Weekend Reading – Do you need fixed income?
Welcome to some new Weekend Reading about another important subject: do you need fixed income?
(I want to thank some readers and their email questions related to this subject over the recent months.)
Just before that subject, and our current asset mix, some recent reads on my site…
Last weekend I answered this question: should you buy the dip?
And…this week I posted this: some back-of-the-napkin examples about retirement numbers and rules to consider. In that post there are some good starting points for your retirement income planning journey but at the end of the day, when you need real math done, please consider a retirement income plan beyond these rules of thumb.
Weekend Reading – Do you need fixed income?
The short answer for me: “I do!”
…and maybe you should consider the same…read on.
What is fixed income?
In short, just as the term sounds: when you own fixed income you get paid.
There are many types of fixed income instruments, though bonds, bond funds, bond ETFs, etc. are probably the best known but not the only ones to consider.
Fixed income products are instruments issued by a government, a corporation or another entity to fund their operations. These products provide a fixed rate of return for a set period of time. That could be via bonds (consider bonds like an IOU from someone) but fixed income products also include GICs or money market funds. The reason why fixed income products can be so appealing in a portfolio is because fixed income securities have less correlation with the stock market – so there is less investment risk. I believe owning fixed income can offer DIY investors like you and I the chance to diversify: yes, you can still own your stocks for income and growth but as the name suggests fixed income can also deliver a stable stream of income too – for less risk.
The return you generate from fixed income is taxed differently from return generated from equity. Capital gains and dividends are taxed favourably, while interest earned on fixed income holdings is taxed as income. Something to be mindful of…
Here is a very valuable post on this subject: Taxation of income.
We often see the terms bonds and fixed income used
I mean, consider this: imagine that inflation rises and the return you’re getting on your bond or bond ETF is now less than the inflation rate (which could be the case today?). Although you may have purchased this bond so your return on your investments would at least match the rate of inflation over time, that strategy is now at risk, at least until inflation declines.
Do you know when recent, higher inflation might subside?
I don’t.
Weekend Reading – Do you need fixed income? Do I need fixed income?
“I do”.
While our retirement income strategy is largely related to living off dividends and distributions in early retirement, I/we do have some fixed income and likely always will.
At the time of this post, our investment portfolio (beyond workplace pensions) is largely 90% stocks and 10% fixed income.
I have my reasons for that.
In How much cash should you keep I wrote:
“I think any money you absolutely need/will absolutely depend on in the next 1-2 years should likely be in cash or some form of fixed income.”
Well, I eat my own cooking!
While I have always believed cashflow is king….some cash is good too. 🙂
This means for us, most of our near-term, future semi-retirement spending (certainly looking ahead into 2026) is now ready to spend in cash/cash equivalents: there is cash savings via higher interest savings accounts, cash-alternative ETFs we hold, and money market funds too. We have done this to sheild ourselves from stock market calamity that may occur between now and the end of 2026 to cover our spending needs.
Beyond that, we’re working on saving up and organizing our portfolio for retirement spending money this year for 2027 – well in advance as continue to work part-time in 2025.
Even further ahead, I’ll come up with a plan for retirement spending for the start of 2028 (!) later this year so stay tuned for that…
The other big reason we keep some cash or cash equivalents on hand is we continue to believe cash should be there when you need it – as an emergency fund. Other than a few occasions since 2016 (yes, nine years ago….) where we’ve dipped into this cash savings, we strive to keep our emergency cash balance at this amount.
I continue to believe the last thing you want in any financial emergency is to go into more debt (and/or the stress of taking on more debt).
Weekend Reading – Do you need fixed income summary
For us, we’ve decided our mix of 90% stocks and 10% fixed income is about right – for right now. I may of course change my mind as our cashflow needs and/or risk tolerance moves into full retirement in the coming year or so.
While I believe in any early retirement base case that living off your dividends that covers your income needs might be ideal, so you can completely ignore share price fluctuations, while cashflow is king keeping some cash and cash equivalents on hand remains very smart for us too.
I want to thank my friend Dividend Growth Investor for some inspiration for this post this week along with the many reader emails in my inbox on my asset allocation and asset location.
More Weekend Reading – Beyond do you need fixed income?
You might recall I have this post about owning any bonds in retirement.
Let me know your asset mix in a comment below, and why. Also, let me know what forms of fixed income you like and why as well. I enjoy learning from others and my readers do too!
Have a great weekend.
Mark
As for fixed income, I tend to favor government bonds and high-grade corporate bonds. They’re reliable, provide steady returns, and help stabilize my portfolio. I’m also exploring some laddered GICs to lock in competitive rates.
I don’t mind that. All the best. 🙂
Mark
I am 88 and my wife 83 both retired
We both receive the cpp and oas my oas is clawed back
Portfolio 60% fixed and 40% equities (total portfolio 1.9m)
other rental income 15 k per year
annual spend excluding income tax 125k
What asset allocation do you recommend
I dunno, Bill – hard to fix what isn’t broken!! $1.9M in a 60/40 seems pretty darn good.
