Weekend Reading – FI drawdown strategy edition

Weekend Reading – FI drawdown strategy edition

Hey Everyone!

Welcome to my latest weekend edition when I share some of my favourite articles from the week that was across the personal finance and investing blogosphere.

In case you missed last week’s edition, the totally out of control real estate edition, you can find that here.

On that note, I’m sure we’re going to see real estate continue to do it’s thing. Here is a fun one from Toronto recently: this house below (without any bedrooms) just sold for over $1 million.

Tiny home - real estate

BAH!

The real estate top is a LONG ways away I think…

Weekend Reads

Highlighting this edition, I share some of my Financial Independence (FI) drawdown strategies to everyone on the Explore FI Canada podcast. We had a great time on the show and I want to thank the hosts for having me! If you want to hear what I have to say, about my personal FI drawdown plan, what accounts I’m going to drawdown first, when and why – to tailor your plan – have a listen! I welcome any thoughts you have on what I said during the show including how it helps your plan, even if you do something totally different.

Personal finance is personal!

I’ve long mentioned on this site that asset accumulation is the easy part. The semi-retirement or retirement drawdown part is far more complex – but I think I have my approach figured out. I’ve done that with thanks to some dedicated thinking-time on this subject, writing about it in some of the articles below, and with the use of some free calculators and tools on my site.

Should I drawdown my pension before my RRSP?

How to generate retirement income

Our Bucket Approach to Earning Income in Retirement 

My desire to have a Cash Wedge, then Open the Investment Taps

How to drawdown a portfolio using Variable Percentage Withdrawal

Need some free calculators and tools? Then check out my Helpful Sites page!

Since I’ve got a pretty good handle on my semi-retirement plan, I’m offering financial projections to my readership. As mentioned on the podcast, hit me up on my partner site at Cashflows & Portfolios to see what we can do for you to demystify your retirement drawdown questions such as:

  • When should you take CPP or OAS to generate the most retirement income?
  • Do you have enough to retire / when can you retire?
  • How much can you spend in retirement (and not run out of money)?
  • What and how much should you withdraw from each account for the highest tax efficiency and estate value?
  • And more!

Our services are professional, cost-friendly and most importantly – value-added! I look forward to helping as many people as possible unpack these questions. No doubt I’ll write much more about my FI drawdown strategy as the plan comes into full effect in the coming years. 

On Cashflows & Portfolios this week we discussed what is index investing and why should it matter to you.

A shoutout to Savvy New Canadians for this post: how much to save for retirement by the age. 

For other 40-somethings, I felt this was good advice from his post:

“At age 40, you should have saved three times your annual salary, and this increases to 4× your income just about the time you hit that age that defines mid-life or “midlife crisis”. Not to scare you, but if you are not yet saving at this point, you will need to double up. Investment timeframe is no longer your friend. Continue to invest. Ensure you are not paying too much in investment fees. If you have a self-managed portfolio, ensure it is rebalanced at least 1-2 times each year.”

Big ERN still feels, despite the recent pandemic financial crisis, emergency funds are still useless. Mind you, he did concede the following:

“But just to be sure, I certainly concede this: there is a consistent underperformance of the stock market relative to the money market if you need your money during a recession, 1991 and 2020 being the only exceptions. If your job security is indeed strongly correlated with the economy one could still justify a less aggressive approach. But for all others, you’re doing better with the stock market in three-quarters of the historical simulation periods!”

MoneySense highlighted some alternatives to bonds with interest rates being so low. 

I know for us, we intend to keep some cash entering semi-retirement and maintain our bias to equities throughout retirement.

How much cash should you really keep?

My Own Advisor Bucket Approach May 2019

On my dedicated Retirement page, that includes dozens of essays, early retirement success stories and retirement case studies, I profiled Ross Grant who consistently Beat the TSX (BTSX) with this strategy. 

Can you beat the index?  Yes and Ross Grant proves it.

Dale Roberts profiled a continuation of sorts, of Ross’ journey, on another site I follow: Matt Poyner’s excellent site: dividendstrategy.ca.

Tawcan is doing rather well to say the least with his investments. “Last month, we deployed over $20,000 to purchase dividend paying stocks and ETF. Not surprisingly, April was a much quieter month when it came to dividend transactions.” Wow.

Epic work at Dividend Growth Investing & Retirement here. DGI&R developed 25-year charts of the low, average and high dividend yields for 100 Canadian dividend growth stocks – simply amazing. 

Last but not least, in case you missed it, this was an update on our 2021 Financial Goals. 

Save, Invest, Prosper!

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Reader question of the week (adapted slightly for the site):

Hi Mark,

I am an avid reader and fan of your websites. We are of similar age and of similar mindset in how to invest. I have some questions regarding Canadian stocks that pay dividends in USD. For example: one of our favourites AQN. I recall you own that too!?

