Victory Lap

Once you achieve Financial Independence, you may choose to leave salaried employment but with decades of vibrant life ahead, it’s too soon to do nothing. The new stage of life between traditional employment and Full Retirement we call Victory Lap, or Victory Lap Retirement (also the title of a new book to be published in August 2016. You can pre-order now at VictoryLapRetirement.com). You may choose to start a business, go back to school or launch an Encore Act or Legacy Career. Perhaps you become a free agent, consultant, freelance writer or to change careers and re-enter the corporate world or government.

How much do they need to save and invest to retire with $110,000 annual income?

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By Dale Roberts, CutTheCrap Investing, Retirement Club

Special to Financial Independence Hub

A recent Globe & Mail article laid out a retirement and investment challenge? A couple in their mid-fifties had a combined million dollar portfolio. They wondered if they could retire at age 65, while maintaining their annual income. How much would they have to save and invest to allow for that income level in retirement? I read through the comment section of that post. It became apparent that many or most Canadians who are DIY (Do It Yourself) investors are not aware of the free tools available that will allow them to calculate their savings requirement and how to estimate their potential spend rate in retirement. Let’s take a look at how they might create $110,000 in annual income.

Here’s the link (subscription required) to the Globe & Mail article –

Is a million dollars enough for us if we maintain our current lifestyle?

Keep in mind that not many details were provided and the SunLife financial planner consulted for the article did not offer up any details on the required savings rate or how they would generate the income. This is the first reader comment you’ll see on the post …

That was the least helpful one of these types of articles that I have seen in a long time. No numbers and very little detail. “Try to save as much as you can in the most tax-efficient way now and for the future”. No mention of CPP amounts, OAS amounts, tax rates, withdrawal strategies, etc . The link to the SunLife infomercial was a low point.

That pretty much nails it. I was curious, so I thought I would take a quick run at it.

Here was the question submitted …

Is a million dollars enough for the two of us, both in our mid-50s, to retire on if we maintain our current lifestyle and work until we are 65? Our household income is currently $150,000. Is there a percentage of income you recommend as an annual savings goal until we reach that retirement age?

How do you calculate your required savings rate?

From the article, it is likely that the couple has a combined $150,000 in annual income before taxes. To make things more interesting and challenging, I’ll crunch some numbers to generate $150,000 in after tax income. I’ll use Ontario for a tax rate and tax treatment.

To estimate the required savings rate I will use testfolio and a simple savings calculator.

I will run the Retirement Cash Flow Plan using MayRetire.

Both are free-use calculators that we cover and demonstrate at Retirement Club for Canadians. Check out that link if you want to learn more, or if you’re looking to sign up. We are starting a new group, now.

While you can use a ‘full ‘and very robust retirement calculator such as Optiml or Adviice for estimating the savings needs, you can certainly find your number by way of using a basic savings calculator or investment calculator, such as Portfolio Visualizer and testfolio. I found Optiml very difficult to use.

That said, you will first need to discover the portfolio value required to generate that desired income level.

How much do you need to create $150,000 income?

Canadians will typically generate retirement around these 3 pillars.

Retirement Club

For our scenario, we’ll assume there are no employer pensions in the mix. We will give the couple very generous Canada Pension Plan (CPP) and Old Age Security (OAS) amounts. A Canadian couple can generate over $50,000 of annual income from those government sources. And at age 65, taxes might not start to bite until after the first $54,000. That is a wonderful ‘tax free’ head start. We can call that our pensionable earnings. It is guaranteed income that is inflation-adjusted. Certainly, one can argue that OAS may be at risk due to the costs to the federal balance sheet. We might get some more clues this week when the current government delivers their first budget. That said, most of the calls are for reducing OAS benefits for “wealthy” seniors.

To maximize those government benefits Canadian retirees might look to the RRSP / RRIF meltdown strategy.

The RRSP / RRIF meltdown. A Canadian retiree’s greatest hack?

