Weekend Reading – Living in a cube van, underspending in retirement, generating income and more!
Hey Everyone!
Welcome to my latest Weekend Reading edition that shares some of my favourite articles from the week that was across the personal finance and investing blogosphere – including couples now living in a cube van! More on that in a bit.
A reminder, in case you missed last week’s Weekend Reading edition – here it is – about some real estate advice, U.S. Dividend Aristocrats to consider owning, and our federal government’s recent budget decisions otherwise known as Spendapalooza.
Have a great weekend and enjoy these articles.
Stay well and be safe!
Mark
Weekend Reading – Living in a cube van, underspending in retirement, generating income and more!
OK, now the cube van stuff. This Toronto couple decided to live in a cube van – to save money for a future home. This is what real estate and the desire to own a home in Canada has come down to…
On almost the other end of the spectrum – a very popular post and case study on my site this week:
These millennials want to FIRE at age 50 – can they do it?
“My goal is to simplify the complicated process of buying and storing Cryptocurrencies focusing on Bitcoin and Ethereum. However, I will briefly cover the ways to purchase Altcoin currencies like Dogecoin, Cardano, or SafeMoon.” Nicely done Vibrant Dreamer with this epic guide to purchasing the above.
Rona Birenbaum, founder and certified financial planner at Caring for Clients, a fee-for-service financial planning cited a few good reasons why underspending in retirement can be a problem if it’s affecting a person’s health.
Some problems that some retirees face from the article:
- Overcoming their saving mindset (to stop saving when they don’t have to), leading to,
- A state that undermines your physical or mental wellness.
I suspect these problems rest with the minority of retirees, but I have seen articles, case studies and readers commenting on my own site highlighting these problems are very real. In fact, just recently, a reader believed something similar.
For some, saving too much and working too long for retirement can be a big mistake.
At the end of the day, I believe money is a tool. While I believe it’s important to have enough capital for needs, some wants and then some buffer, it’s important to keep it all in perspective. Try not to obsess over anything and keep things in balance. I’m trying to work on those things myself.
Million Dollar Journey highlighted some good Canadian dividend ETFs. I hope to update my post/series on that subject. If you are interested, here is my Dividend ETFs series from my dedicated ETFs page that also covers U.S. and international markets:
Get cash for life using these top dividend ETFs.
Top International dividend ETFs.
You probably know I have since ditched all Canadian dividend ETFs in my portfolio and built my own fund per se – full of similar stocks but in different quantities the big funds own. I avoid paying money management fees this way and I control the portfolio more. My returns from this approach are about 9% in my non-registered account over the last 10-years. I use ETF XIU as my Canadian benchmark but I don’t obsess over benchmarks since for some periods I beat the market and in other periods I lag it.
As always, I enjoy when MoneySense and Dale Roberts try to make sense of the markets. I can’t!
My other posts and more Weekend Reading
A reader emailed me asking about the products and services at LegalWills re: have I used them? I have not (yet) but a family member did and provided honest feedback on the LegalWills process and products here.
A reminder about my contributions to the Best ETFs to own in Canada 2021 edition on MoneySense here. It was an honour and great to contribute to the panel this year. You can see my own desert island pick in the list – an ETF I own personally!
Financial Independence – Retirement
As part of my ongoing commitment to share some financial independence, early retirement or retirement articles from the blogosphere, here are some links!
A thanks to Jon Chevreau for highlighting my comprehensive post about how to generate retirement income on his Hub this week with contributions from CFP, Steve Bridge.
I’ve recently updated my FREE list of retirement and draw down calculators to use on my Helpful Sites page. Check those out!
Good for Chad in this MarketWatch article – he became financially independent at age 36 (not “retired”). As readers know, almost nobody in their 30s “retires” re: ceases to work. I far prefer the term financially independent over the term retired. Then again, such articles are misleading since he still works.
Kudos to him but *sigh* – when retirement still means working for a living to pay your bills.
