Earning income in retirement
There is a wealth of information about asset accumulation, how to save within your registered and non-registered accounts to plan for retirement – when you’re no longer working. Or maybe you are working? Potentially you have income from other sources? Might there be an inheritance or another cash flow source in your future?
My point is, unfortunately there is little information (or not nearly enough written) about asset decumulation including approaches to earning income in retirement.
One of my favourite books about generating retirement income is one by Daryl Diamond, The Retirement Income Blueprint. This is one of the best I’ve read. It is my hope to start exploring this subject more on my site – including for my own benefit – to figure out what earning income in retirement can and needs to look like for us.
Thinking about this subject recently I realized the less I know and the more I need to learn. Much more. Maybe the same goes for you. So for what it’s worth today’s post highlights my thoughts on our “bucket approach” to earning income in retirement.
Here’s the approach we’re considering below. The approach includes three key buckets in our personal portfolio to address certain income needs and manage some market risk as well:
- cash savings
- income from dividend paying stocks
- distributions from and selling equity Exchange Traded Funds (ETFs) over time.
Quick notes: The best approach for any one person or couple will depend on a host of factors that one My Own Advisor blogpost cannot include nor standardize.
Some other retirement income factors and assumptions
Government benefits – CPP and OAS
You’ll note in my income table above I have not yet included any Canada Pension Plan (CPP) income or Old Age Security (OAS) income in these tables. No doubt many older Canadians including myself will earn some from each. Here is some general information on CPP and OAS:
Throughout 2016, the maximum CPP retirement benefit for new recipients at age 65 was about $1,100 per month. CPP benefits are adjusted once a year, in January, based on changes over a 12-month period related to the Consumer Price Index (CPI) – the cost-of-living measure used by Statistics Canada.
Throughout 2016, the basic OAS pension for recipients aged 65 was about $570 per month. OAS benefits are also based on the CPI but are reviewed and revised quarterly.
Given both government benefits include some inflation protection (CPI) I personally consider CPP and OAS very bond-like. For this reason we have a tilt towards equities in our personal portfolio and likely always will. This tilt exposes us to more market volatility but it should also provide us with better (higher) longer term returns than fixed income. Time will tell.
I’m not sure when we will take CPP or OAS. It will depend. As we get closer to determining our income needs we’ll figure it out. Ideally, we’d like to be able to “live off dividends” covering basic living expenses without CPP or OAS income. This will allow us to defer CPP or OAS, earn more fixed income as we get older by deferring those benefits, and potentially help manage our taxes accordingly.
Very conservatively I would think as a couple we’ll earn about $10,000 per year from CPP and OAS.
Workplace benefits – pensions
My wife and I are both very fortunate to have some workplace pensions to draw from in our future. I have not included this in our table above. Although these pensions are secure the income from them has yet to be fully determined.
Conservatively, I anticipate my pension income will be more than $20,000 per year for life starting at age 55. This pension is adjusted to inflation. I anticipate my wife’s pension will be less but again a pension is a gift. I suspect her income will be $15,000 per year starting at the same age.
If we decide to semi-retire from the workforce we’ll need money to close the income gap between leaving full-time work and when these pensions will kick in. It is unclear at this time whether we will commute any pension value or keep it in their respective plans.
Personal benefits – working in retirement?
Isn’t retirement supposed to be about not working?
It can be. Not for me.
My wife knows I never plan to retire in the traditional sense. I intend to work as long as I’m physically and mentally able to, into my 60s, 70s and beyond. This may or may not be for any money at all.
I believe working on your own terms can have a number of benefits. The gentlemen who wrote Victory Lap Retirement can likely attest to that. There can be social, physical and mental growth that comes from working. In that book, the authors highlight some form of “victory lap” career (i.e., working on your own terms) can provide a number of benefits when the main motivation is gone – you don’t need the money. Financial independence can provide a number of benefits whether you decide to retire early or not. Working on your own terms can be in the form of working part-time, working seasonally, starting your own business or volunteering your time and skills. As they say working can be better when you don’t need the money. I hope to experience that someday.
Earning income in retirement final thoughts
We believe our bucket approach for earning income in retirement will be robust and will provide us with options. If you haven’t already gleaned this from my article, you’ll notice we’re saving and investing diligently on our own now regardless of what might be in store for us (government or workplace benefits). We’re doing this because we believe this is the best approach for us. Ultimately you need to determine what’s best for you personally and financially. I wish you well.
Stay tuned to more blogposts on this subject and as my thinking matures.
What’s your income plan for retirement? Do you have one? Are you already there and are you accomplishing your needs and wants? Alternatively, don’t know where the heck to start? Drop me a comment and share your thoughts.