Weekend Reading – Dividend All-Stars
Hey Folks!
Welcome to a new Weekend Reading edition about some dividend all-stars to consider for your portfolio, and much more.
First up, some recent reads in case you have missed them!
For early retirees especially, I wrote about the best ways to navigate cashflow in early retirement and any sequence of returns risk associated with it – I also shared our approach too!
And, thanks to this guest post, here is a Modern Adjusted Cost Base App for Canadian DIY Investors.
Weekend Reading – Dividend All-Stars
Headlining some of my favourite finds this week, I found this Globe article (subscription) on dividend income all-stars to consider for your portfolio. I own a few in this list, do you?
Of course, income from your portfolio is not everything but I do believe it’s very important for cashflow. Here was our last projected dividend income update below and I look forward to sharing the next tally soon. Stay tuned!
That monthly update reminds me of this:
“Stocks are safe for the long run. Stocks may not be very safe tomorrow or next week.” – My Own Advisor.
Over at Cashflows & Portfolios, we wrote about some reasons why some Canadians are not ready to retire.
Reader question of the week (adapted slightly for the site):
Mark, congrats on early retirement later this month!! What do you think about contributing to your RRSP in early retirement still or any RRSP contributions in your 50s if/when you have very little income? Does that still make sense?
Thanks for your question!
You know, I’ve thought about that a bit….
Some (few) Canadians begin to wind down their workplace careers during their 50s and most probably do that during their 60s. I think if you intend to keep working in retirement, in your 50s and 60s, then contributions to your RRSP may make sense.
I will say there is no one answer that applies to everyone.
We all know by now that the RRSP must be converted to a registered retirement income fund (RRIF) or registered annuity by the end of the year in which you turn age 71. Assets/money that remains invested in the RRIF or annuity are taxed as withdrawals are made, and are done so in theory at a lower rate than during higher-income working years.
That bold font is key.
If your overall retirement income sources including those from your RRSP/RRIF will likely be less than when you were working during your career, then sure, it can make sense to keep contributing…
I’ve referenced recently that RRSPs continue to provide two HUGE benefits to Canadian investors:
- a tax deduction today from your RRSP contribution, and
- tax deferred growth.
With your tax deduction, you can reduce the taxes you pay today.
With tax deferred growth, investments in your RRSP can compound over time without being taxed as long as money made stays in the account.
For most Canadians, to reap the benefits of this tax-deferred account they should maximize their contributions where it makes sense (based on their earned income), keep the fees associated with their investments inside the account low and avoid making withdrawals for as long as possible until retirement.
If you are in your 50s or 60s starting retirement, and you’re not working or barely working at all, I’m not convinced contributing to your RRSP is wise. Work at your hobby job in retirement, spend the money from that as you wish, and enjoy your life. You’ve earned it.
The challenge I see with continually funding the RRSP in your 50s and 60s, during retirement, is you are essentially building a higher tax liability. Again, sure, if your working income in retirement is very low, RRSP contributions may make sense based on other assets owned and what wealth you want to build – but generally speaking, you are creating a large tax-deferred headache if you never stop contributing to your RRSP.
Oh, and another thing, if you have a substantial RRSP/RRIF then you may need to navigate the OAS clawback. The ability to retain as much of your OAS benefit as possible during any pre-RRIF years can be a reason to continue making RRSP contributions from ages 65 to 71. An RRSP deduction reduces the net income used to calculate these clawbacks.
All said, how long you continue to make RRSP contributions is your call. To me, it’s always been a cashflow decision – how much do you need in your RRSP/RRIF, amongst other assets, to deliver the desired cashflow you need for retirement spending.
I keep it very simple.
If you are like me, and you’ll have a small employer pension, CPP income and OAS income eventually to live from, you may want to consider stopping all contributions to your RRSP in your 50s and 60s.
I wrote all about that in this pillar post.
Thanks for your question, it was a good one!
Now to the other extreme end of the wealth spectrum, an investing legend who has massive tax issues beyond the realm of comprehension to 99.9999% of the population. Good problems to have overall I guess. 🙂
“A $100 investment in Berkshire Hathaway in 1965 would be worth $6.1 million investment at the end of 2025, significantly outperforming the S&P 500’s dollar return of $45,500.”
Bonkers.
Have a great long weekend.
