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Email this8:56 pm
May 26, 2022
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Some ideas I've considered:
1. Annuitize the portfolio - no estate value, poor return unless you live well over 90, best rates in decades right now
2. All-in-one ETF or fund - subject to sequence of returns risk but which one?
3. Strip bonds + long term GIC's out to life expectancy of last survivor - I like this because returns on Provincial bonds are better than VRIF now and you can get 10 yr 5% GIC's paid annually.
In all cases I'd want at least 2 years of expenses in a HISA for emergencies but I also have a HELOC as a reserve.
10:22 pm
October 21, 2013
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I think you may need a more comprehensive retirement income plan, and not to depend on any one form of investments.
Start with looking at what you have or will have coming in from guaranteed indexed pension income. What gap do you need to fill? Fill it with the most secure form of income, probably annuities but this depends on how much money you have. If you have a LOT of money, annuities may not be necessary;
they are primarily useful for filling this gap for people who may not have much else or who do not have to provide for anyone in their will or don't have anyone reliable to act as POA..
Having met that basic income need, you can be more diverse with the rest of your money, and probably should be.
Do you want something that requires no attention whatsoever or something that needs some attention How much? Do you want something that can withstand actions or decisions by someone with dementia who is influenced by bankers etc who are not acting in your best interests? I've had this latter experience in regards to an elderly relative; fortunately she "only" lost $240. The worst cases are often when the dementia is mild or moderate, not enough to trigger POA necessarily but bad enough for poor judgment.
I could say a lot more but will stop there and let others chime in.
5:38 am
March 30, 2017
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Assume a good size is the RRSP/RRIF, the asset mix is important when it comes to forced withdrawal each year. It can’t be a set it and forget it. A ladder of GICs with annual maturity plus market indexed ETFs is probably a good mix under that scenario.
One needs a tax advisor, not a financial advisor.
7:27 am
October 27, 2013
Online
NCC1701Z said
Some ideas I've considered:1. Annuitize the portfolio - no estate value, poor return unless you live well over 90, best rates in decades right now
2. All-in-one ETF or fund - subject to sequence of returns risk but which one?
3. Strip bonds + long term GIC's out to life expectancy of last survivor - I like this because returns on Provincial bonds are better than VRIF now and you can get 10 yr 5% GIC's paid annually.
In all cases I'd want at least 2 years of expenses in a HISA for emergencies but I also have a HELOC as a reserve.
All important thoughts and ideas. If you have not done so, you may want to spend a fair bit of time over at https://www.financialwisdomforum.org/forum/index.php to read a lot of discussion about this sort of thing. A number of sub-forums and threads have a wide range of ideas about how to consolidate, simplify and auto-pilot portfolios as one ages and loses interest and/or capacity to manage one's own portfolio.
To get the best input, you would need to disclose a bit more in terms of age, portfolio structure now, whether a couple or a single, still working or not, how much of one's cash flow needs are met by annuity income today (CPP, OAS, DB pension), etc, etc.
1. and 2. above have merit, especially in combination. 3. is highly limiting given inflation and especially depending on one's estimated remaining life span. Short answer likely is some combination of consolidations that can run on 'near' autopilot with only some minimal oversight by a POA and/or a 'fee for service' advisor who maybe spends 2-10 hours per year having to execute a few minor* actions.
* Such actions may be an asset sale/cash generation for annual RRIF withdrawal, TFSA contribution (or withdrawal), selling of 'all in one' ETF units once a year when needed to supplement cash flow needs,etc.
As an example, we are in our mid-70s and the portfolios of my current spouse and ex-spouse are set up to require no more than 1-2 hours of intervention/management per year. Both portfolios have (or will have shortly) zero need to roll over anything until death do us part.
7:56 am
October 27, 2013
Online
A few examples of a non-annuity 'auto pilot' portfolio to supplement cash flow needs not met by CPP/OAS/DB pension alone........
Example 1: Portfolio consisting of a single all-in-one ETF that is drawn down at percentages not exceeding those in the VPW table https://www.finiki.org/wiki/Variable_percentage_withdrawal#VPW_Table plus 2 years of HISA cash reserve to bridge market 'down' years (SORR). The all-in-one ETF could be VCNS (40/60), or VBAL (60/40), VGRO (80/20) or VEQT (100/0) depending on one's inclination, or a mixture of two of those should bonds and stocks behave very differently, or VRIF (actively managed). The HISA component could be a digital bank from the HISA chart, or an ISA from the brokerage holding the all-in-one ETF.
