The annual Canadian Financial Summit starts this evening, and if last year’s event is any indication, it will be a mixed bag: some really good content, and some barely-concealed sales pitches. And, no, I didn’t get a speaking slot 😉
And the best part is, it’s totally free — the summit really pushes their all-access pass, but if you have some spare time over the next few days, you can see most of the content before it goes behind the paywall. All you have to do is register.
The speakers lineup includes certified all-star, the “retired” Rob Carrick. He always has useful information to share. I see BMO has made a bigger splash this year — among Canada’s big banks, they really do have some decent ETF products1, and their speakers are all coming from that side of the business, so that’s a session I’ll definitely check out.
If you attend, let me know what you thought was the best session, I’m always interested in what my readers find useful: you can reach me at comments@moneyengineer.ca.
My monthly retirement salary is calculated using a methodology called Variable Percentage Withdrawal, or VPW for short. You can read about the methodology over here, and you can follow an excellent real-time illustration of how it works over at https://tinyurl.com/vpwForwardTestFiniki.
Part of the “how it works” is calculating your total retirement savings on a monthly basis. For me that includes the real-time value of:
5 different RRIF accounts (3 for me, 2 for my spouse)
2 TFSAs (1 for each of us)
3 non-registered accounts (one for me, one for my spouse, one that serves as VPW’s cash cushion)
But what’s not in it?
My day to day chequing accounts
A rainy-day savings account
A tax savings account
A short term investment account
Since I’m continually talking about what’s in my retirement portfolio (most recently here), I figured a few words of other assets I have might be helpful.
My day to day joint chequing account
This is the account my spouse and I use for day to day banking. It’s an account we’ve held at CIBC for decades. It’s the kind of account that charges no fees as long as a minimum balance is maintained. It doesn’t pay any interest on balances. I could still conceivably use it to write physical cheques, but I can’t remember the last time I used it for that. Like most day to day banking, it has inputs and outputs:
Inputs: RRIF payments, payments from my non-registered retirement accounts, my spouse’s salary, eTransfers
Outputs: Most bill payments (subscriptions, utilities, insurance, credit cards, taxes, charitable donations), eTransfers, transfers to other accounts
As I build my relationship with Wealthsimple, some of the day-to-day duties are being shared — depending on cash flow I will sometimes pay bills from Wealthsimple, and if my CIBC balance gets too high (not often, but it does happen sometimes) I will move money from CIBC to Wealthsimple since Wealthsimple pays interest and CIBC does not. And if I’m traveling in a foreign country, the Wealthsimple credit card comes into play1, and balances for this card need to be paid from a Wealthsimple account.
My rainy day savings account
Every month, without fail, I redirect some funds to my rainy day savings account2. This is a separate account that pays interest. The rainy day fund pays for unexpected (but never ending) expenses. These could be car related (major repairs), house related (renovations, repairs), or sometimes a large splurge (vacation related). There isn’t a hard and fast rule as to when to apply rainy day savings, but a good starting point is when the cash flow of the joint chequing account looks like it’s heading to dip below the threshold where bank fees start getting paid for day to day banking. I hate all banking fees. Discretionary3 spending from the rainy day account is a joint decision.
My tax savings account
Every month, without fail, I direct some funds from my chequing account to the tax savings account. As a retiree, my only income comes from
Monthly RRIF minimum payments, which get no special tax treatment4. It’s like income. The big difference between a RRIF paycheque and a salary paycheque is that a typical salary paycheque has tax withheld at the source, CPP payments, EI payments… A RRIF paycheque has none of that.5
Payouts from my non-registered accounts, which also don’t come with any withholding tax. Every payout typically6 generates a capital gain and even with a 50% tax break on capital gains, it adds up!
So yeah, there’s a good chunk of income coming in (all flowing in to my day to day chequing account) but no taxes. So to cushion the blow in April, I’ve set aside funds to pay the looming tax bill. And for simplicity, I keep this separate from other accounts so there’s no temptation to “borrow” from it or to “forget” to make a payment. Payments are automated, direct from the chequing account every month. Wealthsimple makes this sort of thing quite painless to set up. And it’s a straight savings account, paying a small amount of interest, about 50 basis points below Bank of Canada overnight rate.