What do you want to change and why? Thoughts back?
Mark
I’ve often read that, over the long term, a 100% equity portfolio is likely to outperform one that includes a portion of fixed income. These same articles often go on to advise against putting money into stocks if you’re planning a major purchase in the next few years, perhaps as far out as five years. Typical purchases include a house, vehicle, and a once-in-a-lifetime trip. Based on this logic, which I personally agree with, any investor following this advice is no longer 100% invested in stocks.
I take this idea further by viewing our food bills and all planned expenses five years into the future as essential, major purchases, and indeed they are. So, I ensure that any gap between income (pensions, interest, and dividends) and expenses is covered by fixed income. For us, fixed income consists of approximately 50% cash/GICs and 50% bonds (ZAG and CBIL purchased using accumulating dividends). As each day passes, our allocation to fixed income decreases as we approach the start of future pension income. Additionally, I take into account anticipated dividend growth.
In summary, I consider the next five years of expenses as major purchases, and to safeguard the earmarked money, I allocate it to safe or low-volatility assets; fixed income. The remaining portion of our portfolio stays 100% invested in equities. It’s a psychological trick I play on myself so I don’t get tempted to ‘bet’ on a down market with soon-to-be needed funds. It works for me!
For clarity, the statement “These same articles often go on to advise against putting money into stocks…” is referring only to the funds required for the major purchases.
Yes, I’ve read that a bunch too. I would agree with that advice: no need to risk money in stocks when you don’t have to.
Long-term, however, stocks are not that risky for decades of investing.
Mark
50/50 seems pretty good, Bob, and likely meeting your needs based on what you’ve told me over time via this site.
ZAG and CBIL and other products are great for the 50% income component…
When does your pension kick in?
What is your long-term desired allocation mix?
Thanks for your comment,
Mark
Hi Mark,
Our portfolio is currently allocated at 72% equity and 28% fixed income. The 50/50 pertains to the cash/bond split.
Since there are two of us, the remaining untapped pensions will begin in 2028, 2029, 2030, and 2031.Between now and 2031, our portfolio is on a glide path toward a 90/10 allocation. The 10% fixed income portion will include some cash, or possibly all cash, if I decide that I’ve had enough of bonds by then.
It was one of your posts that put me on to the CBIL ETF – thanks! I was utilizing CASH.TO, but when interest rates dropped, CBIL started to look like a better option. It’s just a place to hold dividends until my next RIF withdrawal.
Bob
Good stuff. Ya, I like and own CBIL in my LIRA. I have that small % of CBIL there for future LIRA>LIF withdrawals that will begin in about 3 years this summer. CBIL is great for RRSP/RRIF too.
We have some money market funds inside our RRSPs x2, cash/cash equivalents ready for future 2026 and some of 2027 RRSP withdrawals/spending.
Close to 70/30 in your case seems very good and reasonable and after pensions kick in, well, then CPP and OAS over time I suspect you can decide to increase % equities quite significantly.
Everything tells me an equity glide path; a high % in equities as you age once any pension income + CPP + OAS is online is very wise.
I will do the same. 🙂
Mark
We look at how retirement income and personal investments are structured. DB pension, CPP and OAS are fixed income with inflation protection however the DB pension does not have full inflation protection (0.7 of Provincial CPI). These represent 87% of our current retirement income. The remaining 13% are personal investments which are 100% Canadian equity through holding individual stocks in RRSP, TFSA and non reg.
This percentage will shift when I collect OAS in two years when it will be approximately 95% created through fixed income and there will be less money required from personal investments.
We still hold a large amount of debt through mortgage, HELOC and car payment but the cash flow is more then sufficient to manage the debt, even through the interest rate spike the last few years. This is not efficient but we don’t care as the asset to debt ratio is 3:1.
If we had no assets at all we still can generate enough money to cover basic expenses and be comfortable.
Excellent, Gruff = DB pension, CPP and OAS are indeed steady income sources and with inflation protection – and if that meets most of your income needs, well kudos, excellent.
I hope for most of the same in the future decades when I get into my mid-60s.
Is your plan to kill off the mortgage and HELOC during retirement soon?
“If we had no assets at all we still can generate enough money to cover basic expenses and be comfortable.” You are set. So, debt is really not an issue for you. 🙂
Mark
“Is your plan to kill off the mortgage and HELOC during retirement soon?” I like your questions as they make me reflect.
Not at all as we have taken the strategy of managing the debt. Debt will be gone when we are, we sell and downsize or we win the lottery. LOL. The debt is mainly held in real estate so potential appreciating assets which offsets the interest costs.
Debt is large but cash flow is more than sufficient to service the debt. We anticipate somewhere between 1.5M and 2M dollars of guaranteed income over the next 25 years without touching any personal assets. Debt servicing cost is about 10-12% of net income.
Coming up to 7 years retired and feeling more and more comfortable with the plan. We’ve been through Covid, rising inflation and now the chaos created by the new US admin and we are fine. Debt servicing costs did rise with interest rate rises but still well within the budget.
