My Financial Independence Plan
I think this is always worth repeating: plans may be helpful but it’s the process of planning and re-planning that’s important for success.
This includes your financial independence plan and for today’s post – my own!
Over the years of running this blog and looking at my personal finances with it, I’ve seen some tremendous gains. I can only hope the next decade will be as good as the last…
But we all have blind spots.
We all have biases to overcome.
Some could argue my love of dividend paying stocks and the pursuit of passive dividend income is a huge bias. It might be. Maybe time-wise and wealth-wise I could be better off if I just owned a simple all-in-one financial product.
But, I do know my approach is helping me stay engaged and it’s delivering results.
Our dividend income is rising over time. Heck, I want to live off dividends to a degree.
But passive income and asset accumulation is only part of the equation. Asset decumulation will occur eventually…
This post will recap my path to date with asset accumulation and share some insights about asset decumulation as well…
Asset Accumulation vs. Asset Decumulation
“Drawing down one’s savings in retirement is something very few retirees do well, even with the help of professional advisors.” – Fred Vettese, author: Retirement Income for Life; retirement expert, chief actuary at Morneau Shepell, and more.
How true.
Although saving and investing is simple but not always easy, one could certainly argue asset accumulation is still far easier than how to draw down one’s portfolio in retirement.
| Asset Accumulation Principles | Asset Decumulation Questions |
| 1. Save early, save often | 1. When should I take my workplace pension? |
| 2. Keep your investing costs low | 2. If I have no pension, how do I know I have saved enough money? |
| 3. Consider asset diversification to reduce losses | 3. How much money should I have to retire? |
| 4. Stay invested | 4. How do I avoiding outliving my money?
5. What do I do if my investments drop? 6. How much cash should I have in retirement? 7. How do I fight inflation in retirement? 8. When should I take my government benefits like Canada Pension Plan (CPP) and Old Age Security (OAS)? 9. What mix of stocks and bonds should I keep in retirement? 10. Should I keep an emergency fund in retirement? 11. How can I generate income from my retirement portfolio? 12. What accounts should I draw on first? 13. And more and more and more!! |
Suffice to say, I think you see my point!
I bet you feel the same way.
So, to get past any biases, mistakes, or simply to double-check some pieces of my financial independence puzzle, I’ve enlisted some help this fall to run some projections, to see if our goals for semi-retirement are on-track.
Help from PlanEasy
I’ve had the good fortune of working with fee-for-service financial planner (QAFP) and founder of PlanEasy.ca good guy Owen Winkelmolen a few times.
You can see some of the posts we’ve worked on with readers below.
Spend more or retire earlier in this bulletproof retirement plan
Owen specializes in budgeting, cashflow, taxes & benefits, and retirement planning – working with both individuals and young families to help them with comprehensive financial plans from today to age 100.
Owen, before my plan, a few answers if you don’t mind?
I shared some big retirement questions above that come to mind, what are some other things prospective retirees and semi-retirees should consider?
Every situation is unique, but in addition to your list above one important factor in everyone’s plan is spending. Retirement spending is a key assumption and deserves some additional thought. We want to ensure we’re planning for infrequent expenses like vehicle upgrades, vehicle repairs, and home repairs. Missing expenses like these can cause an unpleasant surprise when assets are being drawn down faster than expected in retirement.
We also want to ensure there is a healthy amount of discretionary spending within the plan. A good retirement plan will have some flexibility to increase spending if investment returns are good in early retirement or decrease spending if investment returns are poor in early retirement. Those first 10-15 years are critical and if there was a series of poor investment returns it would require some spending flexibility.
Lastly, in addition to your list, its important to consider government benefits like GIS and similar provincial benefits. Nearly 1 in 3 seniors receive GIS benefits and they come with steep clawback rates of 50% to 75%. It’s not a factor within your plan you’ll share Mark, but there are many retirees who could have additional net income after retirement if they just did a little bit of planning before retirement.
Well said Owen. Now for some fun, anything that surprised you about our semi-retirement goals?
Having read your blog for many years nothing was too surprising : )
Your plan reflects many early retirement plans. A healthy retirement budget, time for travel and hobbies, the occasional vehicle upgrade, plus the possibility of some part-time income (but it’s not guaranteed).
I believe full-on retirement for you is going to be tricky Mark.
What I mean is, you’re just far enough from the start of your expected pensions/CPP/OAS that there is significant sequence of returns risk. With an early-50s semi-retirement plan, withdrawal rates drop into the 3% range after CPP/OAS/pensions begin, but for the first 10-15 years the withdrawal rate is typically above the often quoted 4% rule. (I know you’ve written about the 4% rule!) This can cause some risk if an early retiree faces some poor investment returns over those first 10-15 years.
So, all that said, I like your idea of semi-retirement for many reasons.
Owen, was I too eager to look at my financial independence plan even though I’m not ready to retire yet?!
It’s never too early to look at your financial plan. The peace of mind alone is extremely valuable. You don’t want the last few years before retirement to be full of worry.
Retirement (and your financial independence) is something to look forward to, not be worried about.
