Real Life Investment Strategies #5: Retirement Decumulation Strategies

Steps to Retire the Way you Want: Set Your Retirement Goals, Put your Money in the Right Places, and Optimize your Withdrawals

Graphic by Steve Lowrie: Canvas Custom Creation

By Steve Lowrie, CFA

Special to Financial Independence Hub

Most of us feel young well into our 60s (or even later) and retirement seems like a faraway concern for the distant future. However, thinking about your retirement early allows you to comfortably enjoy your later years no matter what your priorities are – leaving a legacy for your loved ones, travelling, spending time on hobbies close to home or any combination. Putting together a retirement income plan early gives you the best path to safeguard your financial freedom post-retirement.

Retirement income planning doesn’t mean constant worrying and going without today. It just means taking stock of where you are financially, where you want to be in the future, and setting up a plan to get there. That retirement plan could include setting up the right investment strategies now to allow you the flexibility you’ll need in the future to generate cashflow from the right places and pay the least amount of tax. It also could mean contributing regularly and consistently now so you don’t have to make up for lost ground in the future.

Let’s get into what retirement investment vehicles and strategies you have, how to think about your retirement priorities and goals, and how you can plan a decumulation strategy for the retirement you want and deserve.

Your Retirement Vehicle Options

When thinking about retirement vehicle options, I like to visualize pots or buckets of money; each of those pots represent a savings vehicle from which you can withdraw retirement cash flow. Whether it’s pots or jars or briefcases filled with cash that you imagine, here are the labels you can put on them:

It’s crucial to consider all of the different retirement “pots” you currently have or need set up. For couples, it’s also important to remember these options apply to both spouses which can be extremely advantageous for your retirement withdrawal plan.

Your Retirement Priorities & Goals

Once you’ve explored your retirement savings vehicle options, you’ll want to determine your priorities and define your goals.

It’s a bit of a balancing act where you might need to make some decisions to prioritize your goals. Do you:

  • Maximize your retirement income and fun (lifestyle needs, travel, etc.) OR
  • Leave a financial legacy for your family and loved ones OR
  • Focus on charitable donations

To help you prioritize your goals, we’ve got some great blogs on this topic to get you thinking:

Remember, it doesn’t necessarily need to be one goal vs. the other. However, you may need to consider how you can achieve all your goals, perhaps by weighting their importance (my retirement fun: 60, legacy for the kids: 30, charity: 10). Or you could consider how to distribute your specific investment “pots”, for example, you may choose to spend all financial assets and leave the kids the real estate.

A few more tips to help with your retirement goal prioritization:

  • Keep your retirement goals realistic – you’ll want to ensure you have the ability to reach your goals with highest probability.
  • Balance your spending, savings, and withdrawals to align with goals.
  • Review the location of your savings in the necessary “pots” to ensure you can meet your goals optimally.
  • Focus on minimizing tax – determine the best strategy for your priorities today and tomorrow. You can pay tax now or later (estate timing) or your plan can be to smooth out your tax outlay over time. This is a key consideration when allocating your savings into your investment vehicles.
  • Timing – as the old adage goes, timing is everything and I don’t mean market timing. From an investment perspective, the best approach is systematic and consistent contributions and properly planned withdrawals.
  • Be flexible – the longer you have between now and retirement, the more that things can change, including your goals and financial circumstances.

Retirement Decumulation Strategies in Action

Let’s look at how people just like you can implement these retirement decumulation strategies to reach their retirement goals.

The Accumulators: Suzie and Trevor Hall (When We First Met Them)

Financial Accumulators Suzie and Trevor Hall
  • In their late 40s
  • Still deep in their accumulation years
  • Two teenage children
  • Own a home, which is almost fully paid off
  • Have been good about living within their means and diligently saving
  • Hope to retire within 15–20 years
  • Want to fully fund their children’s education
  • Plan to complete home renovations before they retire

During their accumulation years, Suzie and Trevor followed advice from their independent financial advisor:

  • Start with planning, not investing.
  • Establish a spending plan.
  • Invest systematically.
  • Do a lifeboat drill.
  • Remember that it’s priced in.
  • Established an appropriate emergency fund and lifestyle reserve. Continue Reading…

Your Free Playbook to Retirement Income Planning

By Mark Seed, myownadvisor

Special to Financial Independence Hub

There’s a lot to think about when it comes to achieving your retirement goals.

