Why my goal to live off dividends remains alive and well

Why my goal to live off dividends remains alive and well

Some time ago…yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.

Well, a great deal of time has passed on that post by my thinking and goals remain the same – as least in part for semi-retirement!

Read on to learn why my approach to live off dividends remains alive and well this year in this updated post.

Why my goal to live off dividends remains alive and well

First, let’s back up to the controversy and offer a list why some investors couldn’t care less about my approach and why dividends may not matter at all to some people:

  1. The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. Fair. 
  2. Dividends are not magical – there is nothing special about them. Sure.  
  3. A dollar of dividends is = a one-dollar increase in the stock price. True, a dollar is a dollar. 
  4. Stock picking (with dividend stocks) is fraught with under performance of the index long-term. I’m not convinced about that. 
  5. You can never possibly know long-term how dividends may or may not be paid by any company. Fair. 

In many respects these investors are not wrong.

You do need a bunch of capital to generate income.

Dividends are part of total return.

Honest Math - Dividends

Stock selection can open up opportunities for market under performance.

And the negativity doesn’t stop there…

Some financial advisors will argue your investing world starts to shrink if you demand 2% or 3% (or more) income from your portfolio, so dividend investing leads to poor diversification. 

My response to this: I don’t just invest in dividend paying stocks.  

Further still, some advisors will argue picking dividend paying stocks may lead to negative outcomes and too many biases.

My response to this: while I believe markets are generally efficient, I also believe that buying and holding some dividend paying stocks (while there could be market under-performance at times) does not necessarily mean I cannot achieve my goals. In fact, that’s the entire point of this investing thing anyhow – investing in a manner that keeps you motivated, inspired and helps you meet your long-term goals.

Consider this simple sketch art from Carl Richards who is far more famous than I will be, author of the One-Page Financial Plan and more:

Keep Investing Super Simple - Goals and Happiness

Source: Behavior Gap.

From Carl’s recent newsletter in my inbox:

“Pretend you live in some magic fantasy world where all of your dreams (according to the investment industry) come true, and you actually beat an index every quarter for your whole life. Congratulations!

So here’s my question: You landed in Shangri La, according to the financial industry. You beat the index. But you didn’t meet your goals. Are you happy?

The answer is “No.”

Now let’s flip that scenario on its head. The worst thing in the world happens to you (again, according to the investment industry). You slightly underperform the index every quarter for your whole life. But because of careful financial planning, you meet every one of your financial goals. Let me repeat the question: Are you happy?

And the answer is obviously… “Yes.”

Stop worrying about beating indexes. Focus instead on meeting your goals.”

Amen.

Finally, some advisors will argue that dividends and share buybacks and other forms of reinvesting capital back into the business can be equally shareholder friendly.

My response to this: well of course that makes sense. Dividends are just one form of total returns.

But you know what?

The ability to live off dividends (and distributions from our ETFs) will be beneficial for these reasons:

1. I continue to believe there are simply too many unknowns about the financial future. So, living off dividends and distributions will help ensure our capital remains hard at work – since it will remain intact. 

2. If we are able to keep our capital intact we don’t need to worry as much about when to sell shares or ETF units when markets don’t cooperate. We can sell assets as we please over time. 

3. Living off dividends is therefore just one way I’m trying to reduce sequence of returns risks. See below.

BlackRock - Sequence-of-returns-one-pager-va-us - December 2022 Page 2.pdf

Source: BlackRock.

4. I/we don’t necessarily believe in the 4% safe withdrawal rule. It’s impossible to predict next year let alone 30 or more investing years. 

5. I’m conservative as an investor. Seeing dividends roll into my account help me psychologically to stick to my investing plan.

6. Dividends is real money, tangible money I can spend if and when I choose without worrying about stock market prices or gyrations.

7. It is my hope dividends (and capital gains) can work together to help fight inflation. As consumer prices rise, as the cost of living rises, the companies that deliver our products and services will rise in price along with them.

8. I like dividend paying stocks for a bit of the “value-tilt” they offer. 

9. Canadian dividend paying stocks are tax-efficientWith my RRSP growing more with U.S. assets, I tend to keep Canadian dividend paying stocks in my TFSA and inside my non-registered account. 

In a taxable account Canadian dividend paying stocks are eligible for a dividend tax credit from our government. This means taxation on dividends are favourable, it is a lower form of tax; lower than employment income and interest income. This will help me in the years to come.

Will I eventually spend the capital from my portfolio?

Of course I will.

With no desire to leave a large estate, it wouldn’t make sense for us not to do so!

But with a “live off dividends” mindset I can sell assets or incur capital gains largely on my own terms during retirement. I plan to do just that. 

Why my goal to live off dividends remains alive and well summary

This site continues to share a journey that includes how passive dividend income can fulfill many of our retirement income needs – whether that might be covering our property taxes, paying our utility bills, delivering enough monthly income to cover our groceries, fund some international travel or all of these things combined.

Here was one of my recent updates below.

We’re now averaging over $3,300 per month from a few key accounts. 

(Hint: likely more next month!)

We’re trending in a great direction thanks to this multi-year investing approach and I have no intentions of changing my/our overall approach.

February 2023 Dividend Income Update

I firmly believe our focus on the income that our portfolio generates, instead of the portfolio balance, is setting us up to deliver some decent semi-retirement income.

Our goal to live off dividends and distributions remains very much alive and well for the years ahead.

I look forward to your comments.

Mark

164 Responses to "Why my goal to live off dividends remains alive and well"

  1. I am no financial expert and am relatively new to investing, but your article makes perfect sense Mark. Just because some disagree with you doesn’t mean you are wrong, it just means they have different goals in life and investing. That’s how I see it. Personally I agree with you and your investing goals 100%.

    Reply
    1. Thanks, Misa. I figure as long as we are meeting our objectives (priority #1) and managing our risks where we can (not taking on too much risk in any one stock or industry/sector) we’ll be just fine…

      How is your investing coming along?
      Mark

      Reply
  2. That’s not how dividends work. The ‘principal’ isn’t ‘intact’ because the company pays out dividends. If they didn’t pay the dividends, the dividends they would have given would be reflected in the price of the share… $10-(dividends for everyone) is the same as $10 (no dividends)

    Reply
    1. I’m not sure I wrote that but anyhow. 🙂

      Companies issue dividends as a way to reward current shareholders and to encourage new investors to purchase stock, a company can pay dividends in the form of cash and cash dividends reduce stockholder equity…

      Thanks for reading.

      Reply
  3. Hi Mark: As mentioned I own TD Money Market Mutual Fund and CI All Cap Dividend Mutual Fund. It was first purchased as Sentry Select Diversified Income Fund but in ’09 was switched to a back end loaded mutual fund and then was bought by CI Investments. It is a strange one as each month I receive new units with a value associated to them but at the end of the year it is all allocated as capital gain or Other on my T3. The strangeness is that my units keep on increasing but as noted the sum on the T3 is all Other or capital gain. Like all mutual funds sometimes I get a large capital gain at the end of the year. Not this year but some years.

    Reply
  4. Hi Mark: BIP.UN and BIPC should continue to grow as Brookfield along with another partner has bought Origin Energy of Australia for them. Origin Energy is Australia’s second largest utility.

    Reply
  5. Hi Mark: When I got laid off on 17 Jan./1992 my portfolio was worth about $400560.00. By the end of the year it was worth $535000.00. By the end of the next year it was worth $650000.00. 1994 was a low year but I lived and paid my bills but the portfolio only increased by $3443.00. By the second week of Sept./’97 I was over 1 million and it has been growing ever since. I have 3 mutual funds or ETF’s. One is the TD Money Market Fund. Another is BMO Banks Covered Calls ETF and the other started out as Sentry Select Diversified Income Fund but in ’09 they changed it to a back end loaded mutual fund and then it was bought by CI Investments and is now CI All Cap Mutual Fund.

    Reply
  6. Hi Mark: You are right on. With interest you pay the highest taxes and with dividends you get the DTC. The gross up is artificial but so is the DTC as it comes off the gross up. Buying low dividend high growth stocks is a hard game to play. One doesn’t know which stocks will rise for capital gain. That is the Motley Fool way were you buy small companies and watch them turn into large companies and capitalize on the capital gain. I would rather get rich slow by buying blue chip dividend stocks. If I have to pay the taxes than I will pay the taxes but as I have said having a lot of money isn’t a bad thing as it leads to financial security.

    Reply
    1. I’ve always thought of owning a basket of DIY stocks as a get wealthy eventually strategy. I still do! I know many DIY investors that have successfully built 7-figure portfolios over a span of 20- or 30- investing years. A good savings rate and discipline are key ingredients that includes staying out of your own way and ignoring the media at times!
      Mark

      Reply
  7. H9i Mark: After the split from BIP.UN I ended up with 35 share of BIPC. When BIPC bought IPL I received 500 more to give me 535 shares. The shares then split 3/2 and so now I have 802 shares. Brookfield is the company that keeps on giving.

    Reply
  8. Hi Lloyd: May I remind you that the actual credit comes off the gross up. E.G: $100000.00 is grossed up to $138000.00 and then you take the gross up and multiply it by .150198 to get $20727.32. Mark a small slip up as IPL is no longer on the market. It was bought by BIPC so is still running only in a different form.