Short term investment account
This is something I’ve set up after getting a small inheritance. I haven’t decided what to do with this money, but while I think about it, I have it invested in an account with a reasonable return without taking on too much risk. It’s like the rainy-day fund, but with a likely longer time horizon.
The firewall between retirement savings and everything else remains in place. But everything else is a bit more complex than you might expect at first glance!
No FX fees when I use this card. One of three I carry, which I talked about lately. ↩︎
There’s actually a few of these held at different providers (Wealthsimple, Simplii) at the moment; this needs to be consolidated. ↩︎
I’m ignoring the fact that if you’re over 65 (I’m not) then you can split RRIF income with your spouse however you like. Because I planned ahead, my spouse and I are both the same age, and have very nearly the same RRIF value saved up, so even once I turn 65, the splitting may not be needed. ↩︎
To clarify, if you take RRIF minimum payments (as I do) then there is no withholding tax. If you take more than RRIF minimum, then there is, and the amount withheld will depend on how much above the minimum you go. Full and complete rules outlined by the CRA (prepare coffee before reading). ↩︎
A lot of the things I hold in my non-registered account I have held for a long time. And since it’s mostly boring index funds (I covered what’s inside a while back), they tend to increase in value over time. ↩︎
DIY investors include a growing number of RRIF holders (like me). If you want a primer on RRIFs, you can read that here. There are some strange nuances involved with moving RRIFs between brokers which may not be obvious and are not documented anywhere — or if they are, I have yet to find where.
I’ve covered parts of this topic before, (here and here) but this post attempts to summarize the weirdness so you don’t get caught unaware. It is my belief that the cautions outlined below are applicable to ALL brokers, but happy to learn otherwise, just drop me a line at comments@moneyengineer.ca, I read all my mail.
For simplicity, I’m going to refer to the “sending” broker (the broker that currently manages the RRIF) and the “receiving” broker (the broker to whom you’re transferring those same assets).
Caution 1: A sending broker cannot transfer a RRIF unless it has fully paid out RRIF minimum for that year.
As RRIF aficionados will know, at the end of the calendar year, a new “RRIF minimum” amount is calculated by the broker based on the market value of the RRIF at that time and the age of either the RRIF owner or the spouse of the RRIF owner. This is a well-known fact. What is perhaps not so well known is that the broker who holds the RRIF at the start of the year is obligated to pay out the full amount of the RRIF minimum, even if that RRIF is transferred in the course of the year1.
This has implications, especially if you attempt the transfer early in a calendar year:
You are going to end up with “extra” cash that you weren’t expecting. You’ll have to be prepared to do something with that money, but what? Leave it as cash? Invest it in a HISA? Invest it in an all-in-one?
This early windfall also means that your potential tax-free growth2 is lost.
Caution 2: Waiting past end of November to initiate a RRIF transfer runs the risk of tying up your RRIF funds for multiple months
“Fine”, you think, “if I wait until late in the year to transfer my RRIF, I can avoid the problems inherent in Caution 1”. This is what I thought, too. I was, again, wrong.
There seems to be an industry-wide pause on RRIF transfers that starts in late November and lasts until January of the following year. I’ve seen more than one mention of it. Questrade’s message when I attempted to transfer-in my RRIF to them was
“Please be advised that RRIF/LIF account transfers are subject to the industry-wide cut-off date, November 28, 2025. This cut-off date is not specific to Questrade, but is arranged and agreed upon by all Canadian financial institutions to ensure yearly payments are made in an orderly and timely manner to all account holders.”
It appears I got extremely unlucky: the transfer STARTED before November 28th, but failed to fully complete before the deadline. Performing a transfer is a multi-step process using a service called “ATON”34. You can read all about how ATON works over here.
In my case, it took until mid-February for the transfer to complete. During that time, the account was in limbo, and no payments could be made. For someone who expects to be paid monthly from a RRIF, this was a bit of a problem.
