Weekend Reading – Expenses that may disappear edition

Weekend Reading – Expenses that may disappear edition

Hi Everyone,

Welcome to a new Weekend Reading post: some expenses that may disappear in retirement (or not) edition. 

A few thoughts on that particular subject soon but first some reminders about some recent content…

To avoid wasting money in your asset accumulation or asset decumulation years, you should really, really consider the tyranny of compounding costs – fees that kill portfolios. 

I highlighted where I’m parking some cash now, in some low-risk, low-cost cash-alternative ETFs that yield more than 4%. Are these ETFs right for you?

This past week, I updated my post on whether the 4% safe withdrawal rate rule was really worth looking at. I think this “rule” has some merit, to a point. Read on why in that link above…

Weekend Reading – Expenses that may disappear edition

Source: Behavior Gap

Respected CFP Mark McGrath’s tweet caught my eye this week, related to future retirement expenses that may disappear as you enter that lifestyle phase.

Once you back out all the expenses that will disappear in retirement:

* mortgage
* savings
* kids expenses
* higher tax rates
* CPP contributions

You realize you might need less retirement income than you think.

— Mark McGrath (@MarkMcGrathCFP) June 1, 2023

For the most part, I’m aligned with him based on our plans and forecasts.

A good example of our thinking stems from our Dividends page.

For years, I’ve highlighted some basic, average costs/expenses we incur. We spend more money than expenses identified on that page, but those are our foundational expenses we need to cover in semi-retirement or retirement from our portfolio. 

I’ve tracked those key expenses for years because I want/we want the income from our portfolio (dividends, distributions or some capital withdrawals over time) to cover those expenses and a bit more. We simply cannot afford to retire before that occurs. 

You can see from that table, on that page, once our mortgage is done, that should free-up at least $2,200 per month in after-tax dollars – after-tax income we don’t need to make and our lifestyle would not change.

Without a mortgage, we’ll have no debt. This is not a trivial milestone. We can’t wait. 

When you have debt, you pay other people first. 

Yet lack of mortgage, let alone no cashflows diverted to saving for retirement, could be replaced as you age by other costs that Mark didn’t indicate in that tweet – although I know he is aware of them. 

Inflation is a slow wealth killer. Larry Bates reminded us so in his Beat the Bank book. 

Healthcare costs are a major wildcard. I had a post on this very subject here.

The costs of elder care in Canada

Lower taxation is not a given – you can only be tax efficient to a point – with taxation rates and rules likely to change to service government programs over time. If lower taxation occurs in the coming decades, great, but I’m hardly planning for that in our house. 🙂 

When it comes to our plan, while I do believe our mortgage costs and the need to divert our employment income to savings for retirement purposes will disappear, there are some retirement headwinds to fight and we’re planning for them now: higher inflation, higher healthcare costs, higher overall taxation. 

This reminds me of this Carl Richards sketch art below, and the role of some reality-based planning knowing there is always uncertainty in the future. The beauty of plans are, while never perfect, they define your assumptions about the future so you can change course more readily when life changes on you. 

From Carl’s musings on this subject:

“In fact, the only thing we know for sure about that straight line is that it is wrong. We just don’t know why… yet. But it will be wrong again and again and again because we can’t predict the future, no matter how many numbers we crunch.

The good news? That’s okay.

That’s right… it’s okay not to know. It has to be okay because there’s no other option.

I’m not saying don’t ever draw the line. For sure, that’s an important part of the planning process. It gives us an approximation, a baseline, a direction to go.

I’m just saying, don’t confuse the line with reality.

After the line is drawn, we need to relax into the idea that planning is an ongoing process. We need to understand that what matters far more than the line is how we behave when it’s time to make course corrections.

Reality-based planning, on the other hand, is the process of being less wrong tomorrow. It’s the constant work of narrowing the potential range of outcomes over time.”

Sources: Behavior Gap.

Nice. I like it. The process of planning and re-planning is always key. 

More Weekend Reading!

Great reference I did not know about, when it comes to taxation deductions or credits with thanks to Canadian Tax Guy – a good Twitter follow. 

Here is a list of all the tax credits and deductions, scroll through them to see if you are eligible for any that you might not have claimed. https://t.co/zSF1pMF5x8

— Canadian Tax Guy (@TheTaxHeroes) April 10, 2023

His link to CRA:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/deductions-credits-expenses.html

From Jon Chevreau, good tips on avoiding a CRA audit.

Gordon Pape (subscription, Globe and Mail) recently wrote:

“Investors are always being told to diversify. But what exactly does that mean? A knowledgeable financial advisor can put together a well-diversified portfolio, tailored to the client’s needs. But if you want to do it yourself, it can be a challenge.”

I disagree. With some one-ticket ETFs, investing diversification couldn’t be easier out-of-the-box.

On a related theme, Justin Bender still loves the simplicity of an all-equity ETF for your wealth-building years. 

From Justin:

“All things considered, I still prefer the simplicity of an all-equity ETF. But if you just can’t stand the thought of potentially leaving some cash on the table, a two-fund approach might be an appropriate compromise for you and your portfolio.”

This is an interesting two-fund approach for any Canadian investor that wishes to avoid individual stock selecction and too much home-bias:

Source: Justin Bender

Thanks to Dale Roberts for mentioning my debt-ceiling thoughts amongst others on his Sunday Reads:

Buying the big Canadian banks, plus the debt ceiling on the Sunday Reads.

A reader asked me to re-post one of my popular cases studies so I’ll do one better – I’ll link to my Retirement page too!

Here is how much you need to retire on $6k per month at age 50 with 3% inflation.

How much do you need to retire on $6,000 per month?

Enjoy this and many, many more case studies on my standing Retirement page including a link to my low-cost services to run projections reports for you too! Contact me anytime to get started. 

Have a great weekend and stay well.

Mark