    Reply
    1. “$100000.00 is grossed up to $138000.00”

      So, in that example, the $38,000 gross-up is included in the income that is used to determine the OAS clawback. If it all happens to be above the clawback threshold, OAS reclaims 15% so one loses $5700 of OAS because of that artificial income. Now if one already happens to be above the maximum for total clawback already, then it will not make a difference.

      Mark, if you’re reading this, it might be an idea to do an article on how the OAS clawback works and how the DTC gross-up can affect it.

      Having now had to try to explain this far more times than should have been required. I am now willing to concede that 1 + 1, does in fact, equal 5.

      Reply
      1. I understand what you mean Lloyd. I may eventually be affected by OAS clawback due to the calculation on my grossed up dividend income (well, that and the RIF income I’ll be generating). But, I’m not sure it’s enough to motivate me to sell my dividend stocks for other stocks / ETFs that I could use for capital gains type of growth instead.

        In today’s dollars I expect my income to be about $95k at age 60 which includes grossed up dividend income. By 2032, when I turn 65, it might trigger a slight OAS clawback – but I’m okay with it – I’m not interested in avoiding the clawback for this purpose.

        My view is, with the level of income I expect (between my wife and I), we shouldn’t really need it anyway, but of course we’ll put to good use whatever we do receive after a portion is clawed back.

        If your view is that it is an important goal to avoid clawback then I would agree that you should take steps / mitigations to avoid it. There is nothing wrong with that strategy – as Mark says, Personal Finance is personal and you should always do what you believe is right in your situation.

        Reply
        1. Lloyd (retired, soon to be 63) · Edit

          “If your view is that it is an important goal to avoid clawback”

          It isn’t. But if the clawback is invoked *because* of unnecessary artificial income, then why would one not take reasonable alternative steps to avoid it?

          I was surprised in the 2022 taxes to see that I would have encroached into clawback territory (albeit only slightly and without effect because I don’t get OAS yet). The gross-ups, the phantom capital gain from XEI, combined with the skyrocketing interest income pushed me to a level I had not anticipated. I’m comfortable selling XEI and switching to BN as an example as I don’t need the income from XEI . I ‘ve always liked Brookfield and having more of it would not cause me any discomfort. YMMV

          Reply
        2. My hope is I earn enough OAS, the max, just to avoid the start of the OAS clawback. That will be ideal…but I highly doubt we’ll ever have that much.

          Our target spending, as a couple, is about $6k or so per month including major capital expenses and travel. Likely $4,500 or so per month is our base spending (food, property taxes, bills, etc.).

          Our view is OAS is a bit of “icing on the cake” ages 65+ but are definitely planning for it a bit since we can live our lives more accordingly in our 50s and early 60s. Waiting to spend all our money after age 65 of a traditional retirement age doesn’t work for us.

          So….yes….100% = personal finance is personal and will always believe that.

          Cheers!

          Reply
      2. I read everything here 🙂
        https://www.taxtips.ca/seniors/oas-clawback.htm

        Lots of content out there and I can consider a post on that over time….wealthy people have a tax problem is all I have to say. LOL.

        “The amount of Canadian eligible dividends included in income is 138% of the actual dividend amount. This may increase your income such that your OAS is clawed back. However, if you were to replace the eligible dividends with an equal amount of interest income (if that were possible!), although your taxable income would be lower, your taxes payable would be higher, even when a clawback is included in the taxes payable. This is because of the dividend tax credit for eligible dividends.”

        So, when in doubt, if/when your income in a taxable account become high enough it makes sense to earn income from lower-yielding, higher-growth stocks for capital gains focus vs. dividends in a taxable account. That’s always been the case. Dividends are only tax efficient, to a point.

        I hope that helps?
        Mark

        Reply
  9. Hi Lloyd: If you consider the gross up artificial which it is do you consider the DTC artificial also. I can say that with small pensions and interest, foreign interest, capital gains which I can deplete because once I had a large capital loss on paper the majority of my taxes are dividends and with the gross up the gross amount comes to $356,000.00 but when I figure up what I have to pay I get to take off the basic credit plus $47000.00 of the DTC. Not to bad for a former mail boy and general clerk.

    Reply
    1. “do you consider the DTC artificial also.”

      No, the actual credit has no effect on the reported income that the OAS clawback is based on (the gross-up does). This is not complicated.

      Reply
  10. Hi Lloyd: As my cousin would say ” different strokes for different blokes”. I personally like a high income as it leads to financial security. I would remind you that dividends are not artificial. They are hard cold cash which get deposited in your account quarterly or monthly and each year blue chip companies raise the dividends so the next year you have more. As stated before I didn’t start off with what I buy now because I never had the money. I would buy 25 shares because back then you had to buy a board lot (100). When I got laid off after over 22 years I was 43 going on 44 and never looked for another job. I have seen many cycles in the market and if one looks long term one will come out on top. A few of the cycles are the Arab Oil Crises of ’73-’74, Black Monday of “87, the Tech bubble of ’99-00, the great recession of ’08-“09 and the pandemic of 2020. These were all opportunities for any one who invested for the long term. In “87 we phoned in to buy shares of Maritime Tel & Tel. The broker said you’re buying, everyone’s selling. We said that is why we are buying.

    Reply
    1. Lloyd (retired, coming up on 63) · Edit

      “I would remind you that dividends are not artificial.”

      The *gross-up* is artificial. That is the whole and entire point.

      Nice stories though.

      Reply
  11. Hi Lloyd: When it comes to the OAS claw back remember everyone gets it but some don’t receive it. It still has to be reported on your taxes and taken off your taxes so it is a wash. On your taxes at the end after you figure up your taxes you subtract your instalment payments plus OAS claw back.

    Reply
    1. Lloyd (retired, coming up on 63) · Edit

      “you subtract your instalment payments plus OAS claw back.”

      As I said, I don’t want to have to deal with the quarterly payments. Easier for me to have the source deductions increased.

      If I can avoid the artificial income that puts me into clawback territory, I’ll see if I can avoid said artificial income.

      Reply
  12. Hi Mark: Lloyd I have been out of the workforce for over 31 years and when I turned 60 took the CPP. When I was 65 I got a statement saying what I would get per month of OAS but then got another one stating that since my worth was so high that all the OAS would be clawed back. When I left the workforce I received a statement saying that I would have to send instalment payments which I have every quarter. They tell you what to send but I pay no attention to it as I will pay what I think is fair. They want a little for the first two quarters and a lot the last quarters so I try and even it out. I belong to the Motley Fool and they keep trying to get me to subscribe to new newsletters but I digress and delete the emails. Their idea is to invest in small growth stocks and watch them turn into large stocks but small growth stocks don’t usually pay dividends. I have some large growth stocks with a small dividend. Brookfield comes to mind. At the time it paid a decent dividend in Canadian funds and since it has paid in $US funds, split 5 times and spun out the platform companies. I have just done my taxes and the numbers are high but $47000.00 DTC softens the blow. If my numbers are right I should get $8833.00 back. Making a lot of money isn’t a bad thing as it allows for security in retirement so pay the tax and watch your dividends increase in value. Mark I never had a high paying job as I started in the mailroom and only worked my way up to a code 4 out of 13 codes so I wouldn’t be were I am today if my dad hadn’t stumbled upon the stock market when I was a teenager and I hadn’t started in it when I was 21. That is 54 years of experience.

    Reply
    1. 54 years of investing experience is hard to ignore 🙂 You’ve done amazing Ronald and I firmly believe anyone that has some if not all OAS clawed back has done very well for themselves. Kudos.

      Mark

      Reply
  13. Hi Mark: You mustn’t have any kids to leave an estate to otherwise you wouldn’t plan on dying broke. I have my brother and wife plus their kids and grandkids that could all profit from my estate one day. That is why I plan to keep on investing as long as I can. Lloyd pay the damn tax and forget about it. My quarterly instalments have climbed over the years and when I figure out my taxes it is pretty simple just larger numbers. Most are dividends so I get a large DTC. This year it was over $47000.00 which helps to cut down on the taxes. I always say that it isn’t what you make but what you save that counts.

    Reply
    1. Lloyd (retired, coming up on 63) · Edit

      “Lloyd pay the damn tax and forget about it.”

      🙂 I didn’t know what this was in reference to so I guess I already have forgotten about it.

      I looked back at what I might have said. I’m assuming it is in reference to the DTC. If it is the DTC that might move me into the clawback zone, I don’t see any logical reason why I wouldn’t consider moving into a growth asset rather than a higher dividend paying asset. I ain’t there yet (too young for OAS) but I’ll consider it if it applies.

      I don’t want to get into quarterly payments. I’d just rather have more tax withheld at source. Currently have 20% withheld on RRIF/LIF and CPP but could easily bump one of them up to 25-30%.

      Reply
  14. Hi Guy’s: A friend of mine is currently in the hospital with congestive heart failure. In July he will be 75. In 2009 I took a trip to Hawaii and while there another friend died of a stroke. He had migraines for years. The point is you don’t know when your time is up so why not take the CPP and OAS as early as possible as you might as well enjoy it as the government.