For many people there are also certain things we want to do in preparation for retirement. This could be paying down debt more aggressively, toping up RRSPs or TFSAs, or for couples, utilizing income splitting opportunities (especially when retiring early and the typical after-65 income splitting isn’t an option yet). Planning earlier also gives us time to set up best practices like emergency funds and saving for infrequent expenses.
Future income tax and government benefits clawbacks are the single largest expense in any retirement plan, so we want to plan well in advance. Starting a retirement planning too late can eliminate some tax & benefit opportunities and can increase this expense unnecessarily. The ideal time to plan is 5-10 years before retirement so that we can avoid unnecessary income tax and government benefit clawbacks (like income splitting for couples, GIS clawbacks for low-income, OAS clawbacks for high-income etc. etc).
Every situation is unique, but we’ve unfortunately worked with many clients who started their plan too late and were stuck paying additional income tax or triggering extra government benefit clawbacks. This directly impacted how much they could spend in retirement and the success rate of their plan.
Plans can be helpful but planning is everything
To quote Mr. Mike Tyson once again on my site:
“Everybody has a plan until they get punched in the mouth.”
-Mike Tyson, former heavyweight boxing champion.
I love that quote.
Like Mike tells us, while plans are sometimes good, plans can and will change. I intend to design in some flexibility into my plan.
Here is a recap of our pre-retirement goals:
- Saving early and often – striving to max out contributions to our TFSAs and RRSPs every year.
- Keeping our investing costs low – I don’t own any high priced funds (and haven’t for a decade now).
- Diversifying our investments – I own many stocks from Canada and the U.S., and I own low-cost ETFs that hold hundreds of stocks that earn money around the world.
- Staying invested – in fact, I tend to buy more stocks or ETFs when markets tank.
That’s it.
So, while the process of asset accumulation has served us well, I am now seriously thinking about asset decumulation – how I’m/we’re going to earn income and draw down our portfolio in semi-retirement.
When it comes to some semi-retirement goals and sources, here are the ones I shared with Owen:
- We’re planning for financial independence/semi-retirement in a few years – say around age 50.
- We expect/want to work part-time after that age.
- We believe we have a solid base of assets for semi-retirement. We need to combat any sequence of returns risk. This is why the 4% rule may or may not make any sense!
- We will own our condo – we don’t want debt entering semi-retirement.
- We feel we have a good understanding of our spending needs – spending as a base: $4,500 per month.
- We have TFSAs maxed out.
- We have RRSPs maxed out.
- I am fortunate to have a defined benefit pension plan.
- My wife is fortunate to have a defined contribution pension plan.
Owen and I also worked on some assumptions together:
- We assumed there will be no changes to my defined benefit pension plan before semi-retirement.
- We assumed (for now) I will not commute my pension – although that option/scenario could definitely happen!!
3. We assumed the mortgage debt will be dead in the coming years before semi-retirement.
4. We assumed there will be a one (1) vehicle upgrade about every 10 years.
5. We assumed based on some income needs (and many wants) we would start semi-retirement spending between $70,000 – $75,000 per year – rising with modest inflation over time.
6. We assumed it will be best to take my CPP and OAS at least after age 65, potentially at age 70. Same for my wife.
You can see some of our estimates below assuming I work full-time until age 50 at my current salary as does my wife. Assuming that, here is our CPP and OAS income projections at various ages:
7. We assumed there is some part-time work after age 50, earning at least $20,000 per year each before taxes, until about age 55.
A good income foundation is the hallmark of a good plan
Years ago, I started investing in dividend paying stocks because I felt this was a good approach to earn growing income (for today) and achieve long-term capital gains too. Total returns matter.
Enbridge was my very first dividend paying stock.
I’ve added many more stocks to my portfolio over time:
Over the last 10+ years I’ve also learned to embrace low-cost ETF investing for growth. I recognize Canada is a small part of the investing world so it makes sense to own stocks beyond Canadian borders, so we do.
This is the premise behind the Canadian 6-Pack Portfolio:
…Assuming we ever reach our lofty $1 M personal investment portfolio, coupled with the fact that we both have some workplace pensions we could spend from in our financial future, I’ve always been very confident in our financial independence plan and working part-time in our 50s.
Even if many Canadians can aspire to reach $500,000 in assets by the time they are aged 65 (no workplace pension at all) assuming they own their home/have no debt, AND they’ve worked or lived in Canada for many years, you can see from some quick math they would still have a decent retirement without any other income.
Image thanks to TaxTips.ca
| Asset/Income Source* | $$ |
| 1 adult – average CPP monthly payment | $710 |
| 1 adult – full OAS monthly payment | $614 |
| $500,000 invested assets | $2,000 per month |
| *Still have the option of selling the home, renting, moving to a lower cost of living city, other for longer-term care not to mention working if they really wanted to! | Total = $3,324 |
A quick Google search will always give you the average or full CPP or OAS payments available. I have used these numbers for illustrative purposes. Average CPP and OAS current to the time of this post.
My Financial Independence Plan – and what you can learn from it!