Example 2: Similar to the first example, except use different all-in-one ETFs in different accounts, e.g. VBAL in non-registered, VCNS in RRIF being drawn down and VEQT in the TFSA if the TFSA is unlikely to ever need to be touched and may be the reserve for living past 100 and/or a legacy for heirs.
The choice of the all-in-one ETFs depends on performance needed from the portfolio, how large the portfolio is (razor thin or plentiful), one's risk profile, etc.
Example 3: If one has such a large portfolio that they can simply live off the investment income spun off by the portfolio, then a 100% dividend ETF portfolio (with a HISA reserve) is not out of the question. Whether such a dividend ETF is XIU or VDY or XDIV or any one of 5 others, such ETFs spin off dividends through markets both stong and weak. One only has to look at the distributions of XIU over the past 20 years to see that it held up well during the 2008-2009 financial crisis and 2020. Granted these are not 'black swan' events but they are tests of the market.
What one might do is situational to their specific scenario.
Added: Justin Bender of PWL Capital (Canadian Portfolio Manager Blog) has done a tremendous public service on backtesting the performance and volatility of the Vanguard Asset Allocation ETFs to help people decide on what is right for them. The site seems to be down (not load) at the moment for me to post the primary link(s) but will do so when the site is back up.
10:04 am
October 27, 2013
Online
Example 4: Depending on perceived longevity, combine some aspects of 2 and 3. Divide up the portfolio into 2 components: a) a 10 year strip bond/GIC ladder to meet needs for the first 10 years, and b) an all in one ETF for remaining life according to percentages not exceeding the rates in the VPW table referenced in my prior post. That alleviates the problem with a very long bond ladder that has too much inflation risk and/or is too difficult to construct.
Example 5: Again depending on perceived longevity: a) annuitize X% of the portfolio today with a joint last-to-die annuity with a 10 year guaranteed term and, b) use an all-in-one ETF operated under the VPW percentage table for the remaining balance.
These are examples of a significant variety of options possible that could be constructed to minimize overall portfolio management to just a few hours per year.
10:16 am
September 11, 2013
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Seems to me having everything in a brokerage account or two is the easiest for whoever is going to take on the job.
Other key factor is who's going to do it? I'm lucky, I've got one of my adult children (himself quite involved and adept at investing and saving) in position to take over when needed, a 2nd one in reserve if needed. That's my suggestion, start with trusted next generation family members, if you have any.
10:27 am
October 27, 2013
Online
I was just going to edit my prior post to say that to make this all work, it should all be in one financial institution like a big bank brokerage with a non-reg account, a RRIF account and a TFSA account, along with a chequing account to receive cash distributions. Any HISA can be brokerage ISAs with no need to chase another financial institution.
Each of my ex-spouse and my current spouse has 100% of their financial assets in ONE financial institution. My affairs are a bit more complicated - 2 brokerages and 2 digital banks.....but the digital bank accounts will be ditched in the not too distant future. In my case, my POA is a biological family member with banking and financial advisor credentials that can manage the relative simplicity of 2 brokerage institutions.
Not everyone has a capable and trusted family member to take on 'complicated' POA responsibilities.
11:31 am
October 27, 2013
Online
AltaRed said
Added: Justin Bender of PWL Capital (Canadian Portfolio Manager Blog) has done a tremendous public service on backtesting the performance and volatility of the Vanguard Asset Allocation ETFs to help people decide on what is right for them. The site seems to be down (not load) at the moment for me to post the primary link(s) but will do so when the site is back up.
The site is back up. https://cdn.canadianportfoliomanagerblog.com/wp-content/uploads/2023/01/Model-ETF-Portfolios-Vanguard-2022-12-31.pdf is back testing for Vanguard Asset Allocation ETFs while https://www.canadianportfoliomanagerblog.com/model-etf-portfolios/ can be used to see back testing for other series. The point of this comparison is help (including the OP on which one) make a decision on variability/volatility against return. The classic VBAL 60/40 is probably the sweet spot for most, with some investors being more conservative with VCNS and others being more adventuresome with VGRO.
https://www.canadianportfoliomanagerblog.com/model-portfolio-returns-for-2021/ and https://www.canadianportfoliomanagerblog.com/model-portfolio-returns-for-2022/ provides updates for 2021 and 2022 respectively. It is obvious 2022 was a tough year with an extraordinary year of both stocks and bonds being down for the year. That is the risk and a good example of an outlier year. That is what a HISA bridge (or cash reserve) can be used to tap into rather than end up selling ETF units that particular year.
