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.

Why my goal to live off dividends remains alive and well

Image myownadvisor/

By Mark Seed, myownadvisor

Special to Financial Independence Hub

Some time ago…yours truly wrote a controversial post about the intent to live off dividends and distributions from our portfolio.

Well, a great deal of time has passed on that post by my thinking and goals remain the same – as least in part for semi-retirement!

Read on to learn why my approach to live off dividends remains alive and well this year in this updated post.

Why my goal to live off dividends remains alive and well

First, let’s back up to the controversy and offer a list why some investors couldn’t care less about my approach and why dividends may not matter at all to some people:

  1. The trouble with any “live off the dividends” approach is that you’d need to save too much to generate your desired income. Fair. 
  2. Dividends are not magical – there is nothing special about them. Sure.  
  3. A dollar of dividends is = a one-dollar increase in the stock price. True, a dollar is a dollar. 
  4. Stock picking (with dividend stocks) is fraught with under performance of the index long-term. I’m not convinced about that. 
  5. You can never possibly know long-term how dividends may or may not be paid by any company. Fair. 

In many respects these investors are not wrong.

You do need a bunch of capital to generate income.

Dividends are part of total return. [See image at the top of this blog.]

Stock selection can open up opportunities for market under performance.

And the negativity doesn’t stop there …

Some financial advisors will argue your investing world starts to shrink if you demand 2% or 3% (or more) income from your portfolio, so dividend investing leads to poor diversification.

My response to this: I don’t just invest in dividend paying stocks. 

Further still, some advisors will argue picking dividend paying stocks may lead to negative outcomes and too many biases.

My response to this: while I believe markets are generally efficient, I also believe that buying and holding some dividend paying stocks (while there could be market under-performance at times) does not necessarily mean I cannot achieve my goals. In fact, that’s the entire point of this investing thing anyhow – investing in a manner that keeps you motivated, inspired and helps you meet your long-term goals.

Consider this simple sketch art from Carl Richards, who is far more famous than I will be, and author of the One-Page Financial Plan and more:

Keep Investing Super Simple - Goals and Happiness

Source: Behavior Gap.

From Carl’s recent newsletter in my inbox:

“Pretend you live in some magic fantasy world where all of your dreams (according to the investment industry) come true, and you actually beat an index every quarter for your whole life. Congratulations!

So here’s my question: You landed in Shangri La, according to the financial industry. You beat the index. But you didn’t meet your goals. Are you happy?

The answer is “No.”

Now let’s flip that scenario on its head. The worst thing in the world happens to you (again, according to the investment industry). You slightly underperform the index every quarter for your whole life. But because of careful financial planning, you meet every one of your financial goals. Let me repeat the question: Are you happy?

And the answer is obviously… “Yes.”

Stop worrying about beating indexes. Focus instead on meeting your goals.”


Finally, some advisors will argue that dividends and share buybacks and other forms of reinvesting capital back into the business can be equally shareholder friendly.

My response to this: Well of course that makes sense. Dividends are just one form of total returns.

But you know what?

The ability to live off dividends (and distributions from our ETFs) will be beneficial for these reasons:

1. I continue to believe there are simply too many unknowns about the financial future. So, living off dividends and distributions will help ensure our capital remains hard at work since it will remain intact.

2. If we are able to keep our capital intact we don’t need to worry as much about when to sell shares or ETF units when markets don’t cooperate. We can sell assets as we please over time.

3. Living off dividends is therefore just one way I’m trying to reduce sequence of returns risks. See below.

BlackRock - Sequence-of-returns-one-pager-va-us - December 2022 Page 2.pdf

Source: BlackRock.

As such, we’ll try to live off dividends and distributions in the early years of semi-retirement to avoid such risks.

4. I/we don’t necessarily believe in the 4% safe withdrawal rule. It’s impossible to predict next year, let alone 30 or more investing years.

5. I’m conservative as an investor. Seeing dividends roll into my account help me psychologically to stick to my investing plan.

6. Dividends is real money, tangible money I can spend if and when I choose without worrying about stock market prices or gyrations.

7. It is my hope dividends (and capital gains) can work together to help fight inflation. As consumer prices rise, as the cost of living rises, the companies that deliver our products and services will rise in price along with them.

8. I like dividend paying stocks for a bit of the “value-tilt” they offer. 

9. Canadian dividend paying stocks are tax-efficientWith my RRSP growing more with U.S. assets, I tend to keep Canadian dividend paying stocks in my TFSA and inside my non-registered account.

