# Starting my Retirement Journey



## dotnet_nerd (Jul 1, 2009)

Here's my background. As you likely figured out from my name, I'm a software developer. For 25 years.

(On a humorous note, I incorporated in 1997. So ... As a technology company I've been in business longer than Google, Facebook, Twitter, LinkedIn, Instagram, Salesforce, Groupon, Airbnb, Tesla, Tencent, Priceline, Hotwire, Baidu, Uber, Lyft, TripAdvisor, Snapchat, Spotify and Netflix. Longer than many of those _combined _:cocksure: )

I'm preparing to semi-retire. I still have some I.T. clients I'll contiue to service. Great folks with some intersting projects I really enjoy working with.

Investing background: Advanced. I have an IB account and I've traded stocks quite aggresively since about 1998, along with call writing. I think I've done ok. I survived 2000 and actually made a small return during 2008/9
But I'm done with that. I've liquidated most of my IB portfolio and am preparing to setup my retirement mix with a conservative 60/40 ratio. I'm tired of watching the market, the volatility, the talking heads, the Orange Disaster and the drama. I'm going couch-potato now.
I might even close IB and keep everything in TD Waterhouse along with our registered accounts.

Projected revenue after retiring:
Part-time Business income: $20,000
Pension: None. Being self-employed my wife and I have no company pension plan
OAS/GIS/CPP: None yet.

Expenses: $36,000 which will come from the part-time business and portfolio drawdown 

Assets:
House $900,000 paid for
IB non-registered account: $340,000
RRSP: 110,000
TFSA: 94,000

Wife's RRSP: 45,000
Wife's TFSA: 89,000

Liabilities: None


So, we have a portfolio of about 340+110+94+45+89 = $678,000
All registered accounts are fully maxed.

I want to use a fixed drawdown of 4% ($27000/year). Then increase this annually for inflation. (I don't like the VPW model).

That plus the business income should tide us over until OAS/CPP kicks in (10 more years).

I'm trying to figure out
a) What to buy for the fixed income side. I'm thinking a 5-year cash-wedge GIC ladder. And the rest in bond funds

b) Where to hold everything for tax optimization. ie stock ETFs in the registered or non-registered account?
Which asset class income is best in non-registered accounts? Which are best in registered?

c) How to best meltdown the RRSP's to maximize OAS/GIS income later on

That's where I'm at, any pointers would be appreciated.


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## AltaRed (Jun 8, 2009)

I am going to give you one (radical) proposal.... 

1. Canadian investors are simply in love with dividend stocks. Can't get enough of them.... Some investors would have nothing else.
2. Given that you prefer the ancient 4%SWR adjusted for inflation annually, and have dismissed VPW.. even though that is the basis of the RRIF minimum withdrawal methodology
3. Given that all you want is $27k out of your portfolio based on that starting point of 4%SWR

... then forget about fixed income entirely and put all of your $678k into Canadian dividend stocks but ensure that you pick them to all have a current dividend yield of 4-6%. That way, you may well have a portfolio that yields somewhere between 4.5-5% which provides you with some conservatism to your 4%SWR in case a few of those dividend stocks take a severe turn for the worse and cut their dividends like in 2008-2009. If you focus on dividend growth stocks (hint: look at the constituents of XDIV ETF with its 20 something holdings and a yield in the range of 4.5%), chances are there will be enough dividend increases each year to more than exceed inflation. 

Nothing could possibly go wrong since you will never have to touch invested capital. You will die the richest man in the funeral home...and not have enjoyed a more bountiful retirement.

If you think this strategy is crazy, there are those on this forum who think this model, or slight variations of it, is the holy grail and actually practice it.

P.S. You have not indicated whether income taxes are included in your spend rate. Thy are a cost of living and must be part of your cash flow needs. Many forget to include that in their budgeting. Might have to bump that $27k somewhat to accommodate?


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## martik777 (Jun 25, 2014)

AltaRed said:


> I am going to give you one (radical) proposal....
> 
> 
> Nothing could possibly go wrong since you will never have to touch invested capital. You will die the richest man in the funeral home...and not have enjoyed a more bountiful retirement.