By now you should know no two financial plans may be exactly alike.
That said, I do believe there are some common elements that can apply to many financial independence plans.
Let’s take passive dividend income as an example.
I’ve been mocked by folks in the past that tell me “dividends don’t matter” or “dividends are not relevant” or other.
Some common complaints about my investing approach (including from some advisors, not Owen!) have sounded like this:
- Mark, the trouble with your “live off the dividends” approach is that you’d need to save too much to generate your desired income.
- Dividends are not magical Mark – there is nothing special about them. They are part of total return.
- Mark, your stock picking (with dividend stocks) is fraught with under performance of the index long-term.
- And more and more and more…
Well, for the record, I’ve always known that dividends are part of total return. I realize dividends don’t happen out of thin air. Stock picking doesn’t always equate to beating yourself.
Our Financial Independence Plan revealed
With dividends nicely compounding away in our registered accounts as part of total return, I feel we’ve been very fortunate to get to where we are.
The numbers???
With help from fee-for-service financial planner Owen Winkelmolen to help me validate a few assumptions he concludes we’re well on-track…
Owen confirmed we can likely spend about $75,000 per year as a couple, adjusted to inflation over time, starting in a few years.
To realize that goal, we need to do the following over the coming years:
When it comes to our retirement income plan, this is what our plans says from Owen:
We therefore intend to draw down our portfolio in the following way:
- “Live off dividends” from the taxable account for a bit.
- Make some RRSP withdrawals over the coming decades.
- We intend to take CPP and OAS no earlier than age 65.
- We will keep TFSAs intact until “near the end”.
Our success rate with this approach??
Very good.
Our Financial Independence Plan is designed around flexibility – so should yours
At the end of the day, I can’t really tell you what your retirement number must be.
I can tell you that any decent retirement plan starts with cashflow projections. Such projections must include base spending but money to account for contingencies or infrequent but potentially major capital outlays like newer cars, new roofs or other major home maintenance expenses every 10-20 years.
As I wrap up this FI plan, I’ll leave you with some quotes directly from our document that Owen shared:
“It’s important to realize that plans can often change, and we need to have some flexibility within our plans to absorb these changes without significantly impacting our long-term goals. Changes can be both positive and negative. There may be new expenses for health care, or disability, or there may be an exciting opportunity that affects some of our assumptions.”
“Your plan has flexibility in several different areas. You have the flexibility to reduce spending or draw upon investments if necessary. You also have flexibility to extend your working years or bring in extra income.”
“It’s important to highlight (these) and consider where you’re comfortable making changes if new circumstances arise.”
My Financial Independence Plan Summary
Drawing down one’s savings may not be psychologically nor financially easy. Semi-retirement let alone full-on retirement brings many changes in an unknown, unpredictable future. It is my hope you learned something from my financial independence plan so you can leverage something for your plan too.
I will keep you updated as the years progress.
Here is a more recent version: Financial Independence Update.
A thank you to Owen Winkelmolen (no affiliation) who is a fee-for-service financial planner (QAFP) and founder of PlanEasy.ca for running some numbers and talking through our plan for the purposes of this detailed post.
Disclosure: I (My Own Advisor) along with Owen, have provided this information for illustrative purposes. My FI plan may not be ideal for other investors. How I invest is not investing advice but an example of the possibilities for you! If you have some specific questions, I’m here to help and I could consider your case study in the future. Happy Investing!
Mark
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hello Mark,
It’s Kim here. I’m happy to see that you still respond to the old post. This one is relevant and important to many. As you/Owen mentioned each one has a different situation but your case study reflects a traditional Canadian. It maybe different for immigrants as myself. While reading your plan, I was terrified as I/We so behind in this plan. However, it’s hard to compare as I came to Canada 20 years but didn’t learn to invest properly until recently, hopefully:)). Therefore, I’ve made a lot of mistakes and it needs to be fixed. I love your investment approach and now gradually rearrange my funds.
Since we bought a house 10 years ago so I didn’t use up RRSP room. I’ve only maxed out TFSA 3 years ago and contributed some to RRSP including returning money from Home Buyer Plan. Now I realized that it was a bad idea to borrow this money to buy house. Until now, I still have $28,000 room for RRSP to contribute. I have had a few jobs so I have small money here and there with LIRA and now contributing to a Defined Benefit Plan. I plan to retire in 6 years @ 65. My husband already receives CPP& OAS but very litter due to his residency. He also didn’t have any employer pension money. My income ranges from $50,000 to 70,000 yearly that depends on contract hours. Currently I have money invested in non-registered. Should I transfer money from non-registered to RRSP account? As you already have a plan to decumulate if I do it maybe it is dumb. What do you think? Your opinions are valuable.
Thank you. Kim
Kim, we all make some mistakes with money. Anyone that doesn’t is kidding themselves and/or lying to others I think.
Personally, I’ve never been a big fan of the RRSP Home Buyers’ Plan. That said, I know some people that love it.
https://www.myownadvisor.ca/thanks-tfsa-we-dont-need-the-home-buyers-plan-anymore/
Back to you, I think you’ll find once you can sock away a decent amount of savings for investment purposes, ideally TFSA first and then RRSP second, the magic of compounding and growth will do wonders for your portfolio long-term!