Anyhow, I was wondering whether you journal these stocks so that your dividends remain in USD or you let your broker convert them every quarter to Canadian dollars.

I guess my bigger question is – if you do journal, how does this work? When you tell your broker you
wish to journal, do they sell your shares in Canadian dollars then convert it to USD to buy the same shares but listed on the US stock exchange? So, this may mean you will end up with less number of shares of the same stock?

If they are journaled to the U.S. side, do you need to convert the dividends received to Canadian dollars for income taxes at the end of the year (for non-registered accounts)? If you sell your shares, will you receive the proceeds in USD and will need to calculate exchange rate for any capital gains/losses (for non-registered accounts)?

It all sounds very complicated. Thanks very much and keep up the awesome work on both your websites!

Anna.

Very kind words and thanks for your readership Anna!

Check out this post and see if you have any further questions! I tend to use Norbert’s Gambit to exchange CDN to U.S. money for less.
 
 
For the most part Anna, if a Canadian stock pays dividends in USD, then I tend to keep those in the USD side of my RRSP where possible since many of those stocks are inter-listed. So, my shares are in fact journaled to the USD side of my RRSP. 
 
 
When I tell my broker I want to journal (i.e., move those shares over to the sub-account) from the CDN to USD sub-account, I keep the same number of shares owned. No shares are sold, no shares are lost. I keep the same number of shares of the same stock I own. Just that now the asset is inside my USD sub-account will trade in U.S. dollars and any dividends paid will come in, as expected, in U.S. dollars based on the company’s dividend policy.
 
Now for more complexity…unfortunately…when it comes to Canadian discount brokerages.
 
As you know by now, just because dividends are declared in USD doesn’t mean you’ll get the full amount. Depending on the brokerage you use, and call them to discuss this so you know how they work, in some cases the Canadian brokerage will convert the U.S. dividends to Canadian $$ on the payment date before you get your money/dividend. This can be an issue since some brokerages build in a profit for this, a few % on the currency exchange. Essentially, the brokerage may take a cut.
 
The idea of journaling (above) might be helpful since any U.S. dividends should land in your account without being converted to Canadian dollars. 
 
Potentially another way to deal with currency exchange concerns is to contact your brokerage and request the Canadian-dollar equivalent of the dividend where possible. I recall John Heinzl wrote about this in the Globe & Mail some time back when it came to AQN. I’ve included some his thoughts below from an older article:
 
https://www.theglobeandmail.com/globe-investor/investor-education/can-i-still-get-my-algonquin-dividend-in-canadian-dollars/article22164168/
 
“There is another way to receive Algonquin’s dividend in Canadian currency, however. When Algonquin announced the switch to U.S. dividends in August, the company stated that “beneficial shareholders” – those whose shares are held by a financial institution – can contact their broker and request the Canadian-dollar equivalent of the dividend.
 
It sounds like the same thing, but it’s not. In the first case discussed above, the broker receives the dividend from the company in U.S. dollars on the payment date and then does the conversion to Canadian dollars – at a profit – before handing the cash to you.
 
In the second case, the broker receives the dividend after the currency has already been converted to Canadian dollars by Algonquin’s transfer agent. The broker then passes the Canadian cash directly on to you, without making a profit. Another key difference with the second option is that the conversion is based on the Bank of Canada noon exchange rate on the dividend record date – not on the dividend payment date, which is usually a couple of weeks later.
 
Exchange rates fluctuate, so if the Canadian dollar falls sharply between the record date and payment date you might actually get a better exchange rate from your broker anyway. But currency moves are notoriously difficult to predict. Assuming the currency remains stable, you will receive more cash if you elect to have the dividend converted to Canadian dollars based on the Bank of Canada’s exchange rate, which – on any given day – will be better than the rate at your financial institution.”
 
Since that article launched, as I mentioned above, most Canadian discount brokers now offer Canadian dollar and US dollar sub-accounts. The reality is, when holding a CDN stock that pays USD dividends, across the brokerages in Canada – there is no consistent method (that I know of?) in how they handle USD to CDN foreign exchange. So, if you are concerned you might be losing some money on that exchange, definitely call your brokerage and understand the cost of conversion (if any?) for stocks that pay their dividends in USD. In other cases, as per John’s insights above, you can confirm with the investor relations department of the company you own that you are a beneficial shareholder – so Canadian investors who hold their shares in a brokerage account (on the Canadian side), the dividend will be paid in CDN $$ by the company based on the Bank of Canada’s noon exchange rate on the record date. This eliminates the brokerage converting the dividend to Canadian dollars on the payment date. 
 