How can you say "nothing could possibly go wrong", Banks, Financial institutions etc have failed or reduced dividends before, unlikely, but it could still happen. What will happen to the dividend payout % if there is a 40% correction?


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## AltaRed (Jun 8, 2009)

martik777 said:


> How can you say "nothing could possibly go wrong", Banks, Financial institutions etc have failed or reduced dividends before, unlikely, but it could still happen. What will happen to the dividend payout % if there is a 40% correction?


I didn't have a 'tongue in cheek' to add to the sentence. There have indeed been a few dividend cuts in the past on some of the Canadian blue chips (set aside resource/commodity stocks as not being blue chip). IIRC, Manulife in 2008 or 2009, TRP circa 1999, and of course there were the bank and trust company failures in the '80s and early '90s. Overall though, there have been a dearth of dividend cuts in high quality blue chip dividend stocks and with a portfolio of 20 high quality dividend stocks, a few cuts would not be damaging. Different story in the USA of course, and Europe, but then I qualified my statement to Cdn equity stocks only.

I brought this up because some CMF members have a 'thing' about living off investment income only and in particular from dividend paying stocks, both common and preferred, and that it is not 'hard' to get a 4-4.5% dividend yield on the overall portfolio. It is, in fact, quite doable but it defies the conventional logic on asset allocation and diversification among geographic regions over the test of decades. I don't personally follow thr concept I've laid out in now, my 14th year of retirement.I have an allocation of fixed income via a GIC/bond ladder, and my equities are global in nature (stocks in Canada, ETFs elsewhere).


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## dotnet_nerd (Jul 1, 2009)

Thanks AltaRed, but no thanks re the 100% dividend stock allocation. Dividends have their place of course - but within the 60% slice.

What's wrong with the "ancient" fixed, indexed withdrawal over SWR?

What I don't like about VPW is there doesn't seem to be much control over the next year's income. Most of my expenses are fixed, so why not fix the withdrawal $$$?

SWR seems more "stable" if that's the right word.


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## My Own Advisor (Sep 24, 2012)

Great stuff @dotnet_nerd.

With ~ $700k banked and part-time income to cover other needs, as long as your expenses are low I think you are set.

1) Why don't you like the VPW model? It's been a bit of an eye-opener for me really.
https://www.myownadvisor.ca/how-to-draw-down-a-portfolio-using-variable-percentage-withdrawal-vpw/

2) I would consider killing off your RRSP first, then non-reg. then TFSAs last in a draw-down order. With your business income, you can defer CPP and/or OAS and increase your fixed income. That's a good thing.

3) Income? Why not use (if you really want 60% equities) those CDN dividend payings stocks that AR speaks or simply buy and hold XIU.

4) Why not use ~ 1 years of expenses as an emergency fund (keep in HISA = cash) and focus on income generation vs. 5-year cash wedge? That's a lot of cash/fixed income - no?

5) XIU is very tax efficient in non-reg. as are CDN stocks. You can consider holding income-oriented ETFs like VYM, HDV in your RRSP/RRIF. 

I have a few posts on that from last year - I will update them this year:
https://www.myownadvisor.ca/top-u-s-dividend-etfs-for-2018/

https://www.myownadvisor.ca/top-international-dividend-etfs-for-2018/

FWIW, I'm really starting to shift my thinking into a) growing my emergency fund and b) calculating how much I can "live off dividends" to some degree with my portfolio. The best plan I've come up with is something like the following:

a) Hold U.S. listed income-oriented ETFs like VYM, HDV in my RRSP.
b) Hold CDN dividend paying stocks in my TFSA and non-reg. (the latter for the Dividend Tax Credit (DTC).
c) Strive to keep ~ 1 year of expenses in cash for a bad market for a year or so. If a very bad market happens > 1 year I can simply decrease discretionary spending AND live off the dividends and distributions into years 2 and 3 without touching the capital.