Ideally, I think it makes sense to max out contributions to tax-free investing (TFSA) – a gift to all Canadians – and then tax-deferred investing (RRSP) before taxable. Why pay taxes on investments when you don’t have to?
Hope that helps from some of my personal perspectives!
Mark
Thanks Mark for a prompt reply. Yes, I agree with RRSP tax shelter but with 6 years, I’m not sure if I have enough time to accumulate. is it true, Mark?
That’s a call only you can make! 🙂
Personally, even though I have 3-5 years left until I consider semi-retirement I’m contributing to mine.
Hello Mark, thanks for your response. Yes, I thought it through and will continue to make contributions to RRSP. This morning, I wake up with email from Wealthsimple to notify my dividends from TD & POW. I feel so good about my small harvest:)). I’ll rearrange my funds to increase more the positions. Catching up your goal $30,000/year maybe impossible but I feel more confidence in your investment approach. Thank you so much for sharing your knowledge and experience and taking time to answer my questions. Have a great weekend! Kim
Most welcome. Again, with investing, including individual stocks there are always risk but I think if you come up with a game plan that suits your needs and something you can stick with through heck or high water – you will be rewarded with time.
Best wishes – don’t forget to share the site with others 🙂
Mark
Thanks Mark. Yes, I’ve already shared it with my fans:))
Ha, great!
Hi Mark,
Came across your site, and was blown away by the simple yet logical approach to long-term planning for FI.
I ended up getting hooked and have already devoured most of your posts.
Great advice from Owen as well, and some of the use cases are also very helpful.
I am from a different country and will be migrating to Canada in next few weeks. I have been motivated by the FIRE movement since some time, and am reasonably well-versed with the financial planning and using the appropriate financial instruments of my native country.
However my understanding reg the Canadian financial options are limited, and am hoping to get some knowledge from the sites like yours.
Hence it would be very helpful if you can consider a case study and drawing a roadmap for the new immigrants, as they would have a different set of challenges.
Some of the questions that pop up relate to the nuances of the usage of TFSA and RRSP accounts during the accumulation phase, as well as income splitting with the non-working spouse.
Specifically, I am looking for some guidance regarding the pros/cons of setting up the single or joint TFSA/RRSP accounts, as well as to deploy some of my savings in the right bucket.
Despite some savings over the years, with no real estate ownership, and not much in the way of expectations for the retirement benefits in the form of Canadian pension and the HCOL, the early retirement seems an uphill task.
Any pointers from you, Owen and your experienced readers will be highly appreciated.
Thanks,
JP
Hi JP,
Thanks for visiting my site and I hope you stay subscribed and share it with others!
In terms of TFSAs and RRSPs, I have a lot articles on that subject. I’ve pointed to a few here and how I invest myself for any reference. Not advice, just things to think about!
https://www.myownadvisor.ca/tax-free-investing-tfsas-101/
https://www.myownadvisor.ca/tax-deferred-investing-rrsps-101/
What has worked for my wife and I, is maxing out contributions to our TFSAs first, then contributing to our RRSPs after that. Here are some reasons:
https://www.myownadvisor.ca/great-things-you-can-do-with-your-tfsa/
https://www.myownadvisor.ca/ill-continue-to-maximize-my-tfsa-first-because/
I can fully appreciate not owning real estate, not much in the way of a pension, it might seem like an uphill battle.
You can however realize some great gains if you focus on your TFSA and RRSP for investing purposes; keep a regular savings habit, and stay the course. I started off my investing journey with just $25 per month 20+ years ago!
Anyhow, best wishes and if you have more detailed questions I can consider a post about some items.
Sincerely,
Mark
Hi Mark,
Thanks for your kind and informative comments, and kudos to you for sharing valuable info and guidance through your blog.
Without doubt, this is the best Canada-focussed blog that I have found regarding FI knowledge and strategies.
To provide some additional context – I am 44, and will be migrating to Canada in next few weeks with my spouse (non-working) and a 15 year old kid. I am looking to be FI in next 6-7 years, right around the time my kid graduates. I do have some savings (around 1M CAD), but mostly in the stagnant real estate in my home country. I am also expecting some inheritance few years down the line.
The plan is to gradually move my assets to Canada and invest in low-cost ETFs and build the required nest-egg gradually over next 6-7 years.
However the current real estate in Toronto is a killer, and settling in a LCOL region is not an option. Any advice regarding purchasing a primary residence at such high prices, pls? Wouldn’t it be better to rent initially for a few years to let the RE market cool a bit? But then, is it not timing the market, which goes against the core principle that you advocate, and I which whole-heartedly agree with (albeit in RE as against stock market)?
Also, can you kindly also advice the best options to open the TFSA & RRSP accounts, and how to get started in investing in them, please?
I am most interested in US ETFs, but am a bit confused about the withholding tax concept. What is your recommendations, please?
