# Retirement Endgame?



## Juggernaut92 (Aug 9, 2020)

Hello All,

I just got into investing around the time the pandemic hit. I have an RRSP and a TFSA and a bunch of different stocks/etfs. What I wanted to know is what are people on planning on doing when they get to their retirement? I keep hearing about people saving up money for it but I am trying to put all the pieces together in terms of what actually happens at that time. Do people start selling off stocks and use that as income? Do they rely on OAS and CPP? Do they just live off of the dividends from their portfolios? I was interested in hearing different peoples plans for it.


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## like_to_retire (Oct 9, 2016)

Some people generally live off a combination of dividends, CPP, and OAS. If you haven't accumulated enough to produce the required dividends to support your expenses, then a portion of your funds need to be sold to make up the difference. If you need to sell too much so that you won't make it to your demise date you have chosen, then you need to reduce expenses.

Some people own a lot of growth stocks and sell a portion of those periodically to make up their cash flow. This can be tricky during market downturns, but then they would resort to selling fixed income during those times. This may require a higher allocation to fixed income than a dividend investor, but then the dividend investor has to concern themselves with dividend cuts.

Some lucky people also have a work pension they can add to the mix.

ltr


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## milhouse (Nov 16, 2016)

There are so many factors in play like goals from a retirement age and spending perspective, how things play out for you in life, investment preferences, what a spouse may add to the mix, etc. I had a very rough sketch when I first started but refined it as I went along. I max out on all my registered accounts and free matching at work first, investing nearly all of it in index etf's and any supplemental savings goes into my non-registered account focused mainly on big name Canadian dividend growers. 

I'm currently on track to retire in a year and a half at age 50. To fund my retirement spend, I'm planning on using the dividends from my non-registered account as a base which are tax efficient and will be enough to cover our current spend profile in our working years. Historically, the growth of these dividends have been able to outpace inflation (knock on wood). I'm planning to start withdrawing from my RRSP at the same time using the variable percentage withdrawal method but modified with guardrails to try to keep the withdrawal amount somewhat consistent. When I reach 55, I'm going to start withdrawing from my DC pension the maximum amount. Both my RRSP and DC pension withdrawals are meant to fund discretionary spending like extra travel so I think I can a flexible with the withdrawals during down market times. I'm going to initially use the yield from my TFSA as a small buffer as needed and will likely pass to the missus or be used as a legacy. I'll probably hold off on collecting on CPP and OAS until 70; CPP because I don't have a DB pension and my family has a number of examples of relatives living to their 90's and even past 100, OAS in order to have more clawback territory. Depending on how much I have left in my RRSP and DC pension and what the rates are at the time, I'm considering converting my DC to an annuity around 75. 
Hope that provides some ideas but it's really situation dependent. As they say, personal finance is personal.


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## james4beach (Nov 15, 2012)

Juggernaut92 said:


> I just got into investing around the time the pandemic hit. I have an RRSP and a TFSA and a bunch of different stocks/etfs. What I wanted to know is what are people on planning on doing when they get to their retirement? I keep hearing about people saving up money for it but I am trying to put all the pieces together in terms of what actually happens at that time. Do people start selling off stocks and use that as income? Do they rely on OAS and CPP? Do they just live off of the dividends from their portfolios? I was interested in hearing different peoples plans for it.


I've thought a lot about this. I haven't retired yet but I have some plans about what I would do when I'm not working. I don't have a pension.

Short answer is: it's dividends + bond interest + selling off assets.

I use an asset allocation approach. So looking across my RRSP, TFSA, non-reg, I have target weights for my investments. Stocks should all add up to X% of the total, bonds and GICs Y%. During my working years (currently), I manage this asset allocation with annual rebalancing. If the stock allocation is low, I will sell some bonds (or let a GIC mature) and buy more stocks. Or if I'm adding new money, it goes where it needs to so that the allocation is maintained.

Retirement, drawing down the capital, uses the same asset allocation approach as a framework. Here's my plan:

One critical question is: how much $ is withdrawn this year? The answer comes from SWR (sustainable withdrawal rate) or variable withdrawal methods like this one. So in a given year, I know the maximum $ amount I can withdraw.

As I receive dividends and bond coupon interest throughout the year, these count as cash withdrawals. You might say these are the automatic withdrawals. But the manual part of it comes during the periodic rebalancing.