    Reply
  15. One option I am possibly looking at if/when the DTC gross up starts being an issue with clawback is to sell some of the XIU and XEI in the non-reg and buy the Brookfield parent (BN) to replace it. Still a few years for OAS but it’s something I’ll keep in mind.

    Reply
    1. I think that’s smart. Ideally buying lower-yielding, higher-growth stocks can work inside taxable.
      I hope I have a small OAS clawback or I’m very close to it. A good goal for me! Ha.
      Mark

      Reply
      1. As a widowed retiree, I enjoy reading your blog and scrolling through looking at what others are doing. While I’m in the decumulation phase, I’ve not decumulated very much except the necessary RRIF withdrawals. I’m fine with OAS clawbacks. After all I got a rather nice tax reduction when I made my RRSP contributions. Seniors seem to forget that that tax was just delayed, not eliminated, and for us the tax relief was good. And, of course, hindsight is 100%! Thanks for your blog: there’s always food for thought.

        Reply
        1. Thanks for your readership and comments, Sharon. Appreciated.

          I continue to state that all things considered, OAS clawbacks are a great problem to have in retirement. I hope I have some myself 🙂

          Very wise, which is why I try to always the RRSP is a tax-deferred account. If used wisely, still an amazing account of course!

          All my best to you,
          Mark

          Reply
  16. Hi Mark: I always seem to be in the wrong timeframe. At work when I was looking forward to 3 weeks vacation the union signed a contract were everyone got 3 weeks vacation. Five years later I am looking forward to 4 weeks vacation but that year the union signs a contract that rolls things back a year so I would have got 4 weeks anyway. Now I get this letter from Service Canada which say’s that seniors who turn 75 will get a permanent 10% increase to the OAS. Since I turn 75 today it will start on the first of April. It’s nice to get but I won’t get it as all my OAS is clawed back. As you can see I’m in the wrong timeframe.

    Reply
      1. Some medical issues with the DW but overall so far so good. I had to stop farming but the land is all leased out and I get to watch them do in 30 minutes what took me all day. 🙂

        Reply
  17. I’ve fairly recently fallen in love with dividend stocks for many of the same reasons you all have mentioned:
    – avoid sell commissions
    – don’t have to worry about figuring out what to sell when
    – avoid sequence of returns risk
    – many of the big blue chip stocks dividends increase regularly thus are largely indexed to or better than inflation
    – very tax efficient compared to other income sources if individual net income is less than about $125,000/yr

    The only real downside i have come across is my wife and my net income is likely (we are just about to retire) to be close the bottom of the OAS clawback range and the 38% dividend gross-up will probably push us into it some ways. I’m still running the numbers, but my thinking is to delay collecting OAS for a year or two to see if this is indeed the case and if so, then delay collecting until 70 if the numbers indicate it would result in a greater percentage of an elevated payment not being clawed back.

    All things considered, my view is the advantages of dividends far outweigh this minor downside.

    Reply
    1. Hi Paul, I’m seeing the same issue in my spreadsheets. I am looking at ways to reduce income from my LIF and my wife’s RRIF by moving stocks in kind from those accounts to our TFSA each year. I am drawing the dividends from the TFSAs each year to create more space for the next year. This of course triggers tax in the LIF/RRIF accounts so I’m not sure this makes sense or not. Also, with such high dividend growth (8-10%) I’m wondering if we should take OAS at 65 in order to get something before clawbacks reduce it to nothing. Any suggestions?

      Reply
      1. Hey Howard (& Paul)

        I’ve already gone through the same exercise as you are going through now. I’m 70 and have been retired for 10 years. My wife & I are 100% TSX dividend income/growth investors with no fixed income and generate more dividend income than we need to live off. Obviously, huge divy fans and we’re still buying more of what we already own as the extra divy income accumulates. ie: we aren’t trying anything tricky on avoiding more dividend income.

        My evaluation concluded that it was better for both me and my wife to take our OAS at 65. The main reason is like you commented – get as much as you can before both having to convert your RRSP to a RRIF and having the serious clawbacks begin. The second main reason being that who knows what might happen to OAS payments, clawback thresholds, etc with the mess this Liberal gov’t has made of our country’s finances 🙁 )

        I also decided that even with the 38% gross up on divys, they are still much better than any income with the lower marginal tax rate.

        As an aside, when I first retired, we did try and drawdown our RRSPs with withdrawals to push both of us to near the top of the 2nd Federal tax bracket (ie: 2022 ~%100k). With how good the markets were from 2013 to 2017 for dividend stocks (before my OAS started), our RRSPs grew faster than the withdrawals so they are still quite large. (the kind of problem I love 🙂 )

        Good luck with your calcs and let me know if you want any additional details on our process.
        Don

        Reply
        1. Hi Howard, I like your strategy of drawing income from your TFSA to make room in it to move in-kind dividend stocks in the next year. If the numbers support it, I’m similarly thinking it might be beneficial to withdraw a good chunk of our RRSP’s before turning 70 and start collecting OAS as that income source will be taxed at the highest rate. Thus hopefully minimizing withdrawals from our most taxed RRSP/RIFF’s when turn 70 and start OAS payments and withdrawing the bulk from our less taxed taxable accounts from 70 onwards.

          Don G, I hadn’t thought about the scenario of starting OAS at 65 and waiting to withdraw from RRSP/RIFF’s until 71. I’ll have to run that scenario and see how it compares…Thanks. You make an excellent point about OAS and what the Fed’s may do in the future with it. IMO it is certainly more vulnerable to change than CPP and could undo “best laid plans”. I have friends that advocate taking it as soon as one can for that very reason.

          Man, planning and executing efficient decumulation sure is a lot harder than accumulation…LOL

          Thanks for the great convo guys – Paul

          Reply
          1. Hey Paul

            I think waiting on the RRSP withdrawals until converting to a RRIF does depend upon how large the RRSP is. If a person thinks they can draw it down to a minimal amount by 71, then that might be worth it. (although the risk on OAS getting changed is still there).

            A couple “mistakes” I made were:
            – contributing to my wife’s RRSP for too long. It would have been much better to stop a couple years earlier and just put the money into a non-reg account. One thing I don’t like about RRSPs is that all the dividends and capital gains that have accumulated are taxed as income coming out. Having them in a non-reg account gets an ongoing lower tax rate.
            – converting my entire RSP to a RRIF at 64. I would have been better off just converting $20k or so to get the $2k pension income amount each year. Part of the reason that I did it all was to make pension income splitting and account maintenance easier. It’s done this but once again, the up marjkets meant the RRIF grew faster than I had planned and so my minimum withdrawal is quite high and now causing some minor (~15%) clawback on both my and my wife’s OAS. Of course that’s still way lower than it will be when she is forced to convert her RRSP to a RRIF.

            Take her easy
            Don

            Reply
            1. Totally agree Don.

              Generally speaking, anyone with a decent pension and/or large RRSP balance, it makes sense to slowly withdraw RRSP assets in 60s and 70s and potentially covert RRSP > RRIF at age 65 for income splitting. Just waiting until age 71 for RRSP > RRIF makes little sense.

              I’ve seen clients and talked to retirees that also focus on non-reg. accounts in their 40s and 50s to avoid having “too much RRSP” per se.
              For all the reasons you know 🙂

              Thanks Don!
              Mark

              Reply
              1. Hey Mark

                Just to clarify my view on your comment: “Just waiting until age 71 for RRSP > RRIF makes little sense”

                I actually think that in certain circumstances, it can make a lot of sense. If the RRSP value is quite high, I think it is better to only convert a small portion so you can withdraw $2k/yr to get the pension income credit, take OAS right at 65, and then convert the rest of the RRSP at 71. In most cases this would avoid any OAS clawback for those 7 years from 65 to 71 and probably actually allow a person to do an RRSP withdrawal of a controlled amount to stay just under the clawback threshold.

                One other point is that decumulation can be a total non-issue in some cases (like mie and my wife). If you generate more dividend income than you need and are happy with leaving a big inheritance and/or charity contribution, then you never need to sell anything and the portfolio just continues to grow. Even with our withdrawals and early inheritance for the kids and grandkids, ours has more than doubled in the 10 years I’ve been retired.

                Ciao
                Don

                Reply
                1. Don, you’re right. Maybe I was too blunt!

                  There are absolutely some cases it makes sense to wait until age 71 to convert RRSP > RRIF.

                  What I was getting at, is the pension income credit at age 65 makes the conversion from RRSP > RRIF appealing at that age, with income splitting, that’s all.

                  Great point: “If you generate more dividend income than you need and are happy with leaving a big inheritance and/or charity contribution, then you never need to sell anything and the portfolio just continues to grow.”

                  Thanks for your take and updates and opportunity to share your thoughts!
                  Mark

                  Reply
                  1. I see both sides, but leaving any RSP, and especially a large RSP until age 71 means a higher likelihood of passing with a significant amount of money to be taxed upon death.

                    For myself, I prefer not to let the OAS clawback tail wag my decumulation dog – LOL. I’m all in for the RSP/RIF meltdown starting at retirement (for me age 59/60) and doing my best to wrap that up by age 70/71. That will leave us with a strong non-registered and TFSA dividend portfolio as well as my wife’s DB pension. If the calculations say at 65 a large percentage of OAS will get clawed back while we’re melting down the RSPs then we’ll delay, but if they still get clawed back at 70+ we’re perfectly fine with that. I’d rather see those dollars go to those that need it more than us.

