Why living off dividends still works for me – Tawcan
Passionate fans of this site know I’m a huge fan of dividend income, for many reasons:
- The income received from our Canadian and U.S. stocks is real money; I do not have to hope for just stock price gains to fund our retirement. There will be tangible income I can spend without selling stock shares.
- The dividend income earned inside our accounts helps me stick to an investing plan I believe in. This behavioural benefit is huge. Sticking to any plan, especially one you believe in, will save you money in transaction costs and help you avoid poorly timed investment decisions. Win-win.
- I can control the portfolio turnover, not a fund manager I have to pay.
- With my buy and hold and reinvest the dividends approach, I don’t have to pay a money management fee.
- Dividend-growing companies tend to be solid performers, so you get dividends and capital gains over time.
Those are just some of the reasons I/we own dividend paying stocks – and we’ll continue to do so.
This means my dream to live off dividends remains alive and well!
A similar dream exists for many other dividend investors I know, even though other investors disagree with our dividend investing philosophies and approaches:
“The trouble with a “live off the dividends” approach is that I’d have to save too much in order to create my desired retirement income. For example, I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income. Alternatively, I could get the same $90,000 per year by simply withdrawing from a portfolio of $1.45M (assuming 5% annual growth and the portfolio lasts 30 years).”
The debates associated with focusing on income from your portfolio vs. a total return/draw down approach with a mix of stocks and bonds will rage on I’m sure – but I know what I’m focusing on in the coming years.
Other investors and bloggers are taking a similar approach: Tawcan is one of them.
I wanted to catch up with Tawcan (and other bloggers I profiled back then) to see where they are at.
As part of this series, check out Tawcan’s updates below!
- Bob, what has changed since 2015 (since our post together)?
Lots!
On the blogging front, I no longer blog anonymously. I revealed my true identity back in 2017 and have not looked back. I have had a few media opportunities thanks to the reveal. I also have gotten recognized in public, a funny & weird experience I have to say.
On the personal front, life is busy. We have two very energetic toddlers now.
On the financial front, we have been continuing with our investing strategy – like you Mark – max out TFSAs, RRSPs, and since we have kids we also max out RESPs each year before contributing our taxable accounts. This simple strategy but very aggressive saving strategy seems to be working as our dividend income went from slightly over $10,000 in 2015 to almost $19,000 in 2018 and our net worth has grown over that period too.
- How is your portfolio constructed now? What do you own?
Our portfolio is still constructed the same ways as it was in 2015, except we now own a few more individual dividend stocks.
We are currently investing in 63 dividend stocks and 2 index ETFs. Out of the 63 dividend stocks that we own, 22 of them are US-listed stocks and 41 are Canadian listed stocks. The 2 index ETFs that we hold are Vanguard Canada all cap (VCN.TO) and Vanguard Ex-Canada all cap (VXC.TO). We are utilizing the 2 index funds to improve diversification.
Some may say that having 63 individual dividend stocks is too many to manage. For the most part, we are on auto-pilot with these stocks as we DRIP new shares whenever we can or eligible so there’s very little day-to-day monitoring. I do agree that 63 is a large number but some of these stocks that we own were given due to company splits, so the number of shares we have are rather small. The commission fee for a sale would be a large percentage of the overall cost. Therefore, I decided to continue holding them for now.
We hold these dividend stocks and index ETFs in RRSPs, TFSAs, and taxable accounts. To avoid the 15% dividend withholding tax, we only hold US-listed dividend stocks in RRSPs. All REITs and income trusts are held in either TFSAs or RRSPs. Finally, we only own stocks that are considered as eligible dividends in our taxable accounts.
- How close are you to achieving your dividend income goal? How much more to be invested and/or time will it take to realize your dividend income goal?
Well, technically we can be financially independent if we really wanted to now, but we choose to delay it. We estimate that we would need $40,000 in dividend income to call ourselves financially independent. Given that we received close to $19,000 in 2018, we are almost halfway to achieving our dividend income goal. We estimate we should be able to hit the $40k target when we are in our early 40’s, or about 5 to 8 years.
- $40K in dividends would be very impressive. Are you going to do anything differently going forward to help you realize your goal?
Not really.
