Weekend Reading – Should you live off dividends?

Weekend Reading – Should you live off dividends?

Hey Friends!

Here we go with a new Weekend Reading edition, wondering if my approach or others who aspire to live off dividends still makes any sense.

Of course, my thoughts on that subject will come soon enough…

Before that take, a few recent reads and posts:

This week I updated my post about some RRSP facts and information to support the current “RRSP season”. 

And, after this reader question:

Reader:

Mark, why the love for ETFs when you say you love dividends? Seems like a conflict? Please share. Thanks!

…I updated this post to share my affinity for low-cost ETFs in our portfolio for extra diversification while owning my selected basket of dividend paying / dividend growth stocks. You can read on here.

ETFs and dividend stocks built to last for your portfolio

Weekend Reading – Should you live off dividends?

Of course you could, but should you?

My inspiration for the headline this week arrived from Ben Carlson, prolific blogger over at A Wealth of Common Sense.

Check out his post for the entire read and context, but a few snippets here:

“Regardless of the reasons for shrinking dividend yields, the cash flows are all that matter if you’re considering making this part of your retirement spending plan.”

“The good news about dividends is they tend to grow over time.”

“Cash flows are stickier than prices. That’s a good thing for income investors.”

BUT!

“But it is worth noting dividends fell nearly 25% during the Great Financial Crisis.”

“That’s a massive hole in your retirement spending plan.”

AND:

“Honestly, it’s OK to spend down some of your principal.”

“Isn’t that the point of saving in the first place?”

Indeed it is, for myself included, eventually. 

The challenge I personally face/struggle with in the coming decade or so of semi-retirement planning is when exactly to take some equities and growth off the table.

Financial history has shown that owning stocks has helped protect investors against inflation in particular because stock prices have often gone up along with consumer prices, but not all stocks may perform equally well when consumer prices are rising.

Beyond that, unlike many bonds and other investments that may pay a previously determined rate of interest to investors who own them, stocks’ dividends can—and often do—rise when inflation does. Many of these stocks are those companies who are able to raise the prices they charge their customers to offset their own rising costs of doing business.

If inflation is a concern for you like it is for me then dividend payments can help manage income needs while reducing the volatility of a stock’s total return. The mere fact that a company pays a dividend means it is profitable and has excess free cash flow, qualities that may help to buttress a stock price. 

Of course, there are so many ways to generate shareholder return and value: reinvest money back into the business, buy other companies/make acquisitions, pay down debt, buy back their own shares, or pay dividends. If companies did not pay any dividends (say BCE didn’t; who increased their dividend this week and was all over the media this week for other reasons) they could likely grow their company faster by reinvesting or doing other things with their cashflow. Many companies in the oil and gas sector of late are doing share buybacks instead of paying dividends today. This is likely more tax-efficient to any shareholder depending on where they invest their stocks because it’s an easy way for the collection of existing shareholders to own more of the company.

To be honest, either way works for me. 

I own stocks that pay modest dividends.

I own stocks that have very low-yields and are more growth oriented. 

I also own ETFs that pay next to nothing in the form of distributions. 

I keep some cash to invest when stock prices tank a bit. 

That’s essentially what I do. 🙂 Rinse and repeat over the years. 

At the end of the day price gains and dividends are part of total return but the latter remains appealing to me because I simply don’t need to worry about selling assets near-term – even though I eventually will.

From a cashflow perspective, dividends as an income strategy make sense to me – just like paying myself a future dividend from my own corporation eventually. I can use that “optionality” decision from the corporation to spend money as I please.

Some facts are:

  • Dividends play an important role in generating equity total return. In fact, since 1926, dividends have contributed approximately 32% of total return for the S&P 500, while capital appreciations have contributed 68%. So, while you want price appreciation of course (!!!) sustainable dividend income and capital appreciation potential are important factors for total return expectations.
  • When looking at the list of S&P 500 Dividend Aristocrats – in particular – they have exhibited higher returns with lower volatility compared with the S&P 500, resulting in higher risk-adjusted returns.

You can read more from this research paper here.

Like whether it’s better to pay down your mortgage or invest, or fully fund your TFSA before your RRSP, etc. there are decisions to be made when it comes to your portfolio construction that are likely only relevant to you. 

You can invest in dividend paying stocks (or not) and/or you can focus on making your dividends by selling some of your investments over time too. Either one could work.

Via self-made dividends, you’ll simply need to ensure you have a thoughtful plan about how much and how often you want to withdraw from your portfolio that will be sustainable over time. Growth must work in your favour for this to occur. 

Dividends are by no means a magical source of returns, but they may deliver part of what you need = meaningful cashflow.

From HonestMath:

Honest Math - Dividends

Weekend Reading – Should you live off dividends?

Living off dividends might be fine depending on your goals, needs, wants but living off dividends in perpetuity may not make sense long-term – for this simple reason: you’re potentially leaving WAY too much money on the investing table. 

Read on in this post as well: is living off dividends a mistake?

Fans of my site, MoneySense (thanks by the way!) shared 25 personal finance timeless tips.

Probably the most relevant to me as we work towards some semi-retirement plans in the coming year or so: life changes, plans change. 