I know. 🙂

I think about it a lot. I write about it a lot.

Better still, I’m planning for our retirement income needs just around the corner.

As we all know by now, personal finance is forever personal.

You need to develop a strategy and retirement income plan that works for you. Nobody else will do.

Read on to learn about the key steps I’m taking and what key steps might apply to you as well. I hope you enjoy this free playbook to retirement income planning.

No course fee required. 🙂

Your Free Playbook to Retirement Income Planning

“Drawing down one’s savings in retirement is something very few retirees do well, even with the help of professional advisors.” – Fred Vettese, Retirement Income for Life.

A general retirement preparation rule suggests that retirement income should be about 70%-80% of your annual earnings.

Well, rules are made to be broken.

In some cases, these expert rules of thumb won’t apply to you at all!

Forecasting your future financial needs can be complicated – a puzzle that needs to be deconstructed and put back together.

That said, I believe there are two-major steps involved in retirement income planning and then a third for good measure:

Step 1: What are your spending goals?

Step 2: What are your investment savings and income sources to meet those needs?

Beyond that, you’ll want to consider a third step in my opinion:

Step 3: What is the bare minimum lifestyle that you’re ready to live?

With those key questions/steps to answer, here are our answers to these key steps I’m working through as part of my retirement income planning this year, for next year in 2025.

Step 1: What are our spending goals?

Step 1 is always first.

Some Canadians can live off a little.

Some Canadians want to live off a lot.

Your income needs and wants in semi-retirement or full retirement or whatever you want to call the next phase of your life will forever be personal and up to you.

A past headline that got a lot of retirement planning attention was this BMO study and its findings.

“BMO’s 13th annual Retirement Study reveals Canadians are prioritizing retirement savings as both contributions and account holdings have increased from the previous year. The study found that Canadians believe they will need $1.7 million to retire, up 20 per cent from 2020 ($1.4 million). However, fewer than half (44 per cent) of Canadians are confident they will have enough money to retire as planned, a 10 per cent decrease from 2020.”

Do you need $1.7 million to retire?

You might.

It is my conclusion most won’t need that much.

Here are the questions we’ve answered on this subject, to figure out what we need and want related to our spending goals:

  • How much do we wish to spend, annually, on average in retirement and starting when?
  • Do we see us working part-time or not at all?
  • Do we wish to have any “go-go” spending years/higher spending years in early retirement years vs. later retirement years?
  • How might inflation or other factors impact our savings?
  • Do we have any capital expenses in retirement – like newer cars every 10 years?
  • Do we care to leave any estate? If so, how much?
  • Are we prepared to change our lifestyle if needed?

I’ll link to all our answers to these questions later in today’s post with some articles for reference. 🙂

Step 2: What are our retirement income sources to meet those needs?

Just like planning a trip, once you figure out where you want to go you’ll need to figure out how to get there: what components are part of your trip.

As a starter for our retirement income planning considerations, I looked at these components: Canada’s retirement income pillars and what income might be available from each pillar and when:

  • Pillar 1 is the Old Age Security (OAS) pension and its companion program, Guaranteed Income Supplement (GIS) – age 65. 
  • Pillar 2 is the Canada Pension Plan (CPP) – starting age 65 or ideally later. 
  • Pillar 3 includes your mix of tax-assisted vehicles such as Registered Retirement Savings Plans (RRSPs), Tax Free Savings Accounts (TFSAs) and other accounts – starting in our 50s. 
  • Pillar 4 includes other assets accumulated over your lifetime such as your primary residence, vacation property (if you are lucky to have one), or stocks held with your brokerage firm in a taxable account – starting in our 50s. 