                    Reply
                    1. Well, I’ve never thought of OAS clawbacks as a driving force for any financial decision, for us but then again, everyone is different. 🙂

                      We won’t have enough income for OAS clawbacks. That’s >$80k per year, per person in retirement. Not gonna happen here.
                      I mean, I recall 1%-2% of Canadians might be in that position. The very retirement wealthy.

                      We will be doing our best to effectively deplete most RRSP/RRIF assets by our early 70s.

                      After those assets are gone:
                      We will have taxable assets x2.
                      TFSAs x2.
                      CPP x2.
                      OAS x2.
                      My wife will have a small LIRA > LIF. ~$1k or more per month.
                      I will have a small DB pension if I don’t commute.

                      That should be enough, we believe, since we won’t be touching TFSA assets for the next 20 years and they might at least double if not triple in value before then. We’ll see?!

                      Mark

                    2. (I couldn’t figure out how to reply to you Mark, so I’m replying to myself).

                      Yeah, I sort of assume it will be impossible for us to hit OAS clawback levels also, however about 35-45% of our projected retirement income will come from dividends in our non-registered account. With the gross-up it is possible I will enter clawback territory because that dividend income will all be in my name. If so, that’s fine but I might adjust the timing of my OAS to better blend with the RSP/RIF meltdown strategy we’re planning on.

                    3. You should be able to reply with comments, check a box – all good. I monitor everything 🙂

                      Ideally, we want to be in the $70k-$80k spending range per year, as a couple, with 3% or so inflation starting in a few years. Good enough for us.

                      Very smart to consider OAS at 65 and CPP at 70, as a starting point I think, or OAS and CPP both at age 70 if you can make that work. This way, to your point, slowly wind down RRSP/RRIF liability, meet your spending needs, AND get higher income inflation-protection. Win, win, win.

          2. Hey Paul,

            Definitely consider taking OAS at age 65 and then slow RRSP/RRIF withdrawals in your 60s before you have to convert. The more you can “smooth out taxation” in your 50s and 60s, the better. This way, once OAS and CPP are online fully by age 70, you have likely moved most RRSP tax-deferred assets to TFSAs (tax-free) and/or non-reg (tax-efficient).

            Asset decumulation is a puzzle, no right or wrong, just what is 🙂

            I hope that helps!

            https://www.myownadvisor.ca/how-and-when-to-withdraw-from-rrsp-and-tfsa/

            Mark

            Reply
          3. Hi Don, Paul & Mark – I’m really enjoying this discussion, these issues have been eating at me for a while now and I have no one to discuss them with. In my case my wife and I have only been retired for three years and we don’t have any non-registered accounts yet. Our RRSPs/LIF and TFSA accounts consist of all Canadian dividend income stocks. So I was forced early on to convert to RRIFs for income. We also chose to take CPP a bit early. So as I mentioned earlier I am trying to move as much as I can into the TFSAs, to reduce dividend income from the fully taxable accounts. What I am seeing is that with high dividend growth it looks like I won’t be able to move enough to prevent OAS clawback for long. That is why I think taking it early might make sense. I have been making plans to start moving excess dividend income into non-registered accounts, and was not even aware of the 38% gross up situation until I saw it in Pauls comment. So that will eventually work against me with respect to OAS clawback. As you guys mentioned, there is huge amounts of info related to accumulation, but very little specifically related to de-accumulation for dividend investors.

            Reply
            1. Happy to chat about this stuff. Keep asking questions. I can eventually turn any information into a post for others, if you wish? 🙂

              Generally speaking, what I’ve found and learned from literally dozens and dozens of DIY investors/dividend investors are the following:

              1. Related to RRSPs/RRIFs – get the money out sooner than later. You don’t need to liquidate the account by any means, rather, consider slow withdrawals from RRSP/RRIF before age 71.
              2. Take OAS generally at age 65. Sure, an income boost to age 70 if you defer but some bird-in-hand $$ is good.
              3. Take CPP, if you can afford to defer, at age 70. 42% income boost if you do delay to age 70 and that can help with #1.
              4. The ability to “live off dividends” and/or distributions from ETFs, etc. is HUGE. You can be strategic when you want to sell, well, anything.
              5. Keep cash. Dry powder is good for emergencies but also to deploy money when markets are down. Worse case, cash you don’t need or spend can be moved to TFSA every year and as you work on #1 then you can fill up TFSAs for ages 70, 80 and beyond and earn another tax-free income stream to support longevity risk.
              6. Consider drawing down non-reg. as well. Living off dividends in perpetuity makes little sense and high non-reg. dividend income, is of course, taxable and can impact overall taxation.

              There are of course, many, many more considerations but I feel the keys are: 1) always, always consider any RRSPs/RRIFs as a tax-deferred liability and slowly get rid of them sooner than later and 2) work on how to maximmize government benefits (CPP and OAS) at the same time. Those are huge keys to any equation.

              Just some quick thoughts, I have more. In my late-40s now but planning ahead since I don’t like this full-time work thing forever. 🙂
              Mark

              Reply
            2. Howard, here is another suggestion for you. As you start building up your non-registered account, have your lower paying dividend (and hopefully higher growth) stocks in that account (e.g. railways, groceries etc.) and your higher yielding stocks (utilities etc) in your TFSA.

              In my case, our non-registered account is much larger than our registered accounts so that strategy is of very limited value to us.

              Reply
              1. Exactly what I am doing now Paul, over time I have been:

                1. Putting lower-yielding, higher growth stocks in my my non-reg. and
                2. Putting higher-yielding stocks inside my TFSA.

                Thanks for this update,
                Mark

                Reply
              2. Thanks Paul, that makes a lot of sense. It would also force a little more stock diversity since I only have about 12 different stocks (all high div/good growth) in our portfolios.

                Reply
        2. Great stuff and details Don, as always, thanks for sharing and helping others.

          I see over and over again, the following from many for many benefits:
          -RRSP/RRIF withdrawals in 60s
          -OAS at age 65
          -delay CPP, if you can, until age 70.

          “My evaluation concluded that it was better for both me and my wife to take our OAS at 65. The main reason is like you commented – get as much as you can before both having to convert your RRSP to a RRIF and having the serious clawbacks begin.”

          Yup.

          Mark

          Reply
  18. I love dividends and I think they ARE magical since they don’t cost you anything, they just flow into your account. If you want to sell a few shares or ETF units to create your own “dividend” it will cost you $5 to $10 in trading fees with most brokerages in Canada. There is a huge focus on ETF management fees while people are investing, trying to choose the funds with the lowest fees. If you sell $10k at a time to create a “dividend” then that $10 trading fee becomes a 2nd management fee of 0.1%.

    Reply
    1. You raise a great point about transaction costs in that they can add up, over time. It is my hope I won’t be selling much related to our assets/stocks/ETFs for some of those reasons in the coming decades. Thanks Trevor.

      How is your investing journey coming along?
      Mark

      Reply
      1. I think we’re doing okay. My wife & I are 62. I work full time & my wife part time. Our TFSAs are maxed out but we never maxed our RRSPs. I have read lots of comments over the years about have too large an RRSP and being taxed heavily on withdrawals. We switched from depositing into RRSPs to taxable accounts. Our house is paid off & the kids have moved out but I have a VERY hard time deciding if we have enough saved to retire yet. “Maybe just a couple more years”. I have talked to so many people my age with the same mantra. 🙂

        Reply
        1. Ha. Well, I know more than a few folks in the “just a few more years” camp 🙂
          Let me know what you decide – I mean – don’t you feel you have “enough”? Is that part of it or more behavioural?
          Mark

          Reply
  19. Hi Mark: In your preamble you mentioned points people say about investing in dividends which may be partly true. If you are scared of investing sure you can live paycheck to paycheck and buy a nice house and pay down the mortgage plus buy a new car every 6-7 years but if you are married you will have a wife to look after and kids and in the future when your job runs out and you retire don’t expect the government to look after you. The best way is to take some excess cash and put it into blue chip stocks that pay and raise their dividends. It will not seem like much but after 40-50 years it will build up to a lot. This I call Get Rich Slow. These dividends will supplement your pension, CPP and OAS. Personally I can’t live off of my pension or CPP and I get all the OAS clawed back so I live off the dividends I receive. There is nothing wrong with CNR but I find it to expensive at the moment. A higher stock which yields over 6% would be BNS. Just my two cents or nickel Ricardo.

    Reply
    1. Ya, for sure, that is my hope:

      1. dividend income + part-time work = semi-retirement in my 50s.
      2. dividend income + odd work, or not + workplace pension(s) + CPP + OAS = 60s+

      We will be far too young to collect CPP and OAS in the coming years so income from our portfolio, without touching the capital, will have to do. This as you know is a good portion of that income stream to supplement some work.

      https://www.myownadvisor.ca/february-2023-dividend-income-update/

      I will keep you and others in the know via the blog as we progress. CNR is moving down in price. Glad I own some and likely to buy more 🙂
      Mark

      Reply
  20. It is true that you do need to save a lot to generate your desired income, but it certainly is quite possible to do it. I think we have all been gently steered in a different direction, and programmed to think in terms of buy low sell high by the financial system. I am currently retired and watching my dividend income grow around 13% per year over the past 3 years. There is no guarantee that it will continue to grow at that rate, but even with an average around 8 to 10% my future income projections far exceed my requirements. Not having to worry about when to sell mutual funds, bonds, stocks or ETFs to produce your income, or if you will run out of money before you die is very liberating. Your principal investments just continue to grow for your entire life, so in the end your family and the government will benefit greatly when you die. It will also allow for generous donations to your favorite good causes throughout the years. I thank Mark and Henry Mah for bringing awareness to this amazing investment approach.