These are some good income-oriented CDN ETFs for whatever that is worth:
https://www.myownadvisor.ca/top-canadian-dividend-etfs-for-2018/

A good mix of stocks and ETFs should allow $700k invested to bring in close to $30k per year without fail and without worry of drawing down your portfolio too quickly.


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## dotnet_nerd (Jul 1, 2009)

Thanks Mark, I really appreciate your thorough reply! That's a lot to digest, I will for sure check out your links.


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## OptsyEagle (Nov 29, 2009)

dotnet_nerd said:


> Thanks AltaRed, but no thanks re the 100% dividend stock allocation. Dividends have their place of course - but within the 60% slice.
> 
> What's wrong with the "ancient" fixed, indexed withdrawal over SWR?
> 
> ...


The reason VPW was invented was due to the sequence of return risk that SWR inherently has. Run a simulation of your portfolio but pretend you started retirement at the end of 1999 and tell us how your SWR portfolio is doing now. 

Anyway, I agree with you that the big flaw in VPW is the variable withdrawal. It only works, in my opinion, when one already has enough income from pensions/OAS/CPP to cover their fixed expenses. I am in the same boat and hence I tend to use the cash wedge system, but of course, everything has issues. The trick is to find the one with the least risk and issues that fits into your own situation, with the understanding that you will probably never find one that is perfect and without risk.


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## dotnet_nerd (Jul 1, 2009)

My Own Advisor said:


> 1) Why don't you like the VPW model? It's been a bit of an eye-opener for me really.
> https://www.myownadvisor.ca/how-to-draw-down-a-portfolio-using-variable-percentage-withdrawal-vpw/


I ran a spreadsheet both ways:
1) a 5% drawdown, increased each year for inflation
2) VPW using then 60/40 column from ages 55 to 100

Here's what I don't like about the VPW model...
It's too heavily weighted in the later years. The draw is not enough in the early years when one still has good health and is able to use the money for an active lifestyle (golf, travel, hobbies, etc)

Then in the twilight years, ages 90-100 the drawdown is heavy and very aggressive. 10%, 12%, 35%, 50%, 100%. 
But it's too late then. I don't need that income when I'm 90, I'll be too old to enjoy it. 

It's like draining a funnel. At age 98 VPW gives off a giant sucking sound.

In Daryl Diamaond's book, what's worked for him and his clients is more like a continuous draw. But with a 25% pay cut at age 75. Because around this age one becomes less active and doesn't require as much.
I found this surprising, but if you have the book it's explained on page 49.


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## cainvest (May 1, 2013)

My Own Advisor said:


> 4) Why not use ~ 1 years of expenses as an emergency fund (keep in HISA = cash) and focus on income generation vs. 5-year cash wedge? That's a lot of cash/fixed income - no?


Curious if anyone has run some comparison numbers on a 1 yr vs 5 yr cash holding?
You'd figure in normal market times (or averaged over the retirement time) you'd be giving up maybe a 2-3% return on the parked money for 80% of the cash holdings?


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## cainvest (May 1, 2013)

dotnet_nerd, how does your house fit into you plans? Any plans to downsize or relocate to something cheaper in the near future?


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## dotnet_nerd (Jul 1, 2009)

cainvest said:


> dotnet_nerd, how does your house fit into you plans? Any plans to downsize or relocate to something cheaper in the near future?


The house is our 'ace in the hole'. No plans to sell now. Not until our health deteriorates to the point where it's too difficult to maintain. Then we'll downsize.

Ideal would be a condo bungalow (no stairs) where all exterior maintenance is looked after.


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## Longtimeago (Aug 8, 2018)

Clearly, your home is your biggest capital asset and yet it is 'dead money', in terms of providing you an income. My advice would be to sell and buy in a lower cost area to free up more investment capital. While I understand it being your 'ace in the hole' in your current thinking, I would really suggest you give it some more detailed thought as to whether you should consider changing that thinking or not.

For example, a relative of mine sold a condo in Toronto and moved to a small town in Ontario where his money from the sale would have bought him THREE detached homes of more than double the square footage than his condo had. He bought one (obviously) and had 2/3rd of the capital left to invest and provide an income. He didn't 'downsize' or give anything up, he actually gained from making the move in pretty much every way that mattered.