We also have the option to cut the fat out of the budget, liquidate some assets, take on part time work or just sell the house and downsize so we have options. We have the ability to adapt as financial conditions change.
As originally mentioned this is not efficient but we don’t really care as our goal isn’t to accumulate the biggest pile but to create memories and free up our time. We are financially independent even with a large debt. No one gets off the rock alive and you can’t take it with you.
Thanks for your comments Gruff – we are heading in a very similar direction to you and it gives me confidence to hear that you have / are / will succeed with this approach. We share the same perspective on levers to pull (reduce budget, liquidate assets, downsize house, and even part-time employment) should the need arise. We are regularly discussing the potential for even earlier retirement, but we’re not quite there yet…….
Ha, good stuff.
As long as your cashflow > expenses including debt obligations, you are good to go of course. Certainly seems that way.
“Debt servicing cost is about 10-12% of net income.” – that’s pretty good.
Well, you don’t need to be perfect nor perfectly efficient but simply “good enough” will do and live your life. Like you, our goal isn’t to accumulate the biggest pile of assets but to have a good life-work balance in 2025 and see what 2026 might bring. 🙂
Life is short and precious.
Mark
Interesting piece. Thank you.
While they may not fit the precise definition of fixed income, do you see room for any Canadian preferreds as part of a well balanced portfolio? I am somewhat surprised they are not considered more often for stable, predictable income, with better tax treatment than GICs, bonds etc.
Thanks, Michael.
Ya, I think it can meet the definition of fixed income; in that preferreds have that fixed rate dividend rate – a blend of a bond and common stock. I just don’t own them and won’t own them since the upside is capped per se, so you can’t really participate in price growth. I don’t really like that hence my 90% common stocks or equities %.
A good, older but very relevant article:
https://www.morningstar.ca/ca/news/185441/are-preferred-stocks-your-best-choice.aspx
I think a small % of preferreds (up to 25%) is just fine to be honest = all depending on your investing objectives.
Thoughts?
Mark
We retired about 4 years ago (at ages 55/59) with just over 16% fixed. It is now down to 10%. The fixed income is largely in laddered bonds/GICs plus some XBB for flexibility. Basically, our small (less than $30k pension) plus the income generated by our portfolio, plus fixed income payouts were planned to cover all spending needs for 10 years, to my 65. After that, pensions (including CPP & OAS) plus yield will cover spending. I don’t get the 60/40 rule and “bucket” approach where every year you have to decide whether to sell bonds or equities to generate enough cash to pay living expenses. I don’t have to sell anything, which I think makes for more secure retirement income. I do occasionally trim a position or switch out an underperforming stock but I don’t NEED to sell for income! And don’t get on my case for “what about when dividends get cut” I’ve been in this game for decades and a diversified portfolio of 30 – 35 solid Canadian dividend payers has always generated growing dividends, even during the 2008, 2015 and 2020 market meltdowns.
Excellent, Marion!
Congrats on retirement – how are things going thus far? Spending what you thought you might?
I think 90/10 is pretty good for us, for now, given my DB pension, CPP x2+ OAS x2 is future inflation-protected dependable income streams for us. Likely to have all three sources online at age 65 but might delay CPP to age 70, we will see?!
I see value in the 60/40 approach in that you could, technically, sell off 3-4% per year every year and never run out. I would’t have that mix myself, and don’t, but I know some that do.
https://www.myownadvisor.ca/weekend-reading-beyond-60-40-portfolios/
Ya, I hope to do what you are doing in 2026: trim positions over time but no real need to sell lots of stocks to fund my lifestyle. We’re targeting a spend in Year 1 of retirement of about $72k or so after-tax.
I’m sure we own similar 30-some Canadian stocks. Care to share your list? 🙂
Congrats on your financial success, sounds like you’ve done VERY well!
Mark
Sure, I can share my list. This is just the unregistered accounts (up to 38 now as I recently added Corby and Quebecor). RIFs are largely in US/international ETFs and some REITs. TFSA is mostly in a money market fund right now as my son is thinking about maybe buying a condo and the bank of mom will be providing downpayment support! We don’t consider TFSAs as part of our regular retirement income, they are for the kids – either now or later – or a big one-time emergency (or maybe some crazy splurge like a 3 month luxury cruise 😁).
AD.UN:CA KEG.UN:CA
BMO:CA MFC:CA
BNS:CA MKP:CA
BIPC:CA MTL:CA
CM:CA NA:CA
CNQ:CA NWC:CA
CTC.A:CA NPI:CA
CU:CA NTR:CA
CPX:CA PPL:CA
CSW.B:CA PEY:CA
DXT:CA POW:CA
DIV:CA QBR.B:CA
DBM:CA RSI:CA
EMA:CA RY:CA
ENB:CA SIA:CA
EIF:CA TRP:CA
FTT:CA T:CA
FTS:CA TD:CA
IGM:CA WCP:CA
Hmm… cut off the rest of the list:
KEG.UN:CA
MFC:CA
MKP:CA
MTL:CA
NA:CA
NWC:CA
NPI:CA
NTR:CA
PPL:CA
PEY:CA
POW:CA
QBR.B:CA
RSI:CA
RY:CA
SIA:CA
TRP:CA
T:CA
TD:CA
WCP:CA
Good stuff. I/we own many of those, not surprisingly. We’ve avoiding trusts in recent years, although we have owned them, to simplify our portfolio and tilt it a bit towards growth.