Choose #FIWOOT. (Founder of FIWOOT here.) Then nobody like me will complain that you continue to work (if you want to work) on your own terms.
On Cashflows & Portfolios we covered everything you need to know about Registered Retirement Income Funds (RRIFs) including some tips to turn this tax-deferred money into tax-free money!
Reader question of the week (adapted slightly for the site):
If you want to read more about RRIFs, and specifically my plans for this account when it comes to our RRSP/RRIF draw down plans – check out this link when I answered another reader question.
This week, something new and more focused!
Greetings! I’m relatively new to your site so I apologize if you’ve already covered this.
I’m curious on your take on the various split share corps and covered call ETFs like BMO offers as a means to increase yield – once retired. I’ll be age 54 this coming October and I’m planning to retire at 60. Today about 65% of my portfolio is in blue chip dividend payers, some Real Estate Investment Trusts (REITs), and I have dipped my toe into ENS.TO as an example. My goal is to get the portfolio to between $1.2M and $1.8M by retirement. At which time, I’ll have switched the entire portfolio to dividend payers.
All this to say, I’m considering more aggressive dividend styles with split share corps and covered call ETFs where yields are higher. Not for the whole portfolio, maybe 25-35%.
Thoughts?
I should add I’m fine with generating my current 6%, or even desired 7.5% in retirement which is very attractive for obvious reasons. I’m also okay with the possible loss in capital growth that can happen with these choices. I want to leave some inheritance but it’s not my main objective.
Great question! Thanks for your readership.
Well, I haven’t yet covered the investing concepts behind split share corps, but I have written about some covered call ETFs on my site before – you can find that post and quick take here.
I’ll come back to split share corps in a bit….
Personally, I’m not yet sold on some of fees for these covered call ETFs, the complexity of them, over some plain vanilla ETFs or all-in-one ETFs. I can however change my mind. So, I don’t yet own any.
As for split share corps, I must confess I haven’t done lots of research. My basic understanding of these products is there are two classes of shares: capital shares and preferred shares. They trade separately and as such, they may differ in their performance. Based on an older Globe and Mail article on this subject:
“The preferred shares are geared to income-oriented investors and have first dibs on the dividends spun off by the underlying portfolio. The preferreds also get first claim on the capital of the portfolio, up to a certain amount (equivalent to the issue price of the preferred shares). Because of these built-in protections, the preferreds typically provide a high level of safety, but minimal upside potential.”
Capital units by nature vs. preferreds are more risky. Also from the article I gleaned:
“In exchange for giving up most or all of the underlying dividends, these units are entitled to all of the value in the underlying portfolio over and above what the preferreds are entitled to. The capital shares are essentially a leveraged play on the underlying portfolio – and as we all know, leverage cuts both ways.”
I can’t tell you what you should invest in of course, but I can say that for my own portfolio I try and limit any one individual stock holding to no more than 5% – just in case something goes belly up.
I’ve also seen a similar approach taken with retirees who might want to speculate a little bit with their retirement portfolio. Read that article here from one of Canada’s best financial journalists.
I hope that provides some insight!
Save, Invest, Prosper!
As always, check out my Deals page.
On Cashflows & Portfolios, my partner and I can run your retirement draw down projections for your tax efficient retirement. Contact us for details!
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hey Mark! Thank you so much for including me in this weekend reading!
The Toronto couples are living the dream. I am jealous. Not easy to be done with kids. One day! One day.
Wait, What? You are the founder of FIWOOT? I never realized. That’s my goal. I will never want to live without working or being productive in one way or another. FI is not all about having fun by a beach but to “work” based on own terms do what we love.
Just wanted to add one thing about Covered Call ETFs. Some of them are really doing fantastic job. Check out TLF as an example. Yes the fee is high but its performance is consistent with QQQ plus the additional 4% annual yield (Monthly). Another one is $HIG. It is Brompton Global Healthcare annual yield which is almost identical to XHC iShare Global Healthcare ETF which holds the US IXJ. HIG pays 6.08% with 0.97% MER while XHC’s dividend yield is 0.85% with a 0.65% MER. I hope I am write in my calculations but I will re-evaluate the performance by end of 2021 and go from there.