With the meltdown strategy we delay CPP and OAS to allow for the much greater payments. The strategy can also allow for greater tax efficiency, and it might allow you to manage any OAS claw back. If we make too much, we can lose all or some of those OAS payments.

Creating $150,000 in annual after-tax income

MayRetire revealed that the couple would need about $2.8 million to $3 million to create $150,000 in annual after tax income. Of course we have to account for inflation when estimating the savings rate and the spending rate in retirement. You can set your Province for tax treatment, of course.

MayRetire is very intuitive and quite easy to use. You enter your investment assets for yourself, or yourself and your spouse (if with spouse) and set your CPP and OAS amounts and start dates, enter any employer pensions, real estate income and any special income. You’ll enter your plan end date, rate of return, inflation rate and desired income. You can adjust your RRSP / RRIF meltdown rate using 5 presets. If you need to tailor your meltdown their is a custom strategy feature.

You press Calculate to run your model.

It is not that difficult to enter portfolio amounts and desired income to quickly get a sense of the portfolio level required. And be sure to click on that Simulate button that will stress test your portfolio model (Monte Carlo simulations). For example, when I tested a $2,000,000 portfolio looking to generate $150,000 of annual income. There was only a 2% success rate. We want to get into the 80% success rate and beyond. The simulations are quite ‘bearish’ according to MayRetire creator Boris Rozinov, so 80% and beyond is a good starting point.

Here’s a must read with “THE” chart on spend rates – Creating retirement income from your portfolio

I simply added greater portfolio asset amounts (while somewhat optimizing the RRSP / RRIF meltdown strategy and CPP and OAS dates) until I reached a favourable success rate.

Of course for those new to retirement calculators it will take several hours to even get a basic feel for how the calculator works and how retirement cash flow plans take shape. But it is a wonderful and more than interesting experience. Learning how to optimize and match your cash flow plan to your life plan will take more time, indeed. But it is all more than time well spent for the DIY retiree. It is essential that we run a cash flow calculator. You might ‘find’ hundreds of thousands of dollars of additional retirement income.

At Retirement Club we’re showing members how to use MayRetire and other calculators.

Check out the Retirement Club Overview

If you’re not up for learning the retirement cash flow ropes you might consider an advice-only planner who is a retirement specialist. You’ll get conflict-free advice from planners who are not attached to any investment products. aka – they are not selling.

Let me know if you want a few names to consider.

The $150,000 retirement income plan

Here’s what the spending plan looked like. Keep in mind this is ‘back of napkin’ initial projections. The cash flow plan will match your life plan and greater financial plan that includes your estate planning. Your longevity projections will factor in. You may decide to spend heavily in the early go-go years, and then decrease spending in the slow-go years. You might need an income boost in the late-stage years. We’d call that a U-shaped spending plan, or you-shaped. You might also have special items that factor in such as a home or cottage sale, business sale, inheritance and more. You will factor that into your retirement cash flow plan. At MayRetire you can enter special items for income and spending. Those special items can be set for a period as well; 15 years for the go-go years, for example, 10 years for the no-go years.

I ran the plan to age 95. When a couple both reach age 65 there is a 30% chance that one of them will live to age 95.

The red and turquoise bars represent the couples RRSP / RRIF accounts, the purple bar is combined TFSA income creation. We see the CPP (Orange) and OAS (Blue) kick in at age 70. The tax rate is above 22%, but will drop to a very low level at age 87 when the TFSA does the heavy lifting, topping up the CPP and OAS amounts.

Here’s how the accounts will ‘spend down’ in retirement. Yes, there is a massive TFSA shown, remaining at age 95. This is the funding ‘math’ when you run returns in linear fashion without market stress. That TFSA could be greatly decreased by a considerable recession and market correction(s). That said, the possible spend rate could also be higher.

Call this a buffer. Remember, your spending plan will be variable due to life events and market returns. And it’s wise to embrace a variable send rate. We might be prepared to spend less if we run into a period of market stress. MayRetire allows you to test that strategy.