In a taxable account Canadian dividend paying stocks are eligible for a dividend tax credit from our government. This means taxation on dividends are favourable, it is a lower form of tax; lower than employment income and interest income. This will help me in the years to come.

Will I eventually spend the capital from my portfolio?

Of course I will.

But with a “live off dividends” mindset I can sell assets or incur capital gains largely on my own terms during retirement. I plan to do just that.

Why my goal to live off dividends remains alive and well summary

This site continues to share a journey that includes how passive dividend income can fulfill many of our retirement income needs – whether that might be covering our property taxes, paying our utility bills, delivering enough monthly income to cover our groceries, fund some international travel or all of these things combined.

Here was one of my recent updates below.

We’re now averaging over $3,300 per month from a few key accounts.

(Hint: likely more next month!)

We’re trending in a great direction thanks to this multi-year investing approach and I have no intentions of changing my/our overall approach.

I firmly believe our focus on the income that our portfolio generates, instead of the portfolio balance, is setting us up to deliver some decent semi-retirement income.

Our goal to live off dividends and distributions remains very much alive and well for the years ahead.

I look forward to your comments.

Mark Seed is a passionate DIY investor who lives in Ottawa.  He invests in Canadian and U.S. dividend paying stocks and low-cost Exchange Traded Funds on his quest to own a $1 million portfolio for an early retirement. You can follow Mark’s insights and perspectives on investing, and much more, by visiting My Own Advisor. This blog originally appeared on his site on March 27, 2023 and is republished on the Hub with his permission.

Defined Benefit pension plans continue to perform, despite ongoing market volatility

Image Mercer/Getty Images

By F. Hubert Tremblay, Partner, Mercer Canada

Special to Financial Independence Hub

 The last few years have thrown a number of hurdles on the markets. A pandemic and the recovery phase have been accompanied by recent additional uncertainty from the collapse of Silicon Valley Bank and fears of a global banking crash. Canadians looking at their retirement savings realize how volatility can affect their accounts and might have to save more to meet their retirement objectives or delay retirement.

Despite this volatility, the financial positions of defined benefit (DB) pension plans continued to improve over the last quarter, as indicated by the Mercer Pension Health Pulse (MPHP).

The MPHP, which tracks the median solvency ratio of the DB pension plans in Mercer’s pension database, rose in Q1, finishing the quarter at 116 per cent, a jump of 3 per cent from the beginning of 2023. This is on top of a remarkable jump of 10 per cent during 2022.

While the global banking crisis continues to wreak havoc on markets, a strong January and February helped ensure that Canadian DB plans remained unaffected, and most continued to improve. In fact, many plans’ funded positions finished the quarter in better positions than they have been in 20 years. However, looking ahead, there are several factors that may create more volatility and uncertainty for DB plans:

 The global economy at play

The global economy entered 2023 juggling multiple risks. Around the world, central banks were focused on tackling inflation by increasing their policy interest rates and other qualitative tightening activities. On the heels of the failure or takeover of high-profile banks in both the U.S. and Europe, policymakers must now weigh the consequences of continuing these tightening measures with the need to stabilize the banking sector overall.

The war in Ukraine – with no signs of resolution in the near future – could also mean continued global tensions and a reduction in global trade, all of which will negatively impact the global economy.

In North America, there is increased political polarization in the U.S., with the debt ceiling needing to be raised but neither side compromising to reach an agreement. The consequences of the American government debt default would be disastrous for global financial markets.

 The Canada equation

North of the border in Canada, in addition to the inflation scenario, Ottawa’s decision to cease issuing real return bonds (RRBs) and proceed with Bill C-228 caused a stir among pension stakeholders. Continue Reading…

Retired Money: Americans cashing out of employer Retirement plans could benefit from Canadian approach

Yanwen Wang of UBC’s Sauder School of Business

My latest MoneySense Retired Money column, which has just been published, looks at an interesting study on trends in cashing out Retirement savings when American workers leave their jobs. You can find the full column by clicking on the highlighted text here: Should you cash out your workplace pension when you leave a job?

The paper, titled Cashing Out Retirement Savings at Job Separation, is co-written by a Canadian, Yanwen Wang, associate professor at the University of British Columbia’s Sauder School of Business. The study, which is fairly technical, is also featured in a more accessible version in the Harvard Business Review. The article that ran on March 7, 2023 is titled Too many employees cash out their 401(k)s when leaving a job.

Canada and the United States differ in how retirement plans are treated on leaving jobs, so most of the column applies mainly to the United States. But there may be lessons for the US retirement system that can be drawn from the Canadian treatment.