Thanks. Will check these two out.
#FIWOOT for the win 🙂 As far as I know I am!
TLF – will do.
Do you own that or IXJ? I considered owning that iShares U.S. healthcare ETF from time to time. What about HIG? MER seems a bit high no?
Most welcome for including you, an epic post!
Hello Mark! That is really cool! Maybe you should make it your Registered Trademark.
I own TLF and keep adding. I found it after I wrote the ETF Technology post. Thought of adding it but then its conversional and many aren’t a fan of anything with the word “Covered Calls” in it. For HIG, Brompton typically writes covered call options that are short-dated (1-2 months expiry).
They have a very good PDF here comparing how covered calls performed in comparison with the index.
https://www.bromptongroup.com/wp-content/uploads/2019/11/Brompton-Insights-November-Covered-Calls.pdf
And yes. I hold HIG too. Indeed, the MER is very high. Almost feels like a Mutual Fund! Total expense is 1.09% versus 0.46% for IXJ. But how I look at it is like this. Performance + Yield – MER to get the whole picture. For the last 1 year where things were crazy and almost every stock including Health companies did a huge run. Here are the numbers based on Google Finance Performance Chart:
IXJ = 19.35% + 1.26% – 0.46% = 20.15%
HIG = 12.66% + 6.02% – 1.09% = 17.59%
First look shows IXJ is winning because of its better performance report. After all, we aren’t denying the fact that covered calls leave money on the table. But, for me, it is very important to count in this “Will health companies keep running the same way they did in the past 1 year and make similar significant growth causing the covered calls ETFs to leave profit on the table or will we have a moderate volatility similar to the years prior to 2008”?
I like to not pretend knowing things or the future because I don’t so I am putting max 15% of my portfolio in covered calls ETFs for a better yield and the rest are normal ETFs (XUU, VIU, XIC, VDY, and others) plus Canadian stocks.
Sorry that was a long reply but I wanted to be comprehensive 🙂
Living in a cube van wouldn’t work for this couple. I don’t know how the drinking and bathing water would be kept from freezing in cold temps and also what arrangements they make for grey and black water discharge. At only $1k per month rent they didn’t seem to be spending much anyhow.
We may have a tendency to under spend in retirement somewhat although it certainly has not affected our physical or mental well being. I think its natural for people in the earlier years and who are somewhat frugal by nature, and who dedicated energy towards saving during employed years to stop working a bit earlier than usual.
No knowledge of covered calls here but doubt I’d have any interest, unless I thought I needed to do something differently. No split share corps either. Same answer. 6% is a high avg. yield as it is and aiming for 7.5% by adding bells and whistles seems suspect.
Good review on crypto by Vibrant Dreamer but it was too late for me. Already have a couple of BTC etfs and a custodian wallet set up. “Explore” part of this guys conservative portfolio. LOL
I wouldn’t think $1k per month is very much in rent but alas, I don’t rent either.
I have some knowledge of covered calls, enough to be dangerous and to try but won’t bother. I’m not changing the plan that got me this far 🙂
Yes, Vibrant did a great job on his post. Very thorough!
I rented here in 2011/12 after selling my last place and when we were renovating here. 2br basic apt $1050 then. Lower end of pricing.
I read some about them re BMO’s dividend etfs. Didn’t seem to make sense when I also considered cost.
Agree. Same here and what I was alluding to. Plan is working ok. Not broken.
Yes, good job!
Ha, yes, I try not to fix what isn’t broken or needs to be tweaked at all!
Ever since we got our own home, I never want to rent anymore. I hate moving. I was considering renting when I had to upgrade due to bigger family size and house market was high, and decided not. Even financially, now with the crazy house market, looks like a right decision. But that’s more a life style choice. I want to have my own place and live it my own way. Do not see we could have pool/pingpong table and home theatre in my basement if we rented, and we really love those especially with the pandemic. We could have some fun at home while we cannot go anywhere.