“You can’t put a portfolio together until you’ve identified your specific goals and developed a plan for reaching them. But realize your original plan will never come to fruition exactly as envisaged. “No one has any clue what the landscape will look like 30 years from now,” said Hamilton. Plans must be revisited yearly and adjusted due to changes in your personal life: job loss, birth of a child or divorce, for example. “What’s important is the process of looking ahead and adjusting your plan and changing it all the time,” he said. “That process is navigation.””

I’ve always mentioned on this site that while planning is important, it’s the process of planning that’s even more important. 

Sam Dogen, who I featured a while back on this very site (link here), who was making a whopping $380,000 per year in “passive income” now needs to head back to work – as per this CNBC article.

You can read more about how Sam blew up this passive income stream here – and is no longer financially independent.

Geez, Sam. I think you should consider selling some of your houses? Thoughts? Here are Sam’s assumptions for 2024:

Sam Dogen - 2024

I was looking at my own portfolio of late, hardly like Sam’s (!!) and noticed I actually hold a few stocks that Bill Gates owns in his portfolio, as top holdings:

Weekend Reading - Should you live off dividends

I wonder if Bill is struggling with the dividends vs. focus on growth debate? LOL.

With thanks to GuruFocus: https://www.gurufocus.com/guru/bill%2Bgates/summary @gurufocus

I listened to the Canadian Investor Podcast recently and heard my friend Dan chat with host Simon about recent CPI data, the craze around the Spot Bitcoin ETF approval in the U.S. a few weeks back; they covered earnings from Artizia and Good Foods, and they also discussed recent comments made by the Big 5 Canadian Bank CEOs at the RBC Capital Markets conference. Worth a listen if you want to know what our bank CEOs think about any future interest rate cuts in 2024. @cdn_investing

Save, Invest, Prosper!

As always, be sure to check out my Deals page – partnerships and discounts I continue to maintain to help you make the most out of your money – some of them you can’t find anywhere else!

Even better 🙂 – you can also consider reaching out here for some low-cost financial projections services – anytime.

Cashflows & Portfolios

In fact, there are now two (2) low-cost services to choose from:

  • Done-For-You – we do the work and data entry, and provide your reports OR 
  • DIY – whereby you do all the work, you do your own data entries, and you get your own results in the software – we essentially open up some professional financial software for you to use to be your own retirement income planner!

As a My Own Advisor reader, you always get a discount off either service. Just mention my site. That’s it.  

I launched this service with my DIY investor good friend – a service founded by DIY investors for DIY investors without the conflict of any advice.

Have a great weekend! 

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.

61 Responses to "Weekend Reading – Should you live off dividends?"

  1. H Mark,
    We retired about 20 years ago with $1M in savings (50/50) reg/unreg). Only pensions CPP&OAS. Converted some RRSP to RRIFs early on in order to get the pension credit. Portfolio is approx 60/40 Eq/FI with most of equity in Canadian dividend stocks and all of FI in Reg accounts. Most RRIF withdrawals have been in-kind to Reg a/cs of dividend stocks bought in RRIF for that purpose.

    Based, on above, we have been able to live almost exclusively off dividend income plus CP/OAS. If a lump sum was needed for a vacation or home project, we sometimes sold a stock, but this was not often and sometimes from TFSAs which we topped up and kept at max.

    Despite having 40% FI in portfolio and holding mostly Canadian dividend payers for 20 years, our overall portfolio has more than doubled with growth exceeding the inflation rate. Being debt free and somewhat frugal helped. When possible, looking to only buy fixed income with greater real yield than the inflation rate also helped (Preferreds sometimes were substituted for Bonds/GICs and of course, those too are dividend payers).

    I am sure we could have done better, but just wanted to post a real world illustration that you don’t have to forego growth because you would prefer to collect dividends, at least in Canada.

    Addendum:
    Stocks we own that have had double digit Total Returns in 10-17% range for 20 years: CNQ, EMA, EIF, FTS, TD, NA, RY, RUS, T. Others we own that have had double digit TRs for 15 years: CM, BMO,BCE, GWO.

    Over 20 & 15 years TSX60 (XIU) Total Return was 7.9% & 8.7%

    Not much in US markets. Despite recent high performance, 20 years S&P500 hedged Total Return is not that great (XSP Total Return 8% ). In retirement hedging is likely needed.

    Reply
    1. That’s an impressive portfolio to retire on. re: $1M.

      Well done = I have little doubt that any $1M portfolio + CPP x2 + OAS x2 (for couples) is a solid income stream…

      I hear this from a few retirees in fact. Despite having some bonds or GICs, etc. the fact that some retirees have “stuck” with their plan, including some withdrawals, their portfolio is now HIGHER years later.

      Very well done. I happen to own many of the stocks you listed and others like WCN, CNR, CP and some U.S. stocks like BLK too.

