Spending from retirement savings, or decumulation, in a way that maximizes what you have left to spend after taxes is surprisingly complex. I’ve done extensive simulations of various strategies for my situation, including strategies that change over time, to find what works best for me. Here I describe how I’m managing my RRSP in retirement, but it’s important to remember that it may or may not work well for you depending on your particular circumstances.
Looking for the fully optimal financial strategy is futile. I ran my simulations and chose a simple enough strategy that worked well across a wide range of investment outcomes. The only reason for changing my strategy is if something happens that is far outside my expectations. Those who constantly seek perfection waste their time and hurt their outcomes with constant tinkering.
Our portfolio and goals
My wife and I have RRSPs, TFSAs, and non-registered accounts. I prefer not to discuss exact amounts, but broadly speaking, our combined RRSPs are larger than our combined non-registered accounts, which are larger than our combined TFSAs. In addition to the exact sizes of these accounts, two other figures that are significant for simulations are our unrealized capital gains in the non-registered accounts and our deferred capital losses from previous years.
My wife and I have roughly the same net worth. Although we consider all our assets to be owned by both of us, CRA doesn’t see it that way. We spent decades carefully choosing whose money to spend each year so that we’d have close to the same net worth now.
Our goal is to maximize the amount we can safely spend each year, rising with inflation, for the rest of our lives. We have no interest in scrimping now just so we can live rich when we’re much older. Some might even choose to spend more in their 50s and 60s than they will spend later, but I can’t see any logic in living poor early on just to be rich later.
The main tax challenge we face is high taxes and possibly OAS clawbacks on forced RRIF withdrawals after we turn 72. These taxes will be even higher after one of us passes away, and higher still after the second passes away. The remedy here is to make modest RRSP/RRIF withdrawals in the years before we turn 72. The goal is to make lightly taxed RRSP/RRIF withdrawals early rather than heavily taxed withdrawals later. This gap in tax rates has to be large enough to overcome the value of continuing to defer taxes.
This is where the simulations help. At one extreme, we could be spending entirely from our TFSAs to keep our incomes very low. My simulations show that this “collect the GST rebate” strategy is not optimal for us (nor do I find it palatable). At the other extreme, winding down our RRSPs quickly is far from optimal as well. Something in between is best.
Our decumulation strategy
My simulations tell me that we’re best to target a particular income level each year. Note that our income is not the same thing as how much we spend. The amounts we spend from non-registered accounts create only modest declared income for taxes. By adjusting how much we spend from each type of account, we can target different amounts for how much we spend and how much we declare on our income taxes. Continue Reading…
A month ago, I wrote about how the cycles pointed out by Kuznets, Kondratieff, and Minsky, combined with the writings of Joseph Schumpeter seemed to be coming together at the same time. Now that the war in Iran is nearly a month old, it seems the match has been lit that will set the frightening confluence ablaze. It sure looks like we’re in a credit bubble that is beginning to burst.
The challenge when writing about major developments is to sound calm and purposeful when the natural inclination might be to be more animated. How to get people to take urgent action without coming across as an over-the-top doomsayer?
To begin, I need to stress that I do not see myself as a pessimist. I’ve been speaking to college students throughout southern Ontario for the past few months and when I tell them about something I call Bullshift (the optimism bias fomented by the financial services industry), they often ask if I’m not being biased and overly gloomy. I respond both with evidence and by conceding that everyone has biases, so their allegations against me, while not incorrect, are nonetheless likely to be overstated. My view is that better wealth decisions are made using facts, critical thinking and a dash of skepticism regarding the finance industry’s motives.
If Iran war lingers on, credit markets will be stressed
There are multiple indicators that are now showing credit markets in a state of high stress. The longer the war in Iran persists, the worse the situation is likely to become. As such, here are a few things you could do immediately to reduce your exposure to credit:
1.) If you have not already done so, build an emergency fund. Many people use the equity in their home for this. The caveat here is that real estate prices are likely to drop in the short term, as well, so be careful. Where possible, consider setting aside money in a high-yield savings account for emergencies. When you’re financially cushioned, you’re less likely to rely on more punitive alternatives when money is tight. Continue Reading…
Retirement may last longer than you expect. The question is: is your portfolio built to keep up?
Image courtesy BMO ETFs/Getty Images
By Alain Desbiens, Vice-Chair BMO ETFs
(Sponsor Blog)
Canada is undergoing a profound demographic transformation that will influence the nation’s economic trajectory and long‑term investment landscape for decades to come. By 2036, Canadians aged 65 and older will account for roughly 23% of the population, up from approximately 19% today. 1
This aging shift is propelled by three powerful forces: rising life expectancy, persistently low birth rates, and immigration serving as the country’s primary source of population growth. Together, these drivers are reshaping not only the size and composition of Canada’s population but also the way investors and financial professionals must approach planning and portfolio construction.