Our budgeting system allows us to analyze what we are spending our money on every year. We try to save as much money as possible while making sure that we aren’t depriving ourselves – we believe that we have found the right personal balance between saving for the future and spending to enjoy the present moment.
We are at the point on our financial independence journey where our expenses are optimized. So rather than trying to reduce expenses further, and depriving ourselves, we focus on increasing our income. This means trying to increase my full-time salary and income from our side businesses. This is something we are working on.
- Finally Bob, what do you think the biggest factor will be in helping you realize your goal?
Having the right mindset.
When we started, we were very much in the save, save, save mode. Over time, we found this was not the right approach. So, we developed a different mindset where we found a balance between spending and saving. In doing so, we truly believe that we will realize our financial independence and dividend income goals. It’s not a question of if we will accomplish these financial goals, it’s simply a matter of when. As mentioned, we are taking a slow and steady approach to financial independence, so we are not in a hurry to get there. We want to enjoy the journey.
Summary
A high savings rate, a personal approach that works for Bob, and a large volume of dividend paying stocks that generate income seems to be what is working very well for Tawcan. Your mileage might vary.
The goal of living off equity dividends (or distributions) can be a prudent strategy but it’s not for everyone. Dividend investing has risks. Only you can decide what is right for you. I want to thank Bob Lai for sharing his investing update with me. Stay tuned for more stories and updates from other bloggers as part of this series.
Other investors striving to live off dividends…friends and prominent bloggers:
What do you make of Bob’s portfolio and choices? What would you do differently, if you were Bob?
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and now investing beyond the 7-figure portfolio to start semi-retirement with. 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.
Mark:
One of your subscribers recently commented that dividends received were “real money”. That is not the way the CRA sees it. The grossed up phantom amount of CAD dividends is included as part of a tax payer’s total income when calculating the level at which OAS is clawed back. The real money is the OAS that the CRA confiscates from me for having taken the risk of putting my savings to work in the stock market.
Pete.
I think what the reader means, and I do, since I use this terminology from time to time is that instead of hope of capital gains – where you have no idea short-term where your income is going to come from – dividends are real cash deposited into your bank account that you see, spend, reinvest as you wish without selling any shares. This is more psychological than anything since of course you could sell shares and create your own “dividend” per se.
Unfortunately though, everything is taxed. Income taxed before TFSA. Income taxed when money comes out from RRSP or RRIF. Dividends are taxed, although favourably, probably to your point. Death and taxes are the only sure…. etc.
Cheers,
Mark
You mean you never buy GIC’s right? My mother is 92 and that’s where she keeps her savings.
Me Gary? No. I think GICs totally make sense depending upon your tolerance for risk and need for capital preservation. Maybe Bob can answer!
My 92 year old grandma had dividends coming in every month and took some gains here and there. Never would want her $$$ locked in to GICs. She always wanted to stay liquid. GICs are the worst investment products the banks sell! (well, i might be wrong – Mutual Funds might be worst!….. Na- it’s still GICs that takes the top spot of worst places to park money or invest in)
Never buy GICs (rates are too low, taxed as income, restricted, and inflation eats 1/2 the payable interest).
Nice to see a lot of real life examples. I am almost 48 and receive around 1K/month from dividends, and am planning to live overseas when I retire. I work with a lot of young people, and many of them have high debt and student loans. They also have no clue about savings and investments. It’s exciting to see receiving dividends and putting them back to work. For me, “The Richest Man in Babylon” was the eye opener when I was learning about investing.
That’s a great book on the investing basics Yilmaz. I should write a review about that book at some point.
“It’s exciting to see receiving dividends and putting them back to work.” – you bet – me too!!
We’re on pace to earn over $19K in dividends this year from TFSAs and one (1) non-reg. account. I hope we nail it. Continued success to you too.
I remember reading it in my late 20s. It was an eye opener for me. IIRC, a few years later The Wealthy Barber came out and that’s when I got into the DIY thing.
The Wealthy Barber remains my game-changer.
^Ditto here. Have recommended it to many people over the years.
I re read Richest Man in Babylon about 6 mths ago.
Required reading for my kids! To this day the best book for the beginner. It sure opened my eyes!
