Weekend Reading – Retirement case study round-up edition

Weekend Reading – Retirement case study round-up edition

Welcome to a new Weekend Reading post: my retirement case study round-up edition.

Before we get into some of my favourite finds from the personal finance and investing blogosphere this week, you can check out some other popular recent reads below:

Should you consider an All-Weather Portfolio?

This edition highlights some of the richest people in the world and I answered a reader question about the Canada Pension Plan (CPP).

I also recently surpassed a new dividend income milestone with my eyes set on another one soon!

Retirement case study round-up edition

Reader: Mark, in a future article, can you summarize or highlight some of your recent retirement case studies? I find these very helpful as they help me model what I want or need to do. Thanks very much!

You bet!

Before that however, check out some of my favourite finds from the blogosphere and my thoughts below on portfolio drawdown orders – since I’ve been receiving many more questions on that subject as well…

Weekend Reading…

Jon Chevreau had a post that highlighted Gen Z is actually Canada’s most engaged personal finance goal generation.

Nice.

via GIPHY

This aligns quite nicely with how millennials can find financial independence if they want to!

GenY Money also shared her latest dividend income update. Impressive as always.

Melissa at Our Life Financial teaches you how you too can earn almost $20/hour from your portfolio. Awesome. 

John Heinzl (subscription from The Globe and Mail) told us that his model dividend portfolio keeps serving up dividend hikes over time to combat inflation. 

While dividends of course are just one component of an investor’s total return, they matter:

“Viewed in isolation, such dividend increases might not seem like much. But over time, particularly when combined with regular reinvestments of cash, they can really add up.

My model portfolio is a great example. At inception, it was generating annualized cash flow of $4,094. Now, it is throwing off a projected $6,439 of income annually, based on current dividend rates. That’s an increase of about 57 per cent, and I have no doubt the cash flow will continue to grow for many years to come.

Dividend investing has proved to be an effective strategy in all sorts of market environments. Now, with inflation at a 30-year high, it’s important to protect one’s purchasing power. Receiving dividends that increase regularly is a great way to fight back against rising living costs, particularly for retirees who rely on dividends to supplement their other sources of income.”

Matt Poyner at Dividend Strategy recently wrote:

“I’m tackling a big question with this article.  But it’s a question that demands an answer.  Is dividend investing evidence-based?”

Sadly, this couple recently found out that thousands of dollars vanished during a bank transfer. Are they ultimately at fault??

Finally, Dale Roberts had a take on the All-Weather Portfolio.

His thesis based on history and current times:

“So yes, it’s commodities, gold and energy stocks to battle inflation and stagflation.”

Portfolio drawdown orders to consider as part of retirement planning

I plan to post a comprehensive article on this subject at some point, about many possible portfolio drawdown orders/options, but before we get to my retirement case study round-up I thought I would recap some of the reasons why certain portfolio drawdown orders just make sense.

As you can appreciate, taxation weighs heavily on the minds of most Canadians entering semi-retirement or retirement. Myself included! So, I think it’s very important to consider your income needs and taxation in any portfolio drawdown consideration. Here are some key portfolio drawdown orders you should consider.

1. NRT

This stands for consuming your non-registered (N) assets first, then RRSPs (R), and then finally your TFSAs (T).

I believe this sequence works well if you have built up a modest taxable account value by your 50s or 60s and you might have higher income needs and wants in retirement. NRT also works well to help fight longevity risk. Meaning, you can exhaust your tax-efficient non-registered account first, allowing tax-deferred money (RRSP) and tax-free investments (TFSA) to grow and compound away. NRT also works well should you wish to defer any Canada Pension Plan (CPP) and/or Old Age Security (OAS) benefits until a maximum age (age 70).

Remember, if you defer CPP to age 70, there is a 42% income boost in doing so. If you defer OAS to age 70, there is a 36% income boost. Both benefits are inflation protected. Where on earth are you going to get a guarantee from bonds like that???

Why would anyone own bonds right now?

2. RNT

This stands for consuming your RRSP (R) assets first, then tapping non-registered (N) assets next, then again leaving TFSAs (T) until the end.

I believe this sequence works well if you have a workplace pension or pensions coming online in your 50s and 60s – given full deferral of RRSP/RRIF assets can trigger Old Age Security (OAS) clawbacks.

You might want to read this article to learn more: avoid these big 5 RRSP mistakes!

Drawing down RRSP assets over time can help:

a. smooth out taxes

b. opt to start your RRIF sooner for income splitting in your 60s, AND

c. defer those government benefits mentioned above – before RRIF and government benefits must be taken in your 70s – potentially creating a tax issue to navigate.

Keeping TFSA assets “until the end” is also very smart for estate planning purposes. I mean, there is no tax paid on TFSA withdrawals. So, for estate planning purposes, I’ve worked with clients to highlight a couple of key options for folks to consider when it comes to getting the most out of the TFSA in this phase:

• Consider naming a TFSA beneficiary – whereby the surviving spouse as an example could pay taxes on any interest or growth earned in the TFSA after their spouse’s death OR better still….
• Strongly consider naming a TFSA successor holder.

A beneficiary would get all of the money in your TFSA, and get it tax-free, and after that, the account would be closed. A successor gets the account and the money.

Further Reading: Beneficiaries for TFSAs, RRSPs, RRIFs and other key accounts.

OK, with those ideas for you, let’s get back to the reader needs above!

Retirement case study round-up edition

Can this couple retire at age 55 with higher inflation around 3.5% for the coming decades?

Here are some ways to invest, to meet some retirement goals, when time is no longer your friend.

This millennial couple wants to FIRE at age 50 – what will it take? How much will they need?

Karla and Toby are 54 and 56. Can they retire soon with $1.2 million in the bank and no company pensions?

Mike and Julie want to spend $50,000 per year in retirement starting in their 50s…how much do they need?

Finally, as part of this round-up, I shared how and when to withdraw from your TFSA or RRSP.

I look forward to posting another case study next week so please stay tuned!

Thanks for your readership and I hope these links helped you out 🙂

Have a great weekend,

Mark