If you own AQN in a taxable account, the issue is more complex depending on what you do. You either need to ‘eat’ the brokerage currency exchange charges, if your brokerage does not convert at Bank of Canada’s exchange rate or you can consider owning AQN on the U.S. side of your taxable account if you have one. Be mindful if you do the latter, regardless of the currency in which the dividend is paid, for tax filing purposes the actual amount of the dividend, the grossed-up dividend and the dividend tax credit are all reported on your T5 in Canadian dollars. Capital gains or losses in a taxable account will be reported in Canadian dollars.
There are also tax implications of owning any U.S. asset in a taxable account. 
 
Here is an excellent article and detailed read about the tax treatment of foreign corporations from my friends at TaxTips.ca.
 
I know this might be making your head spin a bit, so my suggestion is:
  1. contact your brokerage, understand how they manage currency conversions.
  2. when in doubt consider holding assets that pay dividends in USD in any U.S. sub-account (RRSP preferably, more tax-efficient), and
  3. see if you can be a beneficial shareholder for any asset you own via the company’s investor relations department/dividend policy, and see if you can take advantage of Bank of Canada spot rates, at your brokerage should they honour that.

For item #3, you can see that information below, a quick example from Brookfield Infrastructure Partners:

https://bip.brookfield.com/stock-and-distribution/distributions/distribution-history

“Currency Option

The quarterly distributions payable on the Partnership’s LP Units are declared in U.S. dollars.

Registered unitholders who are U.S. residents receive their dividends in U.S. dollars, unless they request the Cdn. dollar equivalent. Beginning with the Q4 2016 distribution, registered unitholders who are Canadian residents and beneficial unitholders whose units are registered in the name of CDS or a name other than their own name (i.e., generally those holding their LP Units with a Canadian brokerage), will receive their dividends in the Canadian dollar equivalent, unless they request to receive dividends in U.S. dollars. The Canadian dollar equivalent of the quarterly dividend is based on the Bank of Canada closing exchange rate on the record date for the dividend.

Enrollment

Registered Unitholders
Registered unitholders wishing to receive the U.S. dollar distribution equivalent should contact Brookfield Infrastructure’s transfer agent, Computershare, in writing at P.O. Box 30170 College Station TX 77842-3170 or by phone at 1-877-243-3717.

Beneficial Unitholders
Beneficial unitholders whose units are registered in the name of CDS or a name other than their own name (i.e., generally those holding their LP Units with a Canadian brokerage), should contact their broker if they would like to receive the U.S. dollar election.”

Hope that helps a bit!

Further Reading:

 
Have a great weekend!

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

63 Responses to "Weekend Reading – FI drawdown strategy edition"

  1. As MM has already said, thanks so much for joining us on the podcast! It was a fun and wide-ranging conversation. Wish we had more time. There was still so much to cover. A part 2 (or even part 3) is definitely in order!

    I like Maxb’s thoughts above about LOCs as part of your emergency plan. With all the other contingencies and protections we’ve built in, I can’t see us ever needing to draw on it. But it’s there if we need it!

    Reply
    1. Yes, we had fun. Happy to come back and discuss more including maybe some line-by-line case studies on FI and drawdown ideas.

      I figured you’d like MaxB’s thoughts re: no emergency fund per se, use LOC! I guess I’m too conservative and prefer to have cash on hand, including if/when there is a big market correction. I don’t have to borrow money to invest since the cash is ready to go.

      I will probably still keep ~ 1-years’ worth in my Bucket 1 as I approach semi-retirement/working part-time. Then, over time, I might adjust! Not too many full-time years left for us!

      Have a great weekend Chrissy!
      Mark

      Reply
  2. As for helping out kids in the crazy realestate market, I am steering my two oldest into Rental … The cashflow from their investments would cover a huge chunk of their rents. Plus they are getting capital appreciation from their stock investments. Most of this is all sheltered from tax being in the TFSA and RRSP. Bank of M&D will lend any money they have invested in RRSPs when it comes to buying a home.

    For the one child that is renting, the rent they are paying barely covers the owners mortgage payment and property taxes…

    Their jobs are in flux, and most likely will change 1 or 2 times in the next 10 years. By renting a house, they won’t be locked into a location they may not want to live in when their job changes. Changing homes costs a lot !!!!

    Reply
    1. Seems like a good plan MaxB. Bank of M&D will lend any money they have invested in RRSPs when it comes to buying a home – but the kids need to be established first.

      I see no reason why parents shouldn’t help out their kids financially, if they are in a position to do so of course, but certainly a different generation now.

      Reply
      1. Note, helping kids in this crazy “toronto area”…. but if they were thinking of buying elsewhere ( ie Alberta, US, etc), then the mathematics of a house purchase could be a lot different….