      I’ll keep you posted on how we progress including my next monthly income update. The portfolio income has shot up without investing anything with thanks to a handful of recent dividend increases. :)))

      Mark

      Reply
  2. Hi Mark,

    I’m in the process of revamping and consolidating my portfolio as I now have the time and I do all of the investing for me and my husband. I will be 66 in a couple of months and my husband is 62. I retired last year when I was 65 and my husband was forced into retirement in June 2022. I made a significant amount of money in 2023 before retiring and ended up being clawed back all of my OAS even though we applied pension splitting though my husband’s pension. Hence, the reason I am reviewing my financial portfolio! Next year my income will be significantly reduced so I have applied to stop or reduce the clawback. Below is a snapshot of our portfolio:

    Husband
    $95k/year DB pension
    $60k Self-direct RRSP invested in ETFs: TEC & VGRO (TEC has performed really well)
    $122k cash in HISA at 6% until May
    No CPP or OAS at this time

    Self
    $290k Managed mutual funds with high MER (36% invested in RBF274 which has had 90% growth); would like to purchase ZUQ to replace which has similar funds
    $11k Managed funds with low MER
    $140k Self-direct RRSP invested in ETFs: XAW & VCN (XAW has performed really well)
    $97k TFSA invested in ETFs: HXT, IWY, XUU, XEI, VDY & cash account at 4% (the IWY has done extremely well but the dividend ETFs have not done well so will get rid of the dividend ETFs)
    $37k LIRA pension from SK
    $162k LIRA pension from SK
    $125k cash in HISA at 6% which recently ended

    To start, I have opened up an account to consolidate my funds with no ETF trading fees and cash bonuses up to $2k for opening up an account. I plan to transfer all of my funds and the LIRA pensions to LIRA accounts in BC. I plan to top up my TFSA to the max with my cash. To offset significant taxes for 2023, I have opened a spousal RRSP and plan to apply $36,200 because my husband is younger. One concern is that my husband’s DB pension would be reduced to 60% should he die which would reduce my portfolio. Due to this rationale, I plan to apply $25,000 to my own RRSP. with my cash funds. For the rest of my cash, we plan to apply it to my husband’s TFSA. We will use cash from his HISA to max out his TFSA which will leave us a fairly large cash account. I plan to purchase dividend stocks within both of our TFSAs for long term benefits as we will not likely use these funds for many years. We will also purchase
    ETFs within the TFSA accounts for growth as well as our RRSPs.

    We are in a very comfortable position and don’t need extra money at this point but I don’t want to give the taxman money if I don’t have to. I do plan to drawdown my RRSP/LIRA accounts as suggested to at least top up our TFSAs on an annual basis and for yearly vacations. I was thinking that we would transfer a portion of my RRSP to a RRIF and LIRA to a PRRIF on an annual basis to take out only the minimum to avoid withholding taxes (still have to figure out how much that would be). We already use the tax splitting through my husband’s pension so would we get the tax benefit for both if we are splitting both pensions?

    Should my husband wait until 70 to get his CPP even though he will have a reduced DB pension when he turns 65. We could use my RIFF and PRRIF in the meantime but that would reduce my portfolio should he die.

    I would appreciate your thoughts?

    Thank you.
    DelAnn

    Reply
    1. Mark,

      Also, we have a family vacation home in which we are heavily invested and we spend 3 months there in the summer. We may have to buy one of the siblings out for about $100k to $125k in the next few years. We are mortgage free and have no debts and plan to live in our home rather than downsizing and moving to a condo as this does not fit our lifestyle.

      Reply
      1. DelAnn, Wow, wow to everything you have achieved and have going on. I have no affiliation with Mark, I’ve never even met him, but of all the comments I’ve read on his blog, I put you and your husband at the top of the list for spending a few $K (or whatever) on engaging Mark’s assistance in making sense of it all. I’m certain it’ll be money well spent.

        Reply
        1. Thanks very much, Bob. Seeing such infomration in reports/projections is ideal to make some decisions. I review my own projections every month or so myself!

          Have a great weekend,
          Mark

          Reply
    2. Boy, that’s a case study and then some, DelAnn. 🙂

      You can always reach out at Cashflows & Portfolios should you seek some personalized, low-cost projections support.
      https://www.cashflowsandportfolios.com/retirement-projections/

      A quick take:

      1. Tremendous on the DB pension income, my goodness, for your husband. Likely very challenging to remove OAS clawback even with pension income splitting since that’s an outstanding income stream…
      2. For you, consider slow withdrawals from RRSPs/RRIFs, now, in your 60s before you are forced to take DB income + RRIF income + other income in your 70s. Not advice, but smoothing out taxation vs. big, lumpy tax hits is usually very smart.
      3. Defer CPP and OAS until age 70 if you have enough income from any DB pensions/pensions to live from. It provides time for #2 above – get the tax liability out of the RRSP in your 60s.
      4. Any $$ you do not spend from RRSP, in your 60s, since you have the very generous pension income is move that $$ to TFSA(s) every January and max that out. This way, you are building tax-free income vs. waiting to be taxed heavily on RRSP/RRIF income if it remains there will into your 70s.

      Again, not tax advice – just some ideas. Happy to share more at Cashflows.

      XAW is an outstanding, low-cost, simple Canadian-listed ETF for a world of stocks and is very likely to earn 6-7% annualized for the coming decades. You can hold in either RRSP/RRIF or TFSA of course.

      When in doubt simplify the mix of ETFs into one for Canada: I like XIU personally = mix of dividends + growth. Ideal for taxable, RRSP/RRIF and TFSA too.

      Have a great weekend and congrats on your financial success!
      Mark

      Reply
      1. Hi Mark,

        Thanks for your input, much appreciated. I am seriously considering using your retirement projections after I get my funds in place and done further research. I have used this type of service a few years ago but the individual did not provide great work so I am somewhat hesitant. I don’t think this would be the case with your services though, especially all the valuable free services that you provide!