For example, he has never experienced a traffic jam since moving. He has a local GP and dentist within 5 minutes. The tellers at his local bank greet him by name when he goes in. He has no trouble finding a trustworthy plumber, electrician, car repair, etc. etc. when needed and believe it or not, they actually return his phone calls usually within a couple of hours. Imagine that happening when you call a plumber in Toronto. 

For me it was a 'no brainer' to suggest he move out of the city. For him it was a 'big deal' to consider leaving behind all that the city provides or at least that he THOUGHT the city provided him and he would be leaving behind. In reality what he found was that there really was very little that he was giving up and a whole lot more he was gaining by making the move.


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## AltaRed (Jun 8, 2009)

dotnet_nerd said:


> What's wrong with the "ancient" fixed, indexed withdrawal over SWR?
> 
> What I don't like about VPW is there doesn't seem to be much control over the next year's income. Most of my expenses are fixed, so why not fix the withdrawal $$$?
> 
> SWR seems more "stable" if that's the right word.


The problem with SWR adjusted for inflation is that it takes no account of really bad years like 2008 and 2009. If you don't have a cash buffer to account for bad equity years, SWR forces you to sell a disproportionate amount of equities when they are down. Why would you want to do that? The inflexible SWR method makes no adjustments for good or bad years. Depending on your luck (sequence of return risk), you either are broke before your best before date, or you have an inordinate amount of money left in your portfolio. Neither is a satisfactory solution.

VPW, on the other hand, uses the balance of your portfolio on the first day of the calendar year to calculate how much you can spend each year. Contrary to your belief, it allows you to spend MORE of your portfolio early when it is large, 5% of a starting point of $700k is a whole lot more than 20% of $50k at age 95 or so. 

The problem with 4% SWR adjusted for inflation is that if you have some bad market years early in retirement, it depletes your portfolio so much that it cannot recover enough for your latter years. VPW prevents that from happening, albeit you have to be satisfied with a variable amount of withdrawal each year depending on how markets have been. But trust me, had you retired in 2007, why would you have continued to pull a fixed abount out of your portfolio on Jan 1, 2009 when your portfolio would have been down some 30 percent from what you started with in 2007? You couldn't have afforded to do that without potentially permanent damage to your portfolio

Indeed, SWR is more stable.... at the price of potentially killing your portfolio before you are 90. Imagine having 2-4 bear markets between now and 2040. Would you have any money left by then? I know retirees don't like uncertainty in annual income, but such retiree can't afford the risk of being oblivious to how their portfolio health is, if their portfolio is tight to start with. If you are going to stick with 4% SWR, then please don't use a fixed number adjusted for inflation every year. Reset the 4% SWR amount at the start of each calendar year, or intuitively lower your draw expectations in a bad year like 2009.


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## OnlyMyOpinion (Sep 1, 2013)

dotnet_nerd said:


> I ran a spreadsheet both ways:
> 1) a 5% drawdown, increased each year for inflation
> 2) VPW using then 60/40 column from ages 55 to 100
> 
> ...


I won't argue right or wrong, there are no absolutes in any of this planning (**** happens).

I would note though that if your spreadsheet is similar to mine (assume all things equal except w/d method), the difference in income drawn via 5% SWR from age 55 to 65 versus the 4.5%-4.9% via SWR is fairly modest. But what happens from age 63 onward though is that you have a higher income from the VPW method.
I suspect also that if markets were poor during those initial 10 years, the value of a 5% SWR portfolio would suffer substantially more than a VPW method.
As I see it, the only reason the w/d amounts get so high near the end of the VPW table is to deplete the portfolio in year 99. Using the SWR you reach 99 with a fair bit of portfolio remaining unspent. The reality is that we are likely to die well before 99 and leave some 'money on the table' regardless of which method we use.

Another suggestion you will see discussed is to convert a portion of your funds to an indexed life annuity at about age 80, sufficient to cover your necessary costs (as best we can predict them), so you are then 100% covered by indexed 'fixed income' (pension/CP/OAS/RRIF/annuity). Any remaining income from other accounts (non-registered, TSFA) is then essentially discretionary.