I don’t think the choice to live in a van is ‘what it has come down to’. We actually just did a youtube Drams from Dividends episode on this last week. While it does seem totally crazy to me, this is a pretty common lifestyle choice out there these days. Some are forced due to unfortunate circumstances, but there is a cohort out there that are embracing the nomadic life and have built some neat little spaces. In a way I support it, they are shrugging off the ‘norms’ of society and saying, ‘hey, I can live a great life with minimal space and belongings’. It’s a fantastic Archer’s salute to all the ridiculous McMansions that fill most of our Canadian cities. This is just another one of those things, like living and a trailer park, that have a negative connotation. But the reality is that we clearly are missing that part of the housing market. Simple, small, safe, affordable housing. Maybe Van FI would be fun.
Good to hear from you my friend.
Well, I don’t think we’re going to see lots of GenZ do that, to save money, but they are doing it to save money for a home all the same.
I don’t know why renting is so shamed upon. I don’t get it.
I like and admire the nomadic life personally. I’m guilty of watching a few van life videos online because it does seem interesting but I wouldn’t do it myself. I’m too conservative for that.
Certainly supply and low rates are two factors driving the housing market. I don’t see an end for some time to come.
Covered calls/Split shares are just another option to generate income (not to be mistaken for returns). I own both kinds as part of my income portfolio (Income funds, CEF’s, Covered calls etc.) they help boost current yield (5.4%). I prefer ETF’s for covered calls as DIY can be expensive (at least thru Questrade) and require 100 shares per transaction and then there is the skill question.
Income investing can be an option if you need money now/soon vs. in 20 years or if you don’t have infinite capital. Which is kinda where I’m at. My setup is 65% dividend growth, 15% real estate and 20% income focused (no bonds) this gives my decent yield now as well as yield and capital growth going forward. I have a number of stable 6-7% plus holdings that so far are performing very well, yield is not always corelated to risk.
Currently going thru pre-retirement (hate that term) planning, expect to convert to RRIF next year (@55) to help get money out with low/no tax that is unless work situation changes or my FP tells me I’m crazy:) Taking CPP early as I have several other sources including foreign SoSec. which is surprisingly plush as I recently discovered. It apparently includes mandatory vacation pay. Lol, don’t let anyone tell you we live in a welfare state.
Interesting BenR – re: Currently going thru pre-retirement (hate that term) planning…
Are you thinking of converting the entire RRSP to RRIF or just partial. Thoughts?
CPP early isn’t right or wrong, as long as it is an informed decision. It will likely be age 65 or even age 70 for us when it comes to CPP.
Thanks for your detailed comment!
Hey Mark, it will be all by the looks of it as mentioned we’re cash flow heavy in our mid 60’s and beyond when we add up our CPP’s, OAS’s, pension’s and social security (most in Euro’s so x1.5). Frankly it’s a bit earlier then I was originally thinking due to covid but that’s life. There is no one right answer other then the one that works for you. It’s important to save but not too much it also important to spend but not too little as there is no point in being a 90 year old millionaire:)
Thanks for the weekly read, I do enjoy every episode hope to see one doing a deep dive on tax strategies in retirement one day.
Best,
Ben
Great stuff re: heavy cash flow. Smart to take some now before CPP and OAS kick in.
Indeed re: no point in being a 90 year old millionaire in the old age home and trying to live a good balance ourselves today!
Yes, will consider a deep dive on taxation in retirement/for retirement. Are there key questions and answers to be put in my post? Do share and I will try and research and talk to some CFPs, tax accountants, etc. on that!
Mark
That would be great, sorry this is going to be a long one.
