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  1. #21
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    Well, I wasn't implying you wouldn't have a fixed income component to your retirement savings. Either directly (and perhaps in an RRSP) or by proxy in a company pension or cpp.
    Interesting article btw.

    Last edited by OnlyMyOpinion; 2017-03-07 at 10:24 PM.

  2. #22
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    Quote Originally Posted by OnlyMyOpinion View Post
    Well, I wasn't implying you wouldn't have a fixed income component to your retirement savings. Either directly (and perhaps in an RRSP) or by proxy in a company pension or cpp.
    Interesting article btw.
    For sure. I carry about a 15-20% component in FI (bonds, debentures, GICs, HISA) to supplement withdrawals in 'bad' years in the equity markets. Also circa 8% of my equity is pretty reliable REIT income, and another 7% in preferreds. That is about as secure as I feel I need to be.

  3. #23
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    Quote Originally Posted by OnlyMyOpinion View Post
    Interesting article btw.
    Yes, I thought so, and conclusions not to far removed from the original SWR studies. Seems part of the reason for the more conservative SWR, is the low return they used for fixed income. Which no doubt is justified. (It's the part I have trouble with. I have had a series of bonds mature and can't come up with good way to re-invest.)

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  5. #24
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    Quote Originally Posted by AltaRed View Post
    No, it isn't mainstream thinking AND not something the vast majority of people could, or would, take a risk on. Most investors need a balanced portfolio in retirement to be able to sleep at night AND avoid the inevitable roller coaster rides of financial crises, etc.

    That said, there are at least a few here that believe strongly in a 'very high' dividend stock portfolio and further believe the dividend income stream (and some growth in it) will carry the day. It is not for the faint of heart AND it will take a cast iron stomach when (or if) bond yields significantly rise. We all know that dividend growth rate on many dividend stock sectors will stall in event of material interest rate increases. [Think capital intensive sectors like telecoms, pipelines and utilities for some examples]. Others like banks and insurers will continue to grow their dividends.
    Well put.

    If I didn't have a small pension at work, I would certainly own more bonds. If (rather when) I see my portfolio go down 30% in value, when the next market crashes, it will be tough to watch but I will absolutely have to hang on. More bonds would help my portfolio when this happens. They are like Andrew Hallam says "parachutes" for your portfolio.

    Yes, some interest-rate sensitive sectors will take a small hit when rates rise, eventually, someday, maybe. Then again, other sectors like financials will rejoice. You take the good with the bad per se as an investor. The only free lunch that helps you is stock and asset diversification.

    I personally believe holding most of the top-30 stocks in XIU, or just XIU itself, is likely as good as it gets for Canadian dividend investors. Otherwise, just index everything and sleep easy knowing you'll get market returns for the rest of your life.

    This means SWR is well-executed by "living off dividends" with those stock holdings or spending some of your capital if you're an indexer or a small combination of both.

    There are no good long-term returns to be had for bonds really. Just protection against bad, prolonged, equity markets.
    Last edited by My Own Advisor; 2017-03-08 at 08:54 AM.
    Hidden Content - Working on a $1 million portfolio and $30k per year from it.

  6. #25
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    Quote Originally Posted by agent99 View Post
    XDV currently has a yield of about 3.7% or $37,000 on a $1million portfolio. So we draw dividends and some capital for 30 years and don't run out of money??
    This type of analysis should really be done after tax, which is of course different for each person/couple. Dividends payed within registered accounts will be taxed same as interest when withdrawn. And once retirees get to 71, they are required to start withdrawals. The minimum withdrawal was reduced, but if taxpayer has a substantial RRIF, those taxes can be significant.

    So just trying to say that a 3.7% equity yield doesn't give you $37,000. It gives you substantially less, so withdraw at 4% and you will likely run out of money sooner than later. CPP/OAS will of course help and can be in region of $30k pa (before tax) if both have worked. A million might get you by, IF you are able to live off family income of under $50k.
    Last edited by agent99; 2017-03-08 at 10:20 AM.

  7. #26
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    I agree it depends on one's definition when they talk about annual cash flow needs. When I consider numbers like $37k or $45k as mentioned in this thread, I assume BT dollars and I have to pay income tax out of that. IOW, income taxes are a 'spend' just like property taxes, food, etc.

  8. #27
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    Quote Originally Posted by OldPro View Post
    My response to SWR is very simple. Try to find someone who has followed that for 30 years. You won't find anyone. In all of the comments and all the links, I find only one real piece of worthwhile information, ' and then there is the real world.'

    Why do people want to find a SWR? Answer, because it would appear to provide a way of knowing if you have enough money to retire on. Why is a 4% SWR so appealing? Answer, because current rates of return are so abysmally low, it looks like most people will never be able to afford to retire unless they can count on making more than they are currently making on investments. Why are people so fixated on stocks and bonds? Are they the only way to invest money?