Mark
Hi Mark: mark selling stocks is hard so I think I will continue to hold stocks. If you sell stock now you have to figure out were to put the money you get to work again. An example is when BC Telephone called in a preferred stock I had at $25.00. I bought it at $15.00. Now I have the $10000.00 capital gain but I’m not getting the good dividend I was getting so were do I put the money to work. It took time but I managed to put it to work but at the time I felt sad even though I made a great capital gain. Emotions. When it comes to the portfolio it appears to just get bigger. I say this because I have just roughly figured up my bumped up income that I will have to pay tax on and it is about $8000.00 more than last year even though I dropped $20000.00 on the BCE dividend cut. Mark as far as Telus I’m thinking of buying more. They haven’t said they will cut the dividend and one must ask if they think the company is going off the board. If not then I don’t care where the price is as long as the dividend will add to the cash flow as it harder to add to the cash flow with stocks so high. Some people are now recommending Telus and BCE. I mainly live off of dividends and distributions as my work pension and CPP just come in and build. That is how big my work pension is. I guess the big day is coming soon and you will be joining the rest of us free of the rat race. Keep on investing.
You are very kind…thanks for that. Yes, I have 7 work days left this month – then done.
Telus is priced very well I think and worth a splurge now since if they do cut the dividend, the price should only go up. Win.
It is my hope I don’t have to sell any stocks for a couple of years and I intend to mainly live off dividends as well, hopefully close to $90k per year by the end of 2026. We shall see. 🙂
Hi Mark: Let me get this straight. You plan to cannibalize your retirement portfolio- on purpose? I live within my means and usually there is more money to live on then the preceding year. Mark my job when I got laid off was to build my portfolio and I have done it ever since so your de-accumulation doesn’t apply to me. My portfolio just accumulates because it is easier. I will pay tax on the accumulated dividends. I figure having more is better than not having enough. I find no fault with anyone having a RRSP or RRIF as I have a small one myself but like lloyd said you pay it now or pay it later. Say you started early and contributed 1M to your RRSP and then transferred it to a RRIF that first withdrawal would be $52800.00 that would land in your account and would be fully taxable. Not a nice thought. Paul Kershaw of the Globe has a new topic to tout. Richer seniors should receive a smaller OAS because they don’t need as much. When I saw this I was annoyed and then had to laugh. I don’t know if he realizes it but although everyone gets the OAS rich seniors don’t receive it so what is a percentage cut of zero.
Well, I will sell some stocks over time, if that’s what you mean. 🙂
Don’t worry, I won’t do that right away!!
Yes, our combined RRSPs will be over $1M and we have other assets beyond that so we will be spending from our portfolio over time = sum of dividends and selling some ETFs on the way.
Thoughts on the Telus dividend cut coming? Do you own any of that stock for your cashflow?
As for OAS, no senior making over $100k per year in retirement needs “income security” from taxpayer money. Thoughts again?
Cheers,
Mark
I put funds into a spousal RRSP which helped when my income was high, and the income is allocated to my spouse (pre age 65). When taking out RIF funds now, it’s a way for us to income split. So we received the tax deduction years ago and split the income now (a win-win IMO). Even when I was earning less salary, I still put it into the Spousal so we could income split now. I guess the option would be TFSA / non reg in the spouse’s name but that didn’t work for us due to US citizenship and tax complications. RRSPs are protected from that.
The trick is the 3 year allocation rule, I messed up a bit and took a little too much out this year (rookie error!) but once I realized, I put it back into my RRSP to bring my income back down to my target amount. Until the 3 years has passed, the max a spouse can take out is the RIF minimum without it being allocated back to the contributor. It means the SRRSP has to be converted to a RIF and the max coming out is the minimum required by the government. Weird rules to keep track of.
Ya, I can see the complications for you…
And yes, watch out for the Spousal allocation rule.
Beyond that, you seem very savvy tax-wise so I’m pretty sure by now you have it all figured out! 🙂
Have a great long weekend,
Mark
I have always figured that a tax deferred is a tax avoided (temporarily, of course) – so I continue to contribute to my spouse’s RRSP though I have had to convert my RRSP to a RRIF. (That can happen only because I have some earned income post retirement.)
I pay tax at the top marginal rate now and no doubt will do when my wife has to convert to a RRIF and start taking money out of it – and she probably will do (with a bit of luck). So we don’t benefit from a lower tax rate when income is realized, but we do benefit from a tax reduction in the year of the deduction and don’t have to ‘pay it back’ till the money comes out of the RRIF eventually.