Apologies for so many queries…I am just so excited to finally find a Canada blog that I can relate to, in the matters of the FI approach.
I have found the case studies on your blog to be very helpful and illustrative.
Since I believe my situation is typical of so many new immigrants (professionals, mid-careers, some assets but not enough, focused on FI, etc), I was wandering if you and Owen might consider doing a case study, which will be beneficial for scores of new immigrants coming to Canada.
Thanks once again for providing a great source of information.
Already registered…and looking forward to devouring all your earlier posts as well.
Thanks once again.
JP – sounds like you’re already thinking about the correct things. I’ll tell you what, drop me an email personally and I can write a post in the coming weeks about everything I can share/my experiences for you and other newcomers to Canada. I will do my best to point you to expert resources and trusted folks. I can’t offer direct advice but I can certainly share what has worked for me.
I don’t need any personal details of course from you, just a list of questions and concerns you might have.
My Contact information is here:
https://www.myownadvisor.ca/about-contact/
Thanks again for your kind words about my site and journey – it means a lot 🙂
Mark
Thank you very much, Mark.
Will definitely share the details with you shortly.
With your permission, I’ll also share the blog link with some of my WhatsApp groups for the new immigrants. I am sure they too will find this blog extremely beneficial.
Thanks
No problem! It will take some time to write that post but I will do my best with you 🙂
Talk over email soon enough…
Mark
Hi Mark. Congrats for these fantastic articles. I have a very serious problem. I am 70 years old Canadian and I live in Portugal. I have lived outside Canada for the last 20 years and I am designated as a “non resident” of Canada.
Before retiring, I took a retirement plan with a life insurance company through my Canadian financial advisor. The yearly returns are mediocre but above all, the life insurance Company kills me with 2,5 % annual fees independently of the return on investment.
I would like to transfer my account to a financial company like Fidelity to obtain better returns on investment and more reasonable fees. But my Canadian advisor tells me thta I am stuck with my actual investments as no other financial institution can accept a transfer due to the fact that I am a non resident.
Is this fact or fiction. If there is any way out, I would greatly appreciate if you could tell me how to do it.
Thanks for everything and keep up the good work
Hey Jean Louis!
First off, thanks for your readership from Portugal. We loved it there when we visited in 2017. We miss Portugal 🙂
Second, I hear you about those mutual fund fees and those are very high. As you know, you can do better!
I wonder if you are “stuck” because you’re invested in DSC funds? i.e., funds that have deferred sales charges and your advisor is playing hardball and doesn’t want you to leave? For them to tell you “no other institution can accept a transfer” only due to the fact that you are a non-resident seems like B.S. to me but I must say I’m not fully versed on non-resident investing regulations.
I’ve read that some Canadian financial institutions will require you to close non-registered accounts when you become a non-resident. But, not sure if your account is taxable or not. Clearly, you were able to keep it in high-fee funds?
As far as I know, you shouldn’t have a problem leaving your registered accounts, like RRSPs, TFSAs, etc. in Canada, as Canadian investment firms generally have no restrictions dealing with non-residents who have these types of accounts.
Correct, you can’t invest into registered accounts as a non-resident. You will be penalized
To invest as a non-resident, you will have to contact each brokerage likely until you find one to worth with – they are all different. As far as I know, you cannot contribute to a TFSA as a non-resident. Any individual that is a non-resident of Canada who has a valid SIN and who is 18 years of age or older is also eligible to open a TFSA…..however, any contributions made while a non-resident will be subject to a 1% tax for each month the contribution stays in the account.
For the RRSP, that’s a different. I’ve linked to an article here:
https://mcacrossborder.com/non-residents-and-registered-retirement-savings-plans-rrsps/#:~:text=Non%2Dresidents%20of%20Canada%20can,where%20non%2Dresidents%20may%20live.&text=Withdrawals%20may%20be%20taxed%20only,lower%20tax%20rate%20of%2015%25.
Might be worth a free consult with an expert? 🙂
Hope that helps a bit.
Mark
I finally had a chance to stop and read your plan. Thank you, Mark. We’re new to the game, and still learning more about the accumulation, and it seems like the decumulation aspect is very important, too. As we plan to retire in 2028, it is time to create our plan. I am looking forward to reading the next posts. Happy to hear great feedback re Owen.
Stay safe, my friend.
Ha, you have LOTS of time Gean as do I, I believe. It’s just great to read about other journeys and see how folks are carving out their own plan.
I have to have you on the site eventually! re: Investor profile.
Will add to my growing to do list if you’re game.
Cheers,
Mark
That sounds like a plan, and we would be honoured, Mark. Happy to help and take your time 🙂
Good stuff. Will add to my growing to do list for 2021 🙂
All the best, be in touch!
Mark
Mark what is BlackRock’s iShares equivalent to Vanguard’s VRIF single income solution? Thanks !
Hey Mark, your passion for retirement planning will pay off big time…and help many others as well. Thank you.
On another topic, the goal of reducing taxes in retirement must be considered. Yet, it should not be your end goal. Paying taxes is a necessary privilege that Canadians should never regret. It helps us, our children, friends and all Canadians. Also, clawbacks most often take a little away from the wealthy, which is OK.