At rebalancing time, I do some calculations and figure out how much $ must be liquidated to satisfy the remaining amount. Let's say I'm allowed to withdraw 40k that year, and dividends + interest already paid 15k. That means I must manually withdraw (liquidate) another 25k for my cash needs. This is done at the time I rebalance the portfolio, so I might sell some stocks (if they are above their target weight) or sell bonds (if they are above target weight) as needed.

The critical thing in this is the allowable $ withdrawal amount for the year. The specific form of withdrawals (dividends, interest, liquidation) don't really matter. They are just different mechanisms, and when summed together, they must be less than the allowed $ withdrawal.


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## Juggernaut92 (Aug 9, 2020)

@like_to_retire : I see. That makes sense to use a combination of programs to support yourself. Yes that is what I want to watch out for as well. Some thing like a market downturn during retirement.

@milhouse : Why would you put canadian dividend growers into a non reg account? would it not be better to put it in a TFSA since your dividends wont be taxes? What do you mean when you say it would be tax efficient? Thanks for telling me your game plan. That is quite detailed and helped me understand what retirement may look like for someone.

@james4beach : I see. Thanks for sharing this. It gives me some ideas. I see that the asset allocation becomes quite handy during retirement years. Are you currently taking the dividend from your stocks and interest from bonds and reinvesting them into the same stocks/bonds?


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## like_to_retire (Oct 9, 2016)

Juggernaut92 said:


> Why would you put canadian dividend growers into a non reg account?


Canadian dividends are tax advantaged in a non-registered account as they enjoy the dividend tax credit. Interest income which is fully taxed is best placed in registered accounts.

ltr


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## milhouse (Nov 16, 2016)

Generally speaking, dividends received from Canadian companies get federal and provincial dividend tax credits. One can effectively receive about $50k a year in dividends with zero taxes owing. The exact number varies by province due to varying provincial tax credits. On the flip side, there's a gross up of 38% that applied to your dividend total that initially bloats your taxable income number. This will impact means tested benefits calculations that are based on taxable income like OAS clawback.
I'm not 100% set on my strategy with my TFSA yet. But because I feel I'm too heavy with Canadian content, I'm currently using my TFSA to hold more international content than for more dividend yield.

There's no one simple solution. Strategies for funding your spend in retirement also differs from accumulation strategy. Different strategies offer different ways to address various retirement risks like market/investment risk, longevity risk, inflation risk, spending shock risks, etc and have different pro's, con's, risks, and benefits.


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## AltaRed (Jun 8, 2009)

Juggernaut92 said:


> Hello All,
> 
> I just got into investing around the time the pandemic hit. I have an RRSP and a TFSA and a bunch of different stocks/etfs. What I wanted to know is what are people on planning on doing when they get to their retirement? I keep hearing about people saving up money for it but I am trying to put all the pieces together in terms of what actually happens at that time. Do people start selling off stocks and use that as income? Do they rely on OAS and CPP? Do they just live off of the dividends from their portfolios? I was interested in hearing different peoples plans for it.


Before even considering products, one has to have a retirement plan, meaning establishing how much of a portfolio one needs on the date of retirement before considering how one then draws funds from that portfolio to meet cash flow needs. This is something sources such as Retirement Planning can help focus that effort.

How one draws down one's portfolio in retirement will depend on the size of the retirement portfolio, cash flow needs for one's retirement lifestyle, how much is supported by CPP/OAS/DB Pension, and expected performance of one's portfolio in retirement. There are numerous models for drawdown including classic SWR, modified SWR, Variable Percentage Withdrawal, etc. Once one knows what the annual draw needs to be to fund one's lifestyle and/or how much one can afford to withdraw annually without running out of money too soon, will help determine HOW one actually withdraws from the portfolio.

Perhaps one will be fortunate enough to be able to live off CPP/OAS/DB pension and investment income (dividends, interest) thrown off by the portfolio. Perhaps investment income alone will not be enough and one will also have to draw down some capital, OR decide to try and boost investment income via yield improvement and forego capital appreciation of underlying holdings. With the exception of a lucky small percentage of investors, most retirees will have to draw down their portfolios in some fashion. 