For investors, these demographic changes create a dual reality. On one hand, the economy faces challenges such as higher healthcare and social‑support spending, and increasing strain on retirement income systems. On the other hand, new long‑horizon opportunities are emerging.
Sectors tied to aging populations, innovation in healthcare, longevity planning, and intergenerational wealth transfer all stand to benefit. Exchange‑traded funds (ETFs), with their cost‑effectiveness, diversification, and transparency, offer an efficient toolkit for capturing these evolving trends.
Key Demographic Trends
1.) Aging Profile & Generational Mix
Baby Boomers still represent about one quarter of Canada’s population, but by 2029, Millennials are projected to surpass Boomers in absolute numbers. 2 This generational shift will reshape demand across housing, consumption, and financial services. Millennials tend to prefer digital-first advice, sustainable investing, and simple yet sophisticated products — including ETFs — while Boomers continue to prioritize income generation, capital preservation, and tax‑efficient3 decumulation strategies. This changing balance in generational influence will increasingly dictate the types of investment solutions that gain traction in the market.
2.) Retirement Wave
Canada is entering a period where record numbers of Boomers are exiting the workforce and see increasing need for accumulation and decumulation strategies, and a higher demand for financial, will and decumulation strategies.
3.) Longevity Realities
Canadians are living longer than ever before, with meaningful implications for retirement planning.
Women 65+: Over half are expected to live to age 90. 4
Men 65+: More than half reach age 90 as well, though only about 39 per 1,000 do so without a major critical illness. 5
FP Canada/IQPF: A 50-60-70‑year‑old has roughly a 25% probability of living to age 94 (men) or 96 (women).6
This extended lifespan introduces significant longevity risk: the risk of outliving one’s capital. Financial plans must now be stress‑tested for longer retirement horizons, rising living costs, and variable health outcomes.
4.) Rising Costs for Aging‑in‑Place & Care
Healthcare inflation, long‑term care, and home‑care services are expected to grow sharply. These realities underline the need for specialized insurance solutions, inflation‑aware portfolios, and steady income vehicles that can sustain retirees across multi‑decade retirement periods.
5.) Wealth Distribution & Investor Segmentation
Canada is on the cusp of a major wealth transition:
Gen X is set to surpass Boomers in total net worth. 7
An estimated $450 billion will transfer to Gen X over the next decade.8
Total household wealth is projected to reach $10 trillion by 2030, reshaping investor behavior, risk profile8, and demand for advice.9
The Bottom Line
Canada’s aging demographic is more than a statistic: it is a structural force that will shape markets, spending patterns, and investment requirements. Investors who proactively position for these changes can build portfolios that are both resilient and growth‑oriented. With their flexibility, transparency, and broad exposure to demographic‑driven themes, ETFs remain one of the most effective vehicles for navigating this new era.
ETF Investment Opportunities
1.) Income Solutions for Retirees
• Longer lifespans + market volatility = demand for stable, tax-efficient income
If retirement is on the horizon, now is the time to look beyond when you plan to stop working and focus on how long your portfolio will need to support you. Longer lifespans mean portfolios must balance growth, income, and flexibility before the first paycheque replacement ever begins. Reviewing your asset mix, understanding your future income needs, and considering simple, diversified ETF solutions today can help reduce stress and create more confidence tomorrow. The years leading up to retirement aren’t just a finish line, they’re the foundation for decades ahead.
Want to learn more? Join Alain Desbiens and host Michelle Allen as they explore why longer retirements demand smarter strategies: inflation-aware portfolios and steady income that lasts decades, not just years. Listen to the podcast episode now!
8: Risk Profile – Comprised of a client’s risk tolerance (i.e., client’s willingness to accept risk) and risk capacity (i.e., a client’s ability to endure potential financial loss).
Alain Desbiens is Vice Chair, BMO ETFs. Alain brings more than 30 years of financial services experience to his new role. A seasoned financial expert and former broker, Alain has raised awareness of ETF benefits among advisors, direct and institutional clients through both individual discussions and impactful presentations. Alain is also active in multiple media formats helping provide insights on both the industry and investments. Over his career, Alain held roles as wholesaler, sales manager, branch manager, and investment advisor. He is a graduate of Laval University with a BA in Industrial Relations and has been recognized multiple times at the Canadian Wealth Professional Awards, including winning “Wholesaler of the Year” Award three times.
