I want to have some investment income for that purpose.

          10. Nothing wrong with U.S. stocks in a taxable account May. I guess I just feel in my asset accumulation years it makes sense for me to keep things as simple as possible and put mostly U.S. stocks and ETFs inside my RRSP.

            Does your brokerage convert your USD $$ income from your USD stocks (BIP) into Canadian $$ for tax filing purposes or is that on you?

        2. Fair re: BPY example. I only think it’s a broker issue when the big bank brokerage does not give you spot rates for BoC currency conversion and/or they charge you fees for any RRSP withdrawals and/or you can’t withdraw your assets in USD $$.

          Ideally, it should be easy (and good) if you can withdraw USD $$ as cash from your RRSP/RRIF and move that USD $$ cash to your USD savings account(s) for fun travel money 🙂

          To confirm, you can do that with your brokerage RBull? Meaning, the bank worries about the USD to CDN withdrawal via T4RSP slips for tax time?

          Reply
          1. RBull (59, retired, married, rural coastal NS) · Edit

            I agree with what you’re saying on spot rates and fees.

            Yes, at RBCDI I can do RRSP withdrawals in USD myself. I have done 2 RRSP USD transactions in 2017 & 2 in 2018 so far. It is as simple as making a transfer of funds between chequing and savings acct. 20 seconds for the transaction and whatever time you want to spend to play around with the amounts etc when you see the exchange rates and CDN equivalents. Easy peasy. For stock transfers in kind their is a separate tab and must be done during business hours. Yet to do.

            I got my 1- T4RSP tax slip through cra/turbo tax and it just shows a year total for all 7 (2 USD & 5 CDN $).

            This is a copy/paste of most data (not acct # haha) from 1 of them I see on my “activity” page for that account.

            WDR – DEREGISTRATION 7,000.00 U$ CNV@ 1.26230000 8,836.10 C$ EQUIVALENT TO ACCOUNT
            FED – FED TAX WITHHELD ON DEREG 1,750.00 U$ CNV@ 1.26230000 2,209.03 C$ EQUIVALENT

          2. Great you can withdraw RRSP assets in USD $$. My understanding is not all brokerages offer that feature but I would have to research of all them to confirm.

      2. Tracking conversion for tax purposes is actually pretty easy: When you buy a US company in a USD account, simply multiply by conversion that day = cost in CAD. If you go to sell, simply convert the sale price in CAD that day= Cap Gain in CAD
        EX. $30.00 USD purchase x 1.3 convert = cost of $39.00 CAD, then
        $40.00 USD sale x 1.25 convert = $50.00 proceeds in CAD, Cap Gain of $11.00 CAD.
        T5’s go to accountant and I think they apply a gov’t sanctioned average conversion for the year.

        Reply
        1. RBull (59, retired, married, rural coastal NS) · Edit

          Right or wrong I’ve done it the way you described up until the last line.

          No accountant here and no avg conversion after having already done the exact math.

          Reply
        2. fyi – see updated post:

          “We are in the process of transforming and diversifying our portfolio in dividend paying stocks & ETFs, and ditching our mutual funds which are mostly Div Growth or Div income in RRSP, TFSA and about $65,000 in non registered. The cash wedge is in High int Saving and in checking accounts (CAD & some in USD). No interest in Total Return Strategy at this point. Dividends are actually $17,600 (just doubled checked), presently all from Canadian banks only, $450,000, non registered. We intend to take CPP and OAS at 70.”

          Reply
  4. I assume the savings figures are at Market Value, not the actual amount they’ve saved? Yes they’ve done a great job saving, but they are now at the mercy of the Market. Let’s say the Trade War accelerates and the market takes a nose dive of 20%, 30% or more and stays down until they recognize that all parties are being hurt. What would be the value of their investments? $850k and how much more will they need to sell to meet their needs?
    The sad part is that their dividend income on $1.115Mil is only $16,300 or 1.42%. Not much given their savings. In hind sight had they invested for Income, their dividend income could easily have been $65k to $75k and continue to grow. That amount could have accounted for most of their needs.
    Total Return in retirement can be a two sided blade, great in good times, but bad when markets drop.

    Reply
    1. I assume so cannew re: market value.

      $1.1 M invested, across various accounts, excluding taxation for a moment, should easily deliver $40k per year before taxes. (i.e., invested in various CDN and U.S. dividend payers or CDN or US dividend ETFs.) Not sure where you are coming up with the 1.42% for them.

      My table in the post clearly shows using their RRSPs/LIRAs alone, they can count on $30,000 per year before taxes from those accounts and exhaust those accounts over the next 20 years by their late-70s. After those assets are gone they still have another $500,000 to spend in their 80s and 90s, presumably a house to sell and live from. They seem to have plenty of money depending on their spending needs and wants.

      They have done very, very well.

      Reply
      1. Mark: $16,300 divided by $1,115,700 ($505,000+517300+129,400) = 1.42%
        Projections are usually based on Straight Line growth ie: 4% per yer, but if they are needing to sell investments than one must take into consideration market changes. I’m not sure but has not the market been down most of this year? I’d rather count on a growing income than selling shares.