Advice: Initiate RRIF transfers before November 1.
This ought to give enough time for the transfer to complete before the cut-off date. And minimizes the amount and time you have “extra” money floating around. You can help make sure your transfer goes as expected:
Make sure the assets you hold are supported at both institutions. GICs are a frequent problem. So are bank-backed HISAs. If you hold assets like that, do yourself a favour and sell them before you initiate the transfer so that they are just cash.
If you hold fractional shares in your account5, get rid of them by selling off the fractions or buy more so that you have whole shares. From what I’ve read, fractional shares are a construct that is broker-specific and will cause issues when you attempt to transfer them.
Make sure you have enough cash in your RRIF so that the sending broker can pay out your RRIF minimum before the transfer begins.
Happy investing. If a transfer really goes astray, it looks like OBSI can help.
Since the average gains of the market are positive, I’m always going to make the assumption that it’s better to be invested than not. You could of course get lucky and avoid a big market downturn because your RRIF cashed early, but that’s not how I think about investing. Time in the market is always better than timing the market, per Ken Fisher↩︎
This was the title of a recent webinar I attended via PWL. You can watch it yourself over here: https://www.youtube.com/watch?v=pQl6n4zepys. I don’t think I learned a ton from it — the short answer? “It depends”. “On what?”, you may ask. Here’s some things that influence the answer to the question:
It depends on HOW you live.
Put another way, “what’s your budget in retirement1“? This is a question that many people don’t have an answer to. There’s a few buckets to think about, it’s not intended to be exhaustive:
Medical expenses (drugs, dentists, optometrists, physiotherapy)
Entertainment (eating out, shows, memberships/user fees)
Travel (transport, housing, activities)
Charities
One thing you don’t have to worry about is setting aside money for an RRSP, since once you’re retired, that’s no longer a thing. But don’t neglect the need for a savings fund for unexpected larger expenses. We always keep a “house fund” that gets a monthly payment that we don’t touch for anything other than home renovations or repairs.
Your bank/credit card4 statements5 might be a good place to see what your typical spending looks like.
It depends on where you live
Live in Toronto? Vancouver? Yeah, that’s not cheap. But if you were willing to move to, say, Thailand or a low cost Canadian city, you might be able to spend a lot less on housing. But since most people aren’t willing to uproot, these costs are known, or can at least be reasonably estimated. And if you’re staying put, then will you downsize? When?
It depends on whether you have a pension outside of CPP/OAS
And I’d add, “and it depends if that pension is indexed to inflation”. (The CPP and OAS are, which is why they are great).
It depends on how long you’re going to live
Not predictable, obviously. The oft-cited “4% rule” of retirement assumes a 30 year retirement. That’s living until age 95 if you retire at the “usual” age of 65. When I engaged a financial advisor in the lead-up to retirement, the charts stopped at age 95 as well.
It depends on whether you want to leave an estate to your beneficiaries
Want to die with nothing6? Then you need less money than if you want to leave assets behind. It’s a pretty fundamental question. And if you want to leave assets behind, then how much? And to who? (You do have an up to date will, right?)
It depends on what your CPP and OAS payments are likely to look like
CPP is dependent on how long you’ve been contributing to the plan, up to a maximum that is published annually7. You can take CPP as early as age 60, and as late as age 70, with penalities/bonuses accumulating every month. CPP needs to be applied for before the cheques start rolling in.
OAS is dependent on how long you’ve lived in the country. If you’ve lived here for 40 years or more, then you qualify for the maximum payment of $742.31 at age 65 and automatically starts at age 658 (for most people) unless you specifically ask for it to be deferred.
It depends on how much income you’re intending to make in retirement
The CPP isn’t designed to pay a living wage9. For this reason, many people “ease” into retirement by working part-time or on short-term contracts. This income impacts the answer to the original question — obviously, if you are earning money, then the retirement nest egg can be smaller.
