Weekend Reading – What you need to save to spend $75,000 in retirement income
I hope you had a great week…welcome to a new Weekend Reading edition: focusing on what you might need to save to spend $75,000 per year in retirement.
First up, a few recent reads just in case you missed them:
I updated this post about my own Locked-In Retirement Account (LIRA) and highlighted some options about how to invest in it, including sharing what I own right now.
Thanks to various reader questions, comments and emails over the last few months, I shared a bit more about my/our own portfolio in this post – related to how to build a moaty DIY portfolio.
The results of this portfolio as an example are in that post!
Weekend Reading – What you need to save to spend $75,000 in retirement income
Headlines including my own are interesting because while such provocations seem simple to answer, there’s always IMO a BIG “it depends” attached to it.
- What rates of return are involved? How realistic are those?
- What about inflation or changes to inflation rates?
- Does this account for any variable spending at all? (Life is not a straightline).
- Does this imply a spending to zero balance? How desirable is that?
And my list goes on…
But for a bit of the back-of-the-napkin math, not so bad based on my own analysis and reporting work for clients.
Here is what I am talking about, from The Globe and Mail this week (subscription):
This math confirms some of my work, give or take, with more detailed analysis in my selected posts:
1. If you’re single, and you won’t have this much saved at age 55, it’s still possible to retire:
2. How much do you need to retire on $6,000 per month with 3% sustained inflation?
Certainly, a few things jump out in such detailed analysis that I do or even some G&M headliner articles might touch on:
- As you age, as you work longer, you won’t need as much personal savings thanks to our generous government benefits by way of CPP and/or OAS – although I wouldn’t want to rely on our government programs exclusively, that’s for sure…
- Inflation is a wildcard. Plan for it to be higher in the coming decades and therefore be pleasantly surprised if that doesn’t happen.
- I don’t know anyone that spends consistently, as in every month. Sure, rolling year-over-year spending averages are good to forecast but like I mentioned above – life is not a straightline. Spending in asset accumulation and asset decumulation years is likely to be variable and your cashflow and portfolio income planning work must account for that accordingly.
- Like a few commenters (to this G&M article referenced), early retirement is probably out of reach for many due to competing financial priorities like raising a family and/or due to the higher recent costs of home ownership – if that’s what folks want – than incurred in previous decades. Those are just the facts.
- Due to competing priorities and/or life choices, many Canadians might be in for a reality check when it comes to their retirement planning altogether.
What say you?
What factors would you like to see considered (more) in such case studies or analysis?
What retirement income planning factors are overlooked or conservely, are you taking to heart?
Let me know your thoughts in a comment on the site or reply via email if you wish to keep it personal. I read all of them!
More Weekend Reading…beyond what you need to save to spend $75,000 in retirement income
Well, lots of noise about TC Energy (TRP) stock of late. Insider buying (from the CEO no less) is usually a very good bullish sign…
TC Energy's CEO Francois Poirier bought 11,500 shares today, for an investment of over $500k. Not a bad show of confidence.$TRP.TO
— TSX Dividends (@TSXDivStock) July 31, 2023
An interesting debate over whether it’s more financially advantageous to use extra cash to pay down your mortgage sooner or invest.
As a homeowner, I know this debate very, very well but some folks do need reminders in any renting vs. homeownership debate; you could also add utilities in the list depending on the rental property:
It's true, you will not recover the cost of renting.
But you also won't recover these costs with homeownership:
– Property tax
– Buying/closing costs
– Opportunity cost
If you're not including these numbers, you're doing it wrong.
— Rachael Camp, CFP® (@camp_wealth) August 3, 2023
Here are some timeless tips to better understand how your personal time horizons matter to successfully separate today’s spending from tomorrow’s future wealth.
Dale Roberts touted the benefits of his U.S. portfolio powered by Apple and a few other tech stocks. Very well done! Dale has no intention to live off dividends in perpetuity (which is smart IMO). Dale is creating his own dividends over time:
“Given that I am semi-retired and my wife is in the retirement risk zone, we will take the opportunity to sell into the rally to create retirement income. If someone wants to pay us more for less current earnings per share, step right up. It’s an easy game in retirement.”
Reader Question of the Week (adapted slightly for the site):
It is becoming increasingly hard to ‘keep the faith’ with respect to dividend growth stocks given their overall returns over the last year or so. In particular, Enbridge has been a huge disappointment in terms of overall return, along with VDY and XEI due to poor performance of bank and energy stocks.
Any suggestions ? this would be for a buy and hold cash account.
Timely, too, right? Given all our major Canadian pipelines are down in price (TRP, ENB, PPL) this year.
I have a couple of thoughts…
One, higher-yielding stocks (like Canadian pipelines) are going to suffer from lack of price growth IMO. That’s because I believe you cannot have two sides of the same investing coin: lots of dividends/dividend growth and higher prices at the same time. The math just doesn’t work. So, you need to consider that when investing in any individual stocks.
Two, when it comes to any ETFs holding Canadian stocks, be mindful of sector weights or sector ETFs themselves. While some of my favourite Canadian dividend ETFs (like VDY) offer good yields, too much of a seemingly good thing could hurt portfolios too. Meaning, too much ownership/weighting to ENB or other Canadian stocks could be a short-term drag on any ETF returns based on their design/construction.
Energy in particular is cyclical.
While energy ETFs can be an excellent addition to an investment portfolio thanks to:
- Diversification: The energy sector is counter-cyclical and can provide diversification benefits to broader indexes.
- Hedging: Historically, energy has outperformed during times of increasing inflation due to soaring commodity prices.
- Liquidity: Energy sector ETFs can offer liquidity, easy to buy and sell.
- Dividends: Energy ETFs can deliver higher yields thanks to the dividend-paying nature of their underlying holdings.
…such sector ETFs are likely to underperform the broader market index at times and might underperform over time.
Just for kicks, I’ve compared Vanguard VDY ETF (a Canadian dividend ETF), to BMO’s ZEO ETF (an equal weight oil & gas ETF), to low-cost diversified fav. of mine XIU ETF from iShares:
Source: Portfolio Visualizer
Finally, three, while VDY vs. XIU has done very well for sure, be mindful Canadian banks have bolstered VDY returns for a decade now. That may or may not continue. VDY is constructed with >50% financials. So, as Canadian financials go so goes VDY.
For the record, I don’t intend to sell my ENB or TRP or PPL shares. I happen to own all three.
I also pretty much own the top-20 stocks in VDY directly, just different weights than VDY holds, to reduce my risk to the financial sector.
Thanks for your question and readership. Always great to engage…
Summer Deals – Playing portfolio offence with Qtrade
Building on my playing portfolio offence with some defence post, thanks to my DIY investing approach, I’m very fortunate to have partnerships and deals shared my way from many companies…offering low-cost solutions and promotions quite frequently.
I enjoy passing on those saving, investing and earning opportunities to you…
Well, one such new offer is with Qtrade.
Right now, get up to $150 cashback when you invest with one of Canada’s low-cost online brokerages: Qtrade. Their cashback promotion starts now and ends later this year.
You can also access my link below to take advantage of the offer and learn more:
Need help with any retirement income drawdown order or projections for your retirement like those case studies above?
Enjoy your August long weekend and stay well.