Given the massive $3 million portfolio requirement (in inflation adjusted dollars) the required savings rate would be considerable, and likely not doable for a couple with $150,000 gross income. The savings projection was based on balanced to balanced growth portfolio returns of 6%-8%. Given that, let’s move on to creating a more modest after tax income goal – $110,000. That would be closer to what our $150,000 gross income couple takes home.

Longevity Stuff

You’ll find more on longevity in the Purpose Longevity Pension Fund post, and here’s a chart on probabilities of reaching age 90 and longer, from Fred Vettese.

Creating $110,000 retirement income after tax

MayRetire shows that a $1,500,000 portfolio, working in concert with CPP and OAS could deliver $110,000 in after tax income. The retirees each have $600,000 in an RRSP account and $150,000 in a TFSA. Continue Reading…

How to navigate a market bubble

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Image: Pexels courtesy MyOwnAdvisor

 

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Inspiration for this headline this week came from a Globe and Mail article.

For those without the subscription like I have, here are the key ways to navigate any stock market bubble that might be forming.

Curious to get your thoughts on what you are thinking about and doing as we head into 2026 …

 

 

1.) Cut back on dividend reinvestment plans/DRIPs. In doing so, you are raising your cash/cash equivalents pile. (I have been doing that since 2024.) From the article: “Rather than purchase more shares at these possibly elevated prices, I will accumulate some cash and deploy as opportunities present themselves,” one reader said.”

2.) Trim individual stock holdings. While holding individual stocks can be amazing for income and growth, I know they also expose me to some concentration risks: company or sector risks. So, to avoid that, I can trim individual holdings and simply index invest: instead. From the article: “I have felt a U.S. equity bubble has been forming for over a year now. In January, I decided to sell all my individual U.S. stock holdings and move the funds into my S&P 500 ETF,” one reader said.” (Yup, see link below, what I have done.)

3.) Hold more cash. Aligned to #1, and have done this as well. We’re about 90% equities and 10% cash/cash equivalents entering retirement in spring 2026. I may even increase my cash allocation from here since almost all DRIPs are turned off for cashflow now…

What approaches are you taking? Other steps? Happy to read and learn more…

Surviving a Recession

These tips are not unlike surviving a recession, if one were to say, happen, in 2026.

Some sensible advice in this MoneySense article on moving your RRSP to a RRIF. I already used these basics years ago when establishing my parents RRIFs for them.

  1. Consider “bucketing” to manage withdrawals:  Set a portion of your RRIF aside in something with no or very little risk that can be used for withdrawals. That way, the advisor suggests “…if the overall market takes a downturn, clients aren’t forced to sell investments at a loss because they need the cash.”
  2. Consider funding the TFSA with unspent money:  “Just because you are taking the money out of a RRIF account doesn’t mean you have to spend it.”  Yes, correct. This is why I set up my parents’ RRIF withdrawals, annually, early in the year: so whatever they don’t need to spend from their RRIF each year can go directly to their TFSAs, where money can continue to grow tax-free for any longevity spending or other emergency needs down the line.

Simple concepts that can also apply to RRSP withdrawals too for any early retirees… Continue Reading…

Personal Financial Goals vs. Market Benchmarks: Why your Investment Strategy needs a Different Scorecard

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The only investment benchmark that truly matters is whether you’re on track to meet your financial goals

Canva Custom Creation: Lowrie Financial

By Steve Lowrie, CFA

Special to Financial Independence Hub

We all like to know how we’re doing. It’s human nature. Whether it’s checking your golf handicap, your step count, or your investment portfolio, we’re wired to compare.

When it comes to investing, though, comparing can quietly pull you off course.

A client once asked me, “How’s my portfolio doing compared to the market?” It’s a fair question. But the real question is: how do you define the market?