It depends on what your retirement assets are invested in
This, in my view, is frequently overlooked. The fact is that retirement can be quite long, and assets invested in a retirement portfolio still have growth potential. My retirement assets are 80% equities, 15% bonds, 5% cash. This provides me with more growth potential at the risk of having to weather periods of market volatility. I’m comfortable with that degree of risk, but others may not be. Having a lower exposure to equities means your nest egg needs to be bigger.
It depends on future inflation
Inflation can fluctuate a lot over the course of retirement. Take the last 30 years as an example:
Inflation is really the biggest concern in my retirement since most of my current income is not inflation-protected10.
My approach? Knowledge and a willingness to be flexible
What kind of knowledge?
I had a sense of what my budget desires were
I knew my retirement portfolio was going to stay 80% equities
I knew I had no pensions outside of CPP/OAS. With advice from my advisor, this lead to the current plan to defer these pensions to age 70 so I can maximize my inflation-protected income.
My advisor advised me that I had enough saved up that I could retire
But I gained additional, non-data-driven knowledge:
that market returns are highly variable12, that inflation is highly variable, that my personal spending budget is highly variable
that I have always, always, always, adapted to life changes (income, expenses) by either being looser or tighter with money.
The decumulation strategy I use (VPW, Variable Percentage Withdrawal, talked about here) is deceptively simple, but requires you to be flexible, as your monthly calculated salary is based on your net worth. My salary has generally ticked upwards in the past 12 months, but it could just as easily turn in the other direction in the event of a sustained market downturn. I’ve decided I can live with that. And if you want to see a much longer test in action, check out longinvest’s VPW forward test at https://tinyurl.com/vpwForwardTest.
My final thoughts: be suspicious of a specific answer to “how much do you need to retire”? It depends on so many factors, including your own propensity to adapt to changing conditions, that a simple answer doesn’t seem possible — or reasonable.
And does it change over time? I expect my budget needs are higher now than they will be in the future, when presumably I’m less able/willing to travel. ↩︎
Doing this with 100% accuracy would imply you know the date of your own demise, so probably not a realistic objective ↩︎
And is currently $1507.65/month if you’re 65 this year. ↩︎
This one thing I did learn from the PWL webinar: that for most of us, unless you take action, the OAS will start when you turn 65. ↩︎
Per the CPP website (emphasis mine): “The Canada Pension Plan (CPP) retirement pension is a monthly, taxable benefit that replaces part of your income when you retire” ↩︎
Owning equities is a sort of imperfect inflation hedge since equity prices, like all prices, are influenced by it. ↩︎
I’m reminded of the famous quote by Mike Tyson: “Everyone has a plan until they get punched in the mouth” ↩︎
One year after paying for my retirement plan that informed me I was still three years from retirement, I retired. Why? My retirement savings had blown past “the number” I was advised to hit. And, after a year of retirement, my net worth is 10% higher than when I started retirement. The market sometimes works in your favour. ↩︎
(Quick aside: as a retiree, I did have to make sure this coming weekend was, in fact, a long weekend 🙂 )
What’s the deal with AOA?: updated
While many Canadians are familiar with all-in-one products that trade on the Canadian exchanges (XEQT/XGRO, VEQT/VGRO, TEQT/TGRO, ZEQT/ZGRO), there is also a USD product that I use quite heavily in my retirement portfolio. That ETF is AOA. In this updated post, I break down what’s inside it. TL/DR: lots of US Equity, lots of International Equity, a tiny slice of Canadian equity, and broad coverage of the US and international bond markets.
Rob Carrick is back in (digital) print
One of my favourite ex-Globe And Mail staffers was Rob Carrick, the keyboard behind such valuable assets as the ETF Buyer’s Guide. He retired last year, but it seems he’s back doing the same job in a different way. He’s now writing on Substack, and you can find his words of wisdom over here: https://substack.com/@robcarrick1.
PWL on Retirement: “Finding and Funding a Good Life”
Not a new publication, but new to me…It’s penned by Ben Felix, a certified Canadian financial rockstar. Looks like a good read over a cup of coffee. Finding and Funding a Good Life.
