# Cash reserve in retirement - what do you think?



## Thal81 (Sep 5, 2017)

I'm curious to know what people on this board, especially retirees, think about keeping a large reserve of cash during retirement. I often read that people like to keep a few years worth of expenses in pure cash for when stock/bond markets are having bad years, or for the sleep at night factor. I also know older people around me who keep 100K+ in cash at all times, regardless of if they're also using GICs.

Now, as I near early retirement, I've been going back and forth on the idea of keeping a ~10% cash allocation in my portfolio for those same reasons. On the one hand, it feels like a nice safety net, but on the other hand, I know full well I will lose to inflation and potential market gains. Other safety net alternatives like GICs don't appeal to me, I just can't lock away any money, it just doesn't register with my brain.

Lately I've been backtesting market returns of various asset allocations that include stocks/bonds/cash, and what I've come to realize is that if I take off my short vision goggles and zoom out, the protection offered by cash during downturns is usually offset by the market gains of previous years. Basically, if I had invested the cash in stocks/bonds a couple years before a downturn, I would end up with more money by selling these deflated assets than by having kept the cash and using that instead. Historically, is seems to takes about 2-3 years of market gains before a downturn to make up for the market losses, and any extra years ensures you will greatly outperform. But yeah, it varies and there's no guarantee this will be true for the future.

Anyways, this new perspective make me wonder why I would keep much cash at all, beyond the next few months of expenses. Even right now, the stock/bond markets are both not doing great, yet if I had invested my cash reserve at the beginning of 2020, it would still be about +11% more valuable today, despite the current downturn.

Sorry this was long winded, but I felt I had to explain where my question is coming from. So yeah, I'm curious to know what you guy's opinion is on keeping a large amount of cash in retirement.

cheers!


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## OptsyEagle (Nov 29, 2009)

Cash is comfort food for an investor. Without comfort everything you said, all your backtesting data, etc., will become irrelevant during a stock market famine. If you are comfortable with the amount of cash you have, then that is probably the perfect amount for you.

Each person's cash level will be a combination of their personal circumstances which include their expenses, other income sources like pensions/rental incomes, etc., and their personal comfort level. I have considerable amounts of cash but as far as my portfolio is concerned, I am 100% invested in equities. Obviously I am not. The difference is my perspective. I don't look at my cash as a part of my portfolio. Like an asset allocation strategy. A part of a portfoio that must make a positive return, or even a return higher then inflation. I look at my cash as my income, since it is. I am retired but I have no pension or any government income for that matter. So I keep at least 3 years income in cash and about another 10 years in fixed income of some sort, either GICs or bonds. The rest will always be in equities. This is not an asset allocation thing. It is an income and growth type of thing. One part is for income and the other part I hope grows and the one part has nothing to do with the other part. 

That said, I do spend a bit of time trying to get as much interest on that cash as I can. As much tax protection as I can. As much liquidity on it, as I can. For example using laddered GICs, but more importantly, using multi-laddered GICs. Multi-ladder is just a system where instead of one GIC coming due every year, I have a GIC coming due every 3 months, for the next 5 years, etc. Now with that said, I watch the inflation numbers but I don't really react to them. If I make 3% on my cash and inflation comes in at 5%, I figure the cost of my income comfort came in at 2%. If inflation ravages at 7%, then my comfort will cost me 4% that year. Most comforts in life come at a cost, why should your income protection be any different?


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## cainvest (May 1, 2013)

Thal81 said:


> Now, as I near early retirement, I've been going back and forth on the idea of keeping a ~10% cash allocation in my portfolio for those same reasons. On the one hand, it feels like a nice safety net, but on the other hand, I know full well I will lose to inflation and potential market gains.


It is a tough call on how much cash to keep on hand. For me I see one year of basic expenses as a minimum but in the early stages I might increase that to 2-3 years for sequence of return risks. Like yourself I'm not completely sold on one way or another yet.



Thal81 said:


> Other safety net alternatives like GICs don't appeal to me, I just can't lock away any money, it just doesn't register with my brain.


That's an interesting perspective but if your fear prevents you from using GICs then that's not an option. Maybe use 1 yr GICs spaced 4 months apart if that time period can work for you and GIC return rate is much better than any available HISA?


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## AltaRed (Jun 8, 2009)

I don't quibble with the OP's views with one exception. Backtesting always feels more comfortable because one is dealing with known past data. Hindsight is 20-20 but the future is for the most part unknown. It is the tail end of "bell curve" probabilities that can hurt. The amount of cash reserve should reflect one's personality and whether they feel comfortable racking up CC debt, or tap into an LOC or other sources of 'cash' during a market downturn. Or simply accept that one may have to tap into selling equities in the middle of a 20+% bear market.

I don't have a percentage cash allocation in my portfolio. I have X years of an absolute amount of cash reserve set aside in HISA accounts. I would suggest that if one is holding 1 year of cash reserve, about all one can do is hold it in an HISA account or perhaps 30-90-180 day term deposits. As one extends the amount of cash reserve into 2+ years, then longer term deposits and/or GIC ladders can come into play as well. The primary objective of a cash reserve is to have Return OF Capital, rather than Return ON Capital. If all it earns today is 1.5-2%, that is the price of the sleep-at-night factor.

There are no right answers beyond one's comfort zone.


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## Spudd (Oct 11, 2011)

What I've been doing so far is pulling a year at a time from the portfolio, at the end of December.