Average American has more than a dozen jobs over a career

In the US, the average American worker will have 12.4 jobs over a career, prompting the report’s authors to write that “Employers should recognize that most people working for them will change jobs before retirement.” Unfortunately, it’s all too easy for their workers to cash out of their 401(k)s when leaving a job, instead of rolling them over and letting the money continue to grow in a tax-deferred manner.

A UBC press release issued early in April carries the alarming headline that “Americans are cashing out the retirement savings at an alarming rate.”  The study identifies a “key” problem: when they switch jobs, 41.4% of employees are cashing out of those funds — even though the U.S. Internal Revenue Service (IRS) imposes a 10% per cent penalty on anyone younger than 59.5 years old.

Here’s what Wang said via email about the implications for Canadian retirement: “Canada has some different fundamental rules around retirement savings withdrawal. It is hard or probably impossible to speak to the Canadian RRSP withdrawal based on our US-based study.”
Canadian plans have locked-in feature

In particular,  many Canadian RRSPs have a locked-in feature, Wang added: “which means that even at job changing cash withdrawals are not allowed unless the individual becomes non tax resident. The locked-in feature is a key feature not present in most US retirement savings accounts. I don’t have data but I believe the illiquidity feature substantially reduces 401(k) leakage. I think the U.S. can learn from the Canadian retirement system and consider something similar — a locked-in 401(k) on top of an emergency savings plan — to satisfy the long-term retirement needs as well as short-term liquidity emergency.”

Unlike Canada, American employees can cash out at any time whether they’re working or leaving a job: the only developed economy that does. As the article points out, “other countries require many months of unemployment and evidence of clear hardship before allowing someone to tap defined contribution retirement savings.”

 Researchers also found an interesting phenomenon whereby the more a generous employer “matches” employee contributions, the more the departing employee is tempted to cash out and spend what it regards as “house money” or “free money.” Thus, the authors write, “Right now, cashing out is the path of least resistance. People choose what is easy, not what is wise.”

The column closes with some findings from a recent H&R Block Canada survey released on April 3, 2023. It  found nearly half of Canadians are unprepared for retirement and more than a third (36%) between ages 18 and 54 believe they won’t ever retire.

How to stay motivated while Pursuing Financial Independence

Image courtesy of Terkel

From setting specific financial goals for success to having someone hold you accountable, here are 18 answers to the question, “What are your best tips for how to stay motivated and disciplined in the pursuit of financial independence?”  

  • Stay Disciplined and Goal-Oriented
  • Tie Your Goals to a Tangible Item
  • Stay Educated
  • Equate Money to Your Time
  • Celebrate Small Wins Along the Way
  • Develop an Action Plan
  • Create a Budget
  • Invest in Yourself
  • Develop a Strong “Why”
  • Have Fun With It
  • Set Specific Financial Goals for Success
  • Balance Spending Now and Saving for the Future
  • Start Tracking Your Progress
  • Focus On the Big Picture
  • Be Present
  • Build a Support System
  • Set Yourself Micro-Goals Along the Way
  • Find a Financial Accountability Buddy

Stay Disciplined and Goal-Oriented

Staying motivated and disciplined while pursuing financial independence requires commitment. One approach to remaining committed is to practice goal-setting, breaking down big goals into smaller goals that are based on achievable objectives. For example, if you want to save $1,000 in 3 months, break your bigger goal of saving money into a series of monthly phases, setting benchmarks each month as you inch closer to achieving your end goal. This helps with momentum and development while moving towards your desired result. Michael Alexis, CEO,

Tie Your Goals to a Tangible Item

One often overlooked way to accomplish this is to tie your goals to a tangible item, such as a savings jar or bank account. Visualize yourself with it when planning out what you need to do today and watch as your small contributions add up. 

Having this visual representation can be just the thing you need on days when you feel unmotivated and looking for an excuse not to save money. Taking ownership of your financial goals is the first step towards realizing those dreams – that’s what staying disciplined will help you achieve! Tasia Duske, CEO, Museum Hack

Stay Educated

Continually educating yourself about personal finance is crucial in staying motivated and disciplined as you pursue financial independence. Of course, this starts with knowing how to budget and set boundaries for yourself. 

As you strive toward financial independence, it’s important that you know where your money is going and identify areas where you can cut back on spending. There are a variety of ways that you can budget your money, so explore those options and find a way that works for you. 

