Category: Planning to Retire Soon

Getting paid in retirement: a DIY challenge

RobH7 Comments

Summary: The mechanical details of getting paid in retirement require careful review of how your provider allows cash movements between accounts, a handle on how much money is coming in via a RRIF, and, for bonus points, an annual decumulation plan to minimize household taxes.

I covered how I get paid in retirement previously, but this was nothing more than a restatement of how VPW (Variable Percentage Withdrawal) works. My reality is not quite as simple as the Idealized Monthly Routine I laid out in that post.

The actual work required looks more like this:

Actual monthly work needed to get paid in retirement

The first 3 steps are the ones I covered in the last post, and there’s nothing new to talk about there. In brief, you calculate your retirement savings, enter that number into the VPW spreadsheet, and out pops the monthly VPW suggestion (“v”), which is then added to the current value of your cash cushion (“c”) to calculate your salary (“s”).

It’s probably worth noting what specific accounts I hold at my provider to make things a bit clearer1

  • There are 4 total RRIF accounts (two for me, two for my spouse)
  • There are 2 non-registered accounts that hold retirement investments (one for me, one for my spouse)
  • There is 1 non-registered joint account that serves the role of VPW’s cash cushion, which is invested in DYN6004 so I can earn a bit of risk-free interest.

So ideally, my RRIF payments would flow into the cash cushion account, and I would pay myself out of the cash cushion account to my everyday joint chequing account. That is unfortunately NOT how it works.

Let’s pick up the process starting at step 4.

Do the RRIF minimum payments cover the calculated salary?

When I opened my RRIF accounts (and yes, there’s more than one2), one of the questions asked was “what bank account should the payments go to?” Asking for RRIF payments to go to a non-registered account was not presented as an option, and it’s not possible. So already the simple RRIF to cash cushion transaction outlined in the ideal scenario wasn’t possible.

The other questions asked by my provider was: how much do you want to be paid? (RRIF minimum, some percentage/amount higher than that, gross/net?)

(If you’re new to the RRIF world, or if you think that RRIFs are just for 71-year-olds, you may want to check out my previous post on debunking this and other myths.)

The amount each of my RRIFs3 pays me monthly is a well-known fact since I opted to collect RRIF minimum from each RRIF — and RRIF minimum is based on my RRIF value and age as of January 1, 2025. It will stay constant throughout 2025. So while simple, the amounts involved aren’t enough to pay my suggested salary. I’m free to ignore the suggested salary and simply (try to) live off my RRIF minimums, but that would be counter to my “you can’t take it with you” ethos. And so, I have to augment my RRIF minimum salary with money from elsewhere.

If your RRIF minimum payments are higher than the salary, then I suppose it makes sense to re-invest those payments somewhere. Or give the money away. Up to you 🙂

Sell required assets in non-registered account and move $ manually

The title is clear enough — sell something in the non-registered portfolio and use it to make up the salary shortfall. But whose holdings4? Which ones?

To help me decide, at the beginning of the year, I played around with tax scenarios using the calculators referenced in Tools I Use to concoct a high level plan on how to best minimize my household’s collective tax bill. (This was a tip my financial advisor gave me; her advice was to try to pay no more than an average tax rate of 15%5).

I assumed my income sources were

  • My RRIF minimum payments (same for my spouse)
  • My spouse’s salary
  • Minor dividend income6
  • Capital gains caused by the sale of non-registered assets7

Since the first three items above were already known, there was no decision to make; the tax owing on those was already clear8. The capital gains were the only variable — how much should I take versus my spouse? There was a bit of estimation involved in the actual amounts here (the actual gains would depend on the actual sale price), but it gave me a high level plan for 20259. Any additional income needed would be paid by capital gains realized from MY holdings since my income was forecast to be lower than that of my spouse10.

With the pre-work done, it boils down to making the required sell trade, waiting two days for the cash to settle, and then clicking the right buttons to get the cash out of my investment account and into my chequing account. Should be simple, but if you’ve never done it before, you need to make sure it’s all working as you expect.