I think if we happened to be in a bear market at the end of December (hasn't happened to me yet), I would pull monthly for that year rather than pulling the lump all at once. 

I also choose to sell whichever part of my portfolio is farthest out of balance to the up side when I withdraw.


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## Thal81 (Sep 5, 2017)

Spudd said:


> What I've been doing so far is pulling a year at a time from the portfolio, at the end of December.
> 
> I think if we happened to be in a bear market at the end of December (hasn't happened to me yet), I would pull monthly for that year rather than pulling the lump all at once.
> 
> I also choose to sell whichever part of my portfolio is farthest out of balance to the up side when I withdraw.


So, I take it you don't keep much cash beyond the 1 year then? I've thought of doing something similar to you since a good portion of my income will be from RRSP withdrawals, and since there's a deregistration fee and withheld taxes, I'd rather do it once a year in December.


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## TomB16 (Jun 8, 2014)

I completely share your point of view. This is a bit of detail on my perspective and cash.

The S&P 500 has roughly quadrupled in the last decade (just under). VFV has just over quadrupled in the last decade.

If you consider the 10 year returns of Couch Potato or really anyone who is diversifying and balancing sectors, they probably made well under half of that return but a few may have come close to half. There is no other approach that has returned anything close to 15% over a decade.

If you consider the worst case market crash to be a 50% value hit, that would suggest that a person with a 10 year horizon would have been best off in VFV with zero cash, bonds, or diversification. If you go beyond 10 years, it is clearly more efficient to always remain in the market during both the saving years and the spending years, regardless of market conditions.

But...

People who have had an investment advisor, trade, do much balancing, try to diversify across stocks they don't really know, etc. have had returns that do not allow them to take the risk of a 50% net worth hit. The problem with being poor is you have to buy insurance which makes you even more poor.

And then there is the notion of a 50% market hit being the worst case. This number is arbitrary and with the market being up in the stratosphere, I estimate it would be possible for the market to crash far beyond 50%.


What I do (not advising this and acknowledge it is not the most efficient way but it is reasonably efficient and lets me sleep at night)....

I keep a bit of cash because it is part of my strategy. I've scooped a couple of stock deals in the last 10 days.

I also hold GICs because I'm retired. The GICs are very, very small and there is a 1 year and a 2 year. When they mature, they will be broken down into a 6 rung, 4 month or 4 rung, 6 month ladder, instead of the current the 2 rung, 1 year. The value of these GICs is just under 3% of our portfolio and that ratio is not fixed. I selected the amount using the thought, "If the markets completely dry up, it might be nice to have a bit of walking around money without abusing our nest egg." The amount will not be increased as the nest egg grows. The plan is to reduce the cash reserve as we get older but that can only happen if the nest egg continues to do well.

Further, a 1 year and 2 year GIC is a 3 year ladder, in my view. 0-12m = HISA, 1-2y = GIC, 2-3y = GIC.

... and then there is the idea that we have a strong distributing portfolio. Only one of our companies, a tiny holding, stopped distributing in 2020. It was a restaurant that was under existential thread due to COVID lock down. It started distributing again last year.

We currently own 7 companies, no indices, and a minuscule amount of GICs. There are three positions I have not grown for two years. The number of companies will probably be 4 or 5 over the next 5 years and ultimately 3. I do not believe anyone can properly follow 30 companies. Buying companies without research is gambling to me. I consider myself a partner in these companies and, as such, I read every report, listen to every earnings call, read all related news, etc. I also do not sell because the price is high or low. I sell because I no longer want to have a partnership with the people managing the business.

As I get older, I expect to lose interest in reading news, reading quarterly reports, and doing value projections. Also, at 55 years of age I can tell I have lost some mental acuity. My parents were sharp until the end but their intellect also tapered off a bit. I plan to get into an index portfolio before Algernon stops being able to complete the maze.


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## james4beach (Nov 15, 2012)

Thal81 said:


> Anyways, this new perspective make me wonder why I would keep much cash at all, beyond the next few months of expenses. Even right now, the stock/bond markets are both not doing great, yet if I had invested my cash reserve at the beginning of 2020, it would still be about +11% more valuable today, despite the current downturn.


Really good questions, and something I've thought about too (I'm pseudo retired, though I do have occasional employment income).

I think that as long as your investment mix contains a reasonable amount of bonds, you'd have enough stability to be able to withdraw during most market downturns. Someone in a balanced fund probably only needs 1 to 2 years of cash. I currently have 2.5 years of cash, and it feels too high.

Like AltaRed, I keep my cash reserve separate from my investment portfolio and don't have a % cash amount within my investments.

@Thal81 you're saying GICs don't appeal to you, but you might want to consider these as part of your bond/fixed income allocation. GICs have some big advantages. My investments hold 50% fixed income which is about half bonds + half GICs. The ladder contains 5 year GICs which mature every few months. Consider this year, where bonds fell sharply in the first few months. *If I had to withdraw from my portfolio, I'm still able to withdraw any maturing GICs*. So even though my overall portfolio is down a few % this year, I could withdraw money _without having to sell any depressed asset_.

It takes a while to get a GIC ladder up and running, but now that I have 5 year GICs maturing every ~ 3 months, it's really a beautiful thing. I now have this part of my bond allocation that just about always has cash available -- if I need it -- and it can be withdrawn from my portfolio even in the worst of times.