This is largely what we own now.
https://www.myownadvisor.ca/dividends/
I think WCP has lots of upside longer term!
Mark
Good stuff, impressive list. Great work on helping your son via TFSA. I don’t report our TFSAs as part of our monthly dividend income update, although I could but it’s largely because the TFSAs are not being relied on for any early retirement income/spending.
https://www.myownadvisor.ca/march-2025-dividend-income-update/
Continued success and stay in touch!
Mark
I have 2 groups of retirement assets. One from a 20 year employee that I kept in group investments 30% fixed. The other 1/2 I think like Ricardo. My fixed income is CPP/OAS and small pension. My one exception is I have a fund (ZST) where I drop some of my profit and fund from failed choices that I use for next opportunity, like this market correction. Was 10% until last week.
Good stuff, Shawn. Yes, CPP and OAS are excellent fixed income sources.
What types of stocks and equities do you own?
Mark
Not what I would like it to be. Always had too much risk. Work on simplifying. MFG, BN, FTS, TFII, MRVL CCL, T, IMG are largest holdings. ETFs are XGRO, XDIV, ZST, XEQT, HHL. The rest is scattered with out clear goals.
Want clear path by year end when go from semi to full retirement.
Gotcha. Ya, what do you believe you need to do to help get to those goals?
It is more about finding the time to map that out or need more support in defining that?
XEQT is a good all-in-one fund, same with XGRO and then you have XDIV so why all three? Curious.
Cheers!
Mark
I am thinking I don’t want to spend time in retirement dealing with my financing. I just need to convince myself on what that means. I don’t need more, although that is a foreign concept to me after all those years of pay yourself first. Until Trump the idea was a couple low cost ETFs in registered accounts and figure out the non-registered later. Now I am not sure.
XGRO was first. Just had not decided on one all-in. XDIV & HHL were theme plays for dividends. I used to switch between banks and feel the healthcare sector is under valued in general. making it simpler.
I like XDIV selection, if your desire is a bit of income and growth from Canada. Then, you can consider XEQT or XAW or VXC, the latter two ETFs for ex-Canada investing.
HHL is expensive, 0.85% MER? 5-year long-term return is less than XDIV and less than XIU or XAW or VXC.
Things to consider and to simplify! 🙂
Cheers,
Mark
It’s important to know how much fixed income you already have before you invest in more. When I add up all of our fixed income from CPP, OAS, 2 pensions, and rental income, it comes to 78% of our budget. That leaves 22% in dividends. Even if 1/2 of our dividends were completely eliminated, we would still have almost 90% of our income (78% + 11% = 89%). We can easily live on that, so no extra fixed income for us. We do keep a cash buffer, and have a “flex” portion of our monthly budget that is not allocated to anything.
I’m with you, Guy. I’m too young for CPP, OAS and my DB pension but when they come online, those are definitely going to help my/our income stream so no need for us to take on more than 10% fixed income/cash position now.
How much cash or cash equivalents buffer do you keep? I know some DIY investors that earn enough dividend income whereby they don’t keep much cash but I know others than have a healthy 2-3 years’ worth of spending in cash/cash equivalents like money market funds.
Thanks for your comment,
Mark
I don’t really worry about having 2 or 3 years of income. Our monthly “flex” account in our budget is $1,500. This is not allocated to anything, so it just piles up until we decide to put it towards the vacation fund or home improvements or (rarely) top up some budget area that needs it. Other cash reserves are really just for possible unexpected expenses not covered by our regular budget. I have trouble with a single lump of cash approach, so I break it down instead. How much might we spend for car repairs? Home repairs? Medical expenses? Etc. Add all of these up and it comes to around 1 1/2 years of dividend income.
Good stuff, everyone is different so I’m genuinely curious!
I prefer to have cash/cash equivalents ready because while dividends are good and all, they are never guaranteed so having cash for 1-2 years in advance is a big sleep-at-night factor for me with lots of time to adjust to anything as needed.
I suspect when I do start selling some assets from the portfolio, it will be a bit like DCA (Dollar Cost Averaging) in reverse since I’m not sure large lump sums of stock or ETF sales will work for me but we’ll see when I get there, that’s likely to begin in late-2027 or 2028.
We’ll see!
Cheers,
Mark
Mark,
Regarding plan withdrawals, I initially opted for large lump sum withdrawals in the December of the year before we planned to spend the money. However, it didn’t sit right with me as some of that cash was sitting almost idle for up to 12 months. After two years of this approach, I started searching for a definitive answer on the best withdrawal timing. That’s when I realized the second part of a well-known adage about investing also applied when withdrawing funds: “It’s not about timing the market, but about time in the market.”