        Reply
        1. Mark: Unless their statement is incorrect, Gross Dividend Income, $16,300.
          “$1.1 M invested, across various accounts, excluding taxation for a moment, should easily deliver $40k per year before taxes.”
          That’s true if they sell what they now own and re-invest the funds in Cdn & US DG stocks. But had they invested in DG stocks over the years, their yield on investment would be much higher than 4%.

          Reply
          1. I’ll add an example. My sister only switched to DG investing in 2014. Before that she held GIC’s and Bank Mutuals, which returned her in income about 1.8% (not Total Return). After switching and investing in 10 Cdn DG stocks, over a few years, her dividend yield is now 5.338% and growing (as the companies increase their dividend (and reinvesting dividends). On $1.115Mil the dividends would be $59,519.
            So had they been accumulating for many more years their yield on investment could easily be 7% or higher.

        2. Gotcha. Now I see. I don’t know their asset mix overall but maybe the non-reg. is entirely in CDN growth stocks vs. dividend stocks. With some adjustments (re: Canadian banks, pipelines, telcos and utilities) I bet that non-reg. $500k could easily churn out $20k per year and grow every year thanks to dividend increases.

          Like you, I like growing income vs. selling shares. Thanks for the clarification cannew.

          Reply
          1. Even if the $16,300 dividends is just from the Non-Reg of $505,000, the yield is only 3.22%, which is very low given that they must have accumulated the $505k over many years. Like you say they would be much better off with banks, pipelines & utilities.

          2. fyi – see updated post:

            “We are in the process of transforming and diversifying our portfolio in dividend paying stocks & ETFs, and ditching our mutual funds which are mostly Div Growth or Div income in RRSP, TFSA and about $65,000 in non registered. The cash wedge is in High int Saving and in checking accounts (CAD & some in USD). No interest in Total Return Strategy at this point. Dividends are actually $17,600 (just doubled checked), presently all from Canadian banks only, $450,000, non registered. We intend to take CPP and OAS at 70.”

          3. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

            I don’t know, it seems this is more speculation than anything. We don’t know what the investments are, we don’t know how they were accumulated, we don’t know where the investment income is from, etc etc. Seems we could go around and around on this and end up exactly back where we started.

          4. RBull (59, retired, married, rural coastal NS) · Edit

            Lloyd, you’re right. Many unanswered questions that make dramatic differences to an appropriate suggested approach.

            I note she states US & CDN net income goals and also this “maximize total return and minimize income tax like everyone else!” So she is concerned with total return and not dividend income only. Likely is planning to utilize some or all capital. We also don’t know what her asset allocation is, let alone actual holdings. Is there fixed income?

            We don’t know where she is located tax wise but a rough overall gross income in CDN $ is probably ballpark 65-70 to net the 30K CDN & 20K USD.

            Using VPW spreadsheet with overall assets of ~1247000, age 58?, depletion @ age 99, and 60/40% asset allocation (40 CDN,20 US/Int, 40 FI) she can start with withdrawing 49880K plus her 22K pension = 71880. At age 60/65+ CPP OAS add to this and likely 25-40K range, for a total 100K+. So using this hypothetical scenario she can fairly safely meet/exceed her goals, and probably exceed that if she has a higher risk tolerance.

          5. This is what I’ve estimated as well RBull.

            Using VPW and TaxTips.ca spreadsheets, Mary can easily withdraw at least $30k-$40k starting soon, without really ever worrying about running out of money until age 100. Add in CPP + OAS + pension and there is likely about $90k-$100k income per year, before taxes that should provide an outstanding retirement.

            Impressive.

          6. I wanted to add….this is where a fee-only planner can take assets and run a half-dozen scenarios for her and let her see what is possible. Come up with a 1-year and 5-year plan for spending, and readjust those 1-year and 5-year plans every year as a rolling update.

            I suspect that is what I’d do for Mary if I was in the business but I’m just an amateur – for now. Will consider a CFP at some point!?

          7. RBull (59, retired, married, rural coastal NS) · Edit

            Good that 2 amateurs can agree on this outcome!! LOL

            Agree with you on the planner part. That could be valuable for someone that has an idea of her needs, and in a strong financial position, but needs a road map with the various potential routes to get to the destination.

            Mark S. CFP has a nice ring to it. I’ll drink to that!

          8. Agree planning is very important. My biggest mistake was beginning the planning part too late. Well, better late than never.

            I feel making plan making me more relaxed and be able to handle job stress better. By running different scenarios with different assumptions, I am more confident that even I retire today, I will not end up eating cat food under a bridge or waiting in the line of food bank.

          9. RBull (59, retired, married, rural coastal NS) · Edit

            May, from what I’ve read you’re going to be more than fine in retirement.

            And your home will be a huge backstop for you if downsizing, moving to cheaper market etc.

            Great to read your planning is giving you peace, stress relief and more confidence. That’s the ideal progress report.

          10. Mark and RBull, thanks a lot for the encouragement. Hopefully my plan will work out smoothly, even with the big market down everybody is expecting.