CIBC published the results of a poll regarding retirement income earlier this year. Apparently 80% of respondents claim to understand their income in retirement yet the majority is not aware of various tax considerations. Also ,7% intends to retire by winning the lottery/gambling and 13% will finance their way through retirement. (insert picture of me shaking my head). Luckily I’m my own advisor and aware of most of the mechanisms (I think) but have to admit I do not understand all the nuances well enough to make a solid projection of our net income in retirement. This uncertainty bothers me quite a bit.
At 65 there are a number of tax options available from what I’d gathered; pension tax credit @$2k pp, the age amount (Federal pp ~$7700 up to ~$38K net income it’s reduced by15% for income over that up to a max) and there is income/CPP splitting. One could realistically save $3K-$5k in taxes which is significant considering the median household income for retirees sits at $64K.
So what are some of the questions that come to mind.
How do you determine your optimal net amount? Are there other options to be more tax efficient, any pitfalls/mistakes to avoid? How is foreign income treated (same/different/depends)? Many more moving parts, I’ve alway done my own taxes but would it be advisable to get help at least during transition?
This would apply to many Canadians I’d think. Not many retirees have >$1M in savings. Many have disproportioned and various incomes in retirement as well as potentially age gaps. People are becoming more nomadic so income and therefore taxes are more complicated. In our case the Mrs. will not get to her personal amount in retirement but will work during my early retirement. I’d love to see some common examples of taxable income via CPP+OAS+Pensions+modest RRIF (i.e. Spouse 1 income @ 65: $45k made up of $20K RRIF, $5K CPP, $5K OAS, $15K Pension, Spouse 2 @ 40K, Salary or @65: 15K, $5K CPP, $7K OAS and $3K RRIF in retirement) translated into net calculations using strategies I mentioned earlier. How do you put it all together and make sure it’s right? In our case we have significant foreign income how do we account for that?
To me it’s crucial to get reasonable accurate net numbers on the table because that pays the bills not your net worth. I have not found a decent simulator online to test gross to net income for retirees given a mix of income sources so I’ve build one myself in Excel I’m sure it’s wrong as a mid single digit effective tax rate in retirement sounds way too optimistic.
Hope this makes some sense happy to elaborate if needed. Thanks for looking at this.
Ben
Great comment Ben – so much to think about right?
I intend to do more case studies on my site re: lower income, no pensions, minimal savings, etc. I did do one a while back here:
https://www.myownadvisor.ca/age-60-retirement-on-a-lower-income-can-i-do-it/
A big reason why I started the other site below with a friend of mine is that so many people need some level of assurance about their financial projections, so we offer a service for that. (Cashflows & Portfolios)
https://www.cashflowsandportfolios.com/
Not sure if you are personally interested in that but happy to discuss more of course if you want!
All this to say, there are so many moving parts when it comes to retirement planning and forecasting. It certainly makes any asset accumulation process look very easy!
Mark
Well look at that!
Browsed through your CAP content and obviously couldn’t help myself and subscribed to the newsletter. Site looks great, centering around cashflow is a good choice as it is at the core of financial success or failure. I will take a closer look and get back to you regarding a potential case study.
We need more financial education and less misinformation, to quote a BMO RRSP study from last year:
On average, Canadians plan to retire by age 62. But 25 per cent of Canadians do not know when they will retire and 10 per cent don’t think they will ever be able to retire.
59 per cent of Canadians are unable to estimate how much money they would need to retire comfortably. Meanwhile, only half of Canadians are hopeful they will have enough money by their retirement and will be debt-free by the time they retire.
Those surveyed who can estimate a dollar amount say they would need between $1 million and $1.5 million.
So many issues with just these 3 bullet points and it’s source. Clearly not enough Canadians have found you yet.
Ben
No obligation Ben but happy to run some math for you when you wish!
“We need more financial education and less misinformation…” 110%
“59 per cent of Canadians are unable to estimate how much money they would need to retire comfortably.” Yup, people have a math problem but to their defense it’s very difficult to predict the financial future. This is where the process of planning and re-planning is helpful. You can continue to validate your inputs/assumptions.