In Step 2, we basically listed all our available income sources and the potential timing of those income sources along with other considerations you might wish to review as well:

  • Maximize your Registered Retirement Savings Plan (RRSP). If you have unused RRSP contribution room from previous years, take advantage of the ability to “catch up” your contributions.
  • Eliminate debt. I believe servicing debt eats into your available income when you’re retired – we won’t have this problem since we intend to enter semi-retirement remaining debt-free.
  • Consolidate your investments. Consolidating your assets under one financial roof should make it easier to manage and diversify your portfolio and it could reduce your overall investment costs too.
  • Make your portfolio as tax-efficient as possible. Are you paying more to the government than you have to? Different types of income are taxed in different ways. Too much interest income, which is fully taxable in a taxable accont should be avoided beyond an emergency fund while capital gains and Canadian dividends receive preferential tax treatment when held in a taxable account. You should also strongly consider maxing out your TFSA with equities as well = tax-free growth. 🙂
  • Company pension(s). We have been fortunate enough to have x1 defined contribution (DC) and x1 defined benefit (DB) pension plan in our household – so we use those account values and income estimates in our retirement income planning at certain ages. For us, the DC will come online at age 55. The DB is likely to come online at age 65.
  • Inheritance/family estate. Is that in your financial future at all? “Bonus money” if so?
  • Part-time or hobby work. We have also considered the option to work part-time here and there not only for hobby income for travel but also to keep your minds busy and remain socially active too.

You might want to consider creating a retirement income map that breaks down your income sources every 5-years or so. Here is mine:

Our Retirement Income Map - March 2024

I’ll highlight our three (3) key early retirement income sources later in the post as well.

Step 3: What is our bare mininum lifestyle – could we scale back?

Through basic budgeting, I know our base – what our day-to-day living costs are with some buffer built-in.

Using this information, I know what we need to earn at age 65 to enjoy retirement with.

Our retirement income plan has that covered with a few income sources listed above including government benefits such as CPP and OAS in our future at age 65.

My problem and opportunity is, I don’t want to wait that long until age 65. 🙂

Maybe the same applies to you.

Life is short. Time is precious. Work on your own terms is better than needing to work.

I’ve recently heard from one blogger that it’s quite easy to spend less in retirement – just assume you will. You will take off-peak vacations as an example. I think that’s flawed thinking. You don’t always want to spend less in retirement. There could be bucket-like trips or other purchases you’ve waited your entire life to take.

A good solution is to figure out your Coast FIRE number.

With Coast FIRE:

  1. While you expect your retirement assets to grow as you reach a final retirement date, the good news is,
  2. Based on the assets you have, you don’t really need to save any more money for retirement = you are financially coasting to your retirement date. This is because existing income (full-time, part-time, hobby income, occasional work) or whatever work that is covers your key expenses until you reach your final retirement date.

Another option is Barista FIRE.

I would advise just like looking at your spending goals related to what you want to spend, you should also look at your bare bones budget and determine what you must spend. That’s your floor. That’s your starting point. Coast FIRE or Barista FIRE could be add-on solutions.

I’ve linked to this fun Coast FIRE calculator here and I’ve also listed this calculator amongst other FREE stuff on my Helpful Sites page.

Your Free Playbook to Retirement Income Planning

Before my answers I promised above here are a few other factors to consider:

  1. Time – Do you have a lot of time to save for retirement? i.e., are you saving later in life?
  2. Diversification and risk and liquidity – As good as any one stock performs in my portfolio, some are up over 40% this year (!!) it’s probably never a good idea to put all your retirement eggs in the same basket. What goes up could go down…  I’ve always believed that any near-term spending within the next 1-2 years should likely be in safe cash or cash equivalents and not equities. Again, your mileage may vary.
  3. Inflation – To help ensure that your spending power is retained, you need to factor in the rising costs of goods and services. Ensure you include higher spending / inflation factors as you age. I’ll tell you mine below.

Our Playbook to Retirement Income Planning

Inspired by readers that wanted to know more, here are our answers to the questions above:

1. How much do we wish to spend, annually, on average in retirement?

Our desired spending for our first year of semi-retirement is in the range of $70,000 – $75,000 per year (that means after-tax).

As part of our retirement income assumptions we use the following that might be helpful to you as well:

  • 5% annualized rate of return i.e., over the coming decades from RRSPs/RRIFs, TFSAs and Non-Registered Accounts. Historically, we’ve earned much more than that but I like to be cautious.
  • 3% sustained inflation. I personally wouldn’t go any lower than 2.5%.

2. Do we see us working part-time or not at all?

Yes, part-time for sure.