    Reply
    1. Great stuff, Howard.

      I know of other dividend and income investors that are now enjoying a tremendous amount of income thanks to years of saving and investing this way. This approach does have risks, no investing approach is perfect, but I do believe a diversified basket of individual stocks that raise their dividends over time can do wonders.

      I too, hope, I can avoid forcing the sale of anything via my investing approach. I’m going to find out very soon in a few years as part-time work approaches!

      If your growth occurs at around 8 to 10% – my goodness you are set.

      Even though Henry and I do invest a bit differently, (i.e., I own more stocks and I do own some low-cost ETFs for outside of Canada) I do firmly believe in the power that ever growing income can deliver.

      Keep me posted as well as you continue your rewarding journey.
      Mark

      Reply
  21. Hello Mark. We have been investing in Canadian dividend stocks for over 30 years now. Initially we joined DRIP programs and added small amounts over time. Now, in retirement, we are very comfortable and in position to assist other family members in their financial journey and education. A slight, but not too worrisome problem, is that some of our positions (TD, CNR, FTS, ENB, BCE… ) have grown , over time, to be over 5/6 % of our portfolio with a quite low cost basis. I am endeavouring to make some strategic sales, pay the required taxes, then continue to build up our TFSA’s as well as strengthen our newer and quality smaller positions. Our required expenses are well covered several times over. Saving small amounts and dividend investing has been a well rewarded and satisfying strategy to provide for our future.
    Thank you for the information and guidance you so thoughtfully provide. Very well done! Regards Mike

    Reply
    1. Thanks very much, Mike. You have a great problem to have!

      You might recall I have a “5% rule” in that I try to ensure most stocks in my portfolio do not exceed 5% of my total portfolio value, just in case, i.e., to avoid too much of a good thing and subject myself to individual stock risk.

      https://www.myownadvisor.ca/faqs/

      Like you, TD, RY, FTS, Telus are all approaching 5% or so.

      What I am likely to do is to rebalance my portfolio with new money soon and buying some laggards per se or some BTSX stocks. I have PPL on my list with TRP in fact. I will share what I recently bought in our RRSPs soon too 🙂

      On this site and on my Cashflows & Portfolios site ( https://www.cashflowsandportfolios.com/ ) I know of many, many investors that are slowly moving any non-reg. assets and RRSP assets to their TFSAs, as they age, if they don’t need all the money for living expenses. This is extremely smart and wise. Hard to argue with tens of thousands of dollars compounding away inside the TFSA, tax-free, that could be withdrawn tax-free. My goodness 🙂

      Kudos on your work and investing such that “required expenses are well covered several times over. Saving small amounts and dividend investing has been a well rewarded and satisfying strategy to provide for our future.”

      Love it.
      Stay in touch and keep me posted on your progress.
      Mark

      Reply
  22. My finances are far more modest that yours and those of many (most) of your commentors. That said, I’ve benefitted greatly from your blog over the years – thank you. I have maxed out my TFSA with dividend-paying stocks and continue to contribute to the annual maximum. I will have to use the dividend income in the not-too-distant future as my defined contribution pension is depleting. The upside: these dividends will act like a defined benefit pension. I’m not sure about the effects of inflation on this income but my needs are few and my wants are less so I expect to manage. Just in case, if you have any suggestions on how to inflation proof my TFSA, I’d love to hear them. I think that you have a lot to say to people who do not have a lot leftover and think mutual funds and GICs are the route to security. I don’t how you could reach them but it might be worth the effort to find out — a small, readable book maybe?

    Reply
    1. Pat, if you choose dividend stocks that have a track record (10+ years) of increasing their dividends each year that will go a long way to cover, or in many cases exceed, the rate of inflation.

      Reply
    2. Kind words, thanks very much Pat. I do and have always admitted that I have a bias to dividend paying stocks in my portfolio (along with some ETFs for extra diversification) but the results are the results – this approach is working for me and I expect it to continue to work for me.

      https://www.myownadvisor.ca/february-2023-dividend-income-update/

      I will have another update in the coming weeks.

      I would not worry at all, about modest portfolio or not. It’s about the process, this investing thing, not about who has a larger bank account. I’m WELL behind some investors but you know what? That’s OK. I know if I continue with my process things should work out. I just need two ingredients:

      -savings rate
      -time.

      As for how to fight inflation, there are my ideas including stocks in these sectors.

      https://www.myownadvisor.ca/weekend-reading-fighting-inflation-edition/

      https://www.myownadvisor.ca/how-to-invest-for-higher-inflation/

      I would also echo likely what other investors / commenters put here in that some dividend stocks with longer track records (10+ years, 25+ years) of increasing their dividends each year should be an enabler to covering some inflation.

      Yes, over time, I am thinking about an ebook for my readers, about my journey, my approach, and more. Likely a semi-retirement endeavour but maybe sooner 🙂

      Mark

      Reply
  23. Love every word of this post Mark ! Thank you.
    I can only speak for myself but since I started following your site then discovering Henry’s site as well as Tom connolly it changed the way I look at investing for good , now between me and my wife we have 31 Canadian dividend companies that for the last couple of years have been giving us a raise except for AQN which we sold and we put it behind us.
    I can honestly say that I simply don’t care if those 31 holdings are in the red or green as long as we get those drips every month and I know they will because a monster company like CNR or BCE or RY ENB etc…isn’t going anywhere and just like you we like to play it safe and no matter how good the company is we try to keep it under 5-6% of total portfolio in case something goes wrong and that’s something I learned from you Mark.
    I can just imagine in retirement if we were still holding bonds and some etfs and here I’m not saying that etfs and index is bad but I wouldn’t wanna be in a market like we’re experiencing last year and this year and try to sell shares when the market is going sideways, no thank you I’ll stick to our simple and boring stocks and collect our Income.

    Reply
    1. Thanks, Gus!

      It is my hope that our stocks will continue to raise their dividends, every year, but you never know. 31 holdings seems quite diversified in Canada for sure. I also can’t see CNR, CP or ENB, TRP going anywhere. There are others of course! 🙂

      Indexing is absolutely an outstanding way to invest but IMO it’s not index investing or nothing else in my book and never has been.

      I look forward to sharing future updates with you and others to compare holdings and notes!
      Mark

      Reply
  24. Thanks for this article. I know it is dated but it re-affirmed my plan (which is what yours was in 2018). Live off dividends. We broke through the 1M barrier a while back and we’re getting ready to retire. The dividends (from banks, telco’s, utilities et al) are a HUGE source of what we hope to be able to spend in retirement. We hold no bonds. I view BCE and Telus as equivalent to bonds – most advisors disagree and that’s fine. It works for our risk tolerance. Sure the price can fluctuate and Telus did cut their dividend in the past but the tax advantage is tremendous. Our retirement (we are in our late 50’s) has been delayed by COVID…we can’t travel so might as well work but when we get to a “new normal” that allows travel and many of the things we saw before Feb 2020 then we’re both retiring.

    I particularly liked your comment “ well, until I get dozens of dividend decreases and/or all my companies stop paying dividends, let alone stop increasing them from time to time, I will continue to believe dividends are a source of income”. I see dividends as a hedge against inflation. That “I” word is likely coming back….grrrrrr.

    Again your article re-affirmed my plan for which I offer my thanks. Keep up the good work.

    Best – Marty

    Reply
    1. Nice to hear from you Marty. $1 M invested is a big chunk of money I believe.

      Yes, I’m biased, but I do believe in various companies that pay dividends – but total return does matter. Dividends and ETF distributions will be our primary source of income in a few years. We plan to hold $0 bonds but instead keep a modest 1-years’ worth of expenses in cash at time of semi-retirement in a few years. That’s the plan anyhow….

      Sorry about your retirement delays but I suspect others who want to travel are also in the same boat!!

      I also see dividends as a hedge against inflation. What might you hold/own as inflation ramps up? Thoughts? Telcos, REITs, other?

      Reply
      1. Hi Mark, I am pretty diversified across the sectors right now. I didn’t think I was so I plugged everything into a spread sheet and was surprised how balanced I was! I do have some REIT’s but only two small positions. I’m a bit worried about high housing costs (too fast too soon) although I do enjoy their distributions.

        I agree dividends are an excellent hedge against inflation, IMHO, as long as the underlying company is a good business model and well run. I have a bias for banks and railways. As for the banks, well they are in the business of making money. Of course OSFI has put a halt, for now, on dividend increases however I think that eventually will be lifted. Let’s face it, we love our bank dividends.

        Another area I like for inflation is oil. I have some oil (CNQ and OVV) and may add to these positions (IMO is a good one to). Although with the push to “green” that may play out differently however with the pent up demand for travel vacations the airlines and cruise ships will need a lot of fuel.

