Early retirement planning – steps we’re taking in 2026

Life is uncertain. We are living our day-to-day lives with a certain level of uncertainty, but that’s part of the fun. Some people don’t like having too many uncertainties, so they take actions and precautions to reduce uncertainty.

The same thing can be said for early retirement and living off one’s investment portfolio. There are many steps you can take to increase the margin of safety of your investment portfolio to ensure it can sustain your lifestyle and you don’t run out of money.As we draw closer to achieving Financial Independence through dividend income, also known as living off dividends, we are spending more time on the steps needed to prepare ourselves for this significant financial and life milestone.

I thought it would be interesting to explore the steps we are taking in 2026 when it comes to our early retirement planning.

Building up our Cash Reserve

Along our Financial Independence journey, we have been extremely focused on building up our dividend portfolio. As a result, we have been working hard to grow our savings gap and invest the saved-up money to buy dividend stocks and index ETFs.

For the most part, we don’t keep a lot of cash in our chequing and savings accounts, because we see too much cash sitting around as opportunity cost.

But as we get closer to Financial Independence, it is important to start building up our cash reserve. Cash reserve is important because it provides flexibility and prevents us from having to sell off our investments during a sudden market crash because of some unexpected need.

Last year, we managed to save enough money so that we had over $25,000 in our Long Term Savings for Spending account. Unfortunately, at the time of writing, we are below that number because of the yearly RESP contributions and having to buy a new fridge. Since one of our financial goals is to have more than $35,000 in our cash reserve, this means we need to save up more to first bring the amount in our LTSS account to above $25,000 first, then try to save more to hit the $35,000 market.

But building up our cash reserve is more than just having cash sitting around in our bank account. It’s also about having cash available in our investment accounts, too, as I’ll explain in the next section.

Turning off DRIPs 

We are currently investing 100% of our dividend income. We enroll in dividend reinvestment plans (DRIPs), so dividends are automatically used to get additional shares. Years ago, when fractional DRIPs weren’t available, we could only drip full shares (i.e. dividends received were more than the share price). We’d let the remaining dividends accumulate in our accounts until we had over $1,000 before we bought more dividend stocks or index ETFs (we did this so the trading commission was less than 1% of the overall transaction).

Nowadays, with the existence of fractional DRIPs from brokers like WealthSimple and TD, most of our dividends are reinvested right away. Before fractional DRIPs were enabled with TD, and because TD charges $9.99 per trade, we would move the remaining dividends collected in our taxable account with TD to WealthSimple to take advantage of the no-commission trading. We no longer have to do this.

Questrade still doesn’t support fractional DRIPs (and only fractional share purchase on certain securities), so we can only drip full shares and the remaining dividends get deposited in our accounts. Since Questrade no longer charges trading commissions, we don’t need to wait for dividends to accumulate to over $1,000 before reinvesting the money. Lately, we would use dividends to buy more stocks & ETFs when there’s a red day in the markets.

As we get closer to Financial Independence, we plan to change the way we utilize DRIPs. We want to drip selectively. We plan to turn off drip in our taxable accounts and RRSPs by the middle of this year (or by Q3). We will keep DRIP on in our TFSAs to allow investments/dividends to compound.

That’s step one in building up a cash wedge in our taxable accounts and RRSPs for the eventual withdrawals when we do live off dividends. But we certainly don’t want money sitting in cash and not doing anything for us.

So what’s our plan with the dividends received in taxable accounts and RRSPs?

This is where investing in safe Cash Alternatives comes in.

Investing in safe Cash Alternatives

For dividends received in taxable accounts and RRSPs, we want to put them to work. But we don’t want to reinvest them into dividend-paying stocks, then have to sell stocks when we start withdrawing. Nor do we want to be waiting for dividends to accumulate before withdrawing.

With the money accumulating in our taxable account, RRSPs, and savings account, we need to look at alternative ways to grow the money so we are not losing purchasing power due to inflation.

The current plan is to invest dividends collected in high-yield high-interest savings account (HISA) ETFs like CASH and HSAV because these HISA ETFs have high liquidity.

Since distributions from these high-yield HISA ETFs are taxed as 100% interest income, they are not overly tax-efficient. Therefore, it makes sense to invest in these HISA ETFs inside of our RRSPs.