Great stuff Gary. Tell your kids to follow this site 🙂
I read the Wealthy Barber and did not learn a thing. The book is for beginners! Not worth buying if you are an investor!
A few general comments. I’m 66 years old, been retired for 5.5 years, no company pension, and my wife and I live entirely off our dividend income, my CPP, and my OAS. My wife was stay at home so no CPP and she’s only 62 so no OAS yet. As an aside, she really focused on the kids plus did lots of volunteer work instead of having a paying job.
First off, good work Bob on your top-notch progress.
Here’s some other comments.
I think young people should be a bit careful with how much effort they put into their investing and how much time they spend tracking their investments. Until a person is around 45-50, all I think they need to do is buy a few diversified ETFs and then just add to them and ignore them. I think it’s way better to make sure you’re spending quality family time. (you don’t want to get me started on what I think of all the time spent on social media 🙂
My wife and I are invested entirely in 26 Canadian (TSX) dividend income/growth stocks and 2 ETFs, mainly in 5 sectors – banks, utilities, midstream/pipelines, telecom, and REITs. No bonds, GICs, or fixed income. Our current average yield is 5.20%. The holdings are generally very conservative with very little risk. As another aside, the portfolio is up ~38% since I retired and that’s with withdrawing the dough we need to live on and also doing extra in kind RRSP to non-registered transfers to try and draw-down the RRSPs (which of course, means additional income tax)
It seems like a fair number of people must have really extravagant life-styles and plans. I realize my wife and I are quite simple folk with quite inexpensive tastes (lots of family stuff – kids and grandkids, and lots of outdoor stuff – camping, hiking, x-c skiing, biking, running, etc. I tracked our total expenses for a few years once I retired and it was in the $45-50k pre-tax per year range. I can’t even imagine how we could spend $90k per year. (I totally agree with Ben-R)
Anyway, we have way more than we need and are a fine example of how well living off dividends can actually work.
Ciao
Don
Don, thanks as always for the comments. Clearly you’ve done many things right and personally, I enjoy reading comments from folks like you who have “been there, done that” because I get to learn what works and what might be better based on your experiences. Experiences are the ultimate teacher in life 🙂
Cheers,
Mark
Hey Mark
Thanks for the nice reply.
I always appreciate reading your blogs and the many excellent comments from your readers. In my early years of retirement, they really helped me in formulating our current investment strategy.
Keep up the good work.
Take care
Don
Great stuff Don. There are some smart people that visit this site and I’m only happy to see their comments and insights.
Hi, Don G, it’s always to encouraging to read stories like yours to demostrate the plan actually works. Hope we will follow your examples.
With regarding to how to spend $90K a year. Well, I just registered my kids for spring camp, it cost me $728 for one week. And this is a discount rate because I registered early. The regular rate will be $848. Spring break is two weeks. Just thinking how many weeks the kids were out of school, at least 8 weeks in summer. When they are in school, there are also expense like swimming, piano, soccer, etc. etc. And when we travel, everything is double expensive. We also go to expensive place like Disney world where we will go only because kids love it. Kids are money burning machines. But they are worth every penny I spent on them, so no complains.
Hi May
Thank for the comments.
When I talked about annual expenses, I guess I was thinking retirees are generally empty nesters. Still having kids in the loop makes it a whole different situation. We had our kids quite early so they had graduated from university, got a job, and moved out when I was 54, a full 6 years before I retired. (then some serious saving began!!)
I guess having debt and/or a mortgage would also be another factor. I sort of assume that most retirees are debt free but that’s probably not the case anymore. We are totally debt free. We also really focused on paying our house off and did so in 1993 when I was 40. We have lived in the same house for 37 years and are not into renos or stuff like that, so housing has been incredibly inexpensive for us.
Good luck with the investments and your plan
Don
Although everybody’s situation is different, I always believe retiring without any debts is better than with debts. We don’t any debts right now, and hopefully will not retire with any debts.
I realized for people who want to have kids, having kids early is the most efficient strategy to save money. Looking at the rate increasing for Disney world, daycare fees, tuition fees, fees for extracurricular activities, etc. everything is increasing much faster than inflation rate. I will tell my kids either to have kids early, or just being DINK.