Though some investors would go 'full in' on asset allocation ETFs, many would have a side order of something else, e.g. annuity, to diversify.
6:43 pm
May 26, 2022
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AltaRed said
To get the best input, you would need to disclose a bit more in terms of age, portfolio structure now, whether a couple or a single, still working or not, how much of one's cash flow needs are met by annuity income today (CPP, OAS, DB pension), etc, etc.
Later 60's couple retired but do a little P/T work, 60Equities/40 somewhat balanced. 80% RRSPS. CPP/OAS meets more than our basic needs, maybe need another 20k for fun money. Own house in Vancouver area no mortgage.
We could get zero return and still have enough into ours 100's but of course we'd like to get a decent return with very little risk.
Would like to collapse the majority of RRSPs into TFSA's and non-reg in the next 10 or so years to reduce a high estate tax and provide as much TFSA 'income' for the surviving spouse. We have 3 adult children that could do the POA
Thanks very much for all your suggestions - much appreciated!
7:29 pm
September 11, 2013
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If you're going the children route re POA unless there's a compelling reason I'd pick just one.
7:38 pm
October 27, 2013
Online
I would hesitate to aggressively collapse RRSPs into TFSAs and non-reg. You will likely never capture enough difference in estate MTR versus accelerated depletion of the RRSPs/RRIFs to make the PV calculation work. Being in your late 60s now, the time value calculation of paying tax way far before it is due will likely be substantially detrimental.
As post #3 mentioned, you need a financial advisor/tax advisor to run the alternate scenarios out for you to see the impacts. Look up a 'fee only planner' in your area and pay the $1-2k or so to clarify all this for you. Look at the Google Docs spreadsheet at https://www.valueofsimple.ca/links/directory-of-fee-only-planners/ for potential candidates. That planner could also help sort out between various portfolio scenarios.
9:53 pm
October 21, 2013
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i think the benefit of moving RIF to TFSA can be illusory. Odds are that you will fill that TFSA up regardless of RIF., so the tax situation is not really helped by using RIF money.
However, there are circumstances where it is beneficial to take lump sums from RIF. It depends on things like how much you each have in the RIFs, and what your marginal tax rate will be if you take out more.
A key question in this regard is whether you will ever be in a lower tax bracket.
In our case, the answer to that question is "no", and there is a real risk I will actually be in a higher tax bracket. So I decided to withdraw lump sums. I was never all that keen on RSPs anyway, so not an enormous amount. This year I will be 76 and I am finally in a position where i can close out my RIF if I want and not suffer financially. This puts me in a very good position to absorb future increased income. It will take several more years to get rid of spouse's RIF, but I can take half of it into income to accelerate the process.
The other key question is, how much can you take out of RIF before triggering OAS clawback This is something you definitely want to avoid or minimize as it effectively raises your rate by 15 percentage points on every dollar beyond the threshold. Currently it's something over 86K for each of you. If you are in a situation where you can't avoid this, then taking lump sums on annual basis is not a good idea.
A combination of RIF withdrawals and purchase of non-registered annuities can be very beneficial if you are considering annuities. This would be much better than putting that money into TFSA, assuming you will find other money for the TFSA anyway. The reason is that tax on non-registered annuity income is peanuts.
I don't think I'd buy an annuity yet though if I were in your situation. I would stockpile some RIF withdrawals and buy later if you still want to and are still healthy. You have the income you need right now, so there is no rush and you will get a better rate the older you get. Many suggest staggering purchases in your 70s, maybe starting as late as 75. You may not need annuities.
10:28 pm
May 26, 2022
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We're nowhere near OAS clawback thresholds. I would only withdraw the RRIF within the lowest MTR's of 20% to 22% to fill the TFSA's and the rest in eligible dividends to generate some negative tax. The other concern is that the surviving spouse will have a much higher MTR without both personal amounts, so the lower the RRIF's the better.