It is really not that important to decide how one makes retirement withdrawals 20 years before retirement, particularly in registered accounts because there are no capital gains tax implications in making wholesale changes in the contents of registered accounts. It is trickier in taxable accounts because of capital gains tax implications but the default answer would be to simply "buy the market" via broad based ETFs including one or more of the asset allocation ETFs like VGRO or VBAL because they will work for any retirement scenario. Those who decide to dig deeper into the weeds and have multiple holdings in their taxable accounts, e.g. stock picking, or boutique ETFs will likely find themselves captive of unrealized cap gains over time due to share price appreciation OR potentially not because they have been trading too much throughout portfolio accumulation chasing performance.

I think the key point leading into retirement is to have a portfolio that is solid from a Total Return (investment income + share price appreciation) with a bias towards investment income....all things being relatively equal. Based on recent historical times, a portfolio that spins off an aggregate investment income yield of 3-4% is probably about right. One is minimizing the need to sell assets if one has a 3-4% yield while at the same time avoiding 'value traps', e.g. high yield junk bonds and high yield stocks which have poor overall ROE/ROC returns (financial metrics) and have few prospects of growth. Every investor needs to find their personal comfort zone (risk/reward balance) and investing style that works best for them. There is NO single right answer for everyone.

Added: It took me many years to find an investing style that worked best for me to achieve the portfolio size I wanted/needed before retiring, and I continued to make a number of adjustments in the early years of retirement. I use VPW methodology as the boundary conditions for my annual portfolio withdrawals and I have found that an overall 3% investment income yield on my portfolio fits my personality (primarily investment income with limited capital sales) for an overall 3-5%* portfolio withdrawal that supplements my small DB pension plus CPP. 

The equity side of my portfolio consists of broad based ETFs (such as VTI) for ex-Canada holdings to keep the global portion of my investing simple, and stock picking dividend stocks for my Canadian holdings. My dividend stocks are chosen mostly for Total Return performance, but with a dividend bias. Accordingly, I hold ATD.B (yield 0.63%) for Total Return, as well as ENB (yield 8%) for dividend growth at the other extreme, and a whole lot in between. I think it is a mistake to get one's blinders on with regard to one specific methodology. Many methodologies work at least some of the time but no one methodology works all the time.

* range is that large because of variable travel expenses, home renos, etc. from year to year.


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## james4beach (Nov 15, 2012)

Juggernaut92 said:


> @james4beach : I see. Thanks for sharing this. It gives me some ideas. I see that the asset allocation becomes quite handy during retirement years. Are you currently taking the dividend from your stocks and interest from bonds and reinvesting them into the same stocks/bonds?


Inside my RRSP and TFSA, yes I have DRIP turned on, so all distributions get reinvested. It's efficient and easy.

Non-registered, I don't use DRIP because it can be a mess when tracking the adjusted cost base. In non-reg, I take the dividends and interest as cash, and then decide what to do with it. Sometimes that means buying more stock, other times bonds, depending on what asset allocation tells me. For example currently I'm a bit overweight bonds and underweight stocks, so if I had excess cash (from dividends) to deploy, I would buy more stocks.


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## Juggernaut92 (Aug 9, 2020)

@milhouse : Did you put the canadian dividend stocks in your non-reg account because the registered accounts were maxed out? I have heard that canadian dividends do get a tax break but wouldnt paying no taxes in a TFSA or RRSP be the best for canadian dividends? Can someone explain it to me as it is a bit confusing.

@AltaRed : I see. I did not think about how much I would need on the date of retirement at all but makes sense. That is a lot of information to digest but it is quite valuable. Thanks for posting that. I will go through it and see what works for me.

@james4beach : That makes sense. You would have to get to the min drip amount first though. I see. Thanks for sharing that.


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## milhouse (Nov 16, 2016)

Yes, I bought investments in my non-registered account because I ran of room in my registered accounts. But the decision to eventually focus on Canadian dividend stocks in my non-registered account was an evolution based on (1) getting better results from the large Canaidan dividend paying stocks I had than both broader Canadian index ETF's and the other types of individual stocks I chose, (2) the size of my non-registered and registered accounts fitting to how I wanted my asset allocation to look like geographically (Canada vs US and International), and (3) the tax benefits of dividends from Canadian stocks.

WRT taxation, 2 things to consider are what the taxation is for different types of income/investment income and when it gets taxed. 
If you go to taxtips.ca, you can pull up the marginal tax rates, for each income bracket for each income source, for each province. Generally, employment income is taxed the highest for all tax brackets, dividends are the lowest until the upper tax brackets at about ~$100k, and capital gains are in the middle until after that threshold when it becomes the lowest. The thresholds vary due to different tax rates by province.