In my experience, that definition changes over time. When one area of the world is outperforming, that’s suddenly what everyone calls “the market.” Over the last decade or so, U.S. stocks have led the way, so many people now define the market as broad U.S. stock indices like the S&P 500, or even narrower ones such as the NASDAQ, which is largely a measure of technology stocks. But in the decade before that, Canadian stocks did significantly better than U.S. stocks, so back then “the market” meant the TSX Index.

So, the idea of “the market” shifts with whatever happens to be doing best lately. That’s a moving target, and it makes for a poor benchmark.

Here’s the truth: unless your goals, timeline, and tolerance for risk are the same as that shifting version of “the market,” the comparison doesn’t tell you very much. In fact, it can distract you from what truly matters.

The Problem with Traditional Investment Benchmarks

Every night, the financial news tells us how some financial market did that day. The TSX was up. The S&P 500 hit a record. Bonds bounced back.

It’s easy to wonder, “Am I keeping up?”

But those numbers have nothing to do with your life. They’re designed to measure markets, not people. They don’t know when you want to retire, how much income you will need, or how much you can save. The list goes on.

When you start judging your progress against those numbers, you’re borrowing someone else’s scoreboard. It might look objective, but it’s not built for your personal situation.

That’s what we call tracking-error regret: the uneasy feeling that your portfolio is “falling behind” when it isn’t mirroring a benchmark or your friend or neighbour’s latest success story. That feeling often leads investors to make changes that feel smart in the moment but work against their long-term goals.

Setting Personal Investment Benchmarks that actually matter

There’s nothing wrong with measuring performance. The key is to measure what matters.

Ask yourself questions like:

  • Am I on track to retire when I plan to?
  • Can I fund the life experiences that matter most to me?
  • Do I have the financial flexibility to enjoy life without worrying about every headline?

If the answer is yes, you’re succeeding. That’s your true benchmark.

Remember, you can beat an index, or outperform a family member, friend, or colleague, but that doesn’t necessarily mean you’ll meet your financial goals.

It’s not about beating an index. It’s about building the life you want and staying on the path that gets you there.

A Road Trip worth taking: Planning your Financial Journey

Imagine you’ve always dreamed of doing a ski road trip through Western Canada. You plan a route from Calgary to Vancouver, hitting some of the best slopes along the way: Banff, Revelstoke, Big White, Whistler.

It’s not the fastest or cheapest way to get from point A to point B. You could fly to Vancouver in a couple of hours for a fraction of the cost.

But that’s not the point, is it?

The goal of your trip isn’t efficiency. It’s the experience itself: the mountain views, the fresh snow, the time with friends.

That’s exactly how a good investment plan works. It’s designed around your goals, not someone else’s shortcut (which, over time, may end up as a long cut). Your journey might look different from someone else’s, but if it takes you where you want to go, it’s the right route.

The Dangers of Portfolio Comparison and Tracking-Error Regret

When you compare your portfolio to an index or to what someone else is doing, you are like the skier who keeps checking flight prices mid-trip. You will always find a cheaper, faster, or flashier option. But constantly changing direction will make it impossible to finish the journey you started.

Comparison is powerful. It plays on our emotions, especially when markets are volatile or when others seem to be “winning.” But most of the time, those comparisons leave us feeling anxious rather than informed.

Any five- or six-year-old can look at two numbers and tell you which one is bigger. In fact, they will tell you that in a second. That is the easy part. The harder part, the adult part in an investing context, is not only spotting the bigger number, but understanding why one number is bigger than another. Continue Reading…

The Critical Element of Bonds  

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Image from Shutterstock, courtesy Outcome

Pleased to meet you
Hope you guess my name
But what’s puzzlin’ you
Is the nature of my game

  • Sympathy for the Devil, by The Rolling Stones

 

 

 

By Noah Solomon

Special to Financial Independence Hub

Historically, bonds have offered investors two main benefits. Firstly, their yields provided a reasonable, if unspectacular return. Secondly, they offered diversification value, muting overall portfolio losses during bear markets.