After that lightbulb moment, I shifted to selling investments and withdrawing funds closer to when we actually needed the cash, maximizing time in the market. I now make four withdrawals per year; January, April, July, and October, after the major dividend payouts have come in. Occasionally, I’ll also make a December withdrawal to bring me to the top of my target tax bracket, ready for January 1st when that extra money will be dispatched to the TFSA(s).
I’ve learned that with Questrade, although all our RRIFs and LIFs are set to pay out the minimum withdrawal in mid-December, if our ad-hoc withdrawals exceed that minimum, Questrade won’t process the scheduled minimum withdrawal avoiding unwanted payouts.
The above approach not only maximizes our time in the market but also keeps withholding taxes lower. Since the withdrawals are spread out rather than taken as one big lump sum, the highest withholding tax rate we experience is 20%.
I couldn’t find any information about this process online. Someone should write a blog post about it!
Bob
Excellent details.
In my case, Bob, I will make some lump sum RRSP withdrawals in 2026 and/or 2027 since I have the cash inside the RRSP to do so.
Not sure about 2028 or future RRSP withdrawal years yet. Will get through the first few years, first.
That said, I’m thinking of DCA in reverse once I turn on the RRIF eventually in another decade+ when I get into my mid-60s. Potentially quarterly RRIF withdrawals for steady income needs and to smooth out market timing decisions but we’ll see. I could see lump-sum working well too.
I’ve found the most successful investors, don’t generally withdraw the funds until they need it (to your point) so, time in the market makes a lot of sense since retirement includes asset accumulation time too. 🙂
That means, when it comes to a RRIF, if you want to give your RRIF the best chance to grow throughout the year, it’s best to withdraw a lump sum. You can choose to make RRIF lump sum withdrawals at the beginning of the year or end. I have instructed my parents to take it at the beginning mid-January every year to help them have funds for tax returns and/or the TFSA.
I will absolutely write a post about things when I get there!!
Mark
Bob, very interesting. Quite the timing of this G&M article!!
https://www.theglobeandmail.com/investing/markets/inside-the-market/article-an-escape-hatch-for-retirees-who-need-to-make-a-rrif-withdrawal-but/
“One reason is that retirees worry they may not have time to wait for a recovery from a stock market crash, while another is that there are required to make minimum withdrawals from their registered retirement income funds. No one wants to sell a hard-hit stock or fund in order to satisfy the rules about registered retirement income fund (RRIF) withdrawals.
One way around this problem is to keep enough cash in your RRIF to cover at least a couple of years’ worth of RRIF withdrawals. Use this cash instead of selling stocks or funds you know will recover if left alone. Another option is an in-kind RRIF withdrawal, where you transfer a stock or fund from your RRIF into a non-registered account.”
Option one / one way is my way = I intend to keep enough cash for RRSP and/or RRIF withdrawals in cash to cover at least a couple of years’ worth of RRSP or future RRIF withdrawals when I get there.
I recall you have a modest cash wedge approach in place too.
Mark
I find RRIF withdrawals rather simple. Dividends come in quarterly and provide the cash needed for minimum withdrawals. We take ours monthly and never have to sell a thing. Staying in the market. When we want to take some extra we can sell something when we deem the time to be right. RRIF, TFSA, Unregistered, all accounts pay dividends. No need to keep cash on hand for emergencies, until everything collapses that is.
Excellent. I have nothing else to say when dividends/cashflow > expenses. I hope to get there in some way!
Mark
Fixed income for me is CPP/RRQ, OAS and small company pension.
Not enough to live on for me but I do know of one couple who are doing just that.
After that I am almost 100% equities although I have mitigated to cash as of late (Since Nov 2024)
RICARDO
I also know individuals and couples that live off their pensions, and then CPP/RRQ and OAS. They keep some cash after that.
All depends on what you intend to spend as you know.
How much cash are you keeping these days?
Mark
Our current ratio is 57.5 equities and 42.5% GIC/HISA. This was not a target ratio. We had no target ratio and we have no intention of “balancing” to stay near this ratio.
As to the “why?”
In recent years, the wife was no longer as comfortable with the almost 100% equities we were at. When asked, she off the cuff (zero analysis or calculation) said she’d be happier having enough GICs to pay out $50K/year (before taxes) for 20 years no matter the state of the equity market when she turned 65 (2026).
We use GICs with some HISAs because these are simple enough for us to manage. Once the ladders were all set up, they don’t require any manipulation on our part. Now, do they beat inflation? (whatever definition of inflation one uses). They do now, but they probably won’t for the entirety of the time frame. But it ought to be close enough for what they are intended. It could be noted that neither of us will make it for another 20 years but that’s the number she threw out so I just did what I was “suggested” to do.
It is entirely possible that as the years go by some of the maturing GICs will be invested in equities, donated or a combination of both. A perpetual 20 year time frame is silly.
I’m *not* advocating for this method. It’s just where we are right now. YMMV
Good stuff, Lloyd.