With TFSA's, you're putting after tax dollars into the TFSA, it grows tax free via captial growth and dividends, and you get to pull out the money tax free. .
With RRSP's (and pensions), you're putting pre-taxed dollars into the RRSP, it grows tax free via capital growth and dividends, but when you pull the money out from the RRSP, it is taxed at employment income rates (which is generally the highest tax rate). 
With dividends in a non-registered account, you're using after tax dollars, paying taxes on the dividends annually but at a lower rate. .
With capital gains in a non-registered account, you're using after tax dollars and paying taxes on the investments only when you sell..

I could refocus on Canadian dividend growth stocks in my TFSA but I currently feel both the amount I have in my non-registered account and what it will yield in retirement is enough for how I want to structure things. So, in my TFSA I'm focusing on non-Canada.
With RRSP's, any dividends with get taxed at employment income rates and not get the dividend tax credit when the dollars are pulled out.


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## Eclectic12 (Oct 20, 2010)

Juggernaut92 said:


> ... What I wanted to know is what are people on planning on doing when they get to their retirement?


Some keep working, some have workplace pensions to go with CPP & OAS, some have investments.

When each retires or is planning for retirement - they look at their sources of income and go with what they think is best, based on the sources they have.
Or they don't plan at all and live with whatever they have. 

Some have posted here that they retired early as their Canadian dividend paying stocks provide more than enough income to live on. Keep in mind that because of the dividend tax credit that adjusts for taxes the company has already paid, one can be paid up around $50K with no or little taxes owing.

Others with a company pension may use a similar method to make for a reduced company pension from retiring early.

Where an investment portfolio is providing income, the mix of the portfolio may determine that some income is from what's paid and some is from selling assets. Plus there's the mix of which account the income is from. Where one has projected lower income in retirement, an RRSP or spousal RRSP may be the source. It's taxable but may be at a much lower tax rate than when the contribution was made while working.

The TFSA is after tax dollars so there's less to invest/use compared to an RRSP but income or money from selling won't increase taxable income and won't affect OAS payments.


While it's good to have an overview, there may be plans or methods that won't be of use to you.


Cheers


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## Eclectic12 (Oct 20, 2010)

Juggernaut92 said:


> @milhouse : Did you put the canadian dividend stocks in your non-reg account because the registered accounts were maxed out? I have heard that canadian dividends do get a tax break but wouldnt paying no taxes in a TFSA or RRSP be the best for canadian dividends? Can someone explain it to me as it is a bit confusing ...


"No Canadian taxes" only applies to the TFSA.

For the RRSP, the taxes are deferred. There's also no tax credit so when the funds are withdrawn, one is paying the same tax rate as if one earned employment income. Basically, the preferential tax rates for capital gains, dividend income, return of capital etc. all disappear.

Personally, I have Canadian dividend payers in all three accounts as I have never mastered the art of figuring out what's going to do well for what types of income. 
I expect I'll want to transfer any dividend payers from the RRSP into the TFSA, if I don't need the funds but time will tell. I may be biased as I expect to have about a ten year period of lower income before CPP and OAS increase the minimum taxable income.


Cheers


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## james4beach (Nov 15, 2012)

Juggernaut92 said:


> Do they just live off of the dividends from their portfolios? I was interested in hearing different peoples plans for it.


Since you'll hear that many people live off the dividends I just want to point out that these situations also differ a lot by how much total capital we're talking about. If someone has millions invested, then one can indeed just live purely off dividends since they probably spin out enough cash for living expenses.

But it's also very common for people to not have enough capital to purely rely on dividends. In those cases it's perfectly acceptable to sell and liquidate shares over time, because what matters at the end of the day is how much $ you remove from your portfolio (combination of selling shares + dividends + interest) and whether the amount you remove is going to deplete the portfolio over time.

Selling shares is indistinguishable from taking cash in dividend payments, except for tax consequences.

Just pointing this out because dividends always come up in these discussions, and sometimes that gives the wrong idea that dividends are the only way to live off capital. And some people go overboard with it and restructure all their investments to be dividend-focused.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Selling shares is indistinguishable from taking cash in dividend payments, except for tax consequences.