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## Thal81 (Sep 5, 2017)

@james4beach I get what you're saying, but my whole argument is, if you had bought a balanced fund instead of that maturing GIC a couple years ago, you'd still be better off selling the depressed asset today. It wouldn't feel good though, I can give you that 

I appreciate the answers overall. I think keeping 2-3 years in cash/GICs outside the portfolio, rather than a % allocation, makes sense. At least to get over the sequence of returns risk in early retirement.


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## like_to_retire (Oct 9, 2016)

Thal81 said:


> Now, as I near early retirement, I've been going back and forth on the idea of keeping a ~10% cash allocation in my portfolio for those same reasons.


As discussed already, I wouldn't use percentage allocations for cash. I would decide how much I felt was needed for whatever length of time, and keep that in cash. 




Thal81 said:


> I've thought of doing something similar to you since a good portion of my income will be from RRSP withdrawals, and since there's a deregistration fee and withheld taxes, I'd rather do it once a year in December.


Why would you withdraw from an RRSP with its fees? Why not a RRIF?



Thal81 said:


> if you had bought a balanced fund instead of that maturing GIC a couple years ago, you'd still be better off selling the depressed asset today.


And it could have just as easily been the opposite situation depending on a lot of factors. It's all a question of risk at the time you make the decision, and not analyzing it years later.

ltr


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## ian (Jun 18, 2016)

james4beach said:


> Really good questions, and something I've thought about too (I'm pseudo retired, though I do have occasional employment income).
> 
> I think that as long as your investment mix contains a reasonable amount of bonds, you'd have enough stability to be able to withdraw during most market downturns. Someone in a balanced fund probably only needs 1 to 2 years of cash. I currently have 2.5 years of cash, and it feels too high.
> 
> ...


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## Thal81 (Sep 5, 2017)

like_to_retire said:


> Why would you withdraw from an RRSP with its fees? Why not a RRIF?


Because I will still be relatively young when I leave the workforce, and on the off chance that I find something I love to do and earn employment income again, I want the option to stop withdrawing from RRSPs, which I can't do after I convert to a RRIF. In any case, I think the withdraw fee at TDDI is $25, so not too bad if only once a year.


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## ian (Jun 18, 2016)

I believe that there are two variables to consider.

The first is your spend. The second is your total income from CPP, OAS, defined pension, plus any guaranteed income from other annuity sources.

During covid our only drawdowns were for income tax payable and gifting to children.

We go with a conservative number that covers all of our personal bases. We vary between 9-18 months to cover the ‘gap’ (we can cut spending if we have to) and a year of tax instalments and estimated tax payable.


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## james4beach (Nov 15, 2012)

Thal81 said:


> @james4beach I get what you're saying, but my whole argument is, if you had bought a balanced fund instead of that maturing GIC a couple years ago, you'd still be better off selling the depressed asset today. It wouldn't feel good though, I can give you that


But I'm not saying the option is between a balanced fund and a GIC.

I'm saying that the balanced fund should contain the GICs. Then you have the *same* performance as a balanced fund, and you get the additional benefit of being able to withdraw without ever having to sell depressed assets.

Put the GICs _inside_ the balanced fund as part of the asset allocation. The benefits are a total "freebie" and there's no performance loss.


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## cainvest (May 1, 2013)

Thal81 said:


> Because I will still be relatively young when I leave the workforce, and on the off chance that I find something I love to do and earn employment income again, I want the option to stop withdrawing from RRSPs, which I can't do after I convert to a RRIF.


You know that you can transfer whatever amount you like (pre-71 yrs old) from your RRSP to a RIFF right?


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## milhouse (Nov 16, 2016)

IIRC, Karsten at Early Retirement Now wrote about a cash wedge strategy and the numbers aren't optimal versus investing the cash. But I frequently fall back to Morgan Housel's comment about it's ok being reasonable versus always being rational. Decisions don't have to always have to be mathematically optimal for it to be the right choice for your life.

Going into retirement this April, I had about a year's worth of cash based on my half of our combined spend. On the plus side, my portfolio is generating enough dividends/yield without immediate risk of cuts that I'm currently not overly concerned about hitting my targeted cashflow numbers for the next 2 years without having to sell shares/units. However, in our current environment, I do wish I had gone into retirement with a little more cash on reserve (1) so that wouldn't have to heavily rely on yield and fear cuts/fluxuations in the back of my mind and (2) for the mental aspect of having cash at the ready. Similarly, I don't think of it from a portfolio percentage persective but annual funding spend perspective. Hindsight being 20/20, I likely could have done so easily by replacing a small amount of my bond allocation in my RRSP to some GIC's.



Thal81 said:


> Because I will still be relatively young when I leave the workforce, and on the off chance that I find something I love to do and earn employment income again, I want the option to stop withdrawing from RRSPs, which I can't do after I convert to a RRIF. In any case, I think the withdraw fee at TDDI is $25, so not too bad if only once a year.





cainvest said:


> You know that you can transfer whatever amount you like (pre-71 yrs old) from your RRSP to a RIFF right?


I've been trying to wrap my head around how to execute this also. I was considering paying the $25 withdrawal fee for an annual RRSP withdrawal too. Or determining if it worth it to save $25 to migrate a portion of my RRSP into a RRIF every year I want to withdraw from my RRSP/RRIF.


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## TomB16 (Jun 8, 2014)

You can convert a rif back to an RSP, if it comes to that.


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## TomB16 (Jun 8, 2014)

james4beach said:


> Consider this year, where bonds fell sharply in the first few months. *If I had to withdraw from my portfolio, I'm still able to withdraw any maturing GICs*.


