Inflation

Inflation

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…

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…

Franklin Templeton likes prospects for US and global stocks in 2026

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Franklin Templeton’s Investment Outlook for 2026 and beyond was largely positive, judging by the three speakers who presented to advisors and the media at Toronto’s Ritz Carleton Hotel on Tuesday (Nov. 25). In fact, UK-based Global Investment Strategist Michael Browne declared the year now closing, 2025, to be “the Year that the Bear cried Wolf.”

Browne, who is with the Franklin Templeton Institute, released the following preliminary results of Franklin Templeton’s Global Investment Management Survey 2026, shown below:

Browne expects three Fed rate cuts next year and foresees U.S. equities as measured by the S&P500 to end as high as 7400 by the end of 2026.

Like other Templeton executives, Browne expects to see rises in stocks outside the United States. This year, the story has been about growth in the U.S. market and Value in the rest of the world, he said. But even though there are no “Magnificent 7” stocks in Europe or the Emerging Markets — the Mag 7 and their innovation mindset seem unique to the U.S. — he expects a widening and broadening of global markets, with “opportunities in all asset classes.” He expects earnings growth of 5 to 10%, somewhat below the 13.5% Factset consensus.

Corporate margins keep rising, housing markets are weak, and the High-Yield Default Rate is near historically low levels, Browne said, with slides illustrating each point: “Stress indicators do not
point to a severe default cycle in the near term.”

However, Tariff revenue for the U.S. is “unfortunately” high, he said.

Even so, as the chart below demonstrates, real GDP (Gross Domestic Product) is forecast to rise over 2026 and inflation is expected to be flat to down next year.


Meanwhile, there is more than US$7 trillion in cash still sitting on the sidelines and capex growth for the big hyperscalers is expected to remain strong, Browne said. They will spend US$3 trillion by the end of the decade and may generate significant returns for the four hyperscalers investing from Cash: Meta, Microsoft, Amazon and Google.

How to spot a Bubble … and a Crash

Browne provided past examples of historic bubbles, ranging from Dutch Tulipmania of 1637 to the American railway mania of the early 1850s, which crashed in 1873, and severe stock market declines in 1907, 1929, 1987, 2001 and 2008.

Bubbles usually end after 7 developments: Debt, Rate rises, a “First Failure,” Confidence fails Reverse Velocity, Margin Calls, Forced or Panic Selling and finally Fraud.

Comparing the 2020s to the 1990s, one of Browne’s slides said “The dot-com bubble burst in 2000: more than five years after the release of Netscape.”

Historically, Global Equities have delivered double-digit gains following Rate cuts and have supported P/E expansions, Browne said. All markets except China are more correlated to the U.S. than in the past. In Emerging Markets, Browne likes India and China: “When the Fed cuts, Emerging Markets fly.”

The last scheduled speaker was Jeff Schulze, CFA, Managing Director and Head of Economic and Market Strategy for ClearBridge Investments, who reassured attendees they don’t need to fear the All-Time Highs the U.S. has been experiencing throughout much of 2025:

Schulze says that with possible Tariff Refunds, “we think the economy next year will outperform consensus expectations … We’re buyers of Dips.” While valuations are “full” right now, with the Fed cutting we don’t see multiples going down  … for the first time in a long time, diversification will be more additive as we see a broadening out.” The previous laggards will become leaders, including small- and mid- caps and the S&P493 (all but the Mag 7).

One slide on the Tariffs said this: “The Supreme Court may decide that the administration’s IEEPA tariffs need to be refunded, which would be a windfall to corporate America next year. Secretary of the Treasury Scott Bessent has noted that approximately half of the incremental tariff revenue, which is on pace to near $200 billion by year-end, has come from IEEPA tariffs.”

Continue Reading…

Retired Money: Experts opine on various tweaks to Bengen’s famous 4% Rule

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William Bengen, creator of the famed “4% Rule.”

My latest MoneySense Retired Money column is titled The 4% rule, revisited: A more flexible approach to retirement income. Click on the hyperlink for full column.

It goes into more detail on William Bengen’s updated book about the 4% Rule, which was one of three recently published financial books we reviewed in the last Retired Money column.

For that column I had originally planned to focus exclusively on that book, A Richer Retirement, Supercharging the 4% Rule to Spend More and Enjoy More. However, I decided to review two other books at the same time; meanwhile I ended up on a related project on my own site, which involved asking more than a dozen financial advisors on both sides of the border what they think of the 4% Rule and the tweaks Bengen covers in his follow-up book. You can see all responses in this blog that appeared earlier this month on Findependence Hub, but at over 5,000 words  it was a tad long for the space normally assigned to the Retired Money column.

 For the MoneySense version, I focused on the most insightful comments and added a few thoughts of my own. The survey was conducted via Linked In and Featured.com, which has long supplied good content for my site.

Broader diversification spawns a 4.7% Rule

Trusts and estates expert Andrew Izrailo, Senior Corporate and Fiduciary Manager for Astra Trust, says Bengen’s original idea was to provide a sustainable income stream for at least 30 years without depleting your savings. In his new book, Bengen “revisits this concept using updated data and broader asset allocations,” summarizes Izrailo, “He now argues the safe withdrawal rate could rise to around 4.7%, supported by stronger market performance and portfolio diversification beyond the original stock-bond mix.”

For American investors, Izrailo still begins with 4% as a baseline because “it remains simple and conservative. Then I evaluate three major factors before adjusting: market volatility, portfolio performance, and expected longevity.” For Canadian retirees, “I tend to start lower, around 3.5%, due to differences in taxation, mandatory RRIF withdrawal rules, and the impact of currency and inflation differences compared to U.S. portfolios.”

Toronto-based wealth advisor Matthew Ardrey, of TriDelta Financial was not part of the original Featured roundup but agreed with the general view that while a helpful starting point, the 4 Rule is only a guideline. “When I meet with a client, I don’t rely on the 4% rule at all,” said Ardrey, who has worked with clients for more than 25 years “I’ve learned that rules of thumb — like the 4% rule — pale in comparison to the clarity and confidence that come from a well-crafted” and personalized financial plan.  Such a plan should reflect each person’s unique circumstances, priorities, and goals, allowing them to build the right decumulation strategy for their situation.

No one size fits all

Almost all the experts caution against taking a one-size-fits-all approach to the 4% Rule or its variants. Over 20 years with her own clients financial advisor and educator Winnie Sun, Executive Producer of ModernMom, starts with 4% as the baseline, then adjusts it based on actual client spending patterns and market conditions … The biggest mistake I see isn’t about the percentage itself: it’s that people forget about tax efficiency in withdrawal sequencing.”

Oakville, Ont.-based insurance broker James Inwood says the 4% rule is “a decent guideline, but it’s not some magic number you can set and forget. I’ve watched people get into trouble because they didn’t account for medical bills, which are a real wild card here in Canada. I always tell people to build in a cash buffer and check in on that withdrawal rate every couple of years instead of just locking it in permanently.” Continue Reading…