        One clarification on DB pensions because I’m not clear how they work and whether my husband should wait until 70 to take his CPP. He doesn’t want to wait. At 65, the bridging will end based on his earnings which will reduce his pension. If he holds off until 70, will he benefit by getting a higher amount and the bridging amount remain the same or will it increase based on the higher CPP amount? Hopefully I’m not confusing.

        Thanks again!
        DelAnn

        Reply
        1. Never an obligation DelAnn, but happy to help when ready. If you read our site, we also offer a money-back guarantee. So, no risk.

          In most cases, when someone has a generous DB, the idea to take CPP at age 65 or 70 is really a tax issue not an income issue/concern. CPP at 65 delivers potentially lower taxation but includes lower spending. CPP at age 70 should deliver higher spending and higher taxation.

          Drawing down RRSP/RRIF values in your 50s and 60s has the potential to smooth out taxtion over time AND deliver meaningful income. Everyone is different though!

          Have a great weekend and let me know if you want more information/details. Happy to share.
          Mark

          Reply
  3. Hi Mark,
    Our dividends are primarily from our TFSA. We have been retired for a few years now. The buckets we have are:
    – RRSP – 60/40
    – TFSA – mostly dividend stocks
    – Taxable Stocks – growth / dividend
    – Cash
    – gov pension at 65 (7 years away)

    Our rinse and repeat is to sell stocks (taxable account) to top up our TFSA every year. Living $$ comes from RRSP, taxable dividends and TFSA dividends. The TFSA stocks are not intended to be sold.

    When selling etf’s in the RRSP the goal is to maintain the same 60/40 balance while ensuring the total value is still on target (according to spreadsheet forecast). Our timing of when we retired and the growth of the RRSP has been fortunate as we have always been ahead.

    I would be very interested in how you or other DIY investors would construct a self directed RIF knowing the withdrawal rules and how it must increase. I know your draw down order has the RRSP early so maybe not something you are thinking about.

    Reply
    1. Hey Steve,

      Great details.

      I like your approach. I do find everyone is different since the drawdown order can depend on a few factors: asset mix, per account; account balances/values; age; desire to start income streams (e.g., CPP or OAS); taxation; estate value desires, and more.

      Most of the professional software I’ve seen and work with as a default of the following drawdown order:

      NRT.

      (Non-reg, then RRSPs/RRIFs, then TFSAs).

      That makes sense for many reasons but again, depending on many factors, maybe blended withdrawals before TFSAs and in most cases, RRSPs before taxable make sense for some.

      A common denominator for many retirees (who are doing well…) is that any RRSP/RRIF withdrawals not fully needed for spending, move to the TFSA every year OR, slowly, folks sell non-reg. assets and also move those to the TFSA every year.

      The ability to fund the TFSA, as much as possible, even for folks in their 50s and 60s who might be retired is a recipe for the comfortable and the wealthy for sure…something to aspire to before CPP and OAS benefits come online.

      I hope that provides some insights…

      Yes, our plan is to “live off dividends” from RRSPs + taxable accounts + part-time work in a few years. I wouldn’t be surprised if our RRSP/RRIF assets are gone by our mid-70s.

      Mark

      Reply
      1. Thanks Mark.
        Selling the non-registered account before starting CPP/OAS, was exactly our plan, forgot to mention that. I know the make up of the RRSP will change when we switch to a RRIF. Still pondering the details.

        Reply
    2. Hi Steve, in our case we have dividend stocks in both our TFSA and our RRIF/LIF. This 100% dividend stock choice was made a bit easier for us because of my wife’s DB gov pension, so if you are fortunate enough to have pension income it can act as your “fixed income” portion and hopefully cover your basic needs. This allows a bit more risk in your other accounts. I converted my RRSP to a RRIF when I retired, mainly to avoid the $25 fee my broker charged to withdraw money from the RRSP. I also knew that I would require more than the minimum withdraw every year to live on (which is covered by dividend income). The RRIF also allows the minimum withdrawal to come out with no tax withheld, but we found that just resulted in a large tax bill at the end of the year and I am now forcing a 20% withholding tax when I remove dividend income. In our case the normal draw down rules really don’t apply, since we are fortunate enough to not have to sell any stocks, we are living on just dividends/pensions. I know this also goes against most recommendations, but we both took our CPP early. We both felt that we would enjoy having that money now while we are still active, and 8 to 10% growth per year in the dividend income, and an indexed gov pension made that decision easier as well. We are transferring stocks in kind from the RRIFs/LIF to top up the TFSA each year. Hope some of this helps, and enjoy your retirement.

      Reply
      1. Thanks!
        I see your logic. I am not sure how active I will want to be in managing my accounts later in my retirement so simplicity is also a goal (of course I won’t be paying anybody).

        Reply
        1. Yep, that is something I have been thinking about, but I only own about 14 different stocks which also goes against most advice. They are the best of the best for Canadian dividend paying large caps, so relatively safe stock portfolio. At some point I’m assuming one of my kids will start to steer the ship (many years from now hopefully) but until then it is really not much work, kind of like watching grass grow. I am thinking about how climate change will impact my oil and gas related stocks, but these adjustments will be made over the next 5 to 10 years while my brain is still working well enough to deal with it. Not having to worry about burn rate in your portfolio makes retirement life less stressful. Downturns and recessions become buying opportunities.