I hear from people all the time that have a bundle saved (IMO) and are unsure if they can retire – they want to spend $60k per year and wonder if $3M is “enough”. Geez.
Then again, I hear from others that want to spend the same $60k per year and have $350k saved by age 60 and remain in debt. Gonna real tight on that one!
Certainly if many Canadians with average spending needs save/have $1M invested by age 60, most will be more than fine assuming they have lived and worked in Canada for the majority of their life. I’ve calculated they can likely spend $40,000-$50,000 per year from their portfolio without fail albeit may need to do some sort of variable withdrawal.
Immigrants to Canada will find that harder but I have a short/upcoming case study on that. Do stay tuned!
Mark
Hey Mark, I hope you are having a nice weekend so far! I saw that article about that couple living in cube van. It’s definitely not for me, but it’s a cool idea if you don’t mind the lack of space. It would be an amazing way to temporarily boost savings. It does show the state of the real estate market lol. Thanks for the shout out as well. I look forward to diving into these other great reads. Hope you’re doing well. 🙂
Having a nice beer enjoying the nice weekend right now 🙂
Yes, van life does seem cool and interesting to a point but it’s not for me. I like the comforts of having running water on demand, a toilet, good heat and hydro. Call me crazy! Ha.
All the best and yes, overall, things are well. Stay well back!
What we would like to leave to our children, is a good education, the capability to earn a nice living on themselves, good financial awareness etc. definitly not a pile of money. We can do it as first-generation immigrants with language and culture barrier, there is no reason they cannot do it. So for our retirement, one thing I will try hard is not to underspend, and be able to spend majority of our savings before we die. One big problem I see is our frugal mindset. Hard to break that. For each year I plan to not only set an expense maximum but also set an expense floor. If I didn’t spend that much at year end, I will force myself to spend as soon as possible. Reserving a trip right away, ordering a home renovation, donating to charity, or helping the children if they need that. But who knows, maybe the market crashed and we will not have enough. The most important thing is being agile I guess.
Regarding to covered calls, if one thinks it’s a good approach, maybe a better way is to do it yourself so that you have better control. I never played covered calls myself, but I have done a little bit research. Stock price tends to stay flat for a big while and then suddenly up a lot in a very short time. Doing covered call might cause you miss the biggest up days of a stock thus might lower your return. If I will ever do it, I will sell covered calls only to stocks I think already overvalued. I have recently sold my SYY shares to buy something else. If there is no good purchase, another option could be selling covered calls on SYY. I won’t regret a bit if the shares being called away in this case.
I will probably struggle a bit with semi-retirement May so it’s a big reason why I will work part-time for a few years – I think it’s a good idea for others to consider as well. Quitting work cold turkey per se would be hard.
In semi-retirement, assuming it happens in a few years, I could see more trips, more volunteer time, better fitness and nicer meals and takeout. I’ve been working my whole life for these things and while we enjoy that stuff now…it will occur more. I will need to work part-time to keep my mind busy and if things continue to go well, it should be my blog with growing traffic. That would be ideal.
Time will tell!
Best to the weekend to you May.
Mark
Mark, I seriously do not see that you will struggle with semi-retirement, LOL. You are very conservative. I am pretty sure you will find that you are richer than you think.
I don’t know what retirement will look like yet. As I am the house keeper at our home, with young kids still around, I figure I will be pretty busy even without working. Pretty sure I will spend more time on cooking and baking. Many of my friends have a vegetable garden, I always feel it’s too much work. Maybe I will try that. Also, maybe spend more time on investing, which I don’t know will be good or bad. I heard the best performing portfolio is the portfolio forgotten by the owner. Once the pandemic over, will looking for some volunteer work too. I have lots of things I am interested in so I don’t worry that I will be bored.
I figure our time will be a bit of travel (local and international), some more exercise (ramping that up now), part-time work via this blog and other freelance stuff, volunteering, getting involved in our community more, and a few other things no doubt!
Seems to me you have a long list of things to keep you busy as well!
Stay well!
Mark