Very well put Paul and nice to see your comment for that context. I have no issue with paying taxes, generally speaking. It means I’ve done well and invested well! I hope to pay it forward more over time 🙂
Thanks for reading,
Mark
This is an incredibly insightful article, Mark. I got a lot out of this, but here’s a random note I had:
Being able to use your home as a source of late-retirement funds is something that many people do not consider in their retirement plan. Here’s an interesting way to accomplish that: You may already be in a condo, but that’s a market-valued condo. You have the opportunity to downsize even further into an eldery living community. My Grandma lives in a great community which has a series of low-rise apartment buildings. It’s for people 70 and older and it cost her around $150k to buy in. When she passes away, or transitions onto something else, the entire $150k goes back to her (or to her estate), minus a small fee which goes to the strata to turn over the unit. Comparable non-elderly living apartments down the street sell for $300k. If you’re 70+ and in a bind, something like that can allow you to access the equity in your condo while avoiding HELOC debt or getting a reverse mortgage.
Good points. I won’t be thinking about any reverse mortgage for decades for sure…but I do see your point. Based on where we are at, my wife and I are likely to own the condo, stay here and call it “home base” when travel opens up again in the coming years.
We will own our condo, have no debt, and if house prices keep going the way they are in Ottawa, this place might be worth 7-figures in the coming years. We could sell, invest the money for rent, move to a lower cost of living location or other.
The key thing about our plan that we’ve been always striving for is to have options and flexibility. I think that should be the key for anyone since options open doors, not close them 🙂
Thanks for your comment!
Mark
Fantastic plan Mark. What struck me was the comment about marginal taxes between 20-30%. I like to think in terms of average tax paid on every dollar taken in retirement. If you each earned 10K in part time work, 12 500 in dividends, and 25K from RRSP that is gross total income of 95K. The tax owing would be about $8900 combined. That means your average tax would be 8900/95000 = 9.3% and that does not include all credits available such as donations or health care costs. That works out to over 7K per month after tax. Exciting times.
That’s an interesting take on taxes. I will need to sort my income streams at some point to calculate that but I don’t worry about it too much now. I figure if I pay my fair share of taxes I’m doing well but it will be more important to be tax efficient in my retirement years since I won’t have the luxury of going back to a good paying job!
Exciting times and the countdown is on for sure…a few more years and looking forward to the process/continued journey.
Thanks for your support!
Mark
Exactly the way I look at taxes too. Average rates. And the same way I view rrsp contributions (tax savings) in my working years….avg taxes paid vs what is being paid now in retirement. In my case it’s a significant difference. Marginal rates only apply to a portion of income (and perhaps very little).
Good quick estimate on Mark’s future potential taxes. Consider marginal but focus on avg. and the projected net income.
You said it right, plans are good but can always be derailed at anytime. Therefore my plan is simple and vague. Save as much as possible. Invest as much as possible. Get to the finish line as early as possible. Which really means being able to retire with enough passive income to cover living expenses. With 2 young kids I’m still far off, but hopefully one day.
I think with that attitude you’ll be more than fine! 🙂
“We will remember them.”
How exciting as you get closer. Thanks for sharing. I am starting to solidify my CPP decision in a couple years. I like that chart and I created something similar. I also run five year income projections and it’s encouraging. Snow in the mountains so hope to ski a few days before Dec.
Nice.
Snow in the mountains – I’m going to try and play golf today!
Mark
Looking forward to reading more abut your plan, Mark! Exciting times ahead.
Indeed. Getting there slowly – it’s my get wealthy eventually plan GYM 🙂 Thanks!
Owen put together a plan for my wife and I that has us retiring next summer. It helped answer the all consuming question “Will we have enough”. We even built in funding for a motorhome to kick off our retirement. Now we are saving diligently and watching our TD index funds until we hit that target number. He was even able to provide several spending scenarios above our target annual spend to check the likelihood of running out of money before we run out of time, in case we end up spending more. Another important scenario was to check what would happen if one of us predeceased the other. Would the survivor be OK financially.
Lots to think about.
That’s great to hear Carl. Owen is diligent in his work and is quite customer-focused. Running projections are important to answer many financial questions and doing so often is a big enabler to double-checking your math given the environment changes often…plans can and do change.
TD index funds are great low-cost products and far better (as you know) than some costly alternatives!!
Good call on any death of spouse or partner. Those are very important considerations for sure.
Thanks for reading and your insights!
Afternoon Mark,
Thank you for the excellent work on documenting your Financial Independence Plan especially pertaining to the retirement portion. I am noticing now that there is organic growth of more conversation regarding the decumulation phase of retirement primarily due to your blogs and others in the industry that you link to on your site. As the older generation seek to move into more independent management of their assets, it’s a category which has been lacking in comparison to the wealth of accumulation and growth strategies on the internet. I’m of a mindset loath to take $1000 to 2000 dollars to consult with a fee only financial planner along with a continued consulting fee for yearly review, so I eat up free content with an open mind to self education. I spent my hard earned $13.99 today on Fred Vettese “Retirement Income for Life” on my kindle reader due to your article. Little light reading starting tonight. Lol.