I think retiring with no debt is huge May. We’re actively working on it. I think that’s great advice to your kids.
Hi Don,
Thanks for posting up with your thoughts and experiences. Always look forward to it. It’s nice to read a story of success and with some different circumstances and approach different to mine.
I also thought I should reply as I might be someone that was being commented about and in particular should clarify my ideas.
When I replied concerning my idea of income needs I was assuming gross income levels and was familiar with May’s situation.
I’ll spare everyone the details about our situation because people are probably tired of reading it. 5 years into retirement and our spend is right about 56K avg. annually before taxes- I track it all. We have travelled extensively during this time up to Sept ’18 totaling almost exactly one year and these expenses are 37% of overall spending. However we probably have ~100K+ in large expenses house/cars etc coming in the next several years. I could see adding another $25K spending to current avg. but probably only to age 75 or so.
We’re doing the same thing with larger registered withdrawals, paying extra tax, topping up TFSA and some to unregistered. Markets have been kind to date and retirement timing lucky so we have income growing and asset balances growing nicely here too.
Not sure what the future brings re spending/needs but with govt benefits still available to both of us and some capacity to step up spending from investments its likely we’ll continue to have options. We have more than we spend like you and some others on here, but we have some more thinking to do on just how we approach this, particularly without heirs.
Hey RBull
Always nice hearing from you, Lloyd, Cannew, and any of the MOA retiree gang.
I was definitely not directing any of my comments towards you.
It is pretty cool that we have so much in common and yet some significant differences with no heirs for you, you travelling more, and you being a bit more conservative with having fixed income holdings.
As an aside on the travel front, i suggested to my wife that she make her list of overseas places she wanted to travel and that we do them all before I retired. We did that and she is happy to now just do lots of camping trips in western Canada and the western states. We do two 3 week trips per year and then a bunch of shorter 3-7 dayers in BC and Alberta (getting all the kids and grandkids out and about)
I also see that we’re both runners and have done a number of marathons. I also got into summer and winter triathlons and did a couple ultras. Definitely good value and good fun and a great way to help stay healthy.
Take her easy
Don
I read your (RB and Don) stories about running, multiple marathons, triathlons and I am ashamed.
I bought a hammock.
Thanks for that Lloyd; I just spit my brown pop out all over my spread sheet! ((:
Lloyd, love your humour!
I don’t know a darn about farming though so you got me there.
It’s a good life Don.
Yes, that is cool.
We did some traveling while working but ramped it up a lot more since retiring. I realize now the more places we go how little of the world we have seen. We do really enjoy it. My wife is not a camper. I did a lot of it as a youngster and teenager in Europe, and western parts of Canada, northern Ontario.
I did not know that about your running, until I saw that mentioned in your earlier post. You’re multi discipline. Ultras. Impressive. I’m a one trick pony but my soft tissue injuries don’t allow me to do much now, but I keep trying dilligently. Good thing we have unlimited physio but with 20% co-pay. Did 15 fulls and a total about 125 races all distances -1 mile to marathon over 8 years when I was serious up to age 47 until I got injured, and did some fairly high mileage. Did lots of traveling with that. It is truly my passion and I would gladly trade anything to be able to do it again. Now I am enjoying helping coach a little on a casual basis. Good luck staying fit and healthy.
My wife is more conservative and she is also the one with decent pension. We could increase income a fair bit with more or all equity, which we were 100% until a year or so before retiring- sold a bundle going to about 50%. It’s a toss up and we usually come back to the question – do we really need to have more? I’ve let it creep to 63% now and my wife is okay with whatever I suggest, but I know at heart she is a little more conservative…..so you know how the saying goes….happy wife………
Cheers
Nice update Bob. Excellent progress towards your goal.
I think its great you course corrected to a more balanced approach between spending and saving.
Hi Robert,
Dividends from US dividend paying stocks are subject to 15% witholding tax too but you get foreign tax credit. However, this is out of the window if you invest inside an RRSP. That’s why we only hold US dividend stocks inside our RRSPs.
Thanks Bob and Mark, think you hit on a key point; the need for conviction. Time+compounding dividends+dividend increases is works almost all the time, relying on market appreciation/growth does not work all the time enough evidence exists to back that up.