          Reply
          1. Good stuff, Howard. Not unlike a few folks, not all that visit this site, that only a dozen or so stocks to their liking and between that, pensions, etc. the income is > expenses.

            I hope my wife and I can experience what you do: “Not having to worry about burn rate in your portfolio makes retirement life less stressful.”

            I appreciate your comments,
            Mark

            Reply
    3. Lloyd (63, retired at 55) · Edit

      Here is how I’ve set up my RRIF.

      6900 XEI distribution $828.00 (but fluctuates)
      3675 XDIV distribution $477.75 (also fluctuates)

      $40400 2 yr GIC @5.6% (~$188.53 interest paid monthly)
      $40400 3 yr GIC @5.45% (~$183.48 interest paid monthly)

      5 yr GIC ladder total value $23046 avg interest 4.43% compounded first week of January.

      TDB8150 $2679 @4.55%

      2024 minimum monthly RRIF withdrawal $1146.00 on 15th with a 20% voluntary withholding for taxes.

      It was designed for the distributions from XEI and XDIV to cover the withdrawal with any excess swept into TDB8150. The two GICs came about when I was cleaning up some holdings last fall and couldn’t decide what to do so I punted the decision down the road to 2025 and 2026. The monthly interest from them will also be swept into TDB8150.

      The GIC ladder was just creating an annual amount that could be used in the future as the minimum withdrawal rate rises, deferring the need to sell any equity a bit further into the future. Basically five small buckets of cash. As each rung matures I will add some funds from the TDB8150 for another five years.

      My LIF is very similar in structure but larger in amount. Still have a significant GIC RRSP ladder which probably won’t get converted until I have to at 71.

      Wife still has her RRSP as well at a 40/60 equity/GIC ratio. She is *very* conservative in her investing style.

      Both TFSAs are almost 100% equity and we likely won’t utilize the earnings unless medically required.

      Non-reg consists of large GIC/cash holdings for both, and my equity holding (just BAM now) that I use mostly for charitable donating.

      Our other income comes from 2 DB work pensions, 1 CPP disability, 1 regular CPP, 1 wage replacement disability. These more than fund our expenses and TFSA contributions. As we each turn 65, our work pensions are adjusted down slightly for cessation of bridging, the disability CPP converts to regular (decline) and the wage replacement ceases. OAS will commence. It is anticipated that the wife will convert her equity RRSP portion to a RRIF.

      Sounds more complicated than it is.

      Reply
      1. That’s a LOT of ETF units!

        Well done:

        6900 XEI + 3675 XDIV.

        I know we’ve disucssed this in the past, but you could likely go down to one CDN ETF but all good – if your plan is working it’s working!

        GICs or cash ETFs seem very smart these days, for the cash cushion/wedge.

        I know of other DIY investors (who don’t always comment publicly here) that own a 2-3 year GIC ladder. Some even up to 5-year GIC ladder for extra safety since they don’t have any workplace pension.

        BAM and BN is likely to go MUCH higher over time based on the reports I read; many analyst predictions – so your charitable donations will be of huge benefit to many.

        Kudos.
        Mark

        Reply
        1. Lloyd (63, retired at 55) · Edit

          Between all the accounts we have 20889 of XEI and 14199 XDIV total. I’ve been slowly moving away from individual stocks and consolidating into these ETFs. Whichever of the two has the higher amount of the particular stock I’m moving away from gets the funds. It ain’t all the rational but it looks better to the wife than me just flipping a coin. 🙂

          I acknowledge this adds expenses with management fees but it simplifies it for the wife when/if something happens to moi. She saw the 20-30 stocks we had and almost fainted. I’ve got it down to 8 now with my eyes on moving a couple more yet in the next year or so. Sometimes one has to maybe not do what is ideal in the interests of stress reduction. In the big scheme of things it isn’t a deal breaker.

          I got rid of the last of my XIU and XEI in the non-reg through donation in kind to avoid the capital gains. Just have the BAM now.

          Reply
          1. I hear ya, Lloyd. I suspect I will need to consolidate myself eventually for the very same reasons!

            BAM and BN up again today.

            Thanks for your update,
            Mark

            Reply
  4. We have been retired for 6 years now and live off dividends. Do not have to sell assets at all. The RRIFs, TFSAs, and non-registered accounts all hold equities. Most pay dividends. We plan to leave everything to our heir and have to figure out how to minimize future taxes. Currently withdrawing dividends first from RRIFs to live on and fill up TFSAs. I started this year also with some tax loss harvesting. We sold some stocks that were in a loss position in the non-registered accounts, and bought them back 30 days later as is allowed. (no dividend payments missed) Then sold other position that were up. (you can re-buy the one sold for a gain right away, all it does is increase the cost base)The loss in one and gain in another will offset for tax purposes. That lowers future capital gains in these stocks. And the dividend was not effected. We actually got an extra dividend payment from a stock we bought while waiting the 30 days to buy back.

    Reply
    1. Great stuff, Div. I hear from many readers who don’t comment on the site – they are doing the same thing: use RRSP/RRIF withdrawals to spend $$ as they please and then fill up TFSAs where they can. Seems like a great multi-decade plan.

