Weekend Reading – Your retirement income sources

Weekend Reading – Your retirement income sources

Well Hello Everyone!

Welcome to a new Weekend Reading edition, highlighting a few retirement income sources.

Before some reminders on that theme including some key free case studies on my site….a few recent posts and other related reads:

These are the Top 10 Retirement Mistakes and what you can do to avoid them. What I’m trying to avoid anyhow!?

Top 10 Retirement Mistakes

As you consider semi-retirement in the coming years like I do, or full-retirement, I suspect you’re probably not going to focus on whether you’re beating a particular benchmark or index. You’re probably fully focused on meeting your cashflow needs from your portfolio that this post will outline. Rightly so. Benchmarking is great, it can be helpful and I’ve done it with my portfolio now and then but I doubt it matters as much as securing your retirement income cashflow needs. 

Weekend Reading – Your retirement income sources

Canada’s retirement income system is often described as having three pillars, although variations do exist, I’ll leverage those pillars from our Government of Canada – Retirement Hub as a key source for this post.

The first pillar provides benefits based on age and years of residence in Canada: so it includes the Old Age Security (OAS) pension, the Guaranteed Income Supplement ((GIS), if that applies to you for lower income folks), the Allowance and the Age Credit. This first pillar is funded largely through general tax revenues.

The second pillar consists of mandatory earnings‑related programs so you can put the Canada Pension Plan (CPP) and, in Quebec, the Quebec Pension Plan (QPP) in that bucket. These are public pensions, funded by mandatory contributions from workers and employers, as well as income from investments made with these contributions. 

The third pillar is composed of workplace registered pension plans (RPPs), think defined contribution pension plans and defined benefit pension plans, group RRSPs, etc. and personal/private retirement savings in the form of your own Registered Retirement Savings Plans (RRSPs), Tax‑Free Savings Accounts (TFSAs), and if both your RRSP and TFSA is maxed out – now what??? – it can include non-registered investments that focus on capital gains and/or tax efficient dividends. A collection of your third‑pillar programs are voluntary to employers and/or individuals but they are supported and incentivized by the government through preferential tax treatment, which includes tax exemptions and tax credits.

Weekend Reading - Your retirement income sources

Source: Government of Canada.

I share this information for this Weekend Reading edition since while it could be “old news” to many My Own Advisor readers it becomes important context for all the free case studies I’ll list below and beyond that, the sum of the investing parts that my wife and I are mapping out in detail this year. 

Knowing our collection of key retirement income sources and making any assumptions about when cashflow might come from our portfolio (or not!) helps us make some decisions near-term and longer-term. 

I’ve put together a few considerations for context below, not final decisions mind you, but some options.

Our Retirement Income Sources - March 2024

Our approach, I believe, has lots of flexibility designed-in on purpose: the ability to tap multiple income streams at once and/or over time including a trend to tapping inflation-protected benefits later while transferring/lowering our taxation risks too.

This income options matrix is even more liberating now that we have no mortgage. 🙂 – back at you Jim! @WalletHacks. 

Your retirement income sources

Whether you have a large pension from work or not; a growing RRSP/RRIF or not, I believe it’s important to consider all potential income sources, map them out, and consider the timing of each to help make income decisions, tax decisions and any estate decisions. There is no one-size fits all plan for everyone, for sure, only what could work for you.

Weekend Reading - Expenses that may disappear edition

Source: Carl Richards, Behavior Gap.

More Weekend Reading – Your retirement income sources

Thumbnail image source for post: Pexels, Tima Miroshnichenko.

From one of my favourite sites/podcasts/knowledge areas:

“Consistent progress compounds. Inconsistent progress is a lie. Make a little progress today on your most important objective. Repeat tomorrow.” – Farnam Street. @farnamstreet

Some DIY investors continue to kill it with their massive, growing monthly income. Congrats to Dividend Daddy:

“My January 2024 dividend total is $11,747.44″.

Many investors, myself included, have been in awe of the tech concentration in the U.S. market over the last few years. Will it keep growing? Will it slow down? I have no idea long term but I do own some low-cost QQQ for my tech-kicker just in case more tech dominates the U.S. stock market over time. It might.

I enjoyed Ben Carlson’s X/Tweet related to that:

Ben hit on long-term recency bias in a recent post.

I wish I had owned the “Qs” 10+ years ago but the last five-years or so will have to do for our portfolio. 

“The Nasdaq 100 has been crushing it for well over a decade now. It’s up almost 800% in total since the start of 2012. That’s annual returns of close to 20% per year. If you invested in the Qs you’ve basically been Warren Buffett for more than a decade now.”

Then and Now – QQQ

Want to know the key to financial planning? Be lazy (says Morningstar).

Related to my theme this week, my friend over at Dividend Growth Investor encourages you to start investing with the end-game in mind.

As referenced above, here are some free case studies below to help you compare what you might need and when you might need it for your retirement income planning. I do this for free, to help others, to pay it forward. 

All these free case studies and more are on my standing Retirement page.

You are also welcome to contact me anytime about anything on this site including doing your own projections. Happy to help there too. 

Have a great weekend!

Mark

How much should I take out of my RRSP?

AND…

How much do you need to retire on $5,000 per month?

OR…

How much do you need to retire on $6,000 per month?

AND MORE STILL…

How much do you need to retire on $7,000 per month?

Thanks for your readership.