Sorry one does not need 90K (~120K pretax) to retire in Canada so requiring $2.5M-$3M or even $1.5M is kinda overkill IMO unless you retire with material debt. With healthcare and social benefits you’d already have the equivalent of a $500K indexed portfolio, for most maintaining a solid middle class life in retirement (no debt) would require a $600K-$800K DIY portfolio tops according to be back of my napkin. This obviously varies and but apparently this level of income already puts you in the top 2% globally, perspective is everything:) > I do appreciate the two of you being this forthcoming about your journeys so far, learned lots still lots to learn.
Hi Ben,
Thanks. You’re right, you probably don’t need that much money to retire and live comfortably but everyone’s different. Some people just like a little bit more buffer, just in case. 🙂
I think how much is enough for retirement is quite different with different situations. As first generation, we will not get as much CPP/OAS as the average Canadians. Even so, I think $1M portfolio will be good enough if we retire at 65 and kids left home already. However, aiming to retire at middle 50s with two young kids, if I don’t have $2.5M I won’t feel secure enough. Just two secondary educations will cost quite a bunch even they decided just to go to Canadian Universities. I don’t want to limit their choices so I also want to be prepared if they are capable and want to go top universities somewhere else.
You made some good points May.
Everyone’s idea of enough is different based on their existing lifestyle and their desired lifestyle and circumstances in retirement. I think mine is more like yours.
Aiming for a larger amount with the idea of possibly helping your children with their education, and also having a better lifestyle makes sense. Especially important without a work pension, lower CPP/OAS amounts and if retiring younger than average.
You got it Ben-R. I suspect if most Canadians work until age 60 or 65, save about $750K, then with CPP and OAS (as couple) they should be more than fine unless they have major spending needs.
At the end of the day, what you spend is what you need. If you love buying new cars, you’re going to have a hard time living off $30-$40K per person in retirement.
If you’re smart with money, use a sensible spending plan, etc., you might not need $1 M to retire on. In fact, most Canadians with no pension don’t!
https://www.myownadvisor.ca/retirement/
I am new here but find the site very informative.
One point, is when you invest in US dividend stock, in reality for us Canadian, they are simply taxable as interest.
I do have also a sizable portfolio, 50% I manage and 50% with 2 financials advisor. and manage to get about $50k per year of income in registeresd and non-registered account. A good retirementt planning is so important as we see so many peoples coming at retirement with debt and a very small nest. As we have a small income tax business, we can almost predict which of our customers, will have a good time in retirements year or will probably need to work later.
Thanks for being a new fan Robert. Earning $50K in income is very solid, well done. Debt management and spending management is very important in any working or retirement plan – but you know this already. Most people simply can’t control impulse or spending restraints. We can’t blame them – our lizard brains are not wired to delay gratification!
I’ve just started investing in dividend stocks, just curious, how much money do you have to have invested to earn approx $10,000 a year in dividend income? I know I have a long way to go to get there! I’m just curious how long!! ?
Depends on the yield of the stock when purchased. If the yield on investment is 5.5%, one would *need* around 190K invested. And just as an aside, we all started at zero. It does take time.
Hi Connie,
Good move! While there is no one right answer to your $10K question I can say that in my case it would be ~$250K given an average current yield of 4%. Keep in mind that your yield would/should increase over time due to dividend increases. Reinvesting your dividends would also reduce the capital needed to earn your $10K.
Hope this helps.
Thank you Ben and Lloyd! I was looking for a ballpark figure to have a goal in mind!! Thanks again!
Connie: Don’t think in terms of “How Much to Save”, instead concentrate the type of investments you invest in, which will generate $10k.
ie: we have $171k invested (not market value) in our two TFSA accounts which will generate $11,267 (as of Feb 2019, 3 div increase for the 7 stocks we hold in the accounts).
Mark possible will have a post on this topic towards the end of March, early April.
I think this could make a great Q&A with you and me cannew 🙂 Stay tuned – let’s get our interview going early March.
Connie, I’m a fan of focusing on investments that raise their dividends regularly vs. how much I need to deliver X income. Ultimately, over time, what you’ll find is even if the portfolio value might go down for a bit, dividend income will keep rising up!