I have personally anticipated I will continue working at something here and there after full-time work is done but the need to work however to meet our desired spending is now optional and therefore no longer required as of this year. Continue Reading…

How to Save for a Big Purchase without going into Debt

Image by Pixabay

 By Louis Wheeler

For Financial Independence Hub

It is possible to amass enough money to buy a car, renovate one’s house, or go on a dream vacation without borrowing money to finance the exercise. When one wants to make such a large purchase, one should lay down a plan, change one’s spending pattern, and dedicate oneself.

Guidelines for Saving up for big Expenses

Planning for a big project can be financially exhausting. Here are some things one needs to do to save for their next purchase:

Know your objective and establish a budget

First, identify the amount you wish to save and how long you want to achieve that. Subtract the number of months available before the target date from the total amount and divide the result by the number of months available to discover how much must be saved every month. This will also provide you with a specific, achievable task at hand.

Get a new checking or better yet, a high-interest savings account.

You should use another account and open it simply for this particular purchase. The money needs to be kept in separate accounts to avoid converting them to other assets by mistake, as well as to be able to monitor performance. You might want to consider selecting a high-yield savings account for further growth. You can open a high interest savings account at koho for your next big project.

Cut back on non-essentials

Take your current spending habits and determine which ones can be sacrificed quickly. Micro-level decisions include eating out less, canceling subscriptions, or looking for cheaper or free entertainment options.

Automate your savings

Ensure you create a recurring payment method from your main checking account to your savings account on paydays. Automating makes saving very easy and guarantees that no time is given to destroy the plans that you have in mind.

Boost income with side gigs

Perhaps moonlighting, part-time work, or even some freelancing kind of occupation. Any additional money earned can be added to the savings amount, which can be achieved without too much sacrifice of daily expenses. You can also earn some extra cash by selling unwanted items or offering services such as pet-sitting, tutoring, or freelance writing.

Monitor and adjust

Review your savings plan every month to see if it is still realistic. Life gets in the way sometimes and unexpected expenses may arise, so be prepared to make necessary adjustments to your savings plan accordingly. It’s important to continuously monitor your progress and make changes as needed to stay on track towards reaching your target date. Continue Reading…

Estate Planning Checklist for Entrepreneurs

Photo courtesy Pexels/Featured.com

By Robert Theofanis

Special to Financial Independence Hub

Estate planning is like going to the dentist. Everyone knows they should do it. But whether it’s getting your teeth drilled or contemplating your mortality, we’d all rather fill our time with just about anything else.

For entrepreneurs, this problem is even more acute. Your business depends on you, and high-priority items constantly appear at the top of your to-do list.

What I’ve found as an estate planning attorney is that my clients can get more done when we approach estate planning in a systematic way. This post contains an actionable plan for entrepreneurs like you to design and implement an estate plan.

I’ve organized the list by priority, with the most critical items first:

Obtain Term Life Insurance

If you have minor children, life insurance is the most important component of your estate plan. Most parents of young children simply haven’t had enough time to accumulate sufficient wealth to sustain a family without any additional income.

I like term insurance for this baseline protection because it’s cheaper than a permanent policy.

I also recommend that both parents have policies. Irrespective of who earns the income, both parents contribute to the household.

For the benefit amount, err on the side of more coverage and consider purchasing separate policies (e.g., two $1 million policies rather than one $2 million policy). This allows you to scale back the coverage amount without dropping coverage entirely.

If you don’t have children yet but are planning to, I still suggest getting coverage now. Life insurance premiums increase with age and pregnancy-related health issues may make it difficult to secure coverage later.

Create a Revocable Living Trust

A basic revocable living trust is the foundational legal document for an estate plan. Its purpose is to keep you and your property out of conservatorship and probate proceedings.

Included in this step is creating the other estate planning legal documents:

  • A pour-over will ensures that all property is distributed in accordance with the terms of your living trust, even if it’s inadvertently left out of the trust;
  • A durable power-of-attorney authorizes a financial agent to conduct transactions on your behalf if you’re incapacitated;
  • A medical directive authorizes a healthcare agent to make medical decision for you if you are unable to and specified your healthcare and end-of-life wishes (in some states, two separate documents are prepared for this purpose);
  • A guardian nomination appoints a guardian to raise your minor children if you are unable to.