Sell required assets in RRIF

Yes, you have to make sure that there’s cash available in your RRIF accounts (and remember, I have 4) BEFORE the monthly payment goes out. My provider would only be too happy to do this on my behalf, charging me their “telephone trading rates” for the trade — something like $30 plus $0.06 a share for XGRO. Compared with “free” if I do the work myself, that’s a pretty decent hourly rate…Do not forget that it takes two days for a trade to settle into cash. Since my provider does not pay interest on cash holdings, I’m highly motivated to keep any cash balance to a strict minimum. I hate not earning money on my money.

Adjust cash cushion up or down by comparing VPW suggestion to calculated salary

In my previous post I talked about moving “v” to the cash cushion and then simply taking 1/6th of it as salary. And that is exactly what I do. But practically, it’s impossible to do this maneuver in exactly the way I describe with my current provider (QTrade). Here are the specific reasons I can’t do what VPW asks me to do:

  • QTrade RRIF payments must be made to an external bank account. So right away, part of my salary cannot flow through an intermediary cash cushion account.
  • QTrade does not allow cash transfers between non-registered accounts on their online platform. This means that the asset sales in my non-registered account cannot be moved directly to the cash cushion accounts either11.

I have worked around the limitations imposed by my provider by either

  • moving money from my chequing account to my cash cushion if the VPW suggestion is higher than my salary (market is moving up)
  • moving money from the cash cushion to my chequing account if my salary is higher than the VPW suggestion (market is moving down)

I have set up smart-ish spreadsheets to break down all the various movements of money which I will share at some point once I figure out how to make them a bit more generic. I’ve also documented a step-by-step guide for my spouse which she uses as we sit together walking through the monthly tasks12 so that I have confidence she could execute on them if I became incapacitated. There is no substitute for handing over the controls to see where the gaps in knowledge — and documentation — are.

The future

Having witnessed what happens to savvy adults as they get older, I know deep down that this DIY strategy isn’t sustainable forever. There are too many moving parts, and too many opportunities to make mistakes.

At present, I don’t have a future plan mapped out. I have updated my “death binder“, but beyond this, nothing more. I will dedicate more research (and future posts) on that topic.

  1. For your benefit I have not mentioned the USD variants I have of a few of these. This post is long enough as it is, and I presume that most readers don’t hold assets that are traded on US stock exchanges. ↩︎
  2. My own RRIF and my spousal RRIF account for two, and my spouse has two as well. Total four. They are with the same provider. Spousal RRIFs are generated from spousal RRSPs, in case you were wondering. If you deal with more than one RRIF provider (I would NOT recommend that), you’ll also have to consider that. All this to say that I saw 4 distinct payments made to my joint chequing account on Friday last week, one for each of the 4 RRIFs. ↩︎
  3. I keep saying “my RRIFs” for simplicity, but all 4 RRIFs (2 in my name, 2 in my spouse’s) are treated the same way. All four payments end up in our joint chequing account. ↩︎
  4. Both my spouse and I have non-registered accounts. My spouse’s was funded via a spousal loan I set up years ago to achieve some degree of income splitting. ↩︎
  5. After years of thinking of taxation in terms of what I paid on the LAST dollar I earned, this was admittedly a very different way of considering the problem. ↩︎
  6. Most of my dividend income (via XGRO and AOA) is buried in my RRIF and TFSA to avoid any taxation of it ↩︎
  7. Because I make a lot of use of HXS and HXT in my non-registered portfolio, I earn no dividend income; it’s all capital gains… ↩︎
  8. If you’re not aware, RRIF payments are treated as no-special-treatment taxable income, reported on a T4-RIF form by CRA. ↩︎
  9. Since I get paid monthly, I could always adapt if my assumptions were radically off. ↩︎
  10. I could have also paid the extra from my TFSA holdings, but my advisor suggested that this is the LAST bucket to use in retirement. ↩︎
  11. Unless I like waiting on hold. I do not. ↩︎
  12. Who says romance is dead? ↩︎

I’m retired. Now how do I get paid?

RobH16 Comments

Summary: In a previous post, I talked about preparing your portfolio for retirement. But now that the paycheques have stopped, how do I get paid from my DIY portfolio?

I got (retirement) paid for the first time today! This is indeed a cause for celebration, at least personally. As a DIYer who is self-funding retirement1, it’s not exactly sitting back and waiting for the cheque to arrive2. There’s a fair bit of work that has to be done if you want, as I do, a monthly salary.

As mentioned elsewhere, I’ve adopted the brilliant strategy of VPW (Variable Percentage Withdrawal) to calculate how much I can get paid every month.