Disclaimer:
Commissions, management fees and expenses all may be associated with investments in exchange-traded funds. Please read the ETF Facts or prospectus of the BMO ETFs before investing. Exchange-traded funds are not guaranteed, their values change frequently and past performance may not be repeated.
Distribution yields are calculated by using the most recent regular distribution, or expected distribution, (which may be based on income, dividends, return of capital, and option premiums, as applicable) and excluding additional year end distributions, and special reinvested distributions annualized for frequency, divided by current net asset value (NAV). The yield calculation does not include reinvested distributions. [Bold]Distributions are not guaranteed, may fluctuate and are subject to change and/or elimination. Distribution rates may change without notice (up or down) depending on market conditions and NAV fluctuations. The payment of distributions should not be confused with the BMO ETF’s performance, rate of return or yield. If distributions paid by a BMO ETF are greater than the performance of the investment fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a BMO ETF, and income and dividends earned by a BMO ETF, are taxable in your hands in the year they are paid. BOLDYour adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base goes below zero, you will have to pay capital gains tax on the amount below zero.
Cash distributions, if any, on units of a BMO ETF (other than accumulating units or units subject to a distribution reinvestment plan) are expected to be paid primarily out of dividends or distributions, and other income or gains, received by the BMO ETF less the expenses of the BMO ETF, but may also consist of non-taxable amounts including returns of capital, which may be paid in the manager’s sole discretion. To the extent that the expenses of a BMO ETF exceed the income generated by such BMO ETF in any given month, quarter, or year, as the case may be, it is not expected that a monthly, quarterly, or annual distribution will be paid. Non-resident unitholders may have the number of securities reduced due to withholding tax. Certain BMO ETFs have adopted a distribution reinvestment plan, which provides that a unitholder may elect to automatically reinvest all cash distributions paid on units held by that unitholder in additional units of the applicable BMO ETF in accordance with the terms of the distribution reinvestment plan. For further information, see the distribution policy in the BMO ETFs’ prospectus.
This article may contain links to other sites that BMO Global Asset Management does not own or operate. Any content from or links to a third-party website are not reviewed or endorsed by us. You use any external websites or third-party content at your own risk. Accordingly, we disclaim any responsibility for them.
BMO ETFs are managed by BMO Asset Management Inc., an investment fund manager, a portfolio manager, and a separate legal entity from Bank of Montreal.
“BMO (M-bar roundel symbol)” is a registered trademark of Bank of Montreal, used under licence.
Image courtesy Outcome/Nick Youngson CC BY-SA 3.0 Pix4free.
There are times when all the world’s asleep
The questions run too deep
For such a simple man
Won’t you please, please tell me what we’ve learned?
I know it sounds absurd
Please tell me who I am
The Logical Song, by Supertramp
by Noah Solomon
Special to Financial Independence Hub
I’d Rather be Lucky than Smart
In my June 2024 newsletter, I discussed some common misconceptions about private investments. In particular, I analyzed their widely perceived benefits, both as a standalone asset class as well as within a broader portfolio context. Lastly, I discussed why it was likely that such investments would fall short of investor expectations on these fronts. Whereas I cannot say for certain whether I am smart or lucky, my prophecies have since come to bear.
This month, I will re-visit the driving forces underlying my past predictions. I will also take stock of where private markets currently stand with respect to these factors and related implications for the future.
The Magic Elixir: Who doesn’t Want a Free Lunch?
With respect to constructing optimal portfolios, modern portfolio theory dictates that, all else being equal:
Investments with higher expected returns should receive higher allocations than those with lower expected returns.
Investments with higher volatility should get lower allocations than those with lower volatility.
Investments with lower correlations to other asset classes which can lower overall portfolio volatility should receive larger allocations than their more correlated counterparts.
Less liquid assets should be penalized for this shortcoming via lower allocations than more liquid investments.
Until recently, private assets had delivered exceptionally strong returns. Both private equity (PE) and private debt (PD) funds had far outperformed their publicly traded brethren. Another advantage of private over public investments that has become widely accepted is their relatively low volatility. Even better, just when it seemed that private investments couldn’t look more promising, they became widely viewed as offering investors yet another “sweetener” – low correlation to traditional stock and bond portfolios and a related capacity to smooth out overall portfolio volatility.
What rational investor wouldn’t want to load up on assets imbued with the holy trifecta of high returns, low volatility, and low correlation to stocks and bonds? As this alleged free lunch became increasingly accepted, it served as a lightning rod for new and/or higher allocations from endowments, pension funds, family offices, ultra high net worth investors, etc. And thus began the great stampede of capital into private markets. PE assets under management grew from roughly $1 trillion in 2010 to over $4 trillion by the end 2024. The private debt market has also grown at a parabolic rate, with assets under management jumping from $250 billion in 2010 to approximately $1.4 trillion today.