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## cainvest (May 1, 2013)

dotnet_nerd said:


> The house is our 'ace in the hole'. No plans to sell now. Not until our health deteriorates to the point where it's too difficult to maintain. Then we'll downsize.
> 
> Ideal would be a condo bungalow (no stairs) where all exterior maintenance is looked after.


Understood, house is being used as a back stop or safety net for the latter years.

When estimating your SWR, I believe you ran it out to 100 years, did you include the cash freed up from selling your house at a later age?


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## dotnet_nerd (Jul 1, 2009)

Longtimeago said:


> Clearly, your home is your biggest capital asset and yet it is 'dead money', in terms of providing you an income. My advice would be to sell and buy in a lower cost area to free up more investment capital. While I understand it being your 'ace in the hole' in your current thinking, I would really suggest you give it some more detailed thought as to whether you should consider changing that thinking or not.
> 
> For example, a relative of mine sold a condo in Toronto and moved to a small town in Ontario where his money from the sale would have bought him THREE detached homes of more than double the square footage than his condo had. He bought one (obviously) and had 2/3rd of the capital left to invest and provide an income. He didn't 'downsize' or give anything up, he actually gained from making the move in pretty much every way that mattered.
> 
> ...


Great points LTA. I totally agree.

For personal reasons, mainly proximity to my aging parents we want to stay where we are for now. 

We're in a fantastic area right now with great appreciation potential. It's on the golden horseshoe between Hamilton and St. Catharines. It's where the growth is. 
Highrises are popping up like mushrooms, there's a new Costco, and a GO station is coming. The Burlington-to-Toronto corridor is landlocked. All the building is here now around Stoney Creek and Beamsville.

So you're right, it's 'dead money' but I don't mind sitting on this place. It's a real goldmine because of the location. And it's unique with character, not a McCookieCutter house.


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## dotnet_nerd (Jul 1, 2009)

cainvest said:


> Understood, house is being used as a back stop or safety net for the latter years.
> 
> When estimating your SWR, I believe you ran it out to 100 years, did you include the cash freed up from selling your house at a later age?


Yes, I had to include downsizing the house. I ran a few spreadsheet models assuming:
*5% drawdown*, inflation adjusted (SWR)
2.5% inflation rate

Here's how long our money would last. After which it would be necessary to sell the house and downsize:

3% return - 26 years
4% return - 30 years
5% return - 38 years

As for SWR vs VPW I think it's important to be flexible. Certainly there's sequence risk. If we get a really bad bear market, then certainly we would forego or delay withdrawals rather than eat into the reserves.


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## martik777 (Jun 25, 2014)

When I retired, we considered downsizing or moving to a cheaper area, glad we didn't since the 'dead money' in our house has appreciated 500%. 

With a paid off house, there is always the option of a reverse mortgage (last resort) , HELOC or conventional low interest 1st mortgage. Not sure about ON, but here in BC we can defer property taxes at age 55 at 2% below prime - simple interest. One can make a decent return simply deferring and depositing an equivalent amount into a TFSA at a higher rate of return.


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## GreatLaker (Mar 23, 2014)

dotnet_nerd said:


> I ran a spreadsheet both ways:
> Here's what I don't like about the VPW model...
> It's too heavily weighted in the later years. The draw is not enough in the early years when one still has good health and is able to use the money for an active lifestyle (golf, travel, hobbies, etc)
> 
> ...


Here is clarification of how VPW works, and why the % increases so much in later years:
Say you have $1000 that you want to spend equally over 5 years. So you spend $1000/5 = $200 each year. Easy peasy. Now do the same thing a different way, determining your withdrawal as a percent of what you have left. Year 1 withdraw 20% = $200. Year 2 you have $800 left, so you withdraw 25% = $200. Year 3 you have $600 left so you withdraw 33% = $200. Year 4 you have $400 left so you withdraw 50% = $200. Year 5 you have $200 left so you withdraw 100% = $200. The amount you get each year is exactly the same, but you are calculating it as a variable percent instead of a constant dollar. That's why the percent increases so much in later years.