Here’s the high-level flowchart of how VPW works:

Idealized Monthly Routine to get paid using VPW

Let’s go through step by step.

Calculate Retirement Savings

If you’ve simplified your retirement portfolio, this is probably as simple as logging in to your online broker’s portal and looking at what you’re worth today. For more complex scenarios (like mine, because I am test driving a new provider) you’ll need some sort of spreadsheet. Mine is based on this template. I don’t include day to day chequing accounts or anything like that. My retirement portfolio remains firewalled from all the daily puts and takes.

Generate v, the VPW Suggestion

This uses the VPW worksheet available over here. Basically, you enter a few parameters (how old you are, what your asset mix3 is, what your retirement savings are and what pensions (CPP, OAS or employer) you may have now or in the future. Predicting future CPP was made easier for me by using CPP Calculator. The first time you fill in the worksheet, it’s a bit more effort, but most of it (aside from retirement savings) doesn’t change much (if at all) month to month. Enter all the parameters, and out comes v, the monthly VPW4 “suggestion”.

Now, if this is the very first time you’re running through this, meaning that it’s your first month of retirement, there’s one additional step, and that is creating what the VPW folks refer to as a “cash cushion”. I think of it as a shock absorber myself, and my DIY enthusiast neighbour5? He thinks of it as the source of a cash waterfall you drink from monthly.

Whatever you choose to call it, the cash cushion, as the name implies, sits between the VPW suggestion and your retirement salary, dampening possible month to month swings caused by swings in your net worth. A sudden drop in the stock market won’t translate immediately to a sudden drop in your salary, and by the same token, a sudden rise in the stock market won’t translate immediately to a sudden rise in your monthly salary.

Creating the cushion the first time is easy. Just take 5 times what VPW suggests and put that in your cushion. That ought to be a firewalled account that pays decent interest.

Put v in your cushion and pay yourself 1/6th of the total

In the very first month, the astute reader will note that my salary is v, the VPW suggestion. As time goes on, the salary will vary with my retirement savings, and the cushion acts like a moving 6 month average function.

That, in essence, is what the monthly routine looks like.

The reality behind the scenes takes quite a bit more steps due to factors like

  • How many RRIFs you have (personally, I have two…or maybe three6)
  • Whether or not your scheduled RRIF payments cover your VPW-generated salary (mine do not and probably will not ever do so)
  • The time lag between asset (stock/ETF) sale and cash availability7
  • The ability (or not) to easily move money around between accounts8

I will show you the actual work behind the scenes in a future post, but be aware and take the time to work through the details before you pull the plug for real.

  1. I’m delaying CPP and OAS until much later to get more monthly money of inflation-indexed protection. ↩︎
  2. Or an envelope of cash, apparently. The things you get when you type “paycheque” in the search engine… ↩︎
  3. All VPW cares about is how much of your savings are in stocks AKA equity. More stocks = higher returns = more risk. ↩︎
  4. VPW also supports quarterly or annual calculations. I’m sticking with monthly since it’s much closer to what is typical cash flow management for my household. ↩︎
  5. And volunteer copy-editor, thanks Steve 🙂 ↩︎
  6. One spousal RRIF based on the spousal RRSP my spouse contributed to, one personal RRIF based on my personal RRSP. I also have a USD personal RRIF but my provider treats it as part of my personal CAD RRIF. My portal shows three accounts, but I only get two payments. ↩︎
  7. Typically, two days ↩︎
  8. I learned, sadly, that my current provider offers no way to move money between non-registered accounts without resorting to a phone call. As I have already reached my hold music limit for 2025, there’s no way I’m going to put up with that. And so the chequing account comes into play as a way to move money around at the cost of delay. Dear QTrade, please fix this. ↩︎

Preparing your portfolio for retirement

RobH8 Comments

It’s all well and good to leave the working world, but unless you have a way to start tapping into your retirement savings, it’s going to be tough sledding. Here is what I did to prepare.

Preparation step 1: Try to keep your RRSP aligned with your spouse’s RRSP

By “aligned” I mean “try to keep your retirement income equal to your spouse’s retirement income”. This only matters if you’re planning on retiring before the age of 65; those who are 65+ can achieve similar results via pension splitting. For me, this is rather easy to work out since I’m the same age as my spouse and we don’t have workplace pensions. So for me, that meant keeping the value of my RRSP close to my spouse’s RRSP.

