Wednesday, May 20, 2015

My Withdrawal Experience

Yesterday, I talked about the 4% rule for withdrawals from a portfolio in retirement. I stopped working and have been living on my dividend income from 1999. When making my financial plans for using my portfolio to live off of, I started off using the 8%, 4% rule. The 8%, 4% rule means that you should count on making 8% a year on your investments and you should count on spending 4% a year from your investments.

However, I changed my mind in 2001 after having my portfolio ravaged by the stock crash. At that time I thought it might be best to change my plans to try and only take out money equal to my income. I realized that would leave an estate but I did not want to be old and have no money. I did not plan to work again and I was not at retirement age, so I thought this would be best.

My plan of attack was to do some switching to stocks with higher dividends, control increases to my budget let dividend growth stocks do the thing they do best, that is grow dividends. Dividend growth stocks tend to growth dividends overall at a faster rate than inflation.

By 2006, I was taking out slightly less money from my portfolio than I was earning. I am taking money from my RRSP accounts and in these accounts I have moved to higher dividends by cashing in stocks that have the lowest relative yield for money to be used in withdrawals.

I went from using 140% of the income to using 85% of my income in 2014. I expect 2015 to be the same. However, when I turn 71 the amount I need to take from my RRSP accounts turned RRIF accounts will be high as will be my taxes. To ensure I have enough cash for withdrawals will cost me income as interest rates are low. So I expect that in the future my income will go down.

On my other blog I am today writing about Thomson Reuters Corp. (TSX-TRI, NYSE-TRI) ... continue...

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  1. Good Morning SP;
    I plan on retireing this year as well, I will be 65 years of wisdom (or follie) in September.
    My plan of attack for my funds at that time are obviously the CPP(QPP for me), OAS, a very small company pension and then utilize my non-registered funds to one, supplement the preceding revenue sources and two, max out the TFSA every year. Once the non-registered funds are used up I hope I am close to 71 years for the conversion of the RRSPs in to a RRIF. I am hoping the six year interval, 65 to 71, will have boosted the RRSPs by a significant amount before conversion to a RRIF. Seeing the withdrawal rates from a RRIF are now reduced will help maintain the principal for a longer period.
    Any excess funds can be diverted to the TFSA unless otherwise needed.

    My non-registered funds are based on a HELOC. Last year the HELOC service interest was >$3K, dividends were >$14K
    So the interest is tax duductible, the dividends are taxed at a lower rate, all dividends go to pay the HELOC charges as well as pay down the principal.which eventually allows me to buy more dividend paying equities. How do I manage to get such returns from this? Time in the market. It has been several years I have been doing this so the principal is now significantly higher than the HELOC and therefore the dividends are as mentioned.

    As mentioned in a few other blogs, it is not timing the market, it is time in the market.



    1. What I tried to do (quite unsuccessfully I might add) was to run down my RRSP funds before 71. My calculations show that I will be paying lots of tax on RRIF withdrawals and get no OAS.

  2. Time will tell what happens to my OAS if I can tough it out till I am 71 by living off my non-registered funds. Until then I will pull OAS except for maybe this year as I am still pulling a salary plus dividends.
    I did not sit down to figure it out but I was hoping to "maybe" pull the supplement as well if I can transfer enough over to my TFSA to reduce my dividends. That way i would have just QPP. OAS and a very small company pension to declare along with the dividends. Will figure it out when i get there.

    Take care. Have a good weekend