  5. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

    Not enough (nor clear enough) information to formulate much of an opinion. For example, it is not clear which account is generating that $16.5 of dividend income. Is it RRSP/TFSA and non-reg, or just the non-reg, or some other combination?

    I also note the lack of any mention of expected CPP or OAS income.

    As to the earning of $US issue, I have almost zero knowledge in that regard as I’ve never researched it.

    Reply
    1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

      Should also have said “well done” to Mary and her spouse. That’s an impressive sum of assets.

      Reply
    2. Yes, congrats to Mary. Well done. If the kids already left home, they should have a very comfortable retirement.

      They are in their late 50s. I guess when to begin CPP/OAS will be a big decision to make. Once they begin to collect CPP/OAS, I figure their DB, CPP and OAS alone might cover their expenses already, if not 100%, at least a major part.

      Reply
    3. Good question. I don’t know either. I would guess that’s the non-reg. portfolio but I don’t know for sure.

      CPP and OAS could be very generous for them depending upon CPP contribution years. I suspect they might be able to earn a combined $30k per year as a couple in retirement if they delay CPP and OAS. That would be impressive.

      Reply
  6. RBull (59, retired, married, rural coastal NS) · Edit

    I agree Lloyd that Mary has done well and we don’t have enough information to formulate specific opinions on what is her own personal best way to generate cash flow.

    There could be other factors and strategies to employ/consider such as a total return approach, fixed income / cash wedge to draw from in poor markets, rebalancing when stock prices are higher or lower, other reliable income sources such as OAS/CPP, risk tolerance and plans for use of capital etc.

    Reply
    1. Yes…lots for Mary to figure out yet since her goals are not perfectly clear but I sense there is a need to protect capital given expenses seem to be far lower than what she could draw down. I could be wrong!

      Reply
          1. RBull (59, retired, married, rural coastal NS) · Edit

            For people planning to utilize both income and capital to fund their retirement I absolutely agree. HoweverIMHO having some steady income and some flexibility with varying withdrawal amounts is also key to it being practical and appropriate.

  7. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

    Thanks for update Mary and Mark. I sense that this is a work in process portfolio under transformation. From what I read, Mary is doing well and asking the right questions for what she wishes to achieve.

    I recently set up our “emergency” cash to get a slightly better rate over a daily interest account. I took the total we had on hand and divided it into six portions. Using an available one year quarterly term deposit that is cashable without fees or interest penalty each quarter, I staggered the terms so that every two weeks 1/6 of the total is easily accessible. This took the 2.1% on the HISA to a 2.55% average. I know it ain’t much but it costs me nothing to do. My original thought was just to go to thirds to match up with the credit card due date but I went overboard.

    Reply
      1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

        The money was previously in a HISA at 2.1%, now it averages 2.55% with 1/6th of it available every two weeks.

        Reply
          1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

            Dang it! They just raised the rates. I still have two to set up in the cycle but I’ll have to wait for the quarter term to come due and re-do four of them. Following e-mail from Hubert.

            “Effective today, August 2, you’ll be smiling (and saving) bigger with our Happy Savings account, Tax Free Savings account, and RRSPs all which now have an interest rate of 2.35%.

            And that’s not all! Our term deposit rates are also climbing. You’ll save even more with our two-year term (2.70%), our three-year term (2.80%), and our five-year term (3.35%). Our four-year term remains at 3.25%.

            Wait, we’re not done yet! Our one-year term rates have also changed. Keep your funds in place for an entire year and you’ll earn an average rate of 2.85%. As always, you’re not locked in for the entire year. You can redeem your term after three, six, or nine months. Here’s what you’ll earn.

            • The first three months: 2.70%
            • Months four to six: 2.80%
            • Months seven to nine: 2.90%
            • The last three months: 3.00%”

          2. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

            Ya, I’ve got a LOT of cash parked in there. I just set up the middle two 1 yr terms last month and have two more to go in August. I’ll redeem the first four on their 3 month anniversary and re-new them at the new rates. It’s an extra step but worth it in the long run.

          3. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

            I literally lol’d at that. It *does* sound kinda whiny don’t it.

  8. RBull (59, retired, married, rural coastal NS) · Edit

    Nice work Lloyd. Most of my cash is at Tangerine @2.5% for last 18 mths. Down from 2.95 and 3.21 before that as they work to wean people like me off their “special” rates. We’re close to going back to another competitor now.

    Reply
    1. Lloyd (58, retired (but farm a bit), married, rural MB) · Edit

      I’m not one to jump from organization to organization chasing short term “special offers”. Not that there is anything wrong with it, it’s just not me. Plus I’m using our local credit union.

      Reply
      1. RBull (59, retired, married, rural coastal NS) · Edit

        I get that. If you can do well with a local cu why would you?

        It’s enough money in my case its worth it for me and last year+ I get an email offer from tangerine before other expires. They chase me. With accts set up and linked to main bank & other competitor (paying less than half that) its low effort much like structuring your emergency ladder. Pays for all my years beer and most of my wifes wine. lol

        Reply

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