You’re very close to 60/40. Do you rebalance?
I do like HISAs and ISAs for sure, we use an ISA.
And yes, I agree with you, having a seemingly perpetual 20 year time frame is silly…impossible to see what the rest of 2025 could be let alone what the next 20 years might trigger – but having a plan is very important.
Thanks for your comment,
Mark
“Do you rebalance?”
Nope. Still DRIPping in the wife’s RRSP and my TFSA and of course the GICs are compounding away. The GICs were more a targeted fixed dollar amount versus a %. We will of course add to the TFSAs annually and likely will be into equities. Our charitable donation of shares will also affect the ratio. Not a concern.
Excellent, very smart to invest in your TFSAs where you can as you age. I hope to do the same, including moving non-reg. assets to TFSAs every year or so.
You seem to be in great shape!!
I am 100% equities. If the goal is to live off dividends and you are comfortable that the companies you have purchased will not cut their distribution and have a record of raising it to cover inflation, then I see no need for fixed income. With all due respect, if you have made the decision you want or need some component of fixed income in your portfolio, then why is it such a small component? 10% is so small, whatever risk you are looking to mitigate is extremely minor. With equities, yes you take the price risk, but if you can live off the income stream, you also have the time to wait out any downturns. Throw in the unfavourable tax treatment and lack of protection from inflation and the case for fixed income becomes worse in my view. RY etc can be a substitute for fixed income and you get annual increases likely greater than inflation and the potential for price appreciation which would give you additional investment options. The additional risk taken on by such an approach is minor – provided you pick the right equities – and there are a lot that offer the characteristics outlined.
My two cents worth.
When you are required to make withdrawals from your RRIF, you might find that you will have to sell some of your investments. Having a buffer of gics or cash will reduce the shock if the market is down. If you do not have a RRIF, this is a moot point.
Good stuff, Jan. You have a RRIF I recall? What’s the % of stocks and bonds or fixed income in that RRIF?
Curious. 🙂
Cheers,
Mark
I just sold some Blackrock and have not yet invested the proceeds (undecided at the moment). Between the investment savings account and GICs, I have 35% invested, with the balance in stocks and an ETF. I will probably reduce that to 20% in the coming months. I am off on a travelling adventure this week and I won’t be thinking about my portfolio at all.
Ya, interestingly, I also sold some BLK in late-Jan over $1,000 per share. Just lucky timing. I put the proceeds into some money market funds.
I’m down to just a few USD stocks now + low-cost XAW and QQQ as my main U.S. holdings. I also have some HEQT in my LIRA for growth.
The way it should be!!! “I am off on a travelling adventure this week and I won’t be thinking about my portfolio at all.”
Happy travels!
Mark
If you receive enough dividends to cover both expenses and taxes from RRIF withdrawals, you can simply transfer your shares in kind to your unregistered account. Therefore, no need to sell anything.
Well, it’s a two-step dance. In-kind, yes, but RRIF withdrawals must be counted as income, as Jan knows.
When an in-kind withdrawal is done, the amount of the withdrawal will be the market value of the investment in Canadian dollars at the time of the withdrawal….and if the investment is in USD, then an exchange rate is applied by the brokerage to convert the transaction to Canadian dollars.
You also have to consider the RRIF min. amount because if an in-kind withdrawal exceeds the minimum withdrawal amount, there will be withholding tax deducted based on the excess over the minimum, so there must be cash available in the RRIF to pay this tax.
All said, easier to make RRSP/RRIF withdrawals in cash IMO. That’s just me.
I appreciate your comment, Alex. Do you make in-kind RRSP or RRIF withdrawals? If so, how is that going?
Mark
Hi Mark,
There is a way to plan in-kind transfers so that the amount missing for the minimum withdrawal is in the two digits, which could then be completed with dividends from the RRIF itself. So, no need to sell stocks for withholding tax.
I’m in my mid-fiftys, so no RRIF for me yet, but planning for long term. My RRSP withdrawals all come from accumulated divends through the year (I park them in CASH.TO so I get more than the 0.01% interest from the brokerage). So, no in-kind transfers for now.
I plan to do partial RRSP to RRIF conversions starting at 65, allowing income spliting with my partner. At that point, withdrawals will be higher than dividends received from that account, hence in-kind transfers. Note that these withdrawals will not be needed to cover expenses and taxes, so they’ll just increase our unregistered assets.
Good stuff, Alex.
Yes, in-kind RRIF withdrawals can occur but….
1. you need to ensure in-kind transfers are at least the minimum, if you don’t want to sell the stocks, and
2. anything above the RRIF min. will have withholding taxes and you should have cash to pay that.
Just seems complicated to me. 🙂
So, my process is similar to yours:
1. Stopped DRIPs inside RRSPs, cash balances build-up, inside money market funds/CBIL ETFs/etc. so that,
2. I can withdraw the cash from the RRSP.
Simple!
I also won’t convert all RRSP assets to RRIF at age 65, likely a partial.
Are you retired yet Alex or still working a bit?
