Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

8 Effective Strategies for Managing Retirement Income and RMDs

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Pexels photo by Marcus Aurelius

Retirement income management and Required Minimum Distributions (RMDs) can be complex topics for many Americans. This article presents effective strategies to help readers navigate these financial challenges. Drawing on insights from financial experts, the following tips offer practical approaches to optimize retirement income and manage RMDs efficiently.

  • Purchase Annuity for Guaranteed Retirement Income
  • Leverage Qualified Charitable Distributions for RMDs
  • Optimize Asset Location for Tax-Efficient RMDs
  • Consider Annuities for Steady Retirement Income
  • Use Trusts to Manage RMDs Strategically
  • Convert to Roth During Market Downturns
  • Implement Bucket Approach with Beneficiary Designations
  • Start Home-Based Business to Offset RMDs

Purchase Annuity for Guaranteed Retirement Income

It is important to always consider broader planning needs, but one strategy that can be useful for generating retirement income and managing required minimum distributions (RMDs) is purchasing an annuity. This annuity would be purchased within an IRA and would create a level stream of guaranteed income for the rest of one’s retirement. This will not only satisfy one’s RMDs, but it can also lower taxes by stretching income across many years. In particular, it could help avoid large, irregular distributions that might push one into higher tax brackets. — Aaron Brask, Retirement planner, Aaron Brask Capital LLC

Leverage Qualified Charitable Distributions for RMDs

The obvious choice is to find a part-time job that aligns with your passion. This way, you can generate income and get paid to enjoy your favorite hobby. For example, if you love golfing, getting a part-time job at a golf course may give you discounts or even free games.

As far as managing RMDs, the amount that you must distribute is not determined by your income. It is based on the value of your Traditional IRA at the end of the year and the IRS Uniform Lifetime Table or Joint Life and Last Survivor Table.

This doesn’t include Roth IRAs. There are no RMDs in these accounts.

The best way to manage the increase in income, which can lower benefits such as Social Security or Medicare Part B (which are based on annual income), is to leverage Qualified Charitable Distributions (QCDs) for those who are philanthropic or give to a 501(c)(3) religious institution such as tithing.

When you reach the age to take RMDs, you can directly give to your favorite charity without incurring the tax implication or the increase in income that comes with RMD distributions. In 2025, you can donate up to US$108,000.

This will eliminate the RMD from being counted in your gross income and, at the same time, qualify for satisfying your annual distribution requirement.

I think this is useful because their favorite cause still receives donations, they satisfy their RMD, and they don’t have to pay the taxes up to that amount.

One thing I love about it is that you can make as many QCDs as you wish during the year as long as the total doesn’t exceed the threshold. — Alajahwon Ridgeway, Owner, A.B. Ridgeway Wealth Management, LLC

Optimize Asset Location for Tax-Efficient RMDs

After 15+ years managing corporate finances and helping businesses with cash flow optimization, I’ve seen how asset location strategy can be a game-changer for Required Minimum Distribution (RMD) management. The approach involves strategically placing different types of investments across taxable, tax-deferred, and tax-free accounts to minimize the tax impact when RMDs hit.

I worked with a client in the software technology space who had accumulated significant wealth through stock options and 401(k) contributions. We repositioned his bond holdings and REITs into his traditional IRA while moving growth stocks to his Roth accounts. When his RMDs started, he was pulling from bond interest and dividend income rather than forcing the sale of appreciating assets.

The key insight from my Financial Planning and Analysis (FP&A) background is treating this like portfolio optimization: you’re maximizing after-tax income rather than pre-tax returns. His RMD tax bill dropped by 18% because we were distributing lower-growth, income-generating assets instead of his high-performing tech stocks.

This works especially well for anyone with diverse investment types across multiple account structures. The planning needs to start at least 5-7 years before RMDs begin, but the tax savings compound significantly over time. — Michael J. Spitz, Principal, SPITZ CPA

Consider Annuities for Steady Retirement Income

Although annuities are often a source of debate and critique, they are still a functional and conservative way to generate income in retirement. If set up early enough, the steady income can often account for Required Minimum Distributions (RMDs) across all Individual Retirement Account (IRA) assets since the withdrawal rates are higher than the often quoted 4-4.5%. — Pedro Silva, Financial Advisor, Apex Investment Group, LLC

Use Trusts to Manage RMDs Strategically

After 25 years of helping clients navigate estate planning and witnessing countless families deal with Required Minimum Distribution (RMD) challenges, I’ve discovered the most effective strategy: creating an offshore Asset Protection Trust that feeds into a domestic charitable remainder trust for your RMDs. While this may sound complex, it’s incredibly powerful for the right situation.