Be sure to actually fund the trust! This is one of the biggest mistakes people make. This involves transferring title to real property, opening new financial accounts (bank, brokerage, etc.), and updating beneficiary designations.

Establish and Implement a Written Financial Plan

Estate planning is more than just creating a set of legal documents. It’s a multifaceted plan to achieve positive outcomes for you and your loved ones. So, while the first two items on this list are about limiting your downside, this item concerns your upside. Continue Reading…

Trump Trade 2.0: Which Sectors will Benefit?

Harvest ETFs

 By Ambrose O’Callaghan, Harvest ETFs

(Sponsor Blog)

As usual, there was considerable noise coming into the 2024 United States Presidential race. National and battleground polls between Democratic nominee, Vice President Kamala Harris and Republican nominee, former President Donald Trump appeared to be razor thin. However, on Tuesday, November 5, 2024, Donald Trump once again overperformed polling and came away with a convincing win to secure his second term in office.

U.S. stocks closed at record highs the day after Donald Trump’s victory. Investors may remember a similar rally that initially took place after his win in 2016. At the time, the market had high expectations for Trump to pursue deregulation and corporate tax cuts. What are the expectations for his next term? What can we learn from the market during previous presidential terms? And where should investors turn in late 2024? Let’s jump in.

Policy expectations for Trump’s second term

The first Trump administration gained international notoriety for its protectionist trade policies. Tariffs are one of the favoured tools of Donald Trump for enacting his “America First” agenda.

Tariffs are equivalent to putting a tax on imports from another country. Effectively a business that purchases goods from the foreign entity pays the additional fee associated with the tariff. The business may pass this on to consumers in the form of higher prices or may decide to take a hit on the margins, thereby earning less profits. Another impact of tariffs is trying to increase domestic demand and production away from similar imported goods.

In his first term, Trump imposed a tariff on one-tenth of U.S. imports. Products like steel, solar panels, washing machines, and Chinese goods suffered. In his 2024 campaign, Trump threatened to impose a 60% tariff on all Chinese exports to the U.S. Last Monday, Nov. 25th, on his Truth Social platform Trump surprised markets with his announcement that the day he takes office in January, he would impose Tariffs of 25% on exports from Canada, Mexico and China into the U.S., with an additional 10% tariff on China.

At the same time Trump is leaning towards increased deregulation, which has the potential to drive windfall profits for banks, big tech, as well as selected healthcare and energy companies.

For one, Trump has been a strong supporter of digital assets and cryptocurrencies. He promised to build a government stockpile of Bitcoin at a conference earlier this year, while also pledging to fire U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler, someone who is seen to push for more and stronger regulations.

Crypto has been an early winner after Trump’s victory. Bitcoin has climbed to record highs, hitting over US$93,000 in trading on Wednesday, November 13, 2024. This helped to propel Harvest’s Blockchain Technologies ETF (HBLK:TSX) to a 25% week-over-week growth  as of late morning trading on November 13.

Bank stocks also gained momentum after the Trump win, gaining on the promise of deregulatory measures and pro-growth policies. Some of the “wish lists” drawn up from banking industry bodies include a rolling back of the Basel III Endgame proposals. These rules were introduced to ensure large banks have the capital required to withstand systemic risk events. The rules will come into play in July 2025, applying to all banks with assets exceeding US$100 billion.

This is good news for the Harvest US Bank Leaders Income ETF (HUBL:TSX), which holds the biggest players in the U.S. financial sector. These financial titans are poised to benefit from the expected regulatory rollbacks of the incoming second Trump administration. HUBL has delivered annualized growth of 25.72% year-to-date, 54.67% 1-year, 5.72% 2-year, 11.91% 4-year, 3.72% 5-year, and 1.04% since inception.  It offers a consistent monthly cash distribution of $0.09 per unit, which represents a current yield of 7.33% as at November 27, 2024, and is a treat for income investors and those looking for monthly income while being exposed to the long-term growth of the sector.

Presidents and markets: A historical perspective

Most new presidential terms start with speculation about the winners and losers from a social, political, and economic standpoint. Continue Reading…