Except that's not true in reality. 

If the market is down 50%, then selling those precious dividend shares will heavily impact your dividend payments. If your shares are dumping 4% cash and the market drops 50%, then each share is now dumping 8% in dividends as long as the company doesn't cut the dividends, which they are loath to do.. Selling them is a terrible idea. It may be indistinguishable to you, but not to the person that needs that money to live.

ltr


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## AltaRed (Jun 8, 2009)

This silly debate goes on and on. In reality, the vast majority of investors withdraw a combination of investment income such as dividends plus asset sales. Heck, the overall portfolio may continue to grow via capital appreciation if it has been a strong year in the markets. That is what 4% SWR, or VPW methodology is about. It is Total Return that matters in all those analyses.

Anyone who lives on investment income alone in retirement could have a residual portfolio at death 30 years hence big enough to fund a new hospital wing.


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## kcowan (Jul 1, 2010)

That is why it is so important to try to build in buffers so that you can reduce spending during times of market contraction. Anyone that relied on the market gains of last year does not have a sustainable plan. I use a long term total return of 6%. That has been revised down from 8% before 2008.


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## like_to_retire (Oct 9, 2016)

kcowan said:


> That is why it is so important to try to build in buffers so that you can reduce spending during times of market contraction.


Exactly, and it drives me crazy when I read the simplistic math nonsense that james4beach espouses regarding dividends. I just hope that no novices take it to heart. When the market is down, NO, selling shares is not indistinguishable from taking cash in dividend payments. That's the time to access your fixed income buffer you have built. When the market recovers, you can revert to dividends.

ltr


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## AltaRed (Jun 8, 2009)

Not only to revert to dividends but to sell equities that have recovered to replenish the fixed income, etc. that was sold in equity bear markets. It is impossible to have this discussion without an admission that selling holdings, whether equities or fixed income, is part of every retirement plan.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Anyone who lives on investment income alone in retirement could have a residual portfolio at death 30 years hence big enough to fund a new hospital wing.


Right. It certainly is conservative and sustainable to only live off the dividends & interest, but you're leaving a huge amount of capital behind.

Most people in retirement will be selling/liquidating some investments along the way. And it's perfectly fine to do that.



like_to_retire said:


> Exactly, and it drives me crazy when I read the simplistic math nonsense that james4beach espouses regarding dividends. I just hope that no novices take it to heart. When the market is down, NO, selling shares is not indistinguishable from taking cash in dividend payments. That's the time to access your fixed income buffer you have built. When the market recovers, you can revert to dividends.


You are wrong. When the market is down, a dividend is just as harmful to the capital as selling shares. Let's say we have a bear market for the next few months. Every single dividend you allow to come out (assuming you don't immediately reinvest) is eroding your capital to the same tune that selling shares would. Each dividend is like a little automatic sale.

Yes it is convenient, yes it's automatic, yes it's nice and routine but no, it's not free money.


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## AltaRed (Jun 8, 2009)

James, you know it is not that black and white. Paying out a dividend simply means that amount of cash (capital) is not available to re-invest in the business and presumably grow earnings if economically deployed. Companies can ride through equity crises in various degrees without damaging their balance sheet much, and if they do, then prudent managements would cut the dividend. 

I think it would be better if both you and LTR make peace on this subject in which you are both dug in.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> I think it would be better if both you and LTR make peace on this subject in which you are both dug in.


I'm sure that by the time james4 retires he will have figured out the reality of dividends.

ltr


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## cainvest (May 1, 2013)

AltaRed said:


> James, you know it is not that black and white. Paying out a dividend simply means that amount of cash (capital) is not available to re-invest in the business and presumably grow earnings if economically deployed. Companies can ride through equity crises in various degrees without damaging their balance sheet much, and if they do, then prudent managements would cut the dividend.


It's been going on for years now ... unlikely that j4b will ever see the difference.


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## AltaRed (Jun 8, 2009)

cainvest said:


> It's been going on for years now ... unlikely that j4b will ever see the difference.


Be fair. James is technically right that every dividend paid out reduces the value of the corporation by that amount, but the corporation's cash flow is like one's chequing account. Earnings (cash flow) come into one's chequing account raising the 'cash on hand' and then cash goes out to, for example, living expenses, taxes, re-investment (one's investment portfolio) and personal allowances to spouse/self (dividend to shareholder). The balance in the account would rise over time if there were no dividends paid (personal allowances) and more would be available for re-investment (additions to one's investment portfolio). Why do folks need to take intractable bookend positions on this subject?