Here’s how it works: I had a client with US$2.3 million in retirement accounts who was facing substantial RMDs that would push him into the highest tax brackets. We transferred a portion of his Individual Retirement Account (IRA) into a charitable remainder trust, which allowed him to take his RMDs as annuity payments over 20 years at a much lower effective tax rate. The added benefit? The remainder goes to charity, providing him with immediate tax deductions that offset other income. Continue Reading…

Can you retire using a 60/40 portfolio?

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

I enjoy posting retirement income case studies on this site, so let’s jump right in: can my readers retire using a 60/40 portfolio?

I believe they can. 

Can you retire using a 60/40 portfolio?

As mentioned on this site many times over the years, retirement income planning is a puzzle for some. Not all retirees will have more income generated from their portfolio than what their annual expenses are … although that is probably ideal for some.

That said, it is possible (although rare) to save too much for retirement – if you rely on general assumptions to calculate how much you’ll need.

A good example is your retirement income replacement rate.

The replacement rate is the percentage of the pre-retirement income you need to maintain your standard of living in retirement. I believe overestimating this rate can cause you to save more than what you need for retirement spending.

A general rule shared by some experts is you’ll need between 70-80% of your current income to maintain a comfortable lifestyle in retirement. This is because once saving for retirement is done, and paying off any debt prior to retirement, those pre-retirement expenses drop off.

Other experts cite 50-70% for the necessary income replacement rate. I shared that in this post.

Which one is correct?

Spending 50% of your pre-retirement income is likely a MUCH different number for you and I, vs. 80%.

Retirement rules of thumb are interesting for back-of-the-napkin fun but they have no value in any detailed income planning work. Which makes the following simple but essential IMO in your retirement income planning steps:

Step 1: What are your spending goals?

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

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

Here is a free retirement income planning playbook. No fee required.

Can you retire using a 60/40 portfolio?

My reader, Olin (name changed) is single and wants to semi-retire this summer at age 55. He has no children or dependants. He’s had a good paying job over the years as a graphic designer but wants to take more of his artistry on the road in the coming years…  He performs at various music gigs during the year for hobby/travel income.

After reading my site, including some MoneySense Best ETFs in Canada editions over the years, he’s landed on a comfortable 60/40 stock/fixed income portfolio across his accounts: that matches his tolerance for investing risk but also seeks to simplify how he invests for his retirement: in a single low-cost all-in-one ETF.

Olin appreciates and respects the dividend income journey by many bloggers but Olin doesn’t have enough money saved up to generate tens of thousands in dividend or distribution income from his portfolio without taking on higher risk bets: so he wants to rely on more of a total-return approach. This should work out well for him based on some historical research and trending.

As a student of market history, Olin is well aware instead of living off dividends or distributions, he could simply sell-off assets as he ages to meet his lifestyle needs. While that approach has some risks as well, depleting your capital over time, Olin is also very confident he could scale-up or scale-down discretionary spending in semi-retirement at will: he will spend more in “good years” and curtail some spending in “bad years.” Being variable with his spending should allow for even greater financial flexibility since he remains out of debt and mortgage-free.

Leveraging some Vanguard research I presented at an Ottawa Share Club meeting in May, 60/40 stock/fixed income portfolios have been very reliable, pension-like constructs for years.

Reference: https://www.vanguard.ca/en/insights/global-6040-portfolio-steady-as-it-goes

While the financial future is always uncertain, there is nothing to suggest a global mix of stocks + a decent weight of fixed income shouldn’t deliver similar results: balancing risk and reward in the decades ahead.

Can my reader Olin retire using a 60/40 portfolio?