Mark
Hi Mark,
I actually intend to withdraw more than the minimum amount required in the partial RRIF in order to deplete my RRSP before reaching 71. My goal is to have the RRIF transfer 2/3 in kind shares and 1/3 cash (accumulated dividends). I agree that it requires more calculations but I think the risk reduction in avoiding share sales timing is worth it.
It is still a work in progress as I still have almost a decade before acting on that plan. I retired in 2021 and do some consulting work for my last employer (less than 150 hours a year).
Ah, gotcha, more than RRIF min. so that strategy makes sense if your goal is to deplete RRSP/RRIF faster.
Nice work on the semi-retirement / FIWOOT path!
Mark
This is our approach too Mark, although our income stream will be back stopped by my wife’s modest DB pension. We have also chosen to invest in some higher yield funds (CC ETFs, split funds) to boost our income, but with the acknowledgement that this allocation of our portfolio (15%) will not keep pace with inflation. So far, the other holdings have raised their dividend in line, or better than inflation – on average. I predict our future average dividend growth rate to be around 3.25% and I’m comfortable with that in terms of keeping pace with average inflation.
“…If the goal is to live off dividends and you are comfortable that the companies you have purchased will not cut their distribution and have a record of raising it to cover inflation, then I see no need for fixed income.”
Very similar to my friend at Dividend Growth and in some cases, the same mindset of a few readers here.
I like cash/cash equivalents, our ISAs, investments in CBIL, etc. since I will likely use some of that for near-term spending, allowing dividends and distributions to add up more, and then I will spend those dividends and distributions in future years. I also like avoiding any emergencies with cash on hand.
There are a few CDN stocks that are very bond-like for sure: RY, FTS, CNQ, POW and others come to mind. It is why I own them for steady income, rising income and some capital gains too.
If your focus is living off dividends, what is your desired income stream from your portfolio? $60k? $80k? other per year?
Thanks for your insights, good comment.
Mark
Our portfolio generates around $180k (we sold our house this past year and have chosen to rent for now). When we retired we had enough cash on hand to cover our costs for the year, that way our dividends accumulated while we spent the cash. At the end of the year, the dash was spent but the dividends grew to cover year two. We have done this cycle for 4 years now. It seems to work and means we only touch capital for some tax planning purposes. With this approach, fixed income I don’t feel is required as in theory we always have one year of cash on hand.
Wow, that’s impressive – Mark. Geez.
I suspect that income per year provides some amazing lifestyle choices!!
We’ve turned off all DRIPs from Non-Regs and RRSPs and that should deliver > $50k per year very soon. Once my wife’s LIRA gets established later this year in 2025, from a DC pension that is being wound-down, that could bump up the income stream by another $15k or so.
So, I have a long ways to go to catch you but hope to start our retirement spending at about $6k per month + 3% YoY inflation in 2026.
In your case, yes, very biased you don’t need fixed income and rightly so. My goodness = amazing.
Mark
Thanks Mark. We worked hard at it. We had student loans coming out of school. We never had really big incomes but we did ok. We started saving early; we’re careful with debt; paid off our home in 7years and most importantly we saved and invested from the start. DRIPs helped of course. We turned off the DRIPs one year before retiring and that’s where the cash for year one came from. Steady blue chip investments. No tech. Slow and steady. It works.
Amazing. Big fan of DRIPs but as I age, and want the $$ to spend vs. reinvest, I’ve turned off those Non-Reg. x2 + RRSP x2 DRIPs like I mentioned. Yes, steady blue-chippers is great and own about 25 or so CDN here.
Do you own just CDN stocks or also U.S. stocks? Any ETFs for extra diversification or growth?
I think you know the general mix of my portfolio. 🙂
https://www.myownadvisor.ca/dividends/
Cheers,
Mark
I am in vested fully in CDN dividend stocks. I did on occasion hold some US but not for many years. No ETFs. I don’t like the currency risk in the US; it seems a lot more volatile; I don’t know how to value tech stocks so I avoid them too. Most advisors would say my approach has a lot of problems with it, but it allows me to sleep at night and I think I understand it better vs investing in the US.
Good stuff. You’re like a few other DIY investors that comment here, read here – they are all CDN stocks for their income needs. No ETFs. No Bonds. No GICs.
Some have 12 TSX stocks, others have about 20-25, but at the end of the day, they are all CDN stocks and have invested this way for about 20-30 years with great success. No point in changing their strategy…so beyond the income flowing in they keep a decent amount of cash for near-term spending and that’s it. Their income from their portfolio is much greater than their expenses. Phenomenal, really = the power of dividend income.
Yes, some advisors have a bias to take your money for assets under management 🙂 – so they won’t agree with your approach but hardly to argue with the results.
I have no doubt you sleep well at night with that large dividend income stream.
Top holdings? Banks? Utilities? Other? I own those, this is what I own a bit of: financials, energy, utilities, industrials…
https://www.myownadvisor.ca/how-i-built-my-dividend-portfolio/
Thanks again, Mark – always good to learn from others and what they are doing.