If you are one who likes to invest, stay up to date on current market trends so you don’t take any enormous risks that could cost you a lot of money. As you continue to stay informed and educated about personal finance, you will make informed decisions and avoid costly mistakes, which will ultimately help you achieve your goals. Bill Lyons, CEO, Griffin Funding

Equate Money to your Time

Whether you make minimum wage or $100 an hour, we all trade time for money. Spending less money is one way to achieve greater financial independence. But when you’re struggling to cut expenses, one way to stay motivated is to understand how much time your money costs you. 

For example, if you’re toying with the idea of a $50 purchase, think of how much of your time it would take to make back that $50. How far would that put you behind? Would you be willing to spend that time getting that item?

Thinking about money in terms of minutes/hours of your life can help you exercise some restraint on impulse buys or unnecessary purchases. If you feel like it would be a waste of time, it’s probably a waste of money, too. Alli Hill, Founder and Director, Fleurish Freelance

Celebrate Small Wins along the way

Achieving financial independence can be a long and difficult journey, and it’s easy to become discouraged if you only look at the result. You can keep your motivation and momentum going by celebrating minor victories along the way.

Set attainable short-term goals, such as paying off a credit card or increasing your monthly savings by a certain amount. When you achieve these objectives, take the time to recognize your accomplishments and reward yourself‌. 

As a reward for sticking with it, give yourself a small treat or indulge in a favorite activity. This will help you in maintaining your motivation and discipline, as well as making the journey to financial independence more enjoyable. –Johannes Larsson, Founder and CEO,

Develop an Action Plan

It is important to develop a plan with realistic goals. Start by setting short-term goals that are achievable, such as saving a certain percentage of each paycheck or paying off the debt within a certain timeframe. 

Then, set longer-term goals for retirement savings or other goals related to financial independence. Having a plan will help keep you motivated and on track to achieving your financial goals. Martin Seeley, CEO, Mattress Next Day Continue Reading…

The benefits of Early Retirement


By Billy and Alaisha Kaderli,

Special to Financial Independence Hub

Retirement is something that many people look forward to in their later years, but what if you could leave your career earlier?

The idea of retiring before the typical age of 65 may seem like a pipe dream to some, but it is becoming more and more of a reality for many people whether by choice or through layoffs. There are numerous benefits to this decision, both financially and in terms of lifestyle.

Financial Advantages

One of the main reasons people strive for early retirement is the financial benefits it provides.

To prepare, it’s important to have a solid financial plan in place. This is a great way to learn the skills of creating a budget, tracking your spending, and paying down debt. We learn the value of maximizing retirement contributions and investing in non-IRA accounts. It’s the time to build up retirement savings before beginning to withdraw from them. You can do this on your own, as none of this requires a professional advisor.

Acquiring these tools makes us financially strong and builds our self-confidence which then carries itself forward into other areas of our lives.

Of course there is the need to factor in the potential for unexpected expenses, such as medical bills or family emergencies. Which is why we recommend a few years of cash held in a highly liquid account such as Fidelity® Government Cash Reserves, FDRXX, currently paying over 4%. Access to this cash can also help in market downturns so you are not forced to sell at lower prices in order to live your lifestyle.

Another financial advantage is the ability to minimize taxes.

By retiring early, you may be able to reduce your taxable income and utilize tax-efficient investment strategies. For one thing, you will no longer be paying payroll taxes. Withdrawing money from your retirement accounts in a strategic manner, such as using Rule 72T before you are eligible, can minimize your tax burden in the future and potentially save you a significant amount of money in taxes over time. We did this as a monetary bridge until our Social Security was available. Once we started to receive these payments, we let our IRAs build back up again.

Lifestyle Improvements

Leaving your job or career early also offers a number of lifestyle improvements. For one, you will have more free time to pursue your passions. You could travel more, take up new hobbies, and spend more time with loved ones. We used this opportunity to give end-of=life care to our parents when that time came, something we could not have done while maintaining a full work schedule.

Early retirement can also allow you to lead a healthier lifestyle, with more time to exercise, cook healthier meals, and prioritize your mental health. You could even volunteer and give of your expertise and talents, something you never had time for while working your 9-5.

If you choose to become financially independent outside of your paycheck, you have the ability to avoid burnout. Many people feel overwhelmed by the demands of their jobs, and early retirement can provide a much-needed break while opening up new vistas for you. You are able to take a step back, reflect on your priorities, and perhaps even discover new interests and pursuits.

We did!

Taking advantage of options that seem to just appear

In our case we chose to travel the world, which gave us new perspectives on how to live our own lives. There is no one singular way to do anything, and seeing how other cultures approached community, family, and even the cooking of their food and the learning of a new language, opened up our eyes as well. Continue Reading…