        Also on inflation, which arises from increased spending, which means more goods are being consumed. How to you move those goods? Railways. CNR has increased it’s dividend for 25 straight years and I doubt they will stop doing that although you never know. When the economy is booming we need to move goods. When the economy retracts people still need to eat and goods have to move as well. And their moat is HUGE and the payout ratio is 46% so plenty of room.

        I’m not a gold bug, I was years ago and it cost me. I know it is a traditional hedge but I wonder if crypto is not the new gold standard – at least until the South Sea Bubble repeats itself. I have put a small amount in crypto currency, I view it as speculation only and it is in a TFSA so if it rockets north I can partially exit play with the house’s money after that and not get hit (thank you Jonathon at Findependence).

        Your site has helped me a lot and thank you for what you continue to do.

        Best Marty.

        Reply
        1. I see banks and railways as consistent returns via both dividends and capital gains. In fact, CNR is on my buy list again for this year.
          https://www.myownadvisor.ca/5-stocks-i-want-to-buy-in-2021/

          I will also buy a bit more AQN. In fact, I did when it was recently remaining under $19.

          Oil seems to be a good hedge as well. I only own SU as my oil hedge.

          The shift to green has to happen, our planet depends on it for future generations.

          “When the economy is booming we need to move goods. When the economy retracts people still need to eat and goods have to move as well.”

          I also love CNR for this reason: coast-to-coast-to-coast network. I don’t know how you replicate that.

          Gold is very cyclical so I don’t own it. I have yet to put a small amount in crypto but I’m not ruling it out. I guess I would like to invest in businesses that are more tangible.

          Thanks for sharing your insights Marty, stay in touch!

          Reply
  25. Congratulations Mark, you have done a good job with your portfolio, plan and website.
    We use a little different approach to to our non-registered account as the income isn’t needed yet. Instead of re-investing dividends automatically, we have a line of credit that we use to buy dividend stocks that we feel are undervalued. We only have to pay the interest monthly and the interest is tax deductible. Recently we bought a good bunch of Enbridge, Capitol Power and Canadian Natural Resources. The dividends were pretty juicy.
    We’ve used John Connolly’s method of determining average yield and other metrics to determine what to buy. If there is nothing that sparks our interest at any time, we pay down the loan. This gives us the ability to buy a meaningful amount of the stocks when we feel they are undervalued.
    The portfolio currently pays us $45,500 a year and is growing.
    Out TFSA’s are invested in private companies and high growth tech companies and are worth over $300,000 today. We will be selling these in the next few years and we will be investing in dividend growth stocks for income when I stop working totally. We bought $6,000 worth of PKI when TFSA’s first came out. A pretty good return. Also bought 38 shares of Shopify when cheap. Still hold both. The TFSA’s and non-registered accounts are held in a discount brokerage and are self administered.
    Our registered accounts are managed by a full service brokerage which we negotiated the fee down below 1% and they have done an excellent job with them. Also we get a lot of advice in regards to estate planning, tax planning and he also knows what we have in the discount brokerage.
    While this approach won’t be for everyone, there are parts that might be for them.
    Currently I work only in the winter now and have the rest of the year to enjoy our hobbies and life in general. Financial independence. It works!
    Keep up the good work.
    Appreciate the reads and Merry Christmas?

    Reply
    1. Good to hear from you Pete.

      We turned “off” all DRIPs in our taxable account a while ago since I was tired of doing the adjusted cost base thing. Now, I just let dividends come in and I make the odd purchase every few years strategically.

      No doubt, some frothy yields with ENB and CPX in particular. Happy to own both.

      “The portfolio currently pays us $45,500 a year and is growing.”
      That is impressive…

      We’re not quite “there yet” but the snowball is growing regarding the taxable and TFSAs as you read in my monthly updates. I suspect I’ll invest in a bit of XUU or XAW inside the TFSA in 2021, maybe some AQN as well.

      Geez, TFSAs over $300,000 today is outstanding. You’re likely into double-digit returns easily there.

      Congrats on your FI. “It works” and I hope to join you in the coming years!

      Happy Holidays,
      Mark

      Reply
  26. I get the appeal of living off dividends since spending cash is easier than selling ETFs to buy goods but index investing is so simple and effective its hard to pass up.

    I find the beauty of it is that when I have some left over money somehow I just plow it into the same ETF I always buy. No thinking involved. Its beautiful.
    —-
    Also yeah the 4% rule is weird but the whole point is that its been through some insane time periods of recessions or hyper inflation. Even though we don’t know the future its unlikely to be worse than anything that has ever happened before.

    Reply
    1. I do too Leif…re: “Live off dividends”. The reality is you can sell units/shares and create your own dividend.

      Less perceived risk. The beauty of this approach is it removes timing for me and therefore has very little emotion. This allows me to behave accordingly which is a benefit to my financial well-being.

      How is your portfolio coming along? Are you FIRE yet or close? We’re probably about 5 or so years away from semi-retirement and part-time work.

      Reply
  27. My positions are mostly high quality dividend paying stocks, like yours. In this market, I find myself torn between selling some of these positions, and using some of the cash I have to buy more. But so far, I’ve resisted both and am staying the course. I too feel there is more downside coming, so am not quite ready to put the cash to use.

    Reply
    1. Personally, I also think there is more downside coming. If I’m right, I will buy more of what I own. If I’m wrong, I’ll continue to save up my cash and buy when I feel things are right. Either way, I think I win 🙂

      Thanks for being a fan Alfred and keep us posted.

      Reply
  28. Mark, I’m curious – as you believe darker days are coming, are you considering reducing exposure to stocks in the near future and then re-investing when it is darker (i.e. timing the market) ? Or, are you staying the course ?

    Reply
    1. I’m absolutely staying the course Alfred. If and when my plans change I will let folks know since I want to be transparent about my journey. How are you handling recent market volatility?

      Reply
  29. “in order to generate $90,000 per year in dividend income”

    The problem with this kind of thinking is that a typical baby boomer retiring at 67 and some are even working to age 70. At that age one simply doesn’t need anywhere near 90 grand a year to live on much less that much in dividends.
    The other issue of course is life expectancy. 13 years for the average man and 17 for women*. More important is health, most baby boomers will start to slow down in their 70s and stop completely in their 80s. Few continue to travel beyond that. An uncle told me the best years are 60-70 after that it’s all downhill.

    *got those numbers from a course I took here in Germany so Canada may be slightly longer/shorter

    Reply
    1. Retirement planning would be very easy if we all knew when we would die! Health is really the true wealth. I hope to have it well into my 80s but I would agree – no major international travel will likely occur then.

      Reply
      1. Ha Ha ain’t it the truth eh!

        My think was influenced somewhat by end of life planning, how much money will you need for things like nursing car hospital care etc. I asked my brother about this and he said, inspite all the negative press, he had not complaints. Healthcare/nursing care was quite good.

        The other factor for you Mark is you want to retire well before the traditional age which means your money needs to last longer and you’ll want more because you’ll have health as well as wealth!

        Reply
    2. IMO, a person focusing on creating a substantial income from assets in retirement isn’t as likely to be a person still working later in life. They are likely to have stopped earlier and enjoy the fruits of their labour, unless they just love to work. I believe in looking at spending plans/needs being more important than arbitrary income numbers.

      In Canada typical retirees are younger ~61 and typically have longer to live in retirement~ 21-25 years, but of course these numbers can vary a lot and completely change the financial story. People must plan accordingly and for increasing longevity IMHO.

      I do agree with your point that the gogo years are likely to be when you will both want to spend and be able to enjoy more activities that cost money. I am way on the active side for my age (probably vs most ages), but I can see some change in not being able to just do everything I took for granted even 10 years ago.

      So right Mark, health (physical and mental) is the true wealth.

      Reply
      1. If I and my DH both working until 60, we should be able to have more than $90K dividend income. But as everybody said here, health is the true wealth. Our jobs are stressful and I would like to retire before 60.

        My goal is retiring 4 years from now. Time is flying, it’s already one year from when I was aiming to retire in 5 years. I think we are still on track although the market is down. If we keep calm and rational and keep buying with the cash on hand, a down market might increase our chance to retire in 4 years.

        The biggest variable I can see is not the market, but the job stability. If one of us out of job during next 4 years, then the plan has to change.

        Reply
        1. “If I and my DH both working until 60, we should be able to have more than $90K dividend income. But as everybody said here, health is the true wealth. Our jobs are stressful and I would like to retire before 60.”
          Hopefully your plan can be realized. If stress or job loss occurs earlier you may still be able to do fine, just on a litttle less. This was us.

          “If we keep calm and rational and keep buying with the cash on hand, a down market might increase our chance to retire in 4 years.” It will be hard but you may be right, if history is any indication.

          Reply
          1. I think with a job full of challenges, it will be most likely more stressful. But meanwhile, it’s also more interesting and enjoyable. When I had to choose a new career upon arriving Canada as a new immigrate, I chose the more challenging one. But the older we are, the less suitable we become for this kind of job I guess.

            Yeah, it will be super hard to conquer our fear with a down market. Hopefully I will have enough courage to do so.