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## cainvest (May 1, 2013)

Yes but j4b often generalizes that dividends are directly equal to selling shares to the share holder. In general, dividend output is based on the balance sheet (in a good company), shares are as well but also have a speculation adjustment based on market setitment.

Do you think there would have been any difference back in mid-March if instead of everyone just collecting their dividends decided to sell off the equivalent dividend $ amount in stock?


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## james4beach (Nov 15, 2012)

The dividend stuff is complicated by nuances of what, exactly, people are comparing. Backing up a step, I'm talking about comparing two options: equities which have higher dividend payouts (A), vs equities which have lower or normal dividend payments (B).

(A) might be a dividend stock-picking portfolio, CDZ or VYM in the US
(B) might be XIC or SPY in the US, benchmarks, which also pay dividends (but not as much)



cainvest said:


> Do you think there would have been any difference back in mid-March if instead of everyone just collecting their dividends decided to sell off the equivalent dividend $ amount in stock?


No difference.

The comparison I'm talking about is: what if instead of purely collecting dividends (A), people held (B), taking its dividends, and sold off shares to generate same amount of cashflow as (A).

People would have been in the same position with (B), assuming they sold on a predetermined, evenly spaced schedule (systematic selling). Actually strictly speaking they would have been _better_ off selling the shares because it turns out dividend stocks underperformed year to date, but that is kind of beside the point.

This fact that (A) and (B) are equivalent is why Vanguard created this new ETF and why it's just as good as some kind of dividend/income portfolio. The two work out to the same thing, no matter what the share price is, so this equivalence remains whether markets are up or down.


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## AltaRed (Jun 8, 2009)

cainvest said:


> Do you think there would have been any difference back in mid-March if instead of everyone just collecting their dividends decided to sell off the equivalent dividend $ amount in stock?


No competent investor would have needed to do that right? Because everyone also has some fixed income such as HISAs to tap into to bridge gaps and/or one defers selling of equities until the market recovered in July/August. See my point? The way folks denigrate James is to take an implausible position on the other side of the argument. Anyone foolish enough to NOT have a cash* reserve or a short term bond ETF like XSB or even better, a short term gov't bond ETF, to get over cracks and bumps deserves a trip out to the woodshed.

* Cash reserves in retirement are not only for bumps in the investment cycle. They are also for unforeseen expenses like a new car or a new roof or a trip to Asia. I hesitate to call it an emergency fund because they are mostly associated with loss of earnings from a job, etc. rather than to bridge bumps in cash needs.


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## AltaRed (Jun 8, 2009)

james4beach said:


> The dividend stuff is complicated by nuances of what, exactly, people are comparing. Backing up a step, I'm talking about comparing two options: equities which have higher dividend payouts (A), vs equities which have lower or normal dividend payments (B).
> 
> (A) might be a dividend stock-picking portfolio, CDZ or VYM in the US
> (B) might be XIC or SPY in the US, benchmarks, which also pay dividends (but not as much)
> ...


Sorry, James. You are doing yourself a disservice by sticking to your guns. No idiot would sell shares in mid-March that had dropped 30-50% from their Feb peak....assuming the Feb peak represented fair valuations. Even if slightly over-valued in Feb, they clearly were under-valued on Mar 23rd. One does not sell unless one has too when the asset is under disproportionate stress. There is no way Vanguard would have sold any equities in March to fund the VRIF March distribution. They would have leveraged something else that was not nearly as stressed.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Sorry, James. You are doing yourself a disservice by sticking to your guns. No idiot would sell shares in mid-March that had dropped 30-50% from their Feb peak....assuming the Feb peak represented fair valuations. Even if slightly over-valued in Feb, they clearly were under-valued on Mar 23rd. One does not sell unless one has too when the asset is under disproportionate stress. There is no way Vanguard would have sold any equities in March to fund the VRIF March distribution. They would have leveraged something else.


Well in the case of the diversified portfolio they would have likely sold bonds, which were comparatively higher, an option they have thanks to asset allocation. But that's muddying the comparison because of the additional asset class. @cainvest did not ask about bonds.