        When talking with anyone, I simply ask “would you buy a house to rent assuming you need to borrow 75% of the price” ? Very quickly you’ll see that Toronto area is to expensive.

        Reply
        1. Toronto (and Vancouver) for that matter are crazy expensive. I wouldn’t live there myself or if I did I would be cashing out now and moving to a lower cost of living location. Some of my best friends recently did that. Down East. Smart.

          Reply
    2. Good point. There are situations where renting is better than buying. But I think ultimately one needs to own the roof over their head.

      Reply
  3. A option to keeping such a large portion in CASH for emergencies is to have a LOC for the equivalent (especially if your home is totally paid) .
    This LOC is to only to cover shortages that may come about due to dividend cuts that can happened (ie 2020 crash )

    LOC costs you $0, and reduces your requirement to have so much cash to something like 10K, with that 40K invested in a very SOLID dividend player, further adding to your dividend cash flow.

    This is just a suggestion, because I have the LOC for 20years and only tapped it a few times for investment purposes ( and NEVER for consumer goods ). Also, LOC once established is rarely ever taken away.

    Reply
    1. Very fair comment MaxB and I know other bloggers, investors, friends, etc. who do exactly the same thing. They don’t want to tie-up available cash to invest, rather, they keep LOC at $0 and tap it as needed.

      HELOCs are a “callable loan” but it’s very rare it happens. I don’t know of anyone personally that has had their LOC taken away/loan called on demand vs. minimums payments.

      Would you rely on LOC in retirement? Seems risky to me?! Thoughts?

      Reply
      1. The HELOC is only an alternative source of emergency money incase dividends don’t come thru. That way all money is invested, and isn’t sitting around earning 0% when its most likely not being used.

        In your example, I’m covering off a possible temporary shortage of funds from “Bucket 2/3”.

        My parents have 20K in a savings account incase something comes up, which never does!
        They just keep interest when their GICs come due (plus they have the constant cash flow from CPP/RIFF)

        BUT, one must not use the HELOC as “Fun account” which I have seen some people do…

        Reply
        1. HELOC as fun account? – absolutely if done carefully and depending on other sources of income. Here’s why I think it is possible.
          My house is an asset that has value that grows regularly, just like the market with the average being about 4.5% / year. I also use it as my HELOC and the risk is limited, even in my retirement. This is particularly true if your current cash flow easily covers expenses. I agree with you that even “emergency money” can be invested.

          If I draw 1K out every month from HELOC for what ever reason, at 5% interest that costs about $4.16/month to carry that debt for one month. (1000 x 5% = 50/12 = 4.16). If I do this for 5 years I will have borrowed 60K from my asset and the cost to service the debt is now about $250 each month. 60 000 x 5% = 3000/12 = 250.
          I have used 60K over five years to enrich the quality of my life. The cost to service the debt is now 250 per month. Had a lot of fun in those five years.
          A house valued at 400K has compounded at an average of 4.5%. In the same 5 year time span the value of the asset I have borrowed 60K from has grown to 498K.
          I understand that this is not for everyone and that houses do not always increase in value, HELOC rates fluctuate and that some absolutely hate any debt. I feel that the home is an often untapped source of retirement income. Not everyone should do this but I believe many can.

          Reply
          1. Wow.

            “I have used 60K over five years to enrich the quality of my life. The cost to service the debt is now 250 per month. Had a lot of fun in those five years…..In the same 5 year time span the value of the asset I have borrowed 60K from has grown to 498K.”

            That is very impressive stuff Gruff. Well done. $498K is a big pile of cash! 🙂
            Mark

            Reply
                1. Yes it was the value of the house growing over time. Wish it was that big pile of cash! LOL It was presented as a concept idea but yes I do use the HELOC regularly and the value of the house has grown by almost 300% in the 25+ years I’ve owned it. I do not live in TO or Van. I live in Calgary and the housing market has dropped but is now recovering. I don’t consider it risky since my retirement cash flow is secure. I will always have the ability to service my debt.

                  I used 5% since I think HELOC interest will rise slightly. Many pay more than that for their cell phones. The true cost of the five years of taking out 1000/month is substantially lower since you are averaging up the cost of borrowing.
                  Year 1 12000K @5% = 600/12 = 50/month
                  Year 2 24000K @5% = 1200/12 = 100/month
                  Year 3 36000K @5% = 1800/12 = 150/month
                  Year 4 48000K @5% = 2400/12 = 200/month
                  Year 5 60000K @5% = 3000/12 = 250/month

                  That totals 750/60 = 62.5/ month and again it is actually substantially lower. For every 1000 borrowed the cost is approximately 4.16 going forward. You don’t pay $50 per month in year one, you only pay that in month 12. You don’t pay $250 per month in year five, you only pay that in month 60.