      Mark

      Reply
  5. Hi Mark, I read the article about Sam Dogan and was quite impressed with his accomplishments, but I consider him to be a bit of an anomaly. I would never use him as an example for us everyday average dividend investors, and the way you introduced the article it almost seemed as though you were pointing out a potential flaw in the dividend income approach – darn, he had to go back to work! Once you read the article it becomes clear he has an audience that he wants to keep entertained and engaged, and future books to sell. He made a choice to buy a multimillion dollar house and blow up his income. I have read comments from real people (average investors) on your site who are doing great living very comfortably on passive income (mostly dividends from Canadian dividend growers) who I doubt would ever consider selling their chicken that lays golden eggs for anything other than some type of medical emergency. The simplicity of this type of investing compared to the buy low sell high method (and hope you don’t live to long) allows for low stress in retirement. I hate to be critical or leave negative comments on your site, because I really appreciate what you are doing, but I felt in this case I had to speak up.

    Reply
    1. Thanks, Howard. Your comments are always great and I’m glad you wrote what you wrote. Sam’s experiences/income needs are hardly average. 🙂

      I’m with you and Sam knows how I feel, since he is an outlier 100% to many.

      Mark

      Reply
  6. Hi Mark, re your thoughts on selling equity for income.

    From personal experience, I can tell you that it can be difficult at first, very difficult! It feels like you’re selling some possession that you’ve been hanging on to for decades, just in case. It has taken me just over three years to feel comfortable giving up some equity. The key was a) having a detailed projection that clearly showed that our retirement was not being put in jeopardy, even under stress test conditions, and b) having a kinda traffic light system in my spreadsheet that tells me my cash level is OK (green), getting low (yellow), or critical (yellow). Now when it goes from “OK” to “getting low”, I setup the sale, and we’re back in the green.

    I’ve replaced the anxiety of selling equity with the desire and reward of being in the green.

    When we’re in the green we have about $85K in cash/GICs. If the markets are down significantly, we can hold off on having to let go of equity for 2.5 years, and then we can start selling bonds for another 2.5 years.

    Reply
    1. I appreciate the validation, Bob – you’re not the only one struggling with when to sell stocks. I’ve heard from literally hundreds of DIY investors over the years and they all struggle a bit.

      Yes, part of the reasons why I do my own projections and support others at Cashflows, as you know.
      https://www.cashflowsandportfolios.com/

      A clear drawdown plan is invaluable but also subject to change.

      “When we’re in the green we have about $85K in cash/GICs.”

      Excellent. We hope to have/maintain ~ $50k in cash to start semi-retirement.
      I anticipate that will be closer to $75k once we start full retirement in the coming years…

      So, all that to say, I think your cash wedge is very, very smart, re: “we can hold off on having to let go of equity for 2.5 years, and then we can start selling bonds for another 2.5 years.”

      Kudos.
      Keep me posted on your plans and approach, I enjoy learing from others like you going through this in real time. 🙂
      Mark

      Reply
  7. Hi Mark: Yes you can still live off dividends as I have for the last 32 years. I take umbrage with Ben when he say’s that dividends do have drawbacks as in 2008 dividends were cut by 25%. If you had strong blue chip stocks than the dividends weren’t cut as they just were not raised and a pair of aristocrat kings like ENB and CU raised their dividends and also although the stocks tanked the dividends didn’t move so you got the same income as before. This reminds me of a friend who during this time was laughing and saying that I must really be hurting. Not so I said as although the stocks had dropped I was still getting paid the same. It is times like this that are actually great buying times. BCE is such an example. It is down lately and could drop more because they lost money compared to a year ago and didn’t raise it’s dividend as much as was expected. Analysts speculate that this will be the norm or if they will fade the dividend out completely. This is today’s news but BCE has been going for a long time, long before I started investing and I imagine it will be going long in the future. It wasn’t long ago it was $54.00 and now it is $50.00. Next week it could be knocked down more but it has had hiccups and I find these hiccups as buying opportunities. I don’t anticipate decumulating income. This year may be expensive and I will probably withdraw money but they are one time items eg. hip surgery and instalment payments. I don’t live off pensions as my work pension and CPP go into a high interest savings account and just accumulates and I don’t receive the OAS as it is all clawed back.

    Reply
    1. Indeed, times like this for BCE, other stocks, can be a good buying time. We’ll see how the BCE stock price fairs long-term.

      I’m biased of course, but I like our plan and it’s slowly getting us to where we want to be:
      1. cash/income to draw from the portfolio without selling any stock or ETFs,
      2. growth from portfolio that I can leave alone for many years.
      3. cash near-term for any buying opportunites.

      Thanks for your comment, stay well!
      Mark

      Reply
  8. I’m always trying to think of ways to minimize taxes when I eventually need to draw-down from my RRSP (and later RIF). One thing I was thinking – since tax treatment on capital gains/dividends is much better – are there any ways to transfer shares IN-KIND from your RRSP to a non-registered account? This way, the dividends eventually paid out for those shares in the non-reg account would have favorable tax treatment…and, if I ever decide to sell those shares, only 50% of the capital gain is taxed. This scenario would be much more favorable compared to having to sell the shares in the RRSP, then transferring the cash into my non-registered account at my full marginal tax rate. If anybody knows of a way to do this sort of in-kind transfer – please share!! Or am I out of luck on this one?