I wish to point out that you probably mean bond funds, and not bonds. A maturing bond ladder does not lose equity except in a default situation and they pay a damn sight more than a bond fund without anyone absorbing the already low interest income.


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## cainvest (May 1, 2013)

milhouse said:


> I've been trying to wrap my head around how to execute this also. I was considering paying the $25 withdrawal fee for an annual RRSP withdrawal too. Or determining if it worth it to save $25 to migrate a portion of my RRSP into a RRIF every year I want to withdraw from my RRSP/RRIF.


I don't see any drawback to having a RIFF account. For those early in retirement only transfer the money you plan to withdraw that year from your RRSP into the RIFF. No fees doing this from what I've read.


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## james4beach (Nov 15, 2012)

TomB16 said:


> I wish to point out that you probably mean bond funds, and not bonds. A maturing bond ladder does not lose equity except in a default situation and they pay a damn sight more than a bond fund without anyone absorbing the already low interest income.


I hold individual bonds and they fell just the same as a bond fund. Individual bond prices do of course react to changes in interest rates, so they fall in price.

But holding individual bonds does have the same advantage as GICs, that is, you can let an individual bond mature and withdraw it without having to sell.

I hold a mix of individual bonds + GICs in a big ladder that stretches out 10 years. I treat the individual bonds and GICs exactly the same way, holding all of them to maturity. I really like this method and it's proved its worth during this rough time in bonds.

Although the account value (the aggregate price of all them) is down significantly, I haven't really experienced any losses because I never had to sell any at a loss. I just let each bond or GIC mature.

The only downside of this: it's a lot more work than holding a bond fund. You have to deliberately reinvest and roll over maturing amounts. In a few months for example I'll be buying the shiny new 2032 or 2033 Canadian government bond that was recently issued. Hot off the printing press!


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## GreatLaker (Mar 23, 2014)

TomB16 said:


> I wish to point out that you probably mean bond funds, and not bonds. A maturing bond ladder does not lose equity except in a default situation and they pay a damn sight more than a bond fund without anyone absorbing the already low interest income.


A bond ETF is just a bond ladder, with many rungs, and someone else manages it for the outrageous fee of 0.09%. Yes if you hold a bond until maturity it pays its face value. But if you need to sell it before maturity it can lose capital. A bond ETF will return your invested value if you hold it for the fund's duration, because that is the point where the interest payments will equal or exceed any capital loss. 

A bond ladder is good for someone that wants guaranteed maturities on a fixed schedule, similar to a GIC ladder, except the GIC ladder should have a liquidity premium. A bond ETF is good for investors that want liquidity and flexibility to buy or sell smaller quantities as needed. That's why I hold both. Horses for courses.


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## Gator13 (Jan 5, 2020)

Our current planning has us starting retirement in less than 2 years from now with 5+ years of expense funds in HISA's & a GIC ladder. This also represents a portion of our fixed allocation. We will spend/gift/donate the interest generated.


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## TomB16 (Jun 8, 2014)

james4beach said:


> I hold individual bonds and they fell just the same as a bond fund.


Again, bonds are subject to the vicissitudes of the market, just like stocks, but 100% of capital is preserved if held to maturity like a GIC. The only difference is you have the option to sell, in the case of a bond, while you do not in a GIC.

I don't view bonds as a high frequency trading opportunity. I view bonds/GICs as insurance. A necessary evil.


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## GreatLaker (Mar 23, 2014)

Lots of different perspectives here. What counts for retirees is they get a reasonable return that still lets them sleep at night, with an acceptable risk of portfolio depletion.

I don't hold much cash, relatively. Around yearend I withdraw enough cash to fund a year's spending, plus I hold about another 6 months spending in a HISA. So somewhere between 6 months and 18 months in HISA. I also have a savings fund (accountants might refer to it as a sinking fund) in a low-cost balanced fund to pay for large periodic expenses including new vehicles and home expenses like new shingles, driveway, HVAC etc. that can put a huge dent in a retiree's budget. I contribute a fixed amount annually to that, which should make it a sustainable fund.

I have a 5-year GIC ladder where each year's maturing rungs will provide for my non-discretionary expenses (beyond what I will get from CPP & OAS) in the event of a really bad market meltdown where I don't want to withdraw from equities or bonds. In normal times my annual withdrawal would come from equities. If equities are in a bear market, my withdrawal could come from bonds. If both of those are distressed then I spend from maturing GICs rather than reinvesting the proceeds.

I know OP dislikes the lack of liquidity of GICs, but for me they are not for discretionary spending, but part or a long-term approach to give me guaranteed annual availability of cash no matter what markets and the economy do.

I also get enough in dividends and interest to cover my non-discretionary expenditures, so a belt and suspenders approach. On the surface it seems like overkill, but I have studied market history enough to understand how bad things can really get, like the stagflationary 1970s and the lost decade of the 2000s. Some people say their 2-year cash wedge should be enough to get through a bear market. A dollar (USD) invested in the S&P500 at the start of 2000 did not return to its original value and stay there until some time in 2010, and a dollar (CAD) did not return to its original value and stay there until some time in 2013. That's a long time to stretch out a 2-year cash wedge. (Source)


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## TomB16 (Jun 8, 2014)

GreatLaker said:


> I have a 5-year GIC ladder where each year's maturing rungs...


May I presume that is 5x GICs maturing annually?