I was making a point about equities and how dividends work by answering @cainvest 's question. If you have two equity portfolios (A) and (B), the outcome would be the same, provided you are doing scheduled, robotic, systematic withdrawal operations. Looking at valuations doesn't even factor into it.

The mechanics of dividends will give the same outcome between (A) and (B) whether markets are up or down. This is not what dividend investors believe, but it's the truth. You can refer to explanations from Ben Felix and many others if you don't want to take my word for it.


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## Juggernaut92 (Aug 9, 2020)

@milhouse : I am this tax bracket i believe:

​29.65%​14.83%​6.39%​20.28%​

I pulled this from TaxTips.ca - Ontario Personal Income Tax Rates So I would pay 6.39% tax on canadian dividends? also capital gains tax would be applied to something like me holding a stock at 100$ and now it increases its value to $200 and I sold it. At that point the capital gain tax would be applied at a rate of 14.83%?

I see the advantage now of eligible dividends in a non reg account. It would be advantageous for people making under 48k a year as you pay nothing on tax and you actually get some money back if I understand the chart correctly?

Thanks for that breakdown. That is quite helpful.

@Eclectic12 : Thanks for giving me an overview. It was helpful. I think that makes sense now.

@james4beach : I see. Yes that makes sense that huge portfolios are probably the ones that can support people only through dividends.

@kcowan : Yes for sure. I am trying to get some stuff figured out now while I am young and not have to worry too much about it going forward.

I think I understand what you guys are debating but would rather not get involved


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## Eclectic12 (Oct 20, 2010)

Re: tax rates
Pretty much ... though keep in mind the chart is telling you what the next dollar earned will be for the combined Federal and Ontario marginal tax rates, with the complicating factors stripped out so that the rates can be compared.

Some of the factors that will vary things include:
a) the Ontario Health Premium is not included
b) where some/all of the base income is from employment, the tax credits for EI premiums and CPP contributions are ignored
c) the negative eligible dividend rates assumed one can use the non-refundable tax credit.


Re: thanks for the overview
I'm all for being aware of the possibilities but have seen people become overly focused on what is not in the mix for them and pay too little attention to what is.


Cheers


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## cainvest (May 1, 2013)

AltaRed said:


> No competent investor would have needed to do that right?


Of course not, it was just an example to show j4b's position.



AltaRed said:


> Sorry, James. You are doing yourself a disservice by sticking to your guns. No idiot would sell shares in mid-March that had dropped 30-50% from their Feb peak....assuming the Feb peak represented fair valuations.


Yup, j4b is not likely going to see the other side of it.

In any case, wrong thread for this and we're beating a dead horse ... again.


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## Longtimeago (Aug 8, 2018)

All the same old same old going round and round and never any acknowledgement that not everyone approaches retirement from the same perspective.

The dictionary definition of retirement is, "_ the act of leaving your job and stopping working, usually because you are old" _The word to pay attention to in that definition is WORKING. That word refers only to your own actual physical use of time. There is nothing in the definition that says anything about how you will earn your income being limited to certain methods.

Take for example and ONLY as an example, so don't go off track trying to argue why it wouldn't work for you etc., a guy who has made his living flipping houses. He buys low, renovates, sells at a profit. That's how he makes his income for years and does well at it. He decides to 'retire'. All that means is that he will no longer spend his time doing it, it does not mean he has to stop making his income from it !

So he has a 35 year old guy who has been working with him as an employee for 10 years. This guy has the skills to carry on but not the capital. So our 'retiree' makes him an offer. He will finance flips and the younger guy will do ALL the work from start to finish of finding the properties through selling them. It's a partnership with the retiree being a silent partner. They agree on a split of the profits and they are in business.

Now is our 'retiree' retired or not? Is he earning his income in retirement from pensions, bonds, stocks, drawing down capital? Does he need a nest egg of several million? The answer is he IS retired but his MONEY is not retired. His capital is still WORKING for him just as it did before and there is nothing to stop him earning his living this way till the day he dies and unlike SWR proponents, he doesn't have to try and GUESS when that will be and risk running out of income before he dies.

Retirement is not an ENDING, it is simply a CONTINUATION with ONE different criteria, you no longer spend your time actually doing work yourself. Yet most people see it as an ending as the OP has even in the title of this thread, 'endgame'. 