As one of those that has worked toward “FIRE”, strictly fire mind you, no part of this new movement, “FI”. I have no intent of any part time side gig, enterprise or job in any form of their definition. I’m tired and looking to decompress and enjoy life. Look forward to more enlightening content and truly appreciate the hard work to produce the content. Cheers.
Jeff, you are very astute! I know I will be writing more and more about asset protection and asset decumulation on this site over time because it’s exactly where I am headed and I think I have some wisdom to offer as I work through those scenarios.
You are correct that many people will not want to fork over $1,000 or more to consult with a fee-only planner so other options to Canadians need to be available. I hope to work on that and share more details over time 🙂
Fred is very well versed and experienced in this space, so kudos for buying the book. I have the first edition and I hope to review the second in the coming months as my reading list and book offers to me grows! (I get many requests sent my way which is nice….)
If you have worked hard to realize FIRE/FI other then you deserve to do whatever the heck you want!!
All the best and thanks for your readership. See you on the site more and stay tuned for my next update on my financial independence plan.
Mark
I am really looking forward to reading more about your plan Mark. Some great points made by you and Owen above.
Great article showing how important it is to understand your finances. I have the good fortune that my wife accounts for every penny. Many pages of spread sheet that are updated weekly. In the process of planning, how often I’ve heard “I’ll borrow from this account to pay for that”. My own contribution is to invest…to which I’ve done a so so job. Being retired, dividends is my play. So far, I’ve managed to keep the income from all sources just above the spread sheet red line and projected ahead for many years. No replacement car this year!! I can see that a program like PlanEasy could be critical for people who do not have an “accountant” in the house.
Paul, sounds like you have a great plan with your wife, re: to oversee your cashflow and where you money goes.
“Being retired, dividends is my play. So far, I’ve managed to keep the income from all sources just above the spread sheet red line and projected ahead for many years.”
That’s awesome and I hope to be there in a few years myself 🙂
Stay tuned for the next update, curious on your take!
Looking forward to following along with this series! I think a session with a financial planner will go a long way towards cleaning up any issues with the plan. Then, it’s really important for early retirees to be able to assess their plan, before and during semi-retirement. One needs to be able to make adjustments on the fly to avoid sequence of returns risk, or other speed bumps. I quite like the guardrail analogy, you just need to make sure you set the right boundaries.
It’s nice to have an extra set of eyes – I have my biases but it seems the numbers are coming together. I like buffer, as a project manager, I like contingencies so the guardrail approach makes sense to me.
In early retirement/semi-retirement I will be leaning on some blog income + part-time work + dividends. As long as we have our health, we should be fine 🙂 More to come my friend!
Mark
Great article and all important considerations. Something I often question is, withdrawal funds once a year for income or monthly? I’m always concerned about selling assets during a down market. My advisor does not recommend me using dividends for income and tells me to reinvest. I often see conflicting recommendations and question which is best?
Thanks and best of luck in financial independence!
Hi Lisa! It’s going to depend somewhat on the type of investments you hold and the financial institution. Mutual funds at a bank benefit from the ability to create systematic withdrawal plans (SWPs) that provide monthly income but for ETF or individual stock investors that’s not an option. There will be more manual work required in those cases so some people prefer to make less frequent withdrawals.
Thank you Owen, I appreciate your reply to my question. It never seems to be an easy process 🙂
FWIW Lisa, I like monthly income for my future. It’s easier to budget and adapt. Having a lump sum early or late in the year, while somewhat beneficial, is also difficult to forecast. So much can change in a few months let alone a year.
If you can set-up a system that allows for ~ monthly income that would be ideal I think. That’s just me and my biases.
I would absolutely consider reinvesting the money if you don’t need it or until you need it. Money that makes money, can make more money 🙂
Thank you Mark for your reply. I agree with you, monthly income is more ideal.
Hi Lisa: I hold only stocks and ETF in my RRIFs that pay dividends. I get paid monthly. I set aside enough cash in the RRIF to cover those months were the accumulated dividends was less then the withdraw and projected that out for three years. Some months the cash account grows and some months it shrinks. It was working like a charm until IPL cut their dividends so the projection is now for two years so l keep an eye on it and may have to adjust. I like having a known monthly income coming in.
Thanks Gruff. I too, like income and forecasting/budgeting monthly. It is my expectation we will “live off dividends” to a degree and only withdraw the income generated by our portfolio in semi-retirement for the first 5-10 years to avoid any sequence of returns risk.
Stay tuned to the next update on this plan! 🙂
From what I have read about the RRSP withdrawals the amounts up to $5,000 will generate withholding tax of 10%, which rises to 20% between $5,000 and $15,000, and to 30% for chunks over $15,000.
Would it make sense to make 5K withdrawals to minimize the tax impact and let the money “work”? Then just pay the actual (extra) tax when filing a tax return.