    When I retired 26 years ago, there is no way I could have managed on a 4% return on investment. Nor is there any way anyone would have planned to do so. Even bank interest after adjusting for inflation paid more than that. So what was the thinking back then? Well SWR as a term did not exist for starters. So what anyone knew was that they wanted X amount of income and had Y amount of capital from which to earn it. So the question was how to invest the capital to provide the income required. NO ONE was thinking I can spend more in a year than I earn because there is a study that says I can do so. Think about it, spending more than you earn. Right now in your working life (as most of you seem to be), what does spending more than you earn result in?

    I knew how much capital I had to invest. I knew what income I would like to earn from that as a minimum but I also knew there was no guarantee that I would earn that much. I knew that inflation had to be taken into account. I knew I did not want to run out of capital and have to try and go back to work. Those factors all had to be dealt with before I decided to pull the plug.

    So here's what I figured. Rule #1. You have to live on what you earn just like you should be doing (but many don't) during your working years. Rule #2. You NEVER spend the capital. Those are the only 2 rules you need to follow. That doesn't make it simple to do of course.

    Back then (1989), I could easily count on making 10% nominal (before accounting for inflaltion) in many ways. Even bank interest was around 8%. Bonds, GICs would return more than 10%. Stocks were never on the radar. Stocks are always a gamble and could result in breaking rule #2. Not an option. But interest rates, bonds and GICs would not necessarily provide proof against inflation which could result in a lower income and making it had to stick to rule #1.

    So I needed an inflation proof investment that paid 10% or more. As luck would have it, I had an 'in' that allowed me to invest nominal amounts ($25-50k) in commercial and industrial real estate. Rental income is pretty inflation proof in that you can increase rents to cover inflation. Industrial and commercial properties means that you do not have to be a landlord, that is done by property management companies. Smaller investments in multiple properties rather than a large investment in one property means you can average the income without worrying about one property being vacant for a period of time. This is nothing like relying on a couple of rental houses for your income.

    That strategy allowed me to pull the plug and it worked fine for several years. But then life took a turn and it was no longer feasible for me to continue in that way. Life has a habit of making changes that you never anticipated. That doesn't stop when you retire. That's also a reason why talking about SWRs makes me laugh. For example, suppose you are a married couple and you retire on your 4% SWR. After a few years, you divorce. What happens to your SWR? Answer, it is down the tubes. There are many things that can happen in life that you cannot predict and that can affect your finances. Where are they in SWR studies?

    In the last 26 years, I have never had to return to work but my income has varied and my means of deriving that income has varied as well. I've learned I cannot plan beyond a year financially. Just as I re-visit my budget each year, I re-visit my investment strategy. Some people have commented you can do a 4% SWR but maintain flexibility. That's a laugh. Either you are following a 4% rule OR you are flexible. You can't do both. The answer as far as I am concerned is forget the SWR and just realize you have to be flexible.

    If you want to know if you have enough to retire, the answer is that no one can answer that. What you can answer is if you will have enough income for the next year. Beyond that is crysal ball time. This is no different than when you are working for a living. Is there anyone who could not lose their job tomorrow? What then? If there is no guarantee in your working life, why would anyone think they can get a guarantee in retirement? Yet that is in fact what people are looking for when they want to believe in a SWR.
    Nothing wrong with spending capital. Also, you can find property managers for residential real estate as well.

    People are talking about low rates of return. What are these people investing in? TSX returned 20% last year and the US market has tripled since the collapse in '08. Back test the 4% for your portfolio and see if it worked out. I bet it would have.

    For those interested, here is Mr money mustaches take on it: http://www.mrmoneymustache.com/2012/...or-retirement/

  9. #28
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    Quote Originally Posted by AltaRed View Post
    IOW, income taxes are a 'spend' just like property taxes, food, etc.
    The problem is that income taxes are variable, they jump around as various income streams and forms of capital come in and out of play over time. Food, gas, property taxes stay constant.

  10. #29
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    Quote Originally Posted by steve41 View Post
    The problem is that income taxes are variable, they jump around as various income streams and forms of capital come in and out of play over time. Food, gas, property taxes stay constant.
    Getting it approximately right is all one can do. The government changes tax rates too. Is not much different with a number of consumables. Food and fuel cost vary widely depending on the value of the loonie for example. I just don't see where hand wringing over various income streams is any different.

  11. #30
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    Quote Originally Posted by AltaRed View Post
    The government changes tax rates too.
    Well, not exactly. When Paul Martin indexed the tax brackets, the tax rate (adjusted for inflation) has stayed pretty much the same.


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