                  Meanwhile the house grows in value.
                  My 400K home only needs to appreciate by 69K/400K = 17.5% over 5 years to cover the cost of debt and interest. Although that is not guaranteed it is highly likely. The demand for housing will only increase over time.

                  I believe several things regarding my finances.
                  The value of my home will rise over the long term. It is an asset. The sale of this asset will cover all debt. I do not need a house to secure my financial future.

                  The value of the equity market will rise over the long term. Otherwise stay out of the market.

                  My retirement income is secure which easily covers the cost of borrowing. It is more secure then when I had a full time job. The recent Covid crisis proved that to me.

                  I do not need to be debt free to be financially independent or retire. I need adequate cash flow. Being debt free requires lower cash flow for FI. Carrying debt requires higher cash flow for FI. Therefore debt is irrelevant and cash flow is. The best place to be is debt free and higher cash flow but there may be a time cost to get there and I was not willing to pay that.

                  Being debt free is no longer my goal. Managing debt is.
                  If I could afford my debt while working, I can afford my debt if I can replace my working income. I’m currently at 85% and will fully replace my income at 60.
                  Debt to asset ratio is the most important number when I die. Currently I am 1:2. I own twice as much as I owe.
                  Personal finance is personal. Debt does not bother me like it used to. My goal is not to have the biggest pile but to live a full and rich life. I’m willing to carry some low interest debt to do that.
                  We regret the risks we don’t take.
                  My asset priority has become health, time and then money.

                  Not everyone can or should do what I do but I like to present alternative forms of thinking. What is working for me may or may not work for you. Only you can decide.

                  Reply
                  1. A few observations – from your detailed comment 🙂

                    1. “The value of the equity market will rise over the long term.” – yes. I’m banking on that.
                    2. “My retirement income is secure which easily covers the cost of borrowing.” – if you can borrow, to invest, to increase assets in a manageable way I’ve always been for that. Buy appreciating assets with borrowed money.
                    3. “I do not need to be debt free to be financially independent or retire. I need adequate cash flow.” I agree. I will however sleep VERY well at night knowing we have no debt soon. That said, once the mortgage is done, I might do some leveraged investing.
                    4. “Personal finance is personal.” – yup, one of my personal mantras for years!

                    You’re in a great financial place Gruff and have confidence in your plan.
                    Mark

                    Reply
                  2. “Being debt free is no longer my goal. Managing debt is.”
                    —Gruff403

                    This might be the best text I’ve ever read on a personal finance blog. Independent thinking, not repeating the same tired messaging. Bravo Gruff.

                    Debt and leverage are powerful tools. Unfortunately most people never take the time to learn all the features of the tool to understand how it truly works, or are too afraid to use the tool. Consider a table saw, so easy to safely use once you put in the effort to learn the tool, yet the majority of people will never attempt to use a table saw their entire life. Life is all about risk vs reward, and putting in the effort.

                    Reply
                    1. Great points Norm and hard to argue with. Leverage can be a very powerful wealth-building tool if used wisely. So many folks have a mortgage, that’s debt and borrowing (presumably) to build real estate wealth. Otherwise, why bother?

                      Thanks for sharing.
                      Mark

                    2. Lloyd (61, retired) · Edit

                      “Consider a table saw”

                      What if I never need to cut another piece of lumber for the rest of my life? Is it worthwhile (cost and effort) buying a table saw and learning how to use it for something I’ll never do?

          2. $250 each month will be $3K each year, not a small amount to serve if you ask me.

            If I ever want to tap HELOC/Margin, I’d rather to invest the money and spend the difference between interest and dividend. As of today, you can easily borrown with interest rate less than 2% and get dividend yield more than 4%. Let’s say borrowing $400K to invest, you get at least $8K to spend. It might grow with dividend increase each year. Of course interest rate might go up too. As long as investing in blue chip dividend growth payers and can hold in down turns, I feel it’s a more productive and safer way than just borrowing and pay the interest.

            It’s not like I will ever do that. At least right now with the market is at its top, I am not willing to take that kind of risk.

            Reply
            1. I can see with spending the difference for some who really want or need a bit of enhanced lifestyle but not now when market has had such a long run and is at highs. Risky.

              I’ll never maximize my returns because I’m old school. If I don’t have the money to buy something I save until I do and pay cash to avoid having debt. If I want a better retirement I’ll save until I have enough assets conservatively invested rather than risk with leverage to possibly enhance lifestyle a bit. My sleep at night factor rules. When we have a true 50% market dump borrowing might become more appealing, but I will still ask do I really need to.

              Reply
              1. I could see myself gravitating this way re: “My sleep at night factor rules.”