This step isn’t so easy to do if you’re in the last stages before retirement, admittedly, since the only way to “fix” the numbers is by contributing to a spousal RRSP. But I figured I’d mention it anyway as it can reduce your household income tax bill once you are retired.

Preparation step 2: Simplify the portfolio

As shown over here, the vast majority (about 80%) of my holdings are in four investments: two asset-allocation ETFs (one in CAD, one is USD) and two high interest savings accounts (one CAD, one USD).

It didn’t always look like that. Prior to moving to XGRO and AOA, I had holdings that attempted to mirror (more or less) what these all-in-ones actually invest in under the hood — US Equity funds, Canadian Equity funds, International Equity funds, short-, mid- and long term bond funds….The list was pretty long. This for me caused three problems:

  • Trying to keep the holdings at the ratios I wanted while actively selling the assets seemed like too much effort, too much trading, and too many opportunities for emotion1 to get in the way.
  • The folks behind VPW (my chosen method of budgeting in retirement) recommended using an all-in-one which is based on “no market timing, no concentration into any asset, no investment into alternative assets, no factor investing, and no modulation of asset allocation or withdrawals based on guru prognostications or metrics“2
  • The random bus principle3 meant I had to make things easier for my spouse and/or my heirs

And so, with a bit of trepidation, I started the work, one account at a time — bearing in mind that between RRSPs, TFSAs, and non-registered accounts, many of which had USD and CAD variants, there were around a dozen accounts to take the simplification knife to.

These were big trades! To mitigate market volatility somewhat (I didn’t want to get caught on an overly good or overly bad market day), I made progress account by account and after about a month, my portfolio was more or less what it is today.

Preparation Step 3: Open and fund RRIFs

If you’re new to RRIFs, you may want to take a detour to Demystifying RRIFs. I’ll wait here.

Part of the retirement plan I paid for recommended that I fund the early part of my retirement with a combination of RRSP money and non-registered money. My plan didn’t say anything about when to convert to a RRIF, and I figured that a RRIF was something for much older me to worry about.

As I started to investigate the mechanics of taking money directly out of an RRSP, I discovered two things:

  • My provider, and I suppose most providers, charge a fee for making this sort of “exceptional” request, known as a “deregistration fee“. I hate fees.
  • RRSP withdrawals attract withholding tax. I hate loaning the government money interest-free.

And so, I set out to open RRIFs. (Don’t forget to designate a beneficiary or successor annuitant!) This was a bit more involved than I imagined, and due to a number of snags unique to my provider4, it took about 4 weeks from beginning to end. I already had set up EFT connections5 between my provider and my bank, so that wasn’t something I had to do as well.

At the time of opening the RRIF, I also had to designate the frequency of payment. I presume (you tell me) that most providers offer the same options of annually, quarterly or monthly. I chose monthly, which makes cash flow a bit easier to manage, it does create extra work to make sure funds are in place every month.

Preparation Step 4: Move employer based holdings to your control

My private-sector employer offered no pension plan. They did offer an RRSP matching program with associated DPSP at a provider dictated by them. Anyway, the instant I could break off that association (my last day of work) I did, and planned to move the money to my usual provider. Unfortunately, I got caught in a situation I describe in my cautionary tale, and this money will not be part of my RRIF holdings in 2025. A minor hiccup, but if you’re counting on having access to this money shortly after pulling the plug, be very careful!

Preparation Step 5: Have potential capital gains insight into your non-registered accounts

Capital gains are only a concern in non-registered accounts. If you don’t have any, ignore this step.

Part of my retirement funding in the early days will come from non-registered accounts. Any time you sell a stock/ETF in a non-registered account, it generates capital gains (or capital losses) which are reported on your tax return. Knowing up front what the potential capital gains are for each ETF/stock you hold will help you optimize your taxes. You can only know that if you know the Adjusted Cost Base (ACB) of your holdings and the current price. Your provider probably shows a “gain” number, but it’s not always accurate. Best to track it yourself using a tool like https://www.adjustedcostbase.ca/.

This I think captures the main steps I went through to get “retirement ready”. My first RRIF payment is due January 31, 2025 — I’ll believe it’s “done” when I see the entry in my chequing account!