Well, FWIW, based on yield in my portfolio and what I’m invested in I need about $225K invested to deliver $10K per year in dividend income.
My goal, long-term, is to have a $1 M portfolio and I figure once I’m there, that should deliver about $40-$45K per year (pre-tax) for the rest of my life. If the portfolio value goes down to $900K, big deal, as long as dividends are paid, the income will be the same. If anything, because of the companies I own – they raise their dividends – even $900K invested could deliver even more than $45K without investing a penny more.
I hope that helps.
I agree with the statements to focus on growth and take it one step at a time. I often see people wanting to reach a high income really fast and they buy the wrong stock focusing on the high yield rather than a high quality dividend growth stock. An average dividend growth yield is around 2.5% and good REITs with less growth will be at or over 5%. REITs and high income tend to be proxy to interest rates, if interest rate increase, investors switch for safety of capital invested. That seems to be forgotten … since we have had low interest rates for a long time.
Dividend safety is rarely discussed and too many companies abused of the income trust corporate model some years ago and then were forced to switch to a corporation and are struggling to maintain the yield.
The rule of 72 is great. Dividend 72 by your rate of return and it shows you how long it will take in years to double it. Use it to forecast where you land. It takes a really long time to reach 1 million but then it could only take 6 to 10 years to double it if your money is working well.
Totally agree with rule of 72 and how compounding can accelerate growth.
I sometimes wonder where I’d be financially if all the things that are available today were available when I was *young*. Just the internet alone with self directed just about everything would have saved a lot just in fees.
I must be getting old if I’m going down the “when I was your age” path. 🙁
And a bit off topic…just got the three CPP estimates from CPP and they match Doug’s figures to the penny.
We all wish we had started earlier. That’s why it’s a good idea for parents to start an investment account (not RESP) for their kids when they’re born. 🙂
@Connie I don’t disclose my portfolio value but you can work it backward by using different yield percentages.
Young folks have it great now Lloyd. With all the investing choices, knowledge and low cost options – they have it all and certainly don’t have to pay $29.99 per trade like I did 10 years ago!
Feels good to read about a strategy that others believe, like me, is the way to go. My wife and I have been retired and using this method to live on now for about 5 years. It’s working exactly as planned. We use the 4 percent rule of payout and generally returns do better. This allows us to do extras, like get a new roof last year, and still do all the travel we enjoy. Thanks for your educational and inspiring blogs.
Very happy to hear that the strategy works. 🙂
Great to hear Paul re: “It’s working exactly as planned.” I love hearing those stories! Thanks for being a fan.
It’s very impressive to see how fast Tawcan’s dividend income getting bigger and bigger.
Interesting, saving between $2.5M and $3M in order to generate $90,000 per year in dividend income is actually my retirement goal. Once my portfolio reaches $2.5M, I will consider myself ready to retire. It’s another 4 years if things are smooth.
Whoa, $2.5 M is a bundle and if that’s your goal – I hope you nail it!
Thanks May, we are working hard on saving and investing money so our money can work hard for us. At the same time, we make sure we don’t deprive ourselves. It’s a fine balance. 🙂
$2.5M is one impressive number. 🙂
I like it May. Fantastic goal, and its clear you’re pretty far along towards reaching it. Excellent.
Good luck and I hope to keep reading about your progress.
Thanks. I will report the progress here for sure. The biggest factor will be job stability. If both of us could keep the current job for 4 more years, I think we should be there then. Worse case, one of us out of job, another one continue for a couple more years. Worst case, both of us out of job, then we can decide at that point to find another job, or just retire with a life style change. Maybe I will host some students in my home then if that happened. I have two guest bedrooms downstairs that are rarely used anyway.
Being adaptable is great. Having options with plans goes one better. Way to go. Hopefully plan A (both keep jobs) works for you.
May, you’re killing it for your goals and WELL on your way to them. Keep the pedal down!
Reading that post just made my day and got me excited lol
Thx mark & bob
Glad you’re engaged in the site!
Thank you Brad. Glad to have gotten you excited. 🙂
Great post. I enjoyed it a bunch!
Thank you Dale. 🙂