I've designed a spreadsheet including tax calculations to model various scenarios and our total taxes are far less at target death ages of 80 and 85 with the accelerated drawdown
Planeasy has a couple scenarios that illustrate this here:
https://www.planeasy.ca/why-you-might-want-to-withdraw-more-than-the-rrif-minimum/
Our numbers are higher and we'd draw down more aggressively but the plan is similar.
Annuities are probably last on our list of options.
8:55 am
April 6, 2013
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Keep in mind that the taxes on the RRIF withdrawals are not net taxes. One needs to factor in the partial rebate of the original RRSP contributions from claiming the RRSP contribution deductions.
One can withdraw from RRSP's and RRIF's up to the average tax rate of the RRSP contribution deductions claimed and not pay any net income taxes. See previous discussion.
I would stay way from those all-in-one balanced ETF's and balanced mutual funds.
I don't need to be as risk adverse as to buy Government of Canada and provincial government bonds with their lower rates instead of deposit insured GIC's. I also don't think it is a good idea for people to be locking in rates for decades by buying 20-year or 30-year bonds. Insurance pools and pension funds can predict their liabilities decades in advance. People can't.
But, that's what one is doing with 40% of one's money when buying one of those all-in-one things with a 40% fixed income allocation.
10:14 am
March 18, 2021
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NCC1701Z said
Some ideas I've considered:1. Annuitize the portfolio - no estate value, poor return unless you live well over 90, best rates in decades right now
2. All-in-one ETF or fund - subject to sequence of returns risk but which one?
3. Strip bonds + long term GIC's out to life expectancy of last survivor - I like this because returns on Provincial bonds are better than VRIF now and you can get 10 yr 5% GIC's paid annually.
In all cases I'd want at least 2 years of expenses in a HISA for emergencies but I also have a HELOC as a reserve.
Buy long term bonds and gold. Avoid the stock market long term as one day when it all falls to fair market value everyone will be wiped out. The people thinking their dividends will save them will be in for a rude awakening when all dividends are slashed right across the board.
11:55 am
October 27, 2013
Online
Norman1 said
I would stay way from those all-in-one balanced ETF's and balanced mutual funds.
I don't need to be as risk adverse as to buy Government of Canada and provincial government bonds with their lower rates instead of deposit insured GIC's. I also don't think it is a good idea for people to be locking in rates for decades by buying 20-year or 30-year bonds. Insurance pools and pension funds can predict their liabilities decades in advance. People can't.
But, that's what one is doing with 40% of one's money when buying one of those all-in-one things with a 40% fixed income allocation.
That is not really true Norman1. The underlying ETFs of the all-in-one ETFs are the medium term aggregate bond indices, i.e. the ones people normally buy as VAB or XBB with average duration of about 7 years and average maturity of 10 years. These are just where someone needs to be in the fixed income domain over ~30 years each of accumulation and withdrawal.
Examine VBAL for yourself https://www.vanguard.ca/en/advisor/products/products-group/etfs/VBAL VBAL's bond component has 41% 1-5 year bonds and 29% 6-10 year bonds.
Same for VGRO with a 20% bond component as compared to VBAL's 40% bond component.
1:42 pm
October 21, 2013
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I think you need to revise your life expectancy figures significantly if you don't have any life-shortening illnesses.
You need to base it on your current age.
See https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1310013401
In addition, you need to allow for the possibility of exceeding those projection. I would assume AT LEAST 90 unless you have an illness.
My dad was 93, and my mum is almost 102 and shows no signs of dying soon. We did not anticipate this! Mum has been in a retirement home for the last 3 years, doesn't need a nursing home; these homes are pricey!
4:05 pm
May 26, 2022
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The examples to age 80 and 85 were not meant to be expected lifetimes, If one lives longer, all the better, as the RRIF will be collapsed and they'll have maximized their TFSA income and non-reg dividends. We're unlikely to stay in the detached house that long either so there'll be a significant cash injection from downsizing.
4:16 pm
December 27, 2020
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TommyT said
Buy long term bonds and gold. Avoid the stock market long term as one day when it all falls to fair market value everyone will be wiped out. The people thinking their dividends will save them will be in for a rude awakening when all dividends are slashed right across the board.
Another prediction? I thought maybe you'd shy away from such after your last stock market crash prediction went nowhere as expected.
Please write your comments in the forum.