Here are Olin’s inputs and assumptions as part of this case study:

  • Olin, single, age 55 later this year – wants to semi-retire summer 2025. He makes $80,000 (gross).
  • He wants to spend > $50,000 after-tax starting this summer.
  • He loves travel, and will take his guitar with him! He has determined he wants some “go-go” spending years between ages 55-79 and will have “slower-go” spending years after age 80.
  • Olin has no workplace pension.
  • He has no debt. He owns his townhome in Ottawa worth about ~ $750,000. Continue Reading…

Semi-Retirement Q&A with Mark McGrath

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Image courtesy Tawcan/Unsplash

By Bob Lai, Tawcan

Special to Financial Independence Hub

 

The Financial Independence Retire Early (FIRE) community is a very supportive and tight-knit one. One thing I appreciate from the diverse FIRE community is that there are people ahead of us who are always willing to share their knowledge and help others slightly behind them on the FIRE journey.

I would like to welcome Mark McGrath, CFP and CIM, who entered the world of semi-retirement on April 30. Before semi-retirement, Mark worked as a financial planner and associate portfolio manager at PWL Capital Inc. Based in Squamish, BC, Mark has been helping Canadian physicians, small business owners, and high-net-worth families on their financial decisions about portfolio management, retirement planning, tax planning, estate planning, and risk management. If you like the Rational Reminder podcast, Mark is one of the regular contributors as well.

Q1: Hello Mark, welcome to this little blog of mine. Can you tell us a little bit about yourself? 

Mark McGraff, CFP (Linked In)

Thanks Bob!

I’ve been a financial planner for the past 15 years or so, and have worked primarily with physicians and their families. My most recent role was as a Financial Planner and Associate Portfolio Manager for PWL Capital, and as of May 1st I’ve decided to semi-retire and step away from full-time employment.

In 2022 I started creating educational financial content, writing mostly on Twitter and LinkedIn. I’m a huge advocate for basic financial literacy and getting the big things right, and while I occasionally write about more complex topics, a lot of my content is focused on those core basics like index funds, using your RRSP and TFSA, getting insurance in place, etc.

Outside of work, I spend most of my time with my wife and two young children, and I enjoy reading, playing strategy games, listening to music, and playing the guitar. We like to travel as well but haven’t had much time for that over the past few years, but hopefully that changes now that I have more free time.

Q2. Congrats on your semi-retirement! You mentioned that financial planning is more than spreadsheets, retirement projections, and optimal portfolios, it’s really about helping people find and fund a good life. What is your definition of a “good life?” Explain why it’s important to focus on having a good life rather than spreadsheets and projections. 

Having worked with hundreds of Canadians of varying ages and backgrounds, I’ve realized that many of us never really decide what a good life is for us. We follow the traditional path – go to school, work your whole life, and retire at 65 – without pausing along the way to reflect on what’s important. Retirement can end up being very anti-climactic as a result, and those who haven’t prepared mentally and emotionally can find themselves lost. I saw this happen with my own father, unfortunately, and have spoken to literally hundreds of people who know someone who has gone through something similar.

I recently had this conversation with a 66-year-old professional client of mine, who was having what he called an identity crisis:  he had worked hard for decades, amassed a small fortune, sent his kids through university, and was now unsure about what he was supposed to do with his life. Designing a good life, intentionally and earlier on in his career, may have led him to optimize his time more instead of his wealth. Avoiding this type of regret is a big impetus for my decision to semi-retire.

A good life means different things to different people, of course. For us, it means optimizing the use of these precious years with our young children while we have the energy to do it, and while they still want to hang out with us. My kids are 7 and 2, and growing up fast. I still love financial planning, and likely always will, but we wanted to design our lives so that I could engage in that on my own time, at our own pace.

For me, that means more writing and creating educational content, and likely taking on a select number of clients on a fee-only, advice-only basis. If I can do that successfully, it also means I can do it from anywhere in the world, so we plan on travelling extensively as well. My wife is a systems and industrial engineer specializing in supply chain management and data analytics. She’s basically a math and data nerd. She stepped away from work about 4 years ago to be a full-time mom, but she also wants to find a way to put her skills to use on her own terms.

So our “good life” is spending time together as a family creating experiences, travelling, and doing some fulfilling work.

Q3. It was not easy to walk away from PWL and reach the decision on semi-retirement. Walk me through how you and your wife reached the decision. 