I ask because a few folks prefer 6 month maturity intervals.


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## GreatLaker (Mar 23, 2014)

TomB16 said:


> May I presume that is 5x GICs maturing annually?
> 
> I ask because a few folks prefer 6 month maturity intervals.


Correct. Actually I have two 5-rung ladders (one in RRSP and one in a LIRA), but both mature annually in early Dec. I just prefer annual maturities because I find it easier to track and manage them that way. I even go so far as to ensure that the two GICs that mature each year are from different financial institutions in case one becomes insolvent and has to go through CDIC. I think that's a low probability, and from what I have read the delay should not be very long, but again, belt and suspenders approach.


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## james4beach (Nov 15, 2012)

GreatLaker said:


> On the surface it seems like overkill, but I have studied market history enough to understand how bad things can really get, like the stagflationary 1970s and the lost decade of the 2000s. Some people say their 2-year cash wedge should be enough to get through a bear market. A dollar (USD) invested in the S&P500 at the start of 2000 did not return to its original value and stay there until some time in 2010, and a dollar (CAD) did not return to its original value and stay there until some time in 2013. That's a long time to stretch out a 2-year cash wedge


A very good point. Stocks can really take a long time to regain value in a severe bear market. We haven't experienced that in a long time, but historically it has happened.

In recent years it's been easy to say "just put it all in stocks, with a couple years of cash on the side". But we've had very generous markets these last few years.


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## Gallop (Jan 26, 2021)

+1 for thread of the year (for me)


Thal81 said:


> I just can't lock away any money, it just doesn't register with my brain.


Same boat and exactly what I’m wrestling with. For me, spouse comfort with cash is more important than the math. Pre-retirement $20k was stated comfort zone, in reality she only relaxed after $50k was observable in her bank app. So approaching early retirement I have the same unease with large cash reserves and wedges but know that there’s a psychological minimum regardless. My best guess to date is that the more you have the more comfortable you’d be with thin margins. And “the more you have” probably means the larger your buffer, whatever that means to you. Worst case, in a bad sequence of returns stretch you sell some stocks/etfs. If that makes you shudder, go for cash. If you’re “well that sucks, but hey, live and learn” then I’d go cash thin. Personal finance is more personal than finance someone wiser than me once said….


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## prisoner24601 (May 27, 2018)

GreatLaker said:


> I don't hold much cash, relatively. Around yearend I withdraw enough cash to fund a year's spending, plus I hold about another 6 months spending in a HISA. So somewhere between 6 months and 18 months in HISA.


Similar approach here. I hold a large cash float in HISA equal to about 5 years expenses net of expected dividend and interest cash inflows. I will probably reduce the amount once I get past 65 and turn on CPP/OAS but for now I am in the danger zone with sequence risk so it seems sensible.


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## Thal81 (Sep 5, 2017)

cainvest said:


> I don't see any drawback to having a RIFF account. For those early in retirement only transfer the money you plan to withdraw that year from your RRSP into the RIFF. No fees doing this from what I've read.


I've been looking into RIFFs and found one benefit that would make me consider using them, and it's that withdrawals count as pensionable income, so you can claim the pension tax credit on the first $2000 withdrawn.

Funnily enough, all the online tables and calculators for minimum withdrawals start at 50 or 55, so I had to dig pretty deep in the government website to find out how it's calculated for a guy in his 40s...


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## TomB16 (Jun 8, 2014)

GreatLaker said:


> A bond ETF is just a bond ladder, with many rungs, and someone else manages it for the outrageous fee of 0.09%.


When I had a bond ladder, it returned 100% of my capital. In fact, preservation of capital was the reason I built the bond ladder.

XSB has lost 6.03% in the last year.

XSB has lost 6.86% in the last 5 years, for a CAGR of -1.8449244% (Note: hyphen is a negative sign indicating loss).

XSB yields 2.13% so with the capital loss, it lost roughly 4% in the last year while it roughly broke even in the last 5. Cash out performed XSB in the last year and was about the same over the last 5.

This is what we call a market investment.









How many threads are there on CMF that explain to people frustrated with bond ETF performance that it's OK for it to be down when you need it and that it will recover? If the primary purpose of holding fixed income is to preserve capital for SoR insurance, bond ETFs do not accomplish this.


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## wayward__son (Nov 20, 2017)

Thal81 said:


> Anyways, this new perspective make me wonder why I would keep much cash at all, beyond the next few months of expenses.


If I am reading correctly this means you would have to liquidate investments once every few months to fund retirement regardless of price? Everyone's different I guess but this would stress me to high heaven. Doesn't this carry a risk of severe impairment if we end up in a multiyear bear? I keep a few years in cash and that doesn't always feel like enough, but I run a bit of barbell with some fairly volatile stuff on the other end.


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## londoncalling (Sep 17, 2011)

Thal81 said:


> I've been looking into RIFFs and found one benefit that would make me consider using them, and it's that withdrawals count as pensionable income, so you can claim the pension tax credit on the first $2000 withdrawn.
> 
> Funnily enough, all the online tables and calculators for minimum withdrawals start at 50 or 55, so I had to dig pretty deep in the government website to find out how it's calculated for a guy in his 40s...