VPW uses the same method, except instead of just 5 years it is spread over all the years from retirement to your life expectancy. (The VPW spreadsheet author recommends age 100.) Why use VPW instead of constant inflation adjusted dollars? It can cope with variable investment returns.

Another drawback of 4% SWR is that the 4% WR was determined based on historical stock & bond returns to give a low probability of outliving your money over a typical 35 year retirement. That included the crash of 1929, the great depression and the stagflationary 1970s. But a constant WR that is designed to survive the worst economic conditions will leave most retirees with an estate several times what they started retirement with. Plus it has no defined method to cope if investment results during the retiree's lifespan are worse than the historical data from which the 4% SWR was developed. An unlucky few may run out of money, but most will constrain their spending unnecessarily and die with a huge unspent estate.

For VPW to work you have to be able to cut back spending during times with bad returns. You have to have the ability to reduce discretionary sending on items like vacations, hobbies, home improvements etc. If most of your spending is non-discretionary fixed expenses, VPW is not really suitable.

You also mentioned Daryl Diamond's suggestion of reducing spending at age 75. The way to do that with VPW is set aside a separate amount outside your VPW calculations to spend from retirement to age 75. Say you retire at 60 and want an additional $10k to spend from age 60 to age 75. Just put aside $150k in a separate account in something stable like a GIC ladder or a bond ladder, and withdraw $10k/yr.


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## Longtimeago (Aug 8, 2018)

martik777 said:


> When I retired, we considered downsizing or moving to a cheaper area, glad we didn't since the 'dead money' in our house has appreciated 500%.
> 
> With a paid off house, there is always the option of a reverse mortgage (last resort) , HELOC or conventional low interest 1st mortgage. Not sure about ON, but here in BC we can defer property taxes at age 55 at 2% below prime - simple interest. One can make a decent return simply deferring and depositing an equivalent amount into a TFSA at a higher rate of return.


What difference does it make if the 'dead money' increases by 500% or not martik777. All that means is you have even more dead money tied up in the property. Nor should you infer that if someone moves they will not have a paid off house they could reverse mortgage if they decided to do so. 

All you have done is bring up one of the common misconceptions that are trotted out when someone tries to suggest they are better off staying in a city and having more capital tied up in a property. What you want is a nice house in a nice neighbourhood to live in. You want it paid for and you don't want to give up anything you consider important. The assumption that that can only be done where someone currently lives when they retire is a bad assumption to make. 

There are a few reasons that make sense in regards to staying put, such as being near aging parents, but most of the reasons people give are in fact not valid. I'm trying to imagine someone saying. I bought a house for $500k and it is now worth $2.5 Mil (your 500%). I could move and buy an equivalent house elsewhere for $500k again and have $2 Mil to invest. But no, I think I am better of staying in the house I have and sitting on that $2 Mil earning nothing.


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## Beaver101 (Nov 14, 2011)

^ I think martik777 is just emulating your post #13 about what to do with 'dead house-money' for the purpose of earning an income. 

As far as I'm concerned, a house (or condo, or pad) is "home" first and foremost, not a money-making enterprise.


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## cainvest (May 1, 2013)

Longtimeago said:


> What difference does it make if the 'dead money' increases by 500% or not martik777. All that means is you have even more dead money tied up in the property. Nor should you infer that if someone moves they will not have a paid off house they could reverse mortgage if they decided to do so.


Well it's certainly not 'dead money', it'll be a real estate investment for most that *could* be used to fund retirement in the latter years. Not everyone, for whatever reason, wants to relocate just to get more cash.


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## GGuy (Mar 21, 2018)

martik777 said:


> How can you say "nothing could possibly go wrong", Banks, Financial institutions etc have failed or reduced dividends before, unlikely, but it could still happen. What will happen to the dividend payout % if there is a 40% correction?


None of Canada's big 5 banks have ever cut their dividend or gone under. Even in 2008/09. In fact their dividend increases are a fine hedge against inflation.