The genesis of this idea came over Christmas in 2023. My wife is from Mexico, and most of her family, including her parents, still live there. We try to visit them twice a year. Her sister Tamara, and her sister’s husband Fernando, moved to Sweden for work four years ago and joined us in Mexico for Christmas that year. Fernando’s hobby is photography, and he was showing us pictures of all the amazing places in Europe they’ve visited since moving to Sweden. My wife and I kept joking that we should just retire and travel as well.

Over the next 15 months or so, that joke kept coming up, and we realized neither of us was really joking. The more seriously we looked at it, the more apparent it became that we had to do it. At first I had planned to see if PWL would let me be a digital nomad, but we quickly shot the idea down – working full time, but just in a different country wouldn’t do – we wouldn’t have control of our time, and would be dealing with different time zones, potentially making work even harder. PWL is an incredible firm with incredible people, and it was really my dream job. At first, I thought I might be crazy for leaving. But I eventually realized I would be crazy to stay.

Being a financial planner I’ve always had a good head for our own personal finances. We saved as much as we could, and I’ve largely used index funds for the past decade. We got lucky a few times in the housing market as well, so our finances were in good shape. That obviously made the decision viable in the first place. That said, I tried not to overthink this decision from a financial perspective. I didn’t model a hundred different scenarios or anything like that.

Knowing that each of us can find a way to generate income if needed, and that we have a decent sized portfolio, was enough analysis for us on that front. Most of the decision making process was a discussion about the non-financial aspects of retirement – purpose, identity, how we want to spend our time, the benefit of being there for our children, etc.

Tawcan: Interesting that your sister-in-law and brother-in-law inspired you on the early retirement idea.

Q4. Tell me more about your plans for the new chapter of your life. 

This summer we’re going to travel Europe, primarily Spain. I plan to fully disconnect from work over that time period and reassess in the fall. I do really like writing and creating educational financial content, so I’m going to focus more on that when we return, though I’m not exactly sure what that looks like yet. Likely a blog at least, perhaps another book or two in the future. I’ve wanted to get into video for some time now, so maybe a YouTube channel at some point.

Other than that, I plan to provide advice-only financial planning, but not full-time. I’m fortunate that I’ve built up a social media audience and an incredible network of other financial professionals, so generating an income this way likely won’t be a challenge for me. So I’ll do that as a way to stay engaged in the planning community and bring in a few bucks to pay the bills as needed. Continue Reading…

Your Money Struggles have nothing to do with Money

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Photo courtesy Jessica Moorhouse

By Jessica Moorhouse, CFC™  

Special to Financial Independence Hub

What most people don’t know is that when I first pitched my book idea to my publisher, its original title was More Than Money.

I thought it expressed everything I wanted to say about how most people’s financial struggles went well beyond a lack of money or financial literacy. After more than a decade of discussing money with people from all walks of life as a content creator and helping individuals and couples with their finances as a Certified Financial Counsellor, I saw firsthand how money was rarely the root cause of their financial troubles. Unfortunately, I wasn’t the only person who thought it was a good title. On my last count, there are already five books on Amazon using that same name.

It’s about Everything but Money

It wasn’t until two months after I handed in my manuscript that I finally landed on the right title for my book: Everything but Money. I think it took me that long because I needed to go on a well-overdue journey of self-discovery while writing my book and come to the realization that my own struggles with money have always been about everything but money. Through countless hours of research, interviews, and therapy, I had to face the fact that as a money expert whose job it is to educate people about their finances, my relationship with money was downright toxic.

My Toxic Relationship with Money

At first, I was ashamed. I’m supposed to be the expert here, which should mean I’m a role model and have my stuff together. Although it may look that way on a balance sheet, on the inside, I was an anxious mess who never felt good enough, no matter how much I earned or had in the bank. The real reason I dove head-first into the personal finance space as a young blogger in 2011 was that subconsciously, I thought money would be the solution to all of my unhealed emotional wounds. The unhealthy friendships that damaged my spirit growing up. The middle child syndrome that made me feel invisible. The intense pressure I put on myself to be seen and heard through external validation.