            Reply
            1. I would love a job that is both challenging and rewarding – not one where I feel I’m fighting upstream. New changes coming in 2019. That’s my plan!

              Darker market days are coming May. Thoughts? Or am I just too pessimistic?

              Reply
          2. Yes, stressful is more interesting and ultimately rewarding for sure I found. Good for you with taking on more challenge. Certainly thats helped you get to the good place you are now.

            There will be others on here likewise, so will interesting to see how many want to hide, commiserate or support when it gets darker in the market.

            Reply
          3. @Mark, I don’t think you are too pessimistic, I also think darker market days are coming. I believe many others think so too. It’s just that nobody knows exactly when and how dark it will be.

            I plan to continue to buy more stocks while the market going down until I am fully invested. But I am not sure whether or not I have the courage to stick to this plan. I guess couple years from now we will see.

            I also have various problems with my current job. Overall, yes, I think it’s challenging and rewarding as long as one is up to the challenges.

            Reply
        2. Health is absolute wealth May. I’m learning this more and more. 4 years from now? That would be great…I hope you nail all your goals with your husband.

          Very hard to see what the market or economy or job market will be in 6 months, let alone 4 years. I agree. Jobs change, then plans change too. Stay tuned for my post tonight on that 🙂

          Reply
  30. Hey Mark, to your point about the TSX not going anywhere for the past 10 years – that’s one of the struggles I had with a Canadian-only dividend investing approach. It’s easy to get seduced by the dividend tax credit and forget that a portfolio made up of strictly Canadian blue-chip stocks (what are there, 20-30 good ones?) really lacks diversification.

    I know you take a hybrid approach, which makes sense. You can take advantage of the tax credit and keep your income in Canadian dollars while still getting global diversification from your U.S. and International ETFs.

    Keep doing your thing!

    Reply
    1. Agreed Robb, there are only about 20-30 stocks worth owning for dividend income; rising dividend income and the rest you are hoping for capital gains.

      Bang on about the U.S. listed ETFs inside my RRSP for broader diversification and growth inside the RRSP. I hope to own more U.S. assets inside the RRSP in the coming years since I’m trying hard to diversify out of Canada now.

      I will do my best!
      Mark

      Reply
  31. I like Don G 🙂
    I like Don, have more Divs than needed – to pay our living expenses. (I have no GICs, RRSPS or any fixed income – just Divs). I never worry about any Divs being cut (partly because every stock I own has never – in their recent history ever cut their Divs and partly because if they did cut – my life doesn’t change anyways). I also agree that a few stocks are a buy on the TSX – right now. When I look at the TSX over the past 10-20 years – their is not much growth – but the Blue Chip Div payers continue to increase their Divs. So Dividend Investors do well investing in the TSX – this way!
    I don’t have much of a cash wedge. Partly cause the monthly Divs provide more cash than needed. Plus, I have a LOC (untapped) in case the world is ending. Lets not forget if the TSX falls by 40% or more – For Sale Signs Light Up!. With no cash – what to do? How about a Margin Account! Why have none of you set one up – to be ready for when the real Sale begins?

    Reply
  32. Okay, I have a question, what’s plan B if dividends get trimmed back? I am sometimes more concerned when I see/read what may be overly exuberant plans with no backup.

    Reply
    1. Hey Lloyd

      No plan B. We have more than twice the needed dividend income and we keep a large cash wedge on top of that. The stocks we hold are generally blue chippers like RY, TD, BMO, BNS,, BCE, T, AQN, EMA, FTS, PPL, BIP.UN,, etc so I highly doubt any dividend cuts (but we could easily handle quite a few). If anything, the only thing I see is that some might slow dividend increases (like EMA has done).

      I’d also like to add that this is not an “overly exuberant plan”. It has been very carefully thought out and I’m totally confident in it.

      May – we do plan on leaving a large inheritance. Our two kids and families have been a major source of enjoyment for my wife and I and we think they all deserve bonus dough. It’s really nice to be able to dish some out now while we can see how happy they are to get it and put it to good use.

      Ciao
      Don

      Reply
      1. Sorry Don. I was targeting that towards the “younger” crowd. I think most of us *oldsters* are not as susceptible to a major market correction for the most part. Having said that, I’m sure there are more than a few that would be hurting and I’m not convinced that some are not considering the “what if”. Furthermore, there have been cuts to dividends recently (AX.UN, ALA, a couple of energy co., BEI.UN, GE, probably more). I know I’ve gotten caught up in the constant and consistent dividend raises in the recent past but I just don’t see how that can continue.

        Reply
        1. Hey Lloyd

          Roger that. I saw your comment right under mine and assumed it was a reply to me. I had always figured me, you, Rbull, etc had quite similar investing strategies.

          I have seen that there have been a few dividend cuts and the next couple years should be interesting on the dividend investing side (and actually markets in general). Having said that, this is starting to feel a bit like the 2013 taper tantrum when I did our switch to dividend investing and that sure the heck worked out well. We’re fully invested now so not buying but I’m convinced that buying in the next couple weeks will work out very well over the next 2-5 years.

          Take her easy
          Don

          Reply
          1. No problem Don. I’m waaaay more conservative than you. We’ve got two moderate DB pensions back stopping us and I pulled out $400+K from the market last fall and put it in GIC/terms within the RRSPs. The TFSAs are still 100% equity and we’re sitting on a whack of unregistered cash. I’ve been watching this retraction and I’ve been (and still am) tempted but I think I’ll hold off for a bit. Everything is still DRIPping so still accumulating shares. As long as the farm still generates income I don’t see me pulling much of anything out of the RRSPs yet. Maybe 10-15K a year if I can get it out within the lower tax bracket.

            Reply
            1. “As long as the farm still generates income I don’t see me pulling much of anything out of the RRSPs yet. Maybe 10-15K a year if I can get it out within the lower tax bracket.”

              Seems smart to me Lloyd. As long as you are meeting your needs – you’re good!

              Reply
        2. Lloyd, I agree that most of us oldsters (retired) or those that post at least, seem to be reasonably prepared for a major downturn. Although I’m thinking the younger crowd (those acumulating) should be cheering for a big downturn to keep building assets at lower prices. I’m thinking they’re still working and aside from job loss won’t really be susceptible to a correction. Or am I missing your point?

          Reply
          1. I’m not sure I *have* a point. I just get concerned when I read a lot of stuff about how “easy” it is and how nothing “ever” goes wrong. The market can be a cruel beast if one is not careful and getting into the mindset that because something has not happened in recent memory it will then never happen can be risky. This can be applied to the housing market as well. Irrational exuberance can be just a short hop away from panic.

            Reply
          2. Interesting about the word “stagflation”. I see Poloz used that as well in todays Globe (can’t link) when warning of serious potential global outcomes from China/US trade wars. I share these concerns especially when you have an infantile mind pushing a lot of the buttons.

            Reply
      2. Hi, Don, I can totally imagine how happy your kids and their families are getting gift from you and your wife. I would be very happy to help my kids if I were as capable as you in my retirement time. I just don’t want to take this as mandatory while I am planning for retirement. Once I figure I can die broken I will consider myself to be ready to retire. But we might continue to work after that. We will see what will happen a few years from now.

        Reply
        1. Hey May

          We certainly didn’t plan on things working out this well when I was still working. After the 2008-09 financial crisis, I figured I’d be working past age 65. The smartest couple things we did was to stay fully invested through the crisis and then converting to dividend income/growth investing in 2013, dumping all our mutual funds.

          As an aside, in mid-2012, I quit my regular job, formed a sole proprietorship, consulted part time for an extra year, and then fully retired in mid-2013. This gave me more time to focus on our investments. It took quite a bit of work with a few iterations and a few BIG mistakes (eg: oil & gas producers – bought a few in 2013-2014 and sold all by early 2016, some for a profit but 3 huge losses – BTE, LRE, SGY) to come up with our current plan but we’ve been settled into it since early/mid-2016 and it’s working beautifully.

          The plan is certainly not for everyone as we don’t hold any fixed income or GICs, just 100% TSX equities (see my 1::22pm post). As many other posters have said, one of the biggest things to do is understand your risk tolerance and then to put some thought into a plan that you think might work for you and “tweak” it as needed.

          Ciao
          Don

          Reply
      3. Some would say a bold plan but a very good one. I’m biased though. A basket of dividend payers should continue to reward investors in Canada for decades into the future. I mean really, if all those companies stopped paying dividends, very worse case, you could sell and realize the capital gains which is an efficient form of taxation anyhow!

        In Canada, do we really see:
        -banks like RY, TD, BMO, BNS, BMO, CM and NA all going under at the same time?
        -telcos like BCE, T – see above?
        -utilities like AQN, EMA, FTS, BIP.UN – see above?
        -pipelines like ENB, IPL, TRP – see above?

        Yes, there might be the odd dividend freeze, the odd dividend cut but that’s the entire point – you own many stocks so a few cuts offset increases and you’re still rollin’ in the income.

        Thanks for the comment Don.

        Reply
        1. “I mean really, if all those companies stopped paying dividends, very worse case, you could sell and realize the capital gains”

          I’d give that train of thought some more thought Mark. If these companies cut dividends, what are the odds the stock value will hold?