What banks failing or reducing dividends were you referring to? I believe the OP was referencing Canadian banks, not US.


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## AltaRed (Jun 8, 2009)

I agree the big 5 banks are virtually bulletproof. That was not the point. 

There were numerous failures of Cdn banks and trusts in the '80s and '90s. HCG might failed a few years ago until rescued by Buffett, etc.

Added: CDIC list https://www.cdic.ca/about-us/resolution/history-of-member-institution-failures/ Don't know how many of these were publicly traded. Not many perhaps.


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## My Own Advisor (Sep 24, 2012)

dotnet_nerd said:


> I ran a spreadsheet both ways:
> 1) a 5% drawdown, increased each year for inflation
> 2) VPW using then 60/40 column from ages 55 to 100
> 
> ...


Oh I have the book 

Diamond's book is excellent, one of my favs in the PF sphere.

The thing with VPW though is you don't have to stick to the pre-calculated draw-down schedule - you can always choose to take your own %. This is akin to real life - in that some years, will be spendy, other years maybe not so much.

Thoughts?

I can fully appreciate you don't want to have loads of money in your 90s and doing nothing with it. I feel the same. But using VPM and other tools I think it gives you a sense of what is feasible and should you wish to take on more aggressive draw downs; it's a good tracking tool to see where you might be trending to.

To be honest, I think the purchase of an annuity is good in the late-70s or 80s. Assuming you have decent health at that time, CPP + OAS + $250k or more set aside for an annuity is about as rock-solid as a plan there is. This way, you can spend your dividends, draw down as much as you wish until that age and enjoy what you've worked so hard for.

Another good book is Pensionize Your Nest Egg.
https://www.myownadvisor.ca/why-you-should-consider-pensionizing-your-nest-egg/

You might also find this case study on my site interesting - how to draw down your portfolio assuming you want to spend $50k per year - at least this couple does.
https://www.myownadvisor.ca/they-want-to-spend-50000-per-year-in-retirement-did-they-save-enough/

Not easy decisions and we're all guessing about the future. A good guess/plan is really all you can do


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## cainvest (May 1, 2013)

My Own Advisor said:


> The thing with VPW though is you don't have to stick to the pre-calculated draw-down schedule - you can always choose to take your own %. This is akin to real life - in that some years, will be spendy, other years maybe not so much.


One can adapt to bad market years calculating with a fixed WR + inflation can they not?
I use the same fixed rate + inflation for my planning but have two output columns, living money and disposable money. 
So for any given "bad year(s)" I can choose to lower my withdrawal by the disposable amount.


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## AltaRed (Jun 8, 2009)

cainvest said:


> One can adapt to bad market years calculating with a fixed WR + inflation can they not?
> I use the same fixed rate + inflation for my planning but have two output columns, living money and disposable money.
> So for any given "bad year(s)" I can choose to lower my withdrawal by the disposable amount.


It's considerably more transparent and comprehensible with VPW than it is with fixed rate SWR + inflation. So what do you do for year X+1, X+2, X+10 if you pulled back the withdrawal in year X due to poor markets? What is your starting point for X+1, or what if you have to modify for X, X+1, X+2, X+3 until markets recover? What is the new starting number for X+4 in that case? The thing is once you pull back for a year or two using an inflexible formula, you are no longer tracking that formula.

VPW is a reset every year, so if you decide to go well over one year, you clearly will know what your set point is the following January.

My annual withdrawals using VPW don't follow VPW exactly. I am usually under the numbers, but occasionally over. But it doesn't matter. I know with 100% clarity next January what my withdrawal should be. I don't have to go back and re-do SWR+inflation. VPW is not a holy grail and I understand why some don't like it, but ultimately it is never too hot, and never too cold. The discipline is in accepting the annual variability.


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## cainvest (May 1, 2013)

AltaRed said:


> It's considerably more transparent and comprehensible with VPW than it is with fixed rate SWR + inflation. So what do you do for year X+1, X+2, X+10 if you pulled back the withdrawal in year X due to poor markets?