I know what you mean. I have been trying to figure out if I can semi-retire before 50 as well. Forecasting with that long a retirement requires either a larger nest egg and/or a greater safety margin in estimation. I got a few years to figure it out but without the tables it becomes that much harder. As that day gets closer, I will revisit my spreadsheets and run the numbers on a few online calculators before finding a fee based advisor and perhaps a tax specialist to go through the numbers. In all honesty, I never considered RRIF conversion before 55 at the earliest. Based on size of RRSP it may or may not be a good idea.


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## TomB16 (Jun 8, 2014)

wayward__son said:


> If I am reading correctly this means you would have to liquidate investments once every few months to fund retirement regardless of price?


It would stress me as well but it is a viable strategy that usually outperforms other alternatives.

If I was doing it, I would sell down in small increments when the market is significantly down and sell in 6 month or 1 year increments when the market is stronger. I'd probably base it on the WBI, if I was an index investor.


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## GreatLaker (Mar 23, 2014)

Thal81 said:


> I've been looking into RIFFs and found one benefit that would make me consider using them, and it's that withdrawals count as pensionable income, so you can claim the pension tax credit on the first $2000 withdrawn.
> 
> Funnily enough, all the online tables and calculators for minimum withdrawals start at 50 or 55, so I had to dig pretty deep in the government website to find out how it's calculated for a guy in his 40s...


Isn't the rule for RRIF withdrawals 1 / (90-age)? For a 65 year old that's 1/25 or 4%. Then at age 71 you follow the table defined by CRA. RRIF account statements should show the mandatory minimum withdrawal for the year.


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## cainvest (May 1, 2013)

Thal81 said:


> I've been looking into RIFFs and found one benefit that would make me consider using them, and it's that withdrawals count as pensionable income, so you can claim the pension tax credit on the first $2000 withdrawn.


That credit is only if you're 65 and older right?



Thal81 said:


> Funnily enough, all the online tables and calculators for minimum withdrawals start at 50 or 55, so I had to dig pretty deep in the government website to find out how it's calculated for a guy in his 40s...


Do minimum withdrawals matter if you are just moving small amounts through a RIFF account each year?


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## Gator13 (Jan 5, 2020)

Does anyone have data on the historical 5 year GIC rate?


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## TomB16 (Jun 8, 2014)

When I was 45, TD told me I couldn't get a RRIF until 55. Others have indicated there is no age limit for RRIFs.

Is that a TD thing or perhaps I just connected with people who didn't know what they were doing?


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## TomB16 (Jun 8, 2014)

Gator13 said:


> Does anyone have data on the historical 5 year GIC rate?


What does that mean?

You want the 5 year history of one particular geometry from one GIC vendor or you want the history of the highest rate from any vendor/maturity?


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## cainvest (May 1, 2013)

TomB16 said:


> When I was 45, TD told me I couldn't get a RRIF until 55. Others have indicated there is no age limit for RRIFs.
> 
> Is that a TD thing or perhaps I just connected with people who didn't know what they were doing?


Likely just the person you talked to was misinformed.


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## Gator13 (Jan 5, 2020)

TomB16 said:


> What does that mean?
> 
> You want the 5 year history of one particular geometry from one GIC vendor or you want the history of the highest rate from any vendor/maturity?


Looking for the ball park historical rate for a 5 year locked in GIC. This chart stops at 2009.


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## afulldeck (Mar 28, 2012)

cainvest said:


> That credit is only if you're 65 and older right?


I've always believed that is the case. If you RIF early doesn't help. 

Also, why are you RIF before 71? Why not just withdraw from the RRSP?


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## cainvest (May 1, 2013)

afulldeck said:


> Also, why are you RIF before 71? Why not just withdraw from the RRSP?


As mentioned earlier, some (most?) charge a fee to withdraw from RRSP while RIFF is free.


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## TomB16 (Jun 8, 2014)

afulldeck said:


> Also, why are you RIF before 71? Why not just withdraw from the RRSP?


When I first started kicking the tires on retirement, in 2009, TD was charging $130 for an RRSP withdrawal.

It's nice to see it's down to an almost reasonable level at $25.


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## cainvest (May 1, 2013)

TomB16 said:


> It's nice to see it's down to an almost reasonable level at $25.


Still $25 I'd rather have in my pocket than in theirs.


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## TomB16 (Jun 8, 2014)

Gator13 said:


> Looking for the ball park historical rate for a 5 year locked in GIC.


That is a very nice chart. I would like to see more rows in this, as well.

I notice, the S&P/TSX returned 35.5% in 1983, my first year of owning stocks. Oh boy, I was really smart that year. I thought I was the top turd in the corner of the dog park. lol!


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## afulldeck (Mar 28, 2012)

TomB16 said:


> When I first started kicking the tires on retirement, in 2009, TD was charging $130 for an RRSP withdrawal.
> 
> It's nice to see it's down to an almost reasonable level at $25.


Didn't know that, however, in this day and age $25 is ridiculous it should be free or at most 0.25$


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## Thal81 (Sep 5, 2017)

Concerning GICs in retirement, do people use simple or compound interest for GICs held in taxable accounts? Since I plan to use taxable interest/dividends first to reduce the tax bill in retirement, it seems it would make more sense to buy simple interest GICs and use the interest for my cash flows.


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## AltaRed (Jun 8, 2009)

It is a matter of what works best for cash flow management and ISTM annual compound GICs (interest paid out annually) would work best for those in portfolio withdrawal. As an example, a good portion of my mother's cash flow came from GIC interest (back when GIC interest meant something) and all her laddered GICs paid out the interest annually.


