By Dale Roberts, CutTheCrap Investing, Retirement Club
Special to Financial Independence Hub
The following is a special to Findependence Hub. This post is derived from a newsletter from Retirement Club for Canadians, re-shaped and enhanced for this audience.
Retirees typically face the greatest risk in the first few years of retirement. A severe market correction or bout of inflation can permanently impair retirement plans. In fact, the risk for retirees starts several years before the retirement start date, they’re already in the retirement risk zone.
Norm suggested …
“Planning for retirement is tricky at the best of times because it is beset by uncertainties both known and unknowable. High valuations are one of the known problems but that doesn’t make them easy to deal with.”
While a severe market correction early in retirement is a great risk for retirees who will rely extensively on balanced or growth-oriented portfolios, a longer period of low returns can also create risk. The U.S. stock market is trading at worrying levels based on a variety of value factors.
Norm demonstrated that the S&P 500 Index is trading at a cyclically adjusted price-to-earnings ratio near 39, which is approaching the 44 level that we saw in late 1999 as we approached the dot com crash.
Source: Charlie Billelo / Twitter X
The price-to-sales ratio is approaching its 1999 high.
This ‘everything metric’ says we have the most expensive U.S. market – EVER!
We certainly can’t just step aside and wait for the next recession. Valuation metrics provide no market-timing opportunity. Nothing provides any market timing opportunity. Valuation tends to be a poor near-term market predictor, but it can ‘predict’ the potential returns over the next several years to decade. The data suggest returns for U.S. stocks could be very low in the range of 1-4% annual or even negative in real dollar (inflation-adjusted) returns.
And keep in mind that Canadian stocks (after a very healthy run) are expensive as well. After their big run-up this year, Canadian stocks now trade for nearly 29 times their average inflation-adjusted earnings of the past decade, according to Citigroup, the historical average is 16, TSX returns over the next several years might be challenged as well.
So, there is a risk of a major correction inspired by the lofty levels. And low returns in the first decade can put a strain on the spending plans. Continue Reading…
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.
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…
In the eight months since Donald Trump was reinstalled as the American President, monetary policy south of the border has been subjected to political interference at an unprecedented level. Most observers are of the opinion that Jerome Powell has performed his duties honourably and that the monetary stance taken has been broadly reflective of overall macro circumstances.
Given how relentlessly Trump has berated Powell throughout the year, any move to ease rates could be interpreted as a form of capitulation. Of course, if the economy is weakening and inflation remains benign, a move to lower rates would be entirely justified. Observers need to be careful not to imply political causation when the rationale behind such a decision is properly based on economics.
Now August is over and a September interest rate decision looms. For months now, I have been warning that the American economy (and by extension, the global economy) may be heading for a bout of stagflation. The current circumstances are delicate, and few people envy the task in front of central bankers around the western world.
The challenge is especially acute in the United States, not only because the stakes are highest because of the size of the economy, but also because the objective metrics for the economy continue to flash red. No one wants to make a policy error, but when you’re already walking on a knife edge, even the slightest miscalculation can be devastating.
Tariffs a curious case of mistiming
This may lead to a curious case of cause-and-effect mistiming. It appears the tariffs that have belatedly been imposed by Donald Trump have caused employment numbers to suffer somewhat, while giving importers time to make band-aid adjustments. The delays in implementation have allowed importers to stockpile inventories in anticipation of the tariffs ultimately being imposed in the ensuing months. It is against this backdrop that the central bank needs to weigh its options. There are numerous commentators who believe inflation will manifest once those inventories are drawn down, which seems imminent. Continue Reading…
I recently updated the returns for the Canadian asset allocation ETFs. The returns over the last year and three years can be described as abnormal returns. So much so that I had to double-check the performance for the equity markets that fuelled this incredible run. How did they do it?
Over the last three years equity markets have delivered average annual returns that are 60% to 100% greater than historical averages. The U.S. has delivered outsized returns over the last five years and beyond. In fact, coming out of the financial crisis U.S. equity returns are nothing short of spectacular.
Here’s the Canadian asset allocation ETF page that shows the returns for the major Canadian asset allocation ETF providers. You’ll also see a ranking by risk level.
And here’s an overview of the assets that drove the returns for the (wonderful) managed all-in-one global ETF portfolios. Also, bonds stopped being a portfolio anchor over the last three years, as inflation is under control (for now).
U.S. stocks XUS-T
International stocks XEF-T
Canadian stocks XIC-T
Canadian bonds XBB-T
U.S. bonds (in U.S. Dollars) AGG
A look at iShares asset allocation ETFs
Here’s an example of the returns for iShares asset allocation ETFs.
The returns are incredible, especially over the last year and three years. Five-year returns are abnormally generous as well.
Here’s an example of the asset allocation and holdings of iShares XGRO, with a target of 80% equities to 20% bonds.
How do your returns stack up?
Everyone should benchmark their personal returns. Of course, if you have an advisor and are invested in high-fee mutual funds your returns are likely waaaaay behind. Remember: Canadians should avoid most mutual funds.
The shift to ETFs and asset allocation ETFs can be a life-changing move. Consider it. High fees are a wealth destroyer. Use the Contact Dale form on this page if you want to know how to make that happen. And if you want low-fee global ETF portfolios, advice and financial planning …
If you’re a self-directed investor you should also benchmark (compare) your accounts to the asset allocation ETFs of the same risk level. That is, you will match the equity to bond ratios. If you’re underperforming you can discover why. Continue Reading…
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.
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…
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