As it sits now my portfolio value is just calculated with a fixed % gain plus estimated amount of income I save. Each year that passes I update the projected value with the actual value of my portfolio which is what I'd continue to do in draw down time. So when I deduct the withdrawals it'll show me the projected values to my "die broke" age, let's say 85. It's no different to me, bad market vs big expenditure for a year (say I need a new bass boat), I adjust my future values based on what I have left. If my portfolio doesn't make it to my 85 anymore then I have to adjust my future spending, as in buy a smaller used boat instead of a decked out Ranger. 

Added: BTW, I'm not knocking VPW, it works obviously.


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## Longtimeago (Aug 8, 2018)

cainvest said:


> Well it's certainly not 'dead money', it'll be a real estate investment for most that *could* be used to fund retirement in the latter years. Not everyone, for whatever reason, wants to relocate just to get more cash.


Try looking at it from the viewpoint of someone who is retired, not your current viewpoint as someone who has to work for a living.

In retirement, generally speaking, it is all about INCOME, not capital growth. If someone already has an income of several hundred thousand then they may not be bothered about missing out on a few thousand more a year in income that they could get if they freed up capital that is in a house. But for most retirees, dead money is referring to any money that is not generating income for you.

You don't need to 'fund retirement in latter years' when you are already IN retirement, you need to fund your retirement NOW. Unless you have more money than you know what to do with in your retirement years, anything that will increase your income is a good thing obviously. As I wrote, "I'm trying to imagine someone saying. I bought a house for $500k and it is now worth $2.5 Mil. I could move and buy an equivalent house elsewhere for $500k again and have $2 Mil to invest. But no, I think I am better of staying in the house I have and sitting on that $2 Mil earning nothing."

Making the capital available to increase income does NOT result in losing any capital. The capital remains the same, but the income goes up, you still have $2.5 Mil capital only $2Mil is providing income while $500k is in an EQUIVALENT home elsewhere. The only time it would not make sense if is you were to LOSE something important to you by making the move.

Yes, you may lose the continued capital growth that $2.5 Mil house could generate but to what purpose? If you die when it has risen to be worth $5 mil, you can't take the money with you. I suggest it is far better to have got $2 Mil out and generated an income from it each year that you could use to enjoy your retirement. You'll still leave $2 Mil to somebody anyway.

Again, most reasons people give for not moving are in fact only beliefs, not reality. In another thread someone tried to justify living in a city because of superior medical care and access for example. If that were true, it could be a real concern but it is not true, it is only a belief. My healthcare and access is equal to that anyone has in any city in Canada you care to name. Living in a small town does not mean doing without anything of any real importance to me. Most 'reasons' given are similar, beliefs not based on facts.

Of course, you realize that I am talking about earning income off of capital, not EATING the capital.


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## AltaRed (Jun 8, 2009)

^I agree, although obviously, the degree of impact depends on whether one is in McMansion at that time, or in comfortable modest housing already.

In retirement (or even empty nester sometimes), huge amounts of capital tied up in McMansion housing IS dead money, and in many ways IS a money pit with higher property taxes, property insurance, utilities, maintenance and more. For what purpose? So you can spend more money cleaning it too? At a minimum, if one does not want to change geographical location in a significant way due to social networks, etc. at least downsize into something more manageable and free up capital (to generate investment income) and to reduce operating costs. There is a time to crystallize and make use of those gains.


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## cainvest (May 1, 2013)

If someone wants to keep their home, or even their "McMansion", who are we to say otherwise? If it makes them happy and they can afford it, keep it ... yup, that simple. 

BTW, I do personally agree that keeping large expensive home during retirement doesn't sound like a good idea to me. I would certainly put the money from the sale to other uses.


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## gaspr (Mar 24, 2014)

Great thread. Good discussion. Thanks to all contributors.


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## afulldeck (Mar 28, 2012)

I think its hard for long time home owners to let go of the house. My wife and I had detailed discussions about selling, but it was only when my wife changed jobs to palliative care did it become clear why holding on might be a mistake. Health changes can come rapidly and without any real warnings.


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