Everything has a Price, Including Illiquidity
All else being equal, illiquidity is a bad thing for which investors should be compensated. In theory, private assets can make investors whole for this drawback with higher returns, low volatility, or low correlation to other assets. The trillion-dollar question is whether private holdings actually possess these qualities, and if so, do they offer them in sufficient magnitudes to compensate investors for tying up their capital.
Higher Returns? Don’t Bet on it
You cannot change the inexorable forces of supply and demand. When a small amount of money finds a previously underexplored market that is replete with attractive investment opportunities, it is relatively easy to deliver excellent returns. However, when trillions of dollars chase the same strategy, it becomes increasingly difficult to do so.
When an asset class becomes widely popular, it ultimately becomes a victim of its own success, which is congruent with Buffett’s observation that “What the wise do in the beginning, fools do in the end.” Continue Reading…
By Dale Roberts, Retirement Club/Cutthecrapinvesting
Special to Financial Independence Hub
It has been more than two weeks since the U.S. attacked Iran. And while the U.S. was quick to knock out much of Iran’s traditional military capability, Iran has turned to asymmetric war and has also weaponized oil, fertilizers and other materials that pass through the Hormuz Strait. With threats and some strategic attacks on shipping, Iran has essentially closed the Hormuz Strait. About 20-25% of the world’s oil and a third of the world’s fertilizer needs flow through the Strait. We now face a potential energy shock and there are rumblings that we might experience a period of stagflation. In the 1970s an energy crisis created the conditions for stagflation. How do we defend against stagflation?
As always, the following is not advice.
First off, and as always, no one knows what will happen. No one knows how this war will proceed and what it will mean for investment assets and the economies of the world. Trump could announce today that he’s packing up and heading home or this could continue for years. That said, history does teach us how assets react. History teaches us how to hedge most any threat.
What is Stagflation?
Stagflation happens when several factors combine to create an especially difficult economic environment. To get stagflation, three things must occur together:
Slow economic growth
High inflation
A high unemployment rate
Stagflation is an economic double-whammy where stagnant growth and high unemployment collide with rising inflation. This rare, painful cycle is difficult to fix because traditional policies to lower inflation often worsen unemployment, and vice versa.
Market strategists have been quick to point out that rarely do conflicts have any long-lasting impact on stock prices. In 20 major episodes since the Second World War compiled by analysts at RBC Wealth Management, the S&P 500 index fell by an average of just 6 per cent.
The outliers in that list, however, involve major oil market disruptions, like the Arab oil embargo in 1973 and the Iraqi invasion of Kuwait in 1990. We had more significant drawdowns.
It has been the most common message on this blog: get an investment plan and stick to it like glue. Here’s the full graphic that was shared at Retirement Club (and on X (Twitter).
War is something we can ignore like every other risk, when we have our stock-solid investment plan and retirement plan.
The 4 economic scenarios
The economy can shift along two axes:
Economic growth (rising or falling)
Inflation (rising or falling)
Combining them gives four possible economic scenarios:
1. Inflationary Growth
Growth ↑ + Inflation ↑
Economy expanding strongly
Demand pushes prices higher
Often occurs during late expansions
Assets that tend to do well
Commodities
Real estate
Some stocks
Example period: parts of the global economy during the early 2000’s commodity boom.
2. Disinflationary Growth
Growth ↑ + Inflation ↓
Economy grows but inflation stays low or falls
Considered the best environment for stocks
Assets that tend to do well
Stocks
Growth companies
Corporate credit
Bond market
Example: much of the period after the Global Financial Crisis recovery.
3. Stagflation
Growth ↓ + Inflation ↑
Economy slows but prices keep rising
Very difficult for policymakers
Assets that tend to do well
Commodities
Gold
Inflation-protected assets
Oil and gas stocks
Classic example: the 1970’s Oil Crisis.
4. Deflation / Recession
Growth ↓ + Inflation ↓
Demand collapses
Prices and wages fall
Debt burdens become heavier
Assets that tend to do well
Government bonds
Cash
Defensive assets
Example: the Great Depression and recessions
Fortunately we are almost always in scenario 2 and some of scenario 1. High inflation and stagflation is rare. Deflation or a Depression is rare and market recessions shown in scenario 4 is why many will embrace bonds and cash to create a balanced portfolio that is lower risk. Continue Reading…
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