                I’m getting there…

                BTW – this would help me sleep at night better 🙂
                https://www.theglobeandmail.com/investing/markets/inside-the-market/article-canadian-banks-growing-cash-piles-raise-expectations-for-big-dividend/

                “If RBC boosted the distribution to the top end of its payout ratio – or 50 per cent, as Mr. McKay suggested – the annualized distribution would rise to $5.60 a share if profit estimates rang true. That implies an increase of $1.28 a share, or nearly a 30-per-cent boost to the current dividend.

                Under this hypothetical scenario, RBC’s dividend yield, which compares the annual distribution to the share price, would rise from 3.5 per cent to 4.5 per cent.

                Other banks are in similar situations, given that excess cash is a sector-wide issue.”

                Stay tuned…get your bank stocks now!
                Mark

                Reply
                1. Virtually all retirees on here that have done well seem to spend WAY LESS than they could. Some are 100% equities, some balanced, but I think almost none leveraged. There is no one best way. Its personal, but IMHO for most having more (income & assets) than they need (spending way less) is their buffer. Leveraging for more?????

                  I know you are already there (enough++++ assets/income streams for your planned retirement) and when you retire you “might” think more about the sleep at night thing and how much more do you “need”, and how are you invested. My thinking changed when I retired. Yours may not, but we didn’t continue to work either other than me for 2 years PT up to age 55. Recency bias is a factor for a lot of people now IMHO. Rates are always low and markets always rise. HA

                  Great share on the RBC find!!

                  Reply
                  1. That’s the thing right. Soooo many retirees “think” they need a certain amount but actually live off less. I wonder if I will be the same….

                    I ran some projections recently. Assuming we continue to max out TFSAs (x2) and RRSPs (x2) for the coming years, I have full confidence we can semi-retire in 3-4 years. No debt is key as-is our cash wedge. Certainly if the blog can continue to make minimum wage that will be an enabler but I’m not banking on that!

                    Yes, can you imagine even 10%-15% big-6 bank dividend increases this fall/winter? Wow. Unprecedented. It might just happen.
                    Mark

                    Reply
                    1. Deane Hennigar (RBull) · Edit

                      Sure. Better that way than the alternative! Your projections indicate you’re planning to.

                      Nice. A plan and execution win!

                      Yes, it might. That would make lots of investors happy.

                    2. Of course you will be the same, LOL. More than enough is always better than not enough so it will be a good problem to have.

                      10%-15% bank and insurance companies dividend increases will be pretty juicy for me. I have topped on RY and TD beginning this year and now have full positions on both. Too chicken to add to NA although I should have.

                      Investment income is what keeps me sleep tight. So dividend increases are always very welcome.

                    3. May, it could be a generational dividend increase coming.
                      https://www.theglobeandmail.com/investing/markets/inside-the-market/article-canadian-banks-growing-cash-piles-raise-expectations-for-big-dividend/

                      “If RBC boosted the distribution to the top end of its payout ratio – or 50 per cent, as Mr. McKay suggested – the annualized distribution would rise to $5.60 a share if profit estimates rang true. That implies an increase of $1.28 a share, or nearly a 30-per-cent boost to the current dividend.”

                      I can’t see RY boosting their dividend by 30% but I could see 10% or so quite easily from all big-6 banks. That would be incredible. We’ll see. 🙂
                      Mark

              2. Do I really need to do leveraged investing? The answer is NO and that answer prevented me from doing it.

                But if I would ever had debt, I think good debt, that is, borrowing to invest either in a rental or in dividend payers, is better than bad debt, i.e. borrowing for consumption. I sleep better with good debt than bad debt.

                But of course, nothing can beat sleeping with no debt at all.

                Reply
                1. Deane Hennigar (RBull) · Edit

                  I can understand that May. I agree on use for debt.

                  For some having debt that generates more income than without might actually make them sleep better. I get that too, but don’t think I fit into that category.

                  My bias is from how I handled everything since being a youth, and living with my peak debt during very high interest rates. So I did everything I could to get rid of it quickly.

                  Reply
                  1. I understand no one wants to have debt if the interest rate is very high. And with the low interest rate lasted so long, I guess lots of people just feel this will last forever. They could be right. Look at Japan, low interest rate has been for a few decades already. But they could be wrong too. It won’t be pretty for people with lots of debt when interest rate goes up.

                    We are also old school and without any debt right now. Wait, still not paid off the car loan yet but the interest rate there is fixed at 0.99% so don’t mind. My husband actually proposed to pay it off a few times already as the HISA interest rate was around only 1.5% now. With Covid though I am against any unnessary personal contacts.

                    Reply
                    1. Deane Hennigar (RBull) · Edit

                      Yes, we just don’t know where rates will go. Increases will disturb some citizens with big loans/mortgages and hurt taxpayers with higher taxes and/or less services, and ruin politicians boasts and dreams.