In my view, it is the second attribute that is the most important. In relative terms, bonds are not particularly useful for providing investors with strong long-term returns (that’s equities’ job!). So, by process of elimination it follows that the primary function of bonds is their diversification value.

When comparing equity strategies, one should compare their relative returns, volatilities, Sharpe ratios, drawdown characteristics, etc. However, given bonds’ primary purpose of providing diversification, an extra layer of diligence is required when evaluating bond strategies. Specifically, you should analyze their differing correlations to equities, and by extension their varying abilities to offset stock price declines during challenging environments.

There is no Free Lunch Part I

Economist and Nobel Prize recipient Milton Friedman famously stated, “There is no such thing as a free lunch,” which means that every choice has a cost, even if it’s not immediately obvious.

Traditional bond mandates each have their individual advantages and pitfalls with respect to returns, risks, and diversification properties. In terms of the tradeoff between risk and return, history strongly suggests that there is no clear free lunch to be had.

Risk vs. Return by Bond Type: 2000 – 2024

 

As the above table illustrates, there is a clear relationship between the returns of the various segments of the bond market and the maximum losses that they have sustained over the past 25 years. If you want extra return, you can reasonably expect to suffer larger losses in bad times. That being said, large losses in bond holdings are generally not what investors want or expect.

There is no Free Lunch Part II

Not only is there no free lunch with respect to the tradeoff between risk and return, but there is also none when it comes to diversification value. Higher returns are not only associated with larger losses but are also associated with higher correlations to equities.

Return vs. Correlation to Stocks by Bond Type: 2000 – 2024

Bonds that offer higher returns have a greater tendency to move in tandem with stocks, thereby providing less ability to mitigate stock losses during bear markets. In contrast, lower-return bonds possess greater diversification properties and thus are better equipped to offset stock-price declines during times of equity market turmoil.

None of the above: Sometimes there’s Nowhere to Hide

Notwithstanding the fact that higher-return bonds have on average suffered more severe losses and offered less diversification value than their lower return counterparts, these relationships have exhibited significant variations across different bear markets. Continue Reading…

CDRs vs. ADRs: What Canadian Investors need to know

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Learn the key differences between Canadian Depositary Receipts (CDRs) and American Depositary Receipts (ADRs), and how each structure helps Canadians access international stocks.

Image courtesy BMO/Getty Images.

 

By Erin Allen, CIM, BMO ETFs

(Sponsor Blog)

Investing outside of Canada sounds simple. Just buy shares of Apple, right? But if you’ve ever tried, you know it’s not that straightforward. You’ll need U.S. dollars, your brokerage will likely charge a steep currency conversion fee, and you’ll be exposed to foreign exchange (FX) risk the entire time you hold the stock.

That’s where depositary receipts come in. Canadian Depositary Receipts (CDRs) and American Depositary Receipts (ADRs) are two ways to buy foreign stocks without directly trading on an international exchange. They’re designed to make global investing easier: but they work differently.

In this article, we’ll break down the differences between CDRs and ADRs, which could help you determine which one makes more sense for your portfolio.

Canadian Depositary Receipts (CDRs)

CDRs are a homegrown solution designed to make global stocks more accessible to Canadian investors. Listed on a Canadian exchange and priced in Canadian dollars, CDRs give you exposure to foreign companies: without needing to exchange currency or worry about FX fluctuations.

What makes CDRs unique?

CDRs come with a built-in notional currency hedge. That means the value of the receipt adjusts for movements in the Canadian–U.S. dollar exchange rate (or other foreign exchange rate depending on the stock), helping reduce the impact of currency swings on your return. It’s a structural feature that’s automatically factored into the pricing of each CDR, so you don’t need to manage it yourself.

Another feature is fractional share access. Most CDRs are initially priced around CAD $10 per unit, making them more accessible than buying full shares of blue-chip companies like Tesla or Berkshire Hathaway in U.S. dollars. This structure makes it easier to build diversified portfolios: even with modest amounts of capital, which makes them particularly beginner-friendly.