  1. “I’m sure if I wait a week, this ETF will go lower/higher” is a good sign you’re using emotion rather than cold, hard, numbers to make your investment decisions. ↩︎
  2. As stated at Re: A Simple Retirement Using Variable Percentage Withdrawals (VPW Forward Test) ↩︎
  3. A lifetime guiding principle of mine: “what would happen if I got hit by a random bus today”? Thankfully, it hasn’t happened yet. ↩︎
  4. Dear QTrade, please fix your RRIF application forms so you can properly fund both CAD and USD accounts. And make sure you can designate a successor annuitant correctly when filling out the application. ↩︎
  5. EFT = “Electronic Funds Transfer”. It’s a connection that allows the RRIF payment to land directly in your usual bank account where it can do useful things, like, you know, pay bills. If your RRIF provider is also a bank, you probably (?) needn’t worry about this. ↩︎

Demystifying RRIFs

RobH7 Comments

RRIF stands for “Registered Retirement Income Fund” and can be thought of as your own self-funded pension plan. The RRSP is where you built up that pension plan, and the RRIF is where you get to take a salary from it.

I opened a RRIF last year as part of my retirement preparations (more on that in a future post) and came into this process with a whole lot of preconceived notions about how this would work and what the final result would look like. Turns out I had a lot of incorrect beliefs that I’ll break down for you:

RRIF Myth #1: You can only do this when you turn 711

A lot of what you read about RRIFs may make you believe that they’re only available as an option once you turn 71. Nope. That’s the absolute LAST opportunity to convert your RRSP into a RRIF. Anyone can open a RRIF, and in the year after opening it must start getting (at least) RRIF minimum payments.

RRIF Myth #2: You can only withdraw so much money a year from a RRIF

Nope — you can take as much from your RRIF as you want in a given year. However, the rules state you MUST take a MINIMUM amount from your RRIF every year (an amount I’ll refer to as “RRIF Minimum”) starting the year after you open it. RRIF Minimum for a given year is based on your (or if you prefer) your spouse’s age and the value of your RRIF on January 1.

The formula for calculating the minimum amount you can withdraw from a RRIF for a given year prior to age 71 is (1/(90-age))*(RRIF value on Jan 1).

https://www.taxtips.ca/rrsp/rrif-minimum-withdrawal-factors.htm

You can take more at any time, but then two things are likely to happen:

  • You won’t get all the money you asked for because your provider is obliged to withhold tax once you exceed RRIF minimum
  • You may get hit with an additional fee from your provider (e.g. QTrade charges $50 for every “additional” payment per https://www.qtrade.ca/en/investor/pricing/fees.html)

RRIF Myth #3: You ‘convert’ your RRSP to a RRIF

“Convert” is a completely inaccurate way to describe the mechanics of opening a RRIF. It’s more like “open a new account and move your RRSP assets into it”. And what’s more, each kind of RRSP you have gets its own RRIF. In my case:

  • My personal CAD RRSP has a personal RRIF
  • My personal USD RRSP has a personal USD RRIF
  • My Spousal RRSP (the one in my name but has my spouse as a contributor) has a Spousal RRIF

You may think (as I did) that the opening of a RRIF collapses all this nonsense into one tidy account. Not so. For every RRSP you have, you can expect a corresponding RRIF. And, each of them will have RRIF minimum amounts calculated at the beginning of the year.

The other unexpected side effect is that even after opening RRIF accounts, I still have all the RRSP accounts2. Yes, it’s possible to have a RRIF and an RRSP3 at the same time.

Anyway, once the work was complete, all the assets I was used to seeing in my RRSP were now showing up in my shiny new RRIF account (new number, new entry on the monthly statements…sigh) and all my RRSP accounts showed zero assets4.

RRIF Myth #4: You can only withdraw RRIF minimum payments once a year

This is one I learned from my parents, who dutifully withdrew their RRIF minimum payments as late in the calendar year as possible to max out every last bit of tax-free growth. As it turns out, my provider (and I presume all providers) allow monthly, quarterly or annual RRIF payments. There is no change to HOW the payment is calculated regardless of how you choose to get paid. The total amount is still only calculated once, at the beginning of the year. For example, if in a given year your RRIF minimum payment works out to $1200, then you can choose to get paid $1200 once, $300 a quarter, or $100 a month.