Don’t confuse Money for Happiness (but it can help)

But as I discovered while writing the book, money isn’t some magical cure-all. There’s a reason there are so many miserable millionaires and billionaires out there. Although research shows that money can increase your happiness (to a limit), research also shows it cannot fix your unhappiness. I mean, have you seen Succession? Continue Reading…

Canadians with expensive mutual funds need to learn about ETFs

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By Dale Roberts

Special to Financial Independence Hub

Canadians pay some of the highest investment fees on the planet. Most of the Canadian mutual funds charge very high fees. Those fees directly reduce your returns. Too much of the investment returns end up in the wrong pockets. The very good news is that in 2025 you can move to very good, very simple and very inexpensive investment options. Cutting your fees from the 2.0% area to 0.20% or lower is life-changing. It could even double your retirement nest egg. Who doesn’t want to retire with twice the financial security, twice the lifestyle? Canadians should avoid most mutual funds. It’s so easy to leave your mutual funds and your advisor behind; you can move to a better place.

Most Canadian mutual funds are offered by salespersons, not qualified advisors. These advisors at Canadian banks and other sales shops for the high-fee funds have very low investment knowledge. Their only concern is selling you a product and lining their own pockets.

Beat the bank at their own game

That’s the premise and the truth told by former banker Larry Bates. Larry outlines just how poor are Canadian mutual funds, and the mutual fund industry. Have a read of …

Don’t give away half of your investments – Beat the Bank.

On wealth destruction Larry offers a humorous ‘quote’.

My investments put three kids through University. Unfortunately, they were my advisors’ kids – Anonymous

And there’s the crux, the punchline. When Canadians pay those high fees that average 2.2% annual or more, over an investment lifetime they will give away half of their investment wealth. Don’t be that investor. Don’t let your portfolio get crushed by fees.

Canada’s largest mutual funds, not so bad?

Canada’s largest mutual funds are offered by Canada’s largest bank – Royal Bank of Canada. When I first looked at the RBC Select Funds, including the RBC Select Balanced Portfolio I suggested they were ‘not so bad.’  But over time the fees and poor portfolio management continue to take their toll.

In that post I compare the RBC funds to a simple and superior low-fee approach, using an ETF portfolio. An ETF is an exchange traded fund.

  • Over the last three years the iShares Balanced ETF Portfolio (XBAL.TO) is up 7.4% compared to 5.2% for the RBC Balanced Fund.
  • Over the last 5 years the iShares Balanced ETF Portfolio (XBAL.TO) is up 7.7% compared to 6.2% for the RBC Balanced Fund.

Scorecard: over the last 3 years the RBC fund underperformed by an average of 2.2% annually. Over the last 5 years the RBC fund underperformed by an average of 1.5% annually.

You’ll find other comparisons to RBC Select and dividend funds in that post link.

How bad are TD mutual funds?

Canada’s second largest bank says ‘hold my beer.’ I can take your poor performance and go one better. This past week I looked at TDs very popular portfolio solutions known as the “Comfort” Portfolios. Once again, this is an attempt to create a diversified global balanced portfolio in one offering. A one-fund solution.

Check out the GIC rates at EQ Bank

I compared the Comfort Portfolios to a simple Canadian ETF Portfolio. The following table lists the average annual returns.

The underperformance is tragic. We see the TD portfolios underperforming simple ETF models by 2%, 2.5%, 3.o% annual and more.

Earn 50% more? Double your money over mutual funds?

With an additional 2.5% annual over a 20-year period, you could retire with 59% more. Over a 25-year period you’re talking 80% more. Over 30 years we move to ‘twice as much.’

For the above, I used a simple investment calcuator comparing 6% and 8.5% annual returns. In the investment world your return advantage could be greater or less given the sequence of returns. But it gives us a very good idea of the potential for greater returns, and a much richer lifestyle in retirement.

How to invest in ETFs

lf you’re new to the Exchange Traded Fund (ETF) concept please have a read of …

What is index investing?

An Exchange Traded Fund will allow you to own the companies within a market index, for example the TSX Composite (the Canadian stock market) in one fund, ticker symbol XIC. The fee for buying the Canadian stock market is 0.06%. Yes you read that right, that’s 6/100th of one per cent. Continue Reading…