Note: I know that withdrawals from RRSPs are taxed as working income as well so there may not be too much of a difference, but income inside RRSPs is tax-deferred so we can let the interest grow until withdrawals. This is a lot better than taking the tax hit in the same year as when you receive the interest.

For dividends sitting in our taxable accounts, if we invest in “safer” investments like GICs, HISAs, HISAs ETFs, bond ETFs, or even money market, all the interest earned would be taxed as 100% interest income, and not very tax efficient. Unfortunately, there’s no other way around it. If we really want, I suppose we can invest the money in dividend-paying Canadian stocks, but that’d go against the idea of building up a cash reserve in our taxable accounts.

What would we do with the cash sitting in our LTSS? Well, we may consider parking some of it in cash inside a flexible high-interest savings account for planned expenses. To make sure money is working hard for us, it probably makes sense to invest the money in a high-yield HISA ETF.

Our plans with money in taxable accounts and LTSS aren’t 100% decided. More tax calculation and planning is needed, considering I will be working full-time and earning income in 2026 and Mrs. T is generating income via her side hustles.

If any readers have other suggestions or recommendations on what to do with cash in our LTSS and taxable accounts, I would love to hear them.

Alternatively, we can consider turning DRIP off first in our RRSP and invest the money in one of the HISA ETFs. Then, in the latter half of 2026, turn off DRIP in our taxable accounts to minimize tax consequences. This approach, however, means we won’t have as big a cash reserve.

It’s complicated to plan everything and that’s part of the fun of planning for early retirement!

Planning extended healthcare coverage

We currently have extended healthcare benefits through my employer. The extended healthcare benefits allow us to get coverage on prescription drugs, out-of-country trip medical coverage, paramedical services like massage, acupuncture, counselling, physiotherapy visits, vision care, and dental care.

Since I pay for part of the extended healthcare benefits, we try to take full advantage of our paramedical, vision, and dental benefits every year.

In early retirement, we would need to cover extended healthcare coverage ourselves.

In the Early Retirement Healthcare in Canada – What are our options post, I mentioned that we have two options:

1. Self-funding extended healthcare
2. Government and private coverages

The private coverages will need more planning and research. However, based on my initial research, it looks like we can continue private health insurance via the existing employer plan.

According to SunLife website, our current extended health benefit provider, when I leave an employer group plan, I can convert to an individual plan within 60-90 days without medical underwriting or testing. Doing so should allow us to continue paying the same amount for extended health benefits rather than a very high premium.

If any readers have done similar conversions in the past, I would love to hear your experience.

Consider the psychological transition 

Early retirement isn’t just financial, it’s a transition psychologically, too.

Early retirement means I no longer have to work during the week so I need to find purpose and structure in my life. What I plan to do in early retirement is something Mrs. T wanted me to spend more time planning. I simply can’t sit on my butt all day; I need to find things to keep me busy.

Since most of my friends and people I know will be working during the week, I need to find ways to interact with other people. I can certainly go to the gym more regularly and join more curling teams to keep myself occupied. But I think it’s more than just that. Most likely I will involve myself in meaningful volunteering work during the day to ensure some level of social interaction with other people. I also plan to get back to photography and maybe learn new hobbies.

My plan throughout this year is to talk to more early retirees and find out what they did in the first couple of years of their early retirement.

These are some of the things we plan to do as part of our early retirement planning. As you can see, not everything is set in stone. We plan to keep things somewhat fluid so we can adjust our plans as needed.

One thing I realized is that I need to seek out early retirees and learn more from their experience, especially when it comes to ensuring money in the cash reserve is working hard and the most cost-effective extended health coverage.

If you have any suggestions, recommendations, or experiences, please leave a comment or email me privately.

Hi there, I’m Bob from Vancouver, Canada. My wife & I started dividend investing in 2011 with the dream of living off dividends in our 40’s. Today our portfolio generates over $5,000 in dividends per month. We originally dreamed to become financial independent and live off dividends by 2025. Although we could live off dividends by supplementing it with a part time income in 2025, we aren’t in a rush to cross so called “finish line.” Therefore, we are taking it easy and we plan to realize the dream of living off dividends before 2030.  This blog originally appeared on Tawcan on May 4, 2026 and is republished on Findependence Hub with the permission of Bob Lai.