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## Gator13 (Jan 5, 2020)

Thal81 said:


> Concerning GICs in retirement, do people use simple or compound interest for GICs held in taxable accounts? Since I plan to use taxable interest/dividends first to reduce the tax bill in retirement, it seems it would make more sense to buy simple interest GICs and use the interest for my cash flows.


I plan to use GIC's and HISA's in retirement.


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## TomB16 (Jun 8, 2014)

afulldeck said:


> Didn't know that, however, in this day and age $25 is ridiculous it should be free or at most 0.25$


The problem with "free" is that it isn't. "free" means invisible.

Brokerages which do not charge commission get their money by selling their trading queue to front runners. People prefer it because they don't realize money is being taken from them.

I am not super upset about it because I do extreme little buying/selling. It is a trader tax which, oddly, traders flock to because of the free commissions. Instead of having to out perform the commission spread, they have to out perform the front runner spread.

US brokerages have pretty much universally abandon the commission model and have embraced the order selling model. Which do you suppose is more profitable for them?


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## gardner (Feb 13, 2014)

This is an older comment, but I just saw it today...



TomB16 said:


> When I first started kicking the tires on retirement, in 2009, TD was charging $130 for an RRSP withdrawal.
> It's nice to see it's down to an almost reasonable level at $25.


You can have a RRIF at TD regardless of your age and transfers from RRSP to RRIF and RRIF payments are free. I've been doing this for three years now and it works fine. I send units of TDB8150 in kind to my RRIF, sell to cash then call in a RRIF payment to my cash account.

It's slightly awkward because the online U/I for RRIF payments doesn't work -- when I asked they said it was because it knows I am not 65 or 72 or however it is designed to handle. But they will do it if I call them, no problem. No fee.


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## TomB16 (Jun 8, 2014)

Thanks, Gardner.

A few people at TD told me I could not have a rrif until I am 55 Yeats of age. Even today, I do not have a rif but I haven't pushed all that hard.

It wouldn't be the first time people at td without a clue tried to block me from doing something.


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## gardner (Feb 13, 2014)

TomB16 said:


> until I am 55


I was over 55 when I set mine up. I don't recall my age being an issue at all, but I guess I would not have run into it, if it were. Hmmm.


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## afulldeck (Mar 28, 2012)

gardner said:


> This is an older comment, but I just saw it today...
> 
> 
> 
> ...


True, but I still don't see why it costs anything to do a withdraw from an RRSP. Everything should on on-line and the cost approaching zero. This should be a free service.


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## milhouse (Nov 16, 2016)

I don't understand why one couldn't have a RRIF pre-55yo when there are minimum RRIF withdrawal rates for pre-55yo's. 

@gardner : I've asked versions of this question in this retirement subforum a few times but since it seems like you are actually doing it, I was hoping you can confirm my understanding of how the ongoing/annual RRSP transfer to a RRIF works in practice:
My self directed RRSP is with TDDI. I don't have a RRIF set up yet. 
In year 0, I would seed my initial RRIF set up with an in kind transfer (let's say it's an all-in-one ETF like VGRO) from my RRSP. 
In year 1, I would some sell units of VGRO in my RRIF and then replenish the same RRIF account with another in kind transfer of some units of VGRO from my RRSP?
In years 2 onwards, it's rinse and repeat? Is it as simple as this?


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## Gator13 (Jan 5, 2020)

^ Why not withdraw directly from your RRSP? Does your brokerage company charge you fees for withdrawals from your RRSP?


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## Ponderling (Mar 1, 2013)

As I understand it and we are experiencing, RRIF is paid out without income tax deducted. 

We went semi annual with a small work LIRA and morphed it to a RRIF with minimal payout when wife was 55. The funds are drawn from my wife's rrif account and the same amount turns up in the bank chequing account.We make sure enough cash from divvys or unit sales are in the RRIF account prior to the transfer so we are in control of the cash generation process.

We have also occasionally made lump sum RRSP withdrawals.
Like to use the money to fund TFSA annually contributions in some years.
These lump sum withdrawals have the brokerage withdrawal fee, with HST applied to the fee deducted, as well as income tax funds deducted. 
BNS Itrade a year or more ago charged $50, and HST was $6.5.
The income tax held we typically recover at the next year tax filing, but it puts a crimp in the lump sum withdrawal to have it held.


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## Retired Peasant (Apr 22, 2013)

milhouse said:


> @gardner : I've asked versions of this question in this retirement subforum a few times but since it seems like you are actually doing it, I was hoping you can confirm my understanding of how the ongoing/annual RRSP transfer to a RRIF works in practice:
> My self directed RRSP is with TDDI. I don't have a RRIF set up yet.
> In year 0, I would seed my initial RRIF set up with an in kind transfer (let's say it's an all-in-one ETF like VGRO) from my RRSP.
> In year 1, I would some sell units of VGRO in my RRIF and then replenish the same RRIF account with another in kind transfer of some units of VGRO from my RRSP?
> In years 2 onwards, it's rinse and repeat? Is it as simple as this?


This is all correct (I'm doing it at TDDI). However, in my case I transferred about 5 years of anticipated withdrawals from RRSP to RRIF. Saves me a trip to a branch to do a transfer each year.


Gator13 said:


> ^ Why not withdraw directly from your RRSP? Does your brokerage company charge you fees for withdrawals from your RRSP?


TDDI (and perhaps others) do.