          Reply
  33. I don’t think I will live off only with dividends/interests/distributions. Living off only with dividends will end up with a big inheritance. While it’s nice, I don’t think it’s necessary. So I want the dividends covering the basic (bare bone) living expenses, and I will live off on both dividends and selling some investments.

    Even without living off dividends, with dividends covering basic living expenses, combining with a cash edge, I think it still allows me not selling investments in market bottom.

    Reply
    1. I know we won’t either May. I know we’ll eat some capital eventually…but this is a great way for me to stay focused on the cash flow my portfolio generates vs. some “artificial” loss today that I wouldn’t bother to realize.

      We believe dividend income should cover most basic expenses + work part-time within 10 years for sure (before age 55) + pensions + CPP+OAS in our 60s +.

      Time will tell if our plan will work out. That’s the beauty of the future – we have no friggin’ idea 🙂

      Reply
    2. I share your thinking. Although have not yet gotten close to that point. Some of it is being conversative and some is tax shyness.

      Next year will be hitting 60 and planning for our biggest spending years 60-70 and if lucky with health and finances maybe to 75. Which should mean opening the taps.

      Reply
  34. As I’ve posted previously, I’m 65 and have been retired for 5.5 years without any company pension plan and my wife and I live entirely off our dividend income and my CPP & OAS. We have always stayed totally invested in around 25 TSX dividend income/growth stocks + 2 ETFs. It’s all mainly in 5 sectors – banks, utilities, midstream, telecom, and REITs. No fixed income or GICs at all. 100% equities but no tech, commodities, consumer, oil & gas producers, etc. They’re too volatile for me and their yield tends to be lower.

    As I was retiring, we converted from total return investing to dividend investing. 2013 was a very good year to do this so we did have good timing on our side. Since retiring, the value of our portfolio is 25% higher now than then and we have also withdraw the cash we need to live on as well as some for an early inheritance to the kids so the actual total return is higher than the 25%. We take all our dividends in cash, no DRIPs. This gives us more control over the extra cash.

    This shows that dividend income/growth investing can work.

    As an aside (and the main reason for posting this), I think many of the dividend stocks are at or near a terrific buying opportunity especially after tax loss selling season ends. I’ve also done our buying in 2-4 increments per stock and after Christmas could be a great time to start picking some up for those that are in that position. Take this with a grain of salt (as you should with all blog comments), but I currently think that BIP.UN, ENB, KEY, and TD are all looking very good as buys.

    Ciao
    Don

    Reply
    1. Yes, it does seem like some stocks are getting rather cheap. Pipelines are taking an absolute beating now. IPL is very cheap. ENB is low. TRP is beaten up too. The list goes on.

      I think you’ve done very well Don and I hope to be a point like you eventually: “live entirely off our dividend income and my CPP & OAS.” Geez, wouldn’t that be great.

      I suspect the next bear market will test many investors. Stay in touch to let us know how you cope!

      Reply
  35. Great post Mark. It’s a good example of how looking strictly at the numbers and what is theoretically most efficient / highest returns, isn’t the whole story. There’s that comfort level, stress level, and ability to ride out the storms that has to be factored it. And as you’ve shown, the qualitative/personal preference and quantitative side aren’t always in sync and that’s just the reality that we each have to deal with and choose the best fit for us.

    Reply
    1. Thanks Kornel. Always good to hear from you. There is absolutely a psychological benefit and I don’t mind writing about that. Personal finance isn’t about doing what other people tell you to do – it’s also about understanding your DNA make-up and making the best decisions with that and many other factors in mind.

      Reply
  36. Looking at only a 10 year period for the TSX doesn’t mean much, though. The US market has been on fire for the last 10 years, but was flat the previous 10 years. That’s why we need to diversify. Developed markets have similar returns over the long term, but are not highly correlated in normal times. So with high valuations in the US market and low valuations in the Canadian market, returns over the next decade of the two markets could look very different over the next 10 years. So, yes, I think you should own ETFs (just kidding). We all need to follow the strategy we are most comfortable with.

    Reply
    1. Fair point my friend. TSX = dog for the last 10 years. S&P 500 = star.

      It could be very different “this time”. Any guess on what the next 10 years might deliver? I would like to think people will still need houses/apartments to live in (REITs); utilities to heat and cool their homes; banking to save and invest their money and more in Canada. I’m happy to invest in U.S. ETFs like VYM or VTI after that 🙂

      Reply
  37. Retired for the last 5 years or so our strategy is almost exactly your plan. We’ve instructed our broker (self directed Investorline) to covert all dividends to cash. From there, our monthly RRIF payments go directly to our checking account. No work at all on our part…we simply forget about it. Occasionally, I confirm there is enough cash to cover 6 to 12 months of payments. Because our dividends do not completely cover the payments we take out, I do occasionally have to sell something…but so far the overall gains always edge up higher. (Maybe not this year?) Life is better with a plan!!

    Reply
    1. Dividends from our unregistered acct are paid in cash and move to our bk acct.

      TFSAs and LIF drip. 1X payment /yr from LIF may be cash or in kind. RRSP dividends to cash for periodic withdrawal, or sometimes equities in kind.

      First 4 yrs of retirement easy to see withdrawals happen and still accts grow. This 5th year = no, and that may be even more true in ’19 and or ’20. At some point that will be right.

      Reply
        1. Mostly luck. Although like I said the reversal has begun. Our income is growing so that’s good and a higher priority particularly doing rough patches and until capital comes into play.

          Reply
    2. Life is better with a plan for sure Paul.

      Our dividends don’t yet cover all basic expenses. We figure that’s our $30K per year mark once we are debt free. That’s going to be a few more years from now but I’m hopeful our way of investing will get us there in 5-10 years. I’ll update the chart in another few weeks after I see what December dividends are like:
      https://www.myownadvisor.ca/dividends/

      Any plans for your TFSA in 2019?

      Reply
    3. Hi all, just a question.
      I was told by our bank that we can’t have our dividends moved to cash at each payoutp?
      Am I missing something here?
      How do we do this?
      Thank yo all in advance!
      Happy holidays!

      Perry

      Reply
        1. As always, Thanks Mark

          Yes, I was told by a reputable bank that the dividends I get from a tfsa mutual fund can buy more funds, they can’t go to Cash.
          I guess it would be best to inquire again?
          Would I be able to move the dividends to a savings account within a TFSA as an example?

          Thanks Mark!

          Perry

          Reply
          1. Hi Perry,

            I’m not sure who you bank with or who told you that…but….whether you are dealing with mutual funds or ETFs – you should be able to direct your bank/brokerage to “take my dividends and distributions in cash”. Then you can move cash around as you please within that account or transfer cash out of that account while being mindful of various tax consequences.

            Happy holidays!
            Mark

            Reply
        2. Thanks so much for answering, you always come through!
          I will definitely be talking to the bank early in the new year!

          Thanks Again Mark!

          Have a wonderful holiday season!

          Reply
          1. Best wishes Perry and let me know the outcome. Again, you should have these options with them:

            1) instruct them you want to take dividends/distributions in cash only
            2) instruct them you want to reinvest all dividends/distributions paid per stock or per fund, OR even
            3) instruct them you want to enroll the entire account (all funds, all stocks, inside RRSP, TFSA, etc.) in a dividend reinvestment plan.

            Reply
  38. Generally I agree with utilizing a dividend/distribution strategy with a large part of my equity portion, for the beneficial reasons you listed. However the first part you listed is also true.

    Although being a conservative investor without pension in retirement I also utilize FI to generate overall cash flow.

    It’s clear your plan is working Mark for you so keep the gas pedal down.

    Reply
  39. Mark, very good post as usual. I agree with your approach, although I’m more in favour of etf’s for the divvies (ie: Enbridge with a p/e of 44 would make me nervous). My plan is to have my core costs (food, shelter and transportation) covered by a small indexed DB pension, CPP and OAS with everything else funded by the divvies. Shouldn’t have to worry about killing the golden goose.

    Reply
    1. Nothing wrong with a basket of low-cost ETFs churning out distributions and some growth. You’re base with an indexed pension, and also indexed CPP and OAS is largely ideal.

      Reply
  40. Lots of good advice. I am also a dividend investor and my goal is to create my personal pension as my workplace and government pensions will not be enough to live on. Trying to invest 50% of my income and so far so good. I am not into FIRE though I love my jobs.

    Reply
  41. I have also found that my dividend stocks have been relatively unscathed (touch wood) with the recent drop in the market. I am maybe down 0.1% overall in my dividend portfolio. At the end of the day, the blue chips always seem to do fairly well and seem to be less volatile.

    Reply
  42. I think if your plan is working for you to achieve your goal then that’s the plan for you.

    I’d add one more to the list of benefits: Motivation. When I’m trying to lose weight and I see a weekly weight loss, I’m more motivated and encouraged. Seeing the dividends and distributions roll in consistently is a motivating factor regardless of market performance. Dividend increases is like candy! Granted, motivation is an emotion, but I doubt anyone can discount the motivation factor when it comes to achieving a goal.

    Reply
    1. Geez…you’re fast…I just sent this one 🙂

      Totally agree with the motivation. Seeing my income go up over time regardless of what the stock market does or does not go is a HUGE factor in helping me stay the course.

      Reply

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