    Reply
    1. I believe so MikeyP, I do know/recall you can make in-kind transfers from RRSP to RRIF.
      https://www.taxtips.ca/glossary/in-kind-transactions.htm

      My assumption from RRSP > non-reg. can be in-kind, yes, (even though I haven’t done it myself) since whether cash or assets from RRSP, the amount withdrawn is simply taxed including withholding tax.

      As far as I know unless something has changed, you cannot transfer in-kind from RRSP to TFSA. It’s a two-step dance. You need to transfer in-kind from RRSP > non-reg. and then do a in-kind transfer from there to TFSA.

      Personally, I’m going to withdraw cash from RRSP to our chequing account in the future to spend, just to keep it simple and avoid the in-kind stuff, allowing assets that remain in the RRSP to grow/be reinvested.

      Maybe I will change my mind, who knows?

      All my best,
      Mark

      Reply
      1. You wrote: “My assumption from RRSP > non-reg. can be in-kind, yes, (even though I haven’t done it myself) since whether cash or assets from RRSP, the amount withdrawn is simply taxed including withholding tax.”

        Well, if the amount withdrawn (even as assets) is taxed (including withholding), then I guess the in-kind transfer doesn’t benefit me at all. What I was hoping was that by doing an iin-kind transfer from my RRSP, the assets would not be considered “sold” – just merely “moved” to a non-reg and therefore no tax. However, if it’s taxed anyway then I guess I’m out of luck. If you find out otherwise, would love to hear about it! Thanks Mark.

        Reply
        1. Ya, sorry man, unless you can find a loophole….when you withdraw funds from an RRSP, your financial institution withholds the tax. The rates depend on your residency and the amount you withdraw. You must include the amount you withdraw on your tax return as part of your total income for the year. This will probably increase the amount of income tax you must pay…or not, depending on your tax rate. 🙂

          Mark

          Reply
        2. And…worth a read:
          https://www.myownadvisor.ca/watch-out-for-rrsp-and-rrif-taxation/

          RRSPs and RRIFs are a tax liability…so best to get the $$ out, slowly, over time, to a. meet your spending needs and b. to smooth out taxation since in your 70s if/when RRIF income + CPP + OAS + any other income streams are fully online, you might be in a position to be paying more taxation vs. working years. It’s probably rare/not common for everyone but it can and does happen.

          Long-term, RRIFs in your 70s and 80s are a tax liability. Get the money out by those ages and fully fund the TFSAs… 🙂
          Mark

          Reply
          1. Re: withholding taxes – at least you can avoid part of them by converting your RRSP to a RIF – since withholding does not apply to anything up to the minimum annual withdrawal.

            Reply
            1. Yes, but it’s a wash. Either you have RRSP withholding taxes, reconcile come tax time OR you have RRIF withdrawals and reconcile come tax time.
              It’s really some semantics but yes, you are correct. 🙂

              Reply
        3. I can confirm that you can transfer stock in-kind from an RRSP, RRIF, PRIF, LIF, and similar to a non-registered account. You need to have cash in the RRSP etc. to cover the withholding tax.

          We converted our RRSPs to RRIFs etc. as soon as we knew we were ready to take some money out. Two reasons: 1) there are fees for withdrawing from an RRSP, but no fees for withdrawing from a RRIF etc., and 2) having multiple plans, we can withdraw the minimum with no withholding tax first from each of them, then later $5K at 10% tax, and later still, another withdrawal of $10K at 20% withholding tax. Going above that, into the 30% bracket isn’t necessary for us, yet. Sure, at the end of the tax year, we have to pay any tax due, but I’d rather owe CRA than CRA owe me. With five plans between us, in addition to the minimum from each, we pull $25K at 10% withholding tax, and $50K at 20% withholding tax.

          Reply
          1. Perfect, thought so: “…transfer stock in-kind from an RRSP, RRIF, PRIF, LIF, and similar to a non-registered account.”

            I appreciate your experiences!
            Mark

            Reply
  9. Lloyd (63, retired at 55) · Edit

    I’m of the opinion that if one *can* live off the earnings (dividends or interest) then one ought to be fine with that.

    I also suspect that if you asked ten people, you’d get thirteen different responses. 😉 I know I’ve changed my strategy more than a few times.

    Reply
    1. I feel the same Lloyd, but I know everyone is different.

      Certainly our plan all along is to have enough $$ flowing in from stocks + ETFs we own, whereby we have to rely on selling capital often in the early years of any retirement. It’s just want we want.

      I’m sure my investing strategy will adjust over time as well.
      Mark

      Reply
    1. Ha, I figured you’d write.

      Well, will follow along and see what you decide to do long-term. I have little doubt you’ll figure it out…you have before.

      All the best!
      Mark

      Reply
      1. All good! Do you mind including the link to my original article explaining everything? It is the article that CNBC read today and talk to B about my decision and write their articles.

        My first step is to find tenants. That should generate $100,000 or so in rental income to plug the big expense hole. I don’t want new tenants, but it’s part of my bullish investment thesis of owning panoramic ocean view homes on the west side of SF, where there are new schools, hospitals, and the AI / tech boom happening.