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## AltaRed (Jun 8, 2009)

AFAIK, every brokerage charges for a RRSP withdrawal. I understand it is technically a de-registration with the associated income tax withheld plus regulatory reporting. Much easier to open a RRIF designed for that purpose, move some funds to it and withdraw from there as discussed above.


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## milhouse (Nov 16, 2016)

Yeah, I think TDDI charges like $25 per partial RRSP withdrawal. I've been trying to determine if it's easy enough to do the RRSP to RRIF transfer process or just pay the $25. As mentioned in another thread IIRC, it's not a lot but it's nicer to keep that $25 in your own pocket. 

I'm going to get dinged the withholding tax initially but my plan is to do the withdrawal closer to the end of the year so there's only about a 4-5 month waiting period to get it back when I file taxes in April. (Yes, I can file earlier but the missus and I normally do taxes together and our slips seem to take forever and I don't want to go through the effort to do an adjustment.)


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## Gator13 (Jan 5, 2020)

fireseeker said:


> In case it applies to you, Investorline waives RRSP deregistration fees if you are a Platinum five-star client ($2M+).


fireseeker pointed this out to me a while back. You could check if TD has something similar.


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## milhouse (Nov 16, 2016)

Gator13 said:


> fireseeker pointed this out to me a while back. You could check if TD has something similar.


Thanks, I'll check. Can't hurt to ask nicely.
Because I've moved nearly all of my investments into my TDDI account, our combined portfolio is apparently is a large enough size where they have assigned us an account prime that we can reach out to instead of calling the generic toll free number. However, apart from that, they haven't mentioned any perks like fee waivers and stuff. It was kind of handy though when I had probs migrating some of the last bits of my investments.


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## gardner (Feb 13, 2014)

milhouse said:


> I don't understand why one couldn't have a RRIF pre-55yo when there are minimum RRIF withdrawal rates for pre-55yo's.
> 
> @gardner : I've asked versions of this question in this retirement subforum a few times but since it seems like you are actually doing it, I was hoping you can confirm my understanding of how the ongoing/annual RRSP transfer to a RRIF works in practice:
> My self directed RRSP is with TDDI. I don't have a RRIF set up yet.
> ...


My goal is to try to burn down, or at least utilize some of the income generated by my RRSP in the years since I retired but do not have any pension income, so that I can take some advantage of my low tax years. Some do and some do not like this strategy, but that is what I am doing.

What I do is take the free cash in my RRSP -- mostly dividends and some interest, and buy units of TDB8150. Some of the free cash I use to re-balance the RRSP and some I withdraw. To do a withdrawal, I go into a branch and fill out a form to do a partial conversion to RRIF. In the form you can say X units of Y fund and I say $20K of TDB8150. Since COVID there's a guy who can do it on the phone/email, but I started out with branch based transactions. I do chunks of $20k so far, but will likely up that next year.

It takes a few days to a week for the units to appear in my RRIF online. When they do, I sell to cash and let that settle -- another two days.

Then I call TDDI and ask to do a RRIF payment. The tax for $20K is 30% so they send $6k to her majesty and $14k to my cash account where I splash out on CNR and RY and such. Eventually I get most of the $6k back when I file my taxes. There is no way to escape the withholding amount for me, because there is no minimum withdrawal because I am not old enough for that to apply.

Once that's done, the RRIF sits empty for 11 months. It had $13 of interest paid out by the TDB8150 during the few days it was in there last year. I imagine you could transfer cash to your RRIF, but I use TDB8150 so at least you get your interest for the time it takes to do the transfer.

In your case, since you mostly hold ETF units, you would probably transfer some set amount of units to your RRIF, sell to cash and withdraw. I don't see any reason to stretch things out over any number of years -- allowing a fortnight for the paperwork to run its course is about all you'd need to do a withdrawal.

To I set up my RRIF, I filled out the paperwork in the branch and they were helpful and understood what I was up to. It took several weeks -- maybe a month -- for that to run its course though. If you're in a hurry, better get started. And it doesn't hurt to have the account and not really need it. For some reason TDDI has set me up a US$ TFSA and I've never touched it. Doesn't seem to cause anyone any problems for it to just sit there.


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## gardner (Feb 13, 2014)

milhouse said:


> our combined portfolio is apparently is a large enough size where they have assigned us an account prime that we can reach out to instead of calling the generic toll free number.


That's the lady I reach out to to organize the RRSP->RRIF partial conversion. She does it by email and the electronic signature setup they use. The special hotline is nice too -- you get a person almost right away.


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## like_to_retire (Oct 9, 2016)

gardner said:


> Then I call TDDI and ask to do a RRIF payment.


I use the new online withdrawal method at TDDI. It allows for any amount and you can set any tax you want. Works great. No phone calls.






ltr


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## gardner (Feb 13, 2014)

like_to_retire said:


> I use the new online withdrawal method at TDDI.


I see the payment tab and can fill it out, but it does not accept transactions for me. I believe it is an age-related thing because the UI is designed to apply over 65 rules and I am not. I've asked the TDDI reps about it a few times and they don't know why exactly it doesn't work for me, but suggest perhaps age limit. It would be better if the UI spelled out the problem rather than mysteriously not working.


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## Retired Peasant (Apr 22, 2013)

Works for me (not 65).


> because there is no minimum withdrawal because I am not old enough for that to apply.


It's not because of your age that you have no min. withdrawal, it's because your RRIF balance on Jan 1 is zero (or close to it by the sounds of it). The RRIF factor for those < 71 is 1/(90-age).


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