Why consider CDRs?

Because CDRs trade on a Canadian exchange and in Canadian dollars, there’s no need for currency conversion, which means no currency conversion fees and the impact of currency movements is managed through a built-in notional hedge.

They also streamline global access: the current lineup includes U.S. giants, international developed-market companies.

And you can buy them at any major Canadian brokerage, just like any other Canadian-listed ETF or stock.

Notable examples in BMO’s CDR directory include ex-Canada companies like:

  1. ASML Canadian Depositary Receipt (CAD Hedged) (Ticker: ASMH)
  2. LVMH Canadian Depositary Receipts (CAD Hedged) (LV)
  3. Nintendo Canadian Depositary Receipts (CAD Hedged) (NTDO)
  4. Honda Canadian Depositary Receipts (CAD Hedged) (HNDA)
  5. Tesla (TSLA) BMO Canadian Depositary Receipts (CAD Hedged) (ZTSL)
  6. Berkshire Hathaway (BRK/B) BMO Canadian Depositary Receipt (CAD Hedged) (ZBRK)

With lower dollar-per-share amounts and built-in currency hedging, CDRs are designed to simplify international single-stock investing for Canadian portfolios.

American Depositary Receipts (ADRs)

ADRs are the original gateway to international investing for North American investors. Introduced nearly a century ago, ADRs were designed to make it easier for U.S. investors to buy foreign stocks: without dealing with foreign exchanges, unfamiliar regulations, or foreign currencies.

How ADRs work

ADRs trade in U.S. dollars on major U.S. exchanges like the NYSE and Nasdaq. Each ADR represents shares of a non-U.S. company, held by a U.S. depositary bank. These banks issue the ADRs and handle the underlying foreign shares.

There are two types of ADRs:

  1. Sponsored ADRs are backed by the foreign company itself and often come with better disclosure, liquidity, and alignment with investor interests.
  2. Unsponsored ADRs are issued by banks without the direct involvement of the company. These tend to be less liquid and may not offer the same level of investor information. They trade exclusively on Over-The-Counter (OTC) markets making them very hard to retail investors to access.

Unlike CDRs, most ADRs do not include currency hedging. Your returns will reflect not just the performance of the stock, but also any gains or losses from exchange rate movements between the foreign currency and the U.S. dollar.

Why investors use ADRs

ADRs are widely accepted and highly liquid, with a long track record. They provide convenient access to hundreds of international companies, particularly from developed and emerging markets in Europe, Asia, and Latin America.

But for Canadian investors, there are some added frictions. Because ADRs are priced in U.S. dollars, you’ll need to convert Canadian dollars to buy and sell them. That introduces currency conversion costs and FX risk, which can eat into returns.

For Canadian investors, ADRs still remain a viable route to global diversification. But they come with a few more moving parts compared to Canadian-listed alternatives that need to be accounted for.

CDR vs. ADR: Side-by-side comparison

Feature CDR ADR
Currency CAD USD
Exchange Cboe Canada / TSX NYSE / NASDAQ
Currency Hedge Yes (notional hedge) Typically, no
Fractional Access Yes Varies
Accessibility for Canadians High Limited

Investor considerations: a checklist

When deciding between a CDR and an ADR, the best choice often depends on your specific needs as a Canadian investor. Here’s a checklist of key factors to think about:

  1. ✓ Portfolio diversification with local convenience
    Both CDRs and ADRs give you access to global stocks, but only CDRs let you do it without leaving the Canadian market. You can trade them in Canadian dollars, through your regular Canadian brokerage account, during local market hours.
  2. ✓ Currency risk management
    CDRs include a built-in notional hedge that helps offset the effects of exchange rate fluctuations. ADRs, on the other hand, generally leave you fully exposed to currency movements. If FX risk is something you’d rather not manage, CDRs offer a more hands-off approach. Continue Reading…