                      I like your husbands style. Ha With income tax considered paying off probably wins.

                      So happy COVID is coming back under control here once again. Phased openings starting Wed. 17 cases today and trending down.

                      Stay safe.

        2. I know folks with >5 years in cash savings. That’s too much opportunity cost I think.

          I’m largely invested all the time, in equities, beyond our emergency fund. I suspect it will be that way for some time to come….

          Bucket 1 in my plan is cash savings.
          Bucket 2 and 3 will be spend, re: “live off dividends” (and distributions) from those stocks and ETFs.

          https://www.myownadvisor.ca/our-bucket-approach-to-earning-income-in-retirement/

          Maybe 1-years’ worth in cash is too much but I feel it’s a great sleep at night factor.

          We are 100% equities MaxB – you?

          Reply
          1. Lloyd (61, retired) · Edit

            “folks with >5 years in cash savings. That’s too much opportunity cost I think.”

            We’re well over five years worth of “cash” and we’re now at a 71/29 equity to GIC ratio. At our age and types of income, I just don’t see anymore need for “opportunity”.

            That equity ratio is more a result of this incredible two year equity market though and any correction would adjust it.

            Reply
            1. Lloyd, you seem to be an exception – you’ve got lots of $$ and smart investors don’t take on more risk than they need. Forget opportunity costs 🙂

              Speaking of your equity ratio – when do you think any correction might hit? Markets seem a bit frothy!

              Stay well,
              Mark

              Reply
              1. Lloyd (61, retired) · Edit

                “when do you think any correction might hit?”

                Not a clue. Not really concerned either. If I see another opportunity like March 2020 I might take a few steps but the equity side of the RSP/LIRA are now RIFFed with dividends more than covering the required payments so it would be in the TFSAs or non-reg. I can’t imagine two opportunities like that coming close together time wise but in this day and age? I’ve given up trying to figure this *stuff* out.

                Reply
                1. If I had to guess, it’s in another year or so = 2022-2023. An event could happen that we haven’t seen coming yet, another “Black Swan” per se. I hope it’s not pandemic related but you never know. Just a hunch. Nature has a way to making sure we humans are put in our place.

                  Reply
            2. Ya Lloyd. I get that for people who just don’t need to take more risk for whatever upside they might get (opportunity that they likely don’t need). Plenty of cash here as well.

              I’m at 71.6/28.4 myself and expect that to change a lot with the next real correction.

              Reply
              1. Lloyd (61, retired) · Edit

                If that proposed infrastructure spending in the south actually flies, who knows what could happen. That’s a lot of money being injected. OTOH, if it doesn’t fly, could easily see a massive let down. Good news = market goes up. Bad news = market goes up. No news = market goes up? Nothing makes sense anymore.

                Reply
                1. Deane Hennigar (RBull) · Edit

                  “Nothing makes sense anymore.”

                  Inclined to agree.

                  Debt, rates, govt/central banks, housing, pandemic recession/boom times, markets

                  Reply
          2. I’m about 98% invested. But that could change next week..

            About 10% cash in rrsp/tfsa but about 8% outstanding on LOC on some private mortgages.

            Now 0% gics, with all that cash in mortgages as well…

            So I literally have 0% ( or less in cash), with investments providing constant cash flow. If I really need money, I just sell one of my holdings ot tap LOC.

            Reply
            1. I’m a HUGE fan of cashflow over net worth or other. I can live on cashflow that covers my expenses. Net worth is just that.

              That’s the long-term plan anyhow with dividends and distributions! Hope to start “living off dividends” in the coming 4-5 years.
              https://www.myownadvisor.ca/why-my-goal-to-live-off-dividends-remains-alive-and-well/

              No plans to borrow to invest right now. Invest, max out my accounts, pay off mortgage and live my life. After the debt is gone, might do some form of leveraged investing.

              Reply
  4. 1. I own AQN, along with a number of other Canadian companies who declare and pay their dividends in U.S. and they are kept on the U.S. side of my discount brokerage taxable account. The actual amount of the dividend, the grossed-up dividend and the dividend tax credit are all reported on my T5 in U.S dollars not Canadian dollars . I then have to convert to Canadian dollars for tax reporting purposes in line with CRA requirements.
    2. I also own U.S companies and their dividends are also reported in U.S. dollars on my T5 which must be converted.
    If you receive U.S. dividends and they are reported in U.S. dollars on the T5, you must convert . Don’t just input the numbers in the boxes.