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.

12 Responses to "Weekend Reading – Your retirement income sources"

  1. Hi Mark. My wife and I retired two years ago at 56 and are melting down our RIFs and LIFs until we can collect CPP and OAS at 70. We top our withdrawals to the first federal tax bracket to smooth out our lifetime tax bill, even though we don’t need that much money to live one. The extra money fully funds both our TFSAs(100% equities)that just passed $200k each. Should be a healthy sum by the time we reach 70.

    Reply
    1. That seems like a very smart drawdown plan, Carl. I hope to do the same: consider melting down RRSPs/RRIFs and LIRA/LIFs so that I can consider taking CPP and OAS at age 70 for us. Default right now, for each of us based on our projections is CPP and OAS both at age 65.

      I appreciate the insights.
      Mark

      Reply
  2. CJ (57, will retire at 59) · Edit

    Mark,

    Thanks for this post. I especially love the chart in your post – that is, the matrix with the green/yellow/red to illustrate what you draw from at various ages. I have never seen it presented it this way and it is very easy to follow (sorry if I had missed it on one of your prior posts).

    My drawdown approach is similar to yours.

    Similar to Lloyd, I have always viewed our TFSA’s as insurance or a part of our “last line of defense funds”, since we on purpose do not have life insurance.

    CJ

    Reply
    1. Ya, I/we won’t have any life insurance in about 5 years – it will be self-insurance for that. For now, we have term life insurance.

      Thanks for the feedback on my matrix – it’s the first time I’ve posted that in fact and hope to use as a reference in the coming years. 🙂
      Mark

      Reply
  3. Hi Mark
    Always very helpful articles. I do have some questions about CPP, if you can respond please.
    My rough estimate of CPP at age 55 presently is $600 per month based on gov website. Assuming I start living off dividends and rental income and do not contribute to CPP from age 55-60. Would my CPP benefit reduce because I did not work from age 55-60? or can I assume that roughly $600 can be budgeted? Is there a way to estimate or options available?

    Reply
  4. Thanks for your insightful posts as usual. I have a question on OAS clawback. I understand that the OAS is clawed back when your taxable net income exceeds the prescribed threshold and your OAS is reduced in the following year. So for the following year when your taxable net income is NOT over the prescribed amount, you are then entitled to your regular OAS (without the clawback amount). Do you have to contact CRA to let them know that your net income is not over the prescribed amount so that you can receive the regular amount of OAS? I assume CRA calculates OAS based on the annual Income Tax return figures and they will automatically adjust the OAS amount for every year and there is no need to inform. Am I correct?

    Thanks Mark for your valuable comments.

    Reply
    1. I appreciate your comments and contributions, Ken!

      My understanding is, because OAS clawback is based on income in any tax year, if taxable income is NOT over the threshold then you have nothing “clawed back” and you get OAS in full based on residency requirements. Nothing to contact CRA about. File your taxes accurately every year and be done. Again, highlighting that based on reader experiences only. I won’t get OAS for another 15 years or so. 🙂

      Cheers!
      Mark

      Reply
  5. Great content as always Mark!
    What I am really starting to appreciate now that I am in retirement is the TFSA and the wildcard/flexibility it provides on your income. For us the TFSA is used primarily as a source of dividend income (although I am starting to purchase some stocks/etf’s that have more growth). If the TFSA was not available all the income would be taxable (although dividend income is tax efficient). For us, half of the dividend is reserved for longer term items such as a new car and house upgrades. The other half is used for stock purchases or additional income that year. I call it a wildcard because you don’t want to have to cash more of your RRSP before you need it so budgeting for these items is much easier with the TFSA and you don’t get hit with additional taxes the year you need the money.
    The RRSP is used for living expenses in the specific year. The TFSA is used for big items or saving for big items. The TFSA is not cashed just the dividends are used. Not sure how others on this bog use the TFSA in retirement but would be interested in their wisdom.

    Steve

    Reply
    1. Totally, Steve, the TFSA is an excellent retirement tool!

      I see many retirees seeing the benefits of drawing down the RRSP/RRIF first as a tax liability and keeping the TFSA “until the end”.
      Not required of course but why have an estate taxed too much if you don’t have to?

      https://www.myownadvisor.ca/watch-out-for-rrsp-and-rrif-taxation/

      Some retirees now have >$300k as couples inside the TFSA, and growing by 6-7% per year. Incredible. If money doubles every 10 years or so via stock returns that’s over $1.2M in 20 years. Pretty nice emergency fund for retirement. LOL.

      Have a great weekend,
      Mark

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

      We generally use our TFSAs as insurance replacement. Other than smallish (and decreasing) policies associated with our work pensions, we have no life insurance. Using them would be third priority behind (1) using up the non-reg and, (2) remaining RRSPs to RRIF conversion to generate annual income. Unless something happens to me (knock on wood) it will be unlikely these assets will be used.

      I can envision many different ways of utilizing this product under various scenarios. Tailoring them to a person’s own situation as part of an overall plan.

      Reply
      1. Great stuff, Lloyd. Makes a lot of sense to treat growing TFSAs, if you can, like an insurance bucket.
        I/we definitely plan on using TFSAs later in life, just not before non-reg. and RRSP assets.

        FYI – most professional software for asset decumulation does the same thing: NRT or RNT. TFSA is always last. 🙂

        Mark

        Reply

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