I’ve set up my RRIF payments such that I’m getting them monthly. Why?

  • All my expenses tend to show up on a monthly basis, and that’s how I’ve always been paid. Monthly payments make cash flow less of a concern.
  • Having a big lump sum of cash would require me to DO something useful with it, like earning interest until I needed it. Given my day-to-day bank account does not pay any interest, it would require extra effort to figure that out.
  • A single payment implies a single relatively large stock transaction, and then you may have a timing issue if you happen to pick a bad day to sell. I’ve always invested on a monthly basis, it just feels “right” to de-invest on a monthly basis too.

  1. Why did I convert to a RRIF? Firstly, it’s what my advisor recommended in order to reduce my taxable income later in life, when I start collecting CPP and OAS. Secondly, the alternative, withdrawing from my RRSP directly didn’t look so great once you started to factor in withholding tax and likely deregistration fees imposed by your provider. ↩︎
  2. All with no assets, of course. However, it SHOULD be possible to convert only part of your RRSP to a RRIF according to https://www.taxtips.ca/rrsp/converting-your-rrsp-to-a-rrif.htm. I’ve not tried this, YMMV. ↩︎
  3. Of course, for the RRSP to be useful you have to actually earn employment income ↩︎
  4. Do keep an eye on that — as a result of a dividend payment during the transition of assets, I ended up with some cash in my RRSP after all other assets had moved to the RRIF. ↩︎

How much can I afford to spend in retirement?

RobH2 Comments

Summary: Variable Percentage Withdrawal (VPW) is a safe way to draw down your retirement investments, and feels a lot more reasonable than relying on a fixed budget.

When I finally decided to pull the plug on the “working to earn a living” world, (and you can read about how I came to that decision here) I was still left with lingering doubts over my retirement spending plans.

Of course, I had prepared a retirement budget as part of the exercise.

Of course, I had hired an advisor to take a look at the numbers.

And as a result, of course, I had a tidy year by year breakdown of my inflation-adjusted budget and net worth. The charts always look something like the one on PERCs home page.

But my own experience made me really uneasy about this approach — in 2023 that forecast showed I couldn’t retire until 2027, but then back-to-back stock market silliness (in a good way) allowed my 80/20 investment portfolio blow through “the number” two years early!

So, on the one hand, hooray for me, but on the other hand, the story could have happened in precisely the opposite way with a (temporary, they are always temporary) market meltdown, and the moneyengineer.ca domain would have been snapped up by the Canadian Mint, and I’d still be working for a living. The variability of year to year returns isn’t a big deal over a long period of time, but it makes a huge difference in the immediate future1, and by “immediate” I mean, “how much will I take out of my retirement portfolio this month?”

And then I stumbled upon Variable Percentage Withdrawal (VPW).

In plain language,

VPW offers you a sustainable salary in retirement; if the market is doing well, you can afford to spend more, but if the market is doing less well, tighten the belt.

VPW uses your net worth, your age, your portfolio and any current or future pensions to dynamically calculate what you can afford to spend in a given month, quarter or year.

The key is “dynamically”. Every month, quarter or year, you calculate your net worth, and the VPW Accumulation and Retirement worksheet generates two numbers: what you can afford to spend, and what that number would look like in the event of a market meltdown.

And all of a sudden, my unease evaporated. This was just like REAL (pre-retirement) LIFE! I’ve never had a “constant” budget, I’ve never had a “constant” salary, and I’ve never been able to predict what either would look like 6 months from now, let alone 15 years from now. So why pretend I had all the answers in retirement? VPW gives a boring, emotion free algorithm2 for doing the work, and is perfectly aligned with my boring, emotion-free algorithm for investing.

You can watch a simulated VPW-based retirement, in real time over at https://www.financialwisdomforum.org/forum/viewtopic.php?p=638130#p638130. It’s been running since July 2019. An outstanding effort!

In future posts, I’ll talk a bit about how the mechanics of VPW work in practice with my own situation. NB: my first VPW-calculated retirement payment will be in January, 2025!

  1. Interested readers should take a look at the many writings out there on “sequence of returns” risk. Basically, it’s the risk that the retiree gets really unlucky and suffers a big stock market meltdown at the very start of retirement, the worst possible time. ↩︎
  2. AND spreadsheets 🙂 ↩︎