You are correct on the withholding taxes Alex on RRSP withdrawals.
I have advised my parents, who have pensions, to do exactly that over the years – withdraw $5K each from each RRSP then then put that money to work if they don’t spend it inside their TFSA, and pay the tax difference come tax time/filing tax return.
They have decided to take out more, which is fine, and spend it now and then.
I expect to “live off dividends” from the RRSP in the early years, likely withdrawing no more than $10K per RRSP each, each year and living off taxable income + part-time work. That should be enough for us but we’ll see. I’ll have the option of withdrawing more from RRSP(s) if we need to prior to pensions kicking in.
Time will tell!
I plan to cancel drip in our RRSP accounts once we retire and live on the combination of investment income and asset sales. It won’t be evenly monthly income but I think it’s OK that way. One month might have more income than another month. I imagine we will always have some spared cash.
One strategy that worked successfully for our family was to have all the expenses paid by the higher income earning spouse and investing the salary of the lower income spouse for their entire working life in dividend paying stocks. This also allows for income to be split between the spouses more evenly especially in the future to minimize total tax. We invested my spouse’s salary for her entire working life (she retired at 51) and now at the age of 63 she has dividend income of over $80,000/year. I believe this should be suggested when one spouse’s income is significantly higher than their partner. This can also be used in conjunction with spousal RRSP contributions to the lower income spouse to transfer future income to them.
Great income splitting Roger! You’re right, many couples don’t take full advantage of income splitting opportunities.
Indeed Owen!
Very smart Roger.
“…now at the age of 63 she has dividend income of over $80,000/year.” Whoa. That’s impressive. I don’t think I’ll get there but jeepers, maybe I’ll get close someday. Kudos. You’ve saved and invested very, very well.
Mark
Hi Mark. I too have worked with Owen (thanks for the introduction!). That was 18 months ago and I have been in touch with him for a refresher as I am now 13 months from retirement! While Im confident we have “enough” (and Owen concurs), our struggle is what income source to tap first in order to minimize taxes and assure the money lasts. We have done well and have 7 accounts to draw from. 2 x rrsp, 2x tfsa, 2 times non-registered (most generating dividends) and my DCPP.
Most of what I read is designed for those retiring at 65. I will be 59 upon retirement and my wife, 57.
Some advisors have suggested to draw the DCPP first. Others have suggested to use non registered first. Others still have suggested a combo. I know these are “good” problems to have but they seem to be all-consuming these days! Thanks again for you posts, this one in particular, and I look forward to following your updates on this topic. If some of your early retiree readers have any thoughts, please chime in! Happy Remembrance day.
Great to hear from you Chuck.
You’ll see in my next and final post on this plan, that Owen suggests I/we draw down our registered/RRSPs slowly over time; in our 50s, 60s and into our 70s if those assets last that long. He expects us not to touch the TFSAs “until the end”.
Exact wording from my plan:
“In retirement, we’ve planned for you to take advantage of new TFSA contribution room each year by shifting registered assets into your TFSA. This may trigger some income tax, but it will allow your assets to grow tax free inside the TFSA. This will help minimize income taxes on your estate and it will help make these funds more accessible if spending should increase in the future (ie. for health care in later years).”
So, to answer your question, it will be a blend of pension income, RRSP withdrawals, “live off dividends” from taxable account and some part-time work in our 50s and 60s (before CPP and OAS kick-in) that will fuel our semi-retirement needs.
FWIW – we have x2 TFSAs + x2 RRSPs + x1 non-reg. + DCPP + DBPP + small LIRA excluding future CPP (x2) and excluding future OAS (x2).
Lots to think about 🙂
Kudos to you for having “enough”. It means you saved and managed your money very well!
Mark
Hey mark, great post, so much to think
& plan, canew said it best…
Thanks
Brad
Well thanks, stay tuned for more updates next week!
Sounds like you and Owen have the bases covered. I appreciate that he mentions large, infrequent expenditures such as replacement vehicles.
That’s something a lot of retirees forget to consider. Owen’s right that it could create nasty surprises when a retiree ends up withdrawing too much early on.
This was a good overview! I look forward to reading more of the details behind your plan.
Thanks Chrissy! Looking forward to sharing and seeing what holes people poke at it 🙂
Thanks for the comment Chrissy. In our plans we typically focus on three major infrequent expenses, home repairs, vehicle upgrades, and vehicle repairs, but there could be more depending on the client. Owning other assets like boats, ATVs, cottages, vacation properties can add significant expenses as well!
Good point. It really “depends” on where you want to spend and forecasting those expenses. I suspect Chrissy and her family are very good at that!
Lots to think about. Fortunately, we can look back rather than forward, and we found that, even without a company pension, having ones income exceed their expenses when we retired, eliminated almost all of the items to be concerned about. We certainly could have been more tax wise, but having to pay tax is not a major problem, again if the income is there.
I think too many complicate the matter more than is should be, even those planning to retire early.
Having a good income stream and/or income streams, regardless of increasing taxation and inflation although not ideal, is key.
I look forward to your comments on my plan cannew.
Mark