Mark
I hold the list below. I do a little trading each year ie I sold most of my BCE, also if I see a yield play I like I’ll do that – usually once or twice a year.
Bank of Montreal
Bank of Nova Scotia
BCE
Bridgemarq Real Estate Services
CIBC
Canadian Natural Resources
Emera
Enbridge
First National Financial
Freehold Royalties
Manulife
Power Financial
Pembina Pipeline
Phoenix Energy Services
Royal Bank
South Bow
TC Energy
TD
Telus
Awesome. Looks similar. 🙂
I also sold most BCE in 2022 and 2023.
Since Jan. 2023 I still have a bit of BCE for now only in taxable but it’s <0.20% of my entire portfolio now.
I own all big banks and EQB which has done well for me over the last 5+ years.
CNQ is one of my fav. holds. Close to 4% of the portfolio!
Got EMA, FTS and CPX as my main utilities.
Got ENB, PPL and SOBO as my pipelines + TRP.
Own all major insurers.
Telus too.
Those are my main ones but I also own some growthy stocks too like WCN, BN, and a small bit of DOL.
Quite a bit of XAW for growth and my next biggest ETF holding is QQQ for growth.
Nice to compare notes. 🙂
Mark
P.S. I should add, those are most of my CDN stocks. I have a few others and I also have some USD ones that have done well too, lower-yielding and higher growth names (e.g., WMT).
You got that right. Why make things complicated when you have a formula that works. We always have more than enough cash in our RRIF’s from dividends. Like I’ve mentioned before, I’d like to see scenarios of real peoples portfolios performances over a long period.
Very fair. Most folks cannot and will not have dividends > expenses.
So,
1. the saving and investing rate to have dividends > expenses is a challenge for most. Thinking even $1M portfolio could likely churn out about $40-$50k per year if all invested in higher-yielding stocks but the challenge for some is getting to the $1M in RRSPs/RRIFs let alone the entire portfolio.
Thoughts?
And…
2. what about only spending the dividends in that you will likely have a larger estate and taxation impacts? Unless that is your plan for generational wealth of course!
Curious.
Mark
Good points Mark. I don’t know how to pick future winners any better than anyone else. So I believe it is a better strategy to buy dividend growth stocks to build a portfolio. Like CN and Metro in the past that only yielded about 1% in dividends, then later after much growth convert them to higher paying stocks like banks. We do want to keep all capital to pass on, but if others want to spend it all, no problem. Sell when the time is right for you. Look at last year, if you wanted to liquidate something it would have been a great time. I just find that our CDN dividend payers are more reliable investments than trying to find the next Google or other.
Yes, I am aware of the tax impacts of our portfolio and am doing what I can to minimize.
I’m largely with you, Div. I have long since had a bias to only owning dividend paying stocks in Canada but I also like the great growth I’ve enjoyed beyond Canada since becoming My Own Advisor circa 2009. Heckuva return from XAW and QQQ in particular from 2016 and 2018 respectively that I could not get from pretty much any Canadian stocks.
That’s great if you want to keep your capital – I think that’s an excellent strategy to pass on $$$. All good.
The big reason why I own XAW and QQQ in particular is I can’t be bothered now into my early 50s to find the next Google or other either. I’ll let the growthy ETFs to do their thing and in the meantime, I will have some stable income from my 25+ collection of CDN stocks.
I hope to post my next dividend income update next week; should be over $50k from part of the portfolio which is a nice milestone now that I’m into semi-retirement.
What is your annual dividend income? I think it’s higher than mine. 🙂
Mark
Nothing wrong with your strategy. As you know I still own Constellation Software and Berkshire, (this one since they issued the B shares). Great growth stocks. Also had google, amazon, microsoft, in our RESP that put my son through 5 years of a very expensive university. My dividends are in the 200K range and growing. Right now sitting with 40K to deploy, maybe not all. I’m in South America now spending some.
Stick with your plan, all good.
Amazing, on the tech. Kudos. Yes, I recall your baller pick with CSU. Ha.
Thanks for the banter, ideas, approaches, support and comments. I enjoy them. We’re all on a different path.
It is my hope in my early 50s now, debt-free, the sum should work out well for us in the coming years:
1. $50k+ income later this year, per year and every year growing a bit from mostly RRSPs x2 + Taxables x2.
2. Income from LIRAs > LIFs in a few years at age 55.
3. Some part-time/hobby/blog work in the coming years but just nice dinners out money per month at best.
4. My DB pension in 14 years ~ $a few thousand per month.
5. CPP x2 + OAS x2 in another 14 years.
6. TFSAs later in life that could be >$1M delivering tax-free income ~ $30k-$40k per year in that range.
That’s not too bad, I hope!?
Amazing on South America. Kudos!!
Mark
Good morning. I’m not back on Canadian soil yet (within a hour or so) but am docked in Canadian waters.
I’m approximately 75% equities (up from 80% several mths ago), 25% FI- a mix of cash, gics, US & CAD bonds.
This is serving us well now, but I expect to return to an even higher proportion of equities in time.