So as your discussion says, we do get some benefit of earning in a tax sheltered account.
Being able to choose the younger spouse’s birthdate to ‘set’ the RRIF is a big help, depending on how much younger the spouse is. In my case I will have about 8 or 9 years of a RRIF before the mandatory withdrawals exceed the annual income from the investments in it. (Though I take out more than the minimum, to use it up.)
I should add that we both use up our TFSA contribution room before putting anything into the RRSP. Money from the RRIF gets spent, so far. If not, then it seems fair to have it sit in unregistered investments, where earnings benefit from dividend tax credits and capital gains rates.
Super smart, the TFSA is a gift to every adult Canadian!
We try and max out our TFSA every single year…so far, so good, own in mostly growthy stuff = low-cost ETFs and have done so for years although I have a few CDN bank stocks in there too.
So your tax rate in retirement will be the same, or higher (?) than working years John?
That would be rare but like I have mentioned all along, a tax problem in retirement is usually a good problem to have/try to navigate.
Yes, absolutely, I share that with clients I work with as well: use younger spouse’s birthdate to ‘set’ the RRIF if possible. Some can do that, others cannot! 🙂
Buying anything lately?
Cheers,
Mark
Just last week I threw some funds back into the RRSP. Forecasting my 2026 taxable income put me right at the top of the OAS clawback range. I had a GIC maturing anyways so I elected to put the funds into the RRSP to recover just a bit of the impending clawback. But it’s only a one time event as I’ve now used up all the contribution room I had accumulated from before retirement.
Next step might be to convert the RRIF back into an RRSP. I’ve read this can be done so I’ll have to make up my mind and pop into the Bank to see for sure. This will reduce the taxable income a bit more starting in 2027 until (if) I hit 71 in 2031. I really should have explored this last fall. Messed that one up. 🙂
Ya, you can turn back RRIF to RRSP – but why? Is there a big benefit in doing so and don’t you need the RRIF income for living expenses?
If you don’t, you can always take the RRIF $$ out and put into tax-efficient (Non-Reg.) or tax-free (TFSA) accounts. 🙂
I don’t need the RRIF income at all.
If I convert back to an RRSP, I drop slightly over $23k of reportable income from within the OAS clawback range. It also coincidentally would be lopped out of the 43.4% tax bracket here in MB. Granted this only really works until I turn 71, but that’s a long way away and a lot can happen before then.
I’m not concerned about taxation upon death as I’ve designated the endowment funds to be the beneficiary my RRSP, RRIF and LIF. I’ll do the same for this new RRSP as well.
Oh wow, nice.
But if you don’t take it now, when? Estate will be large…does it not make sense to take it out, move $$ to TFSA every year and then if you really don’t need the money, gift as you have been doing?
Like you mentioned, maybe taxation/estate issues are not an issue…?
Cheers my friend,
Mark
TFSA is already being funded from just the pension incomes and minimum LIF withdrawal. And the major charitable donations are planned to be in-kind for at least the next 4 years.
Sure I could just take the RRIF payments, pay the tax (43.4% plus the OAS clawback 15%) on it now and donate to get the tax credit but I’m already bringing my federal tax payable down to almost zero with the above mentioned share donation.
I look at it this way, I can move the RRIF back into the RRSP in the fall and theoretically shelter the growth for the next five years resulting in a much larger (and tax free) donation at death AND get five years of some of the OAS (won’t get it all for sure).
If I live past 71, absolutely, I’m going to get lambasted tax wise, but that was going to happen anyway when my other RRSP has to be converted. At that point I’ll just take some solace in that all that taxation is just pay back for all the medical expenses the family incurred over the years.
Who knows, maybe the market will crash and organically drive down the RRIF value thus lowering the withdrawals. 😉
Gotcha, so existing cashflow is more than enough and RRSP/RRIF is gravy. Wild.
Yes, you can do that: RRIF back into the RRSP and theoretically shelter the growth but it is temporary as you know.
But, pay a bit now over time or pay a lot more later is your choice.
A good problem to have along with your generous gifting. 🙂
Mark
“or pay a lot more later ”
Yup, but depending upon when “later” happens it could also turn out to be essentially tax free. And in the meantime, saves me over $12K per year in taxes/clawback to age 71.
This is just an optional adjustment due to existing circumstances. It was never planned to be this way.