There are many ways to fund 'retirement'. Most people follow the 'conventional' paths but not all and I find it very annoying when myopic posters make statements like, "_ It is impossible to have this discussion without an admission that selling holdings, whether equities or fixed income, is part of every retirement plan." _Poppycock.


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## Mukhang pera (Feb 26, 2016)

Interesting post there LTA, but don't lose sight of the fact that the OP presupposed a retirement with a "portfolio" as part of the mix. I have an idea that more than a few Canadians enter "retirement" (however defined) with no "portfolio" whatsoever. Inconceivable for most here.

In the initial post, the OP said, in part:



Juggernaut92 said:


> Do people start selling off stocks and use that as income? Do they rely on OAS and CPP? Do they just live off of the dividends from their portfolios? I was interested in hearing different peoples plans for it.


So, while entertaining, your anecdote about the retired house flipper is not really apropos. The OP asks what do those with portfolios do or envision doing.

What seems to have set you off was the following:



AltaRed said:


> It is impossible to have this discussion without an admission that selling holdings, whether equities or fixed income, is part of every retirement plan.


Well sure, perhaps a bit dogmatic in that one can envision, as did one poster upthread, a portfolio worth "millions" and maybe its intransigent owner would never sell a single holding in decades of retirement. But, speaking in terms of common experience, I suspect AltaRed is close to the mark. I would guess the vast majority of those for whom a portfolio of stocks and bonds make some sales along the way in retirement. His comment was rather innocuous and not worth getting one's knickers in a twist. If you allow that to happen, you can find things to get your blood pressure up on a daily basis, here on CMF and elsewhere. There's no end of generalities offered and I think most here can take them with a grain of salt as their own experience dictates.

One of my favourites here is the oft-repeated advice, admonishment, or whatever, along the lines of "do not enter retirement if you have a mortgage that has not been paid off". Overall, not bad advice. But of universal application? Poppycock! 

These days it's possible to get mortgage money at around 2% p.a. interest. Is there anyone here on CMF who would admit to being incapable of generating a greater than 2% return on capital? So, if you owed the bank $500,000 at 2%, repayable in 5 years, and you are starting retirement, what would you do? Heed the CMF advice and liquidate an investment of $500,000 paying 10% p.a. in order to follow the dictates of CMF? Me, I think I would choose the mortgage, even though that goes against the advice almost universally given here. But, if I did that, I would do so quietly and not come here to pick a fight with all those who would call me a fool for having a mortgage in retirement.


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## kcowan (Jul 1, 2010)

The other issue with the LTA example is that I would argue the flipper is getting paid for his expertise in flipping properties, in addition to the money. So his expert consulting is being rewarded with excess capital returns on his money. From a tax perspective, this is not earned income. But do any of us believe that he is not being financially rewarded for his expertise?


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## AltaRed (Jun 8, 2009)

Mukhang pera said:


> These days it's possible to get mortgage money at around 2% p.a. interest. Is there anyone here on CMF who would admit to being incapable of generating a greater than 2% return on capital? So, if you owed the bank $500,000 at 2%, repayable in 5 years, and you are starting retirement, what would you do? Heed the CMF advice and liquidate an investment of $500,000 paying 10% p.a. in order to follow the dictates of CMF? Me, I think I would choose the mortgage, even though that goes against the advice almost universally given here. But, if I did that, I would do so quietly and not come here to pick a fight with all those who would call me a fool for having a mortgage in retirement.


I don't disagree if the mathematics are appropriately risked with taxes taken into account. The problem for most is that if they can get a 5 year term @ 1.84% today (certainly doable I am told), that is a burden of perhaps 3% BT on a 100% risk basis. The challenge going forward is whether investors can assure themselves of a 100% risked BT tax return of more than 3% on their investments. I say more than 3% because their tax rate is not only based on their investment income but on the combination of investment income, CPP, OAS, DB pension or whatever other income they may have.

Current thinking by the likes of Justin Bender et al is that a balanced 60/40 portfolio may be hard pressed to exceed ~4% CAGR on a forward basis. Perhaps CMFers can do 5-6% CAGR over the next 10 years. In any event, the math is closer than one thinks and ultimately when interest rates do rise, the math may disappear entirely when mortgage rates go back to 3+%. If I was carrying a mortgage balance into retirement, it wouldn't be a big balance, not more than I could pay off lump sum should markets conspire against me.


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