        CNBC was the fairest article of them all. NY Post and Daily Mail versions… hmmm, somewhat different. 🙂

        Thanks!

        Sam

        https://www.financialsamurai.com/no-longer-financially-independent-blew-up-my-passive-income/

        Reply
        1. Done! 🙂

          Do share on your socials as well, will do the same to see what kind of replies you might get here.

          That’s the challenge with putting any personal finance story online, you get targeted. I’ve been there – still there. Just not as much haters here thankfully!

          All my best, keep me posted on your plans.
          Mark

          Reply
  10. Great read on dividends and ETFs.
    Along with growing dividends, I hold a few ETFs in my portfolios for added diversification and risk management (to my level of comfort). One strategy that I’ve devised to help with tax efficiency and also a more secure dividend payment is using the ZPR ETF when I’m ready to start investing in a non registered account.
    ZPR is the BMO laddered preferred share etf. Preferred shares seem the way to go for near guaranteed dividends as well as reducing future capital gains in a taxable account.
    The goal is to create a small monthly payment (approx 500 target) in the non-registered account that would provide steady CANADIAN dividends with less capital gains taxed when sold in the future. Since it’s one bucket of many, to me, it seems like a very logical way of using that particular “bucket” 🙂
    As someone who uses both ETFs and dividend growers, any thoughts on this kind of strategy for a non-registered account?

    Reply
    1. Yup, no right or wrong.

      I know folks that are very successful with laddered ETFs and a few stocks.
      I know folks that own individual stocks + ETFs.
      I know folks that just own real estate, no stocks at all!

      To your question/strategy: I personally have a bias to lower-yielding CDN stocks in my taxable but that wasn’t always the way since I’m sitting on larger capital gains in my taxable – which I will take at some point. Ideally, if you want to be more tax-efficient you would only own stocks or ETFs that deliver capital gains only inside taxable account…but that may or may not meet your income needs. It’s a puzzle I believe everyone needs to figure out and taxes are just part of the issue, not the primary reason to invest a certain way.

      All my ETFs are inside our TFSAs, RRSPs or LIRA.

      Hope that offers some thoughts!
      Mark

      Reply
      1. Thank you for the feedback. Yup, investing certainly is a unique and personal puzzle for sure!
        You mentioned you have ETFs that deliver only capital gains in your taxable account. I thought capital gains would be less favourable than the dividend tax credit in a taxable account. Since most provinces have a decent amount of income that you can make in dividends per year without being taxed (assuming you are not working of course) wouldn’t that be a more tax-efficient option than having only capital gains (even though you are only taxed on 50%)? Or does it just become a numbers game at that point when you’re decumulating..?

        Reply
        1. No problem, Alfie…happy to share a bit.

          Well, the ETFs I own do deliver some distributions, but not much.

          I keep an ex-Canada ETF in my/our TFSAs, just like a lot of DIY investors I know like owning an all-in-one ETF inside their TFSAs (and RRSPs) as well – many I mentioned in my post here:

          https://www.myownadvisor.ca/etfs-and-dividend-stocks-built-to-last-for-your-portfolio/

          I could certainly own that ETF in a taxable account, it would be very tax-efficient overall and I might do that as I continue to have money to invest in a taxable account…just that for now our plans/goals are to max out the TFSAs and RRSPs and I might not have enough money to invest in our taxable accounts in 2024.

          Assuming you have no other income, Canadian dividend paying stocks are very, very tax efficient.

          It is my hope to be tax efficient over time. I recall our drawdown plan in semi-retirement and retirement has our average tax rate <15% which is pretty good!

          Cheers,
          Mark

          Reply
  11. Mark, interesting points about living off of dividends. My wife and I have been retired for almost 12 years and the strategy for us to focus on dividends was two fold. First it is taxed better than other incomes and secondly based on the tax structure and a predetermined income ceiling we have been in the process of collapsing our RIFs before we have to take CPP and OAS, so this ensures we can withdraw as much as possible. 95% of our holdings in registered and non registered accounts have been in stocks since we began this journey many years ago. We have been using the dividends from our TFSAs to live off of but when we withdraw registered funds we top it back up including the annual contribution. I do see there will be a time when I need to start selling holdings in my non registered account but not sure when that will be. Thanks

    Reply
    1. Thanks! This has been my plan after retiring and it’s nice to see someone has actually done just this. Withdraw dividends from TFSAs, then withdraw from RRIFs to make annual TFSA contributions AND top up what you withdrew from previous year. Well done!

      Reply
    2. Thanks for your comment, Denis. I know many DIY investors that have been very (very) successful with dividend stocks and cash and such. It can work wonders for some but I can appreciate this approach does not work for everyone let alone, it could be leaving both returns and money on the table if a “live off dividends” approach is done in perpetuity.

      Your approach is really not that uncommon from other successful investors I know:
      -re: dividends and capital gains are “taxed better” than other forms of income – makes sense for taxable investing, and.
      -“using the dividends from our TFSAs to live off of” and that can work – such that you withdraw from TFSAs, fill them up again from registered assets.

      I’ve also seen and observed many folks make slow RRSP/RRIF withdrawals and funnel $$ not needing for spending to the TFSAs – which is our long-term plan.

      I appreciate you sharing your expertise and experiences with readers. 🙂
      Mark

      Reply

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