    I notice the list of companies which you indicate pay their dividends in U.S. dollars. I believe these companies also declare their dividends in U.S. dollars. If the goal is to accumulate U.S. dollars there are numerous other Canadian companies which are cross listed in the U.S. including all the big Canadian banks. They declare and pay their dividends in Canadian dollars but you can request the dividends be converted to U.S. dollars. You may have to carry these stocks on your U.S. ledger. I don’t know whether all brokerages allow for a U.S ledger. BMO Investorline does.

    Reply
    1. Great stuff Ron.

      I have no doubt it’s more than fine to own AQN, who pay their dividends in USD, on the U.S. side of any account including taxable. Makes total sense to me you then have to convert to Canadian dollars for tax reporting purposes in line with CRA requirements. Thumbs up!

      I have yet to own U.S companies in a taxable. Do you find the reporting a headache? re: if you receive U.S. dividends and they are reported in U.S. dollars on the T5, you must convert for CRA? Curious. Wishing for more U.S. assets myself over time.

      Yes, from my older list, will need to re-review at some point (!) many companies also declare their dividends in U.S. dollars, so they are inter-listed and you get dividends in USD.

      Good to know about BMO Investorline – they do many things right!

      Great details Ron, thanks for sharing your approach.

      Reply
  5. Thanks for joining us on Explore FI Canada Mark! Great episode and we appreciate all the work you have done digging into the strategies available to Canadians for drawing down their portfolio in retirement, or semi-retirement. Looking forward to having you back on in the future.
    * Interesting note from a listener comment. Apparently you can’t name a successor holder as your TFSA beneficiary on brokerage paperwork. It has to be done through your Will.

    Cheers, MM

    Reply
    1. Interesting comment! I recall in recent years many brokerages have changed their paperwork / protocols so you can do that. I do know in Quebec, can’t recall if we talked about that….for Quebec residents, you cannot name a beneficiary, successor holder or annuitant on a registered account. My understanding is, in Quebec, TFSA transfers at death pass through the deceased’s estate and are governed by the will. Please consult a tax specialist for more details!

      I have that in one of the articles you kindly shared on your site:
      https://www.myownadvisor.ca/beneficiaries-for-tfsas-rrsps-rrifs-and-other-key-accounts/

      I would of course need to re-confirm that since things changed but it used to be that way 🙂

      More details from a great source to back me up on the success holder stuff:
      https://www.taxtips.ca/tfsa/holderdeath.htm

      There are forms available to do this for sure at brokerages – the challenge is – not all brokerages are created equal!
      https://www.bmoinvestorline.com/selfDirected/pdfs/TFSA_SuccessorAccountHolderAppointment.pdf

      I hope that helps, feel free to share with any listeners of course!

      It was a pleasure to be on the show and discussing so many important subjects and concepts.
      Mark

      Reply
    2. “Interesting note from a listener comment. Apparently you can’t name a successor holder as your TFSA”.

      I reside outside Quebec, and I named my successor holder by informing our brokers, BMO and Questrade, in writing. Their records now show that my wife is my successor holder.

      Reply
      1. Thanks for that Bob. Given you establish your self-directed TFSA at the brokerage (or bank) I recall they do have forms available to complete vs. Will only. I also have the paperwork showing my wife is a success holder.

        Quebec residents have a different set of rules….won’t go there – seems unnecessarily complex to me!

        Reply
      1. All good buddy. Hope the podcast is getting some ears and listens!! 🙂 Will continue to share this week.

        Have a great Sunday night,
        Mark

        Reply
  6. Mark – Where do you think first-time homebuyers in Toronto and Vancouver are getting their multiple six-figure downpayments?

    Here in San Francisco and New York, everyone is getting help from The Bank of Mom & Dad. There is also no shame as well. It’s just the way it is.

    I’m curious to know how prevalent The BoM&D is in Canada?

    Thanks,

    Sam

    Reply
    1. I used to think helping kids with downpayment is not a good idea. But look at the reality, if I would be able, I will help my kids when the time comes. There is little chance they can do this without help if real estate doesn’t go down for a significant percentage.

      I feel this is very unfair to young people. But other than trying my best to help my kids, little things I can do.

      Reply
      1. I think as a parent May, if you can help your kids out, with no financial (negative) consequences to you – then go for it and do as you wish. They are your kids, it’s your money to do as you please, and I would hope they would be feel VERY grateful for any financial support you can offer 🙂

        Reply
        1. We entirely funded our kids’ education (RESP + additional). During their time in university we told them it was a loan that had to be paid back so they had “skin in the game”. After graduation we told them it was all a gift. The kids ARE very grateful to start their working lives debt-free. Most of their friends have huge student loans hanging over them.

          Reply
          1. No doubt Trevor – great stuff re: start their working lives debt-free. I didn’t have that luxury but overall I have my health and I’ve had some good fortune too. Kudos.

            Reply

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