Living off dividends – My $360k per year dividend income

Last week Reader B, a fellow Canadian shared his amazing dividend investing story with us. B and his wife retired in 2004 at age 55 and have been living off dividends since. What’s amazing is B and his wife started their investment journey with only $10,000. In 36 years he has built a dividend portfolio with a market value of over $8.5M. The dividend portfolio generates $360,000 each year. 

That’s $30,000 a month of pure passive income! 

What I found extremely impressive is that neither B and his wife had very high salaries. While working they only had slightly above average salaries (B made ~$110kand B’s wife made $90k in today’s money). 

Their investment success was built on three important factors – consistency, patience, and a modest lifestyle. In B and his wife’s case, time in the market is definitely more important than timing the market. 

Since my wife and I plan to build live off dividends once we are financially independent, I wanted to learn from a fellow investor that’s ahead of us on the financial independence journey. Therefore, I was happy that B allowed me to ask him various questions. 

In case you missed last week’s Q&A, please check it out: 

Let’s continue with the rest of the Q&A.

Living off dividends – our dividend portfolio

Q10: As a couple you are presently receiving $360K in dividend income annually. Can you elaborate further on how you are generating this level of income?  How is your portfolio constructed?  What do you own?  Do you own a mix of Canadian and international dividend paying stocks?

A: The referenced $360K of income is derived entirely from pure dividend paying stocks and REITs held in our non-registered stock accounts which comprise 85.5% of our total asset value.

My approach to portfolio building adheres to some, but certainly not all, commonly accepted principles of the traditional “model portfolio”. But I feel the approach works, meets our goals, satisfies our comfort level and above all keeps everything as simple as possible. The fewer variables and issues one has to contend with and manage the better.

We’ve constructed a pretty solid buy and hold portfolio which requires only minimal management. We presently own 115 stocks (I know it’s a lot, certainly a lot more than what you and your wife hold in your dividend portfolio) which means that we’ve really constructed a diversified mini-mutual fund in itself, and all with no fees and no MER. 

All holdings are all high-quality dividend paying common Canadian stocks. We hold no penny stocks, no US stocks, no ADRs, no ETFs, no preferred shares, and with about 5%-10% in Canadian REITs. We’re firm believers in and committed to dividend stock investing. 

Tawcan: You have definitely created your own diversified mini-mutual fund, or mini-ETF. I’m sure we hold similar Canadian dividend stocks in both of our portfolios, probably consisting most if not all of these top Canadian dividend stocks

The stocks are spread across all sectors with slightly more emphasis for dividend purposes on financials and utilities. The focus is strongly on Canadian dividend aristocrat stocks. We are looking at reducing/realigning several of our REITs holdings because certain REITs are not tax-efficient when held in a non-registered account (but they are efficient if held in a registered account). 

Except for the REITs, all stocks pay dividends that are eligible for the Canadian dividend tax credit. This is critical for keeping the dividend income stream as tax-efficient as possible.

Our RRIF and TFSA accounts contain a mix of Canadian index and income mutual funds. I’m not super happy with that arrangement – it’s okay – but the emphasis should really be on Canadian dividend paying and income stocks in registered accounts as well.

Why we only hold Canadian dividend stocks

Q11:  If you do not hold any USA or international stocks, ADR’s, ETF’s, then how do you gain international diversification?

A:  My approach to holding only Canadian stocks aligns with the keep-it-simple principle and ensuring tax efficiency. Above all, it allows me to focus on the primary goal of developing a tax efficient dividend income stream. 

It’s hard enough time-wise for an investor to maintain currency of knowledge in the Canadian stock market, let alone expand one’s reach into the economics and stocks of foreign markets, as well as various types of investment products. 

For example, try studying up on the technical details of ETFs and how they work – there are some aspects in the way they operate that I’m not comfortable with. Furthermore, I simply don’t have the time to follow US stocks. And the fact that we don’t own US stocks has, in my opinion, not harmed the performance or safety of our portfolios in the least. 

Not holding US stocks (in a non-registered account) solves six problems:

  1. The Canadian/US currency exchange factor is eliminated. One less variable to have to deal.
  2. Many US dividends are subject to withholding taxes (I don’t like seeing my dividends reduced).
  3. Income in the form of USA dollars complicates income tax filings – I don’t need the tracking, reporting and conversion hassles.
  4. No need to report foreign holdings over $100K to the CRA at income tax time.
  5. Avoids geo-political risk over which we have no control.
  6. US dividends are not eligible for the Canadian dividend tax credit – and that fact alone goes directly and mightily against our goal of earning tax-effective dividends.

The way I do achieve international exposure is by holding Canadian stocks that inherently have international exposure build into them (i.e. Canadian companies that conduct business in foreign countries and derive income from international operations). I know the argument will go that I don’t have exposure to big pharma, big retailers, hi-tech and computer stocks, etc. But so what? I don’t need to sample every flavour of ice cream. 

Canadian companies that offer safe foreign exposure include ATD.B, CCL.B, WSP, TD, BMO, BNS, POW, RY, MFC, SLF, BAM.A, ENB, PKI, AQN, FTS, TRI, MFC and many more. Many Canadian traded REITs can also be found with foreign property holdings in the US and Europe. These are top quality Canadian stocks – we own them all – and till death do us part.

Tawcan: Some good points there. Given that we’re only talking about non-registered accounts only (i.e. taxable), it makes sense to not hold any US dividend paying stocks for the reasons you mentioned above. However, if we consider other accounts, I think it makes sense in holding US and international stocks and ETFs for diversification reasons. 

But you’re right B, many Canadian companies offer safe foregign exposures in the US, Europe, and rest of the world. For example, TD makes a good chunk of their annual revenues from the US market. 

how to live off dividends in retirement

Q12:  Is the dividend income split roughly equally between your wife and yourself for tax efficiency?  If not, why not?

A: Yes our dividend income is close to an equal split. Generally, it is most tax efficient to split income between spouses and we have maintained close to a 50-50 split over the years. The idea with income balancing is to keep both spouses in the lowest possible marginal tax rate bracket. This is also especially important at age 65 when pension income can be split between spouses. 

But when both spouses reach the maximum income tax bracket (our situation), then there are no tax efficiencies to be gained at all by splitting or balancing either dividend or pension income. Our dividend producing accounts are not held jointly but individually.

Many couples favour joint accounts which solves the problem of income splitting because for tax purposes you can designate the percentage of the income that goes to each spouse to minimize taxes. Joint accounts, especially when in the high value range, are beneficial in that upon the death of the first spouse all assets automatically become the property of the surviving spouse and provincial estate taxes (probate fees) are totally by-passed – and probate fees can be a huge expense on a sizeable estate. 

RRSP early withdrawal strategies

Q13: Do you have an RRSP withdrawal strategy to minimize taxes?

Ha, ha – now you’ve got me going on the subject of RRSPs – so you’ve asked for an earful. Assessing the long-term tax effectiveness of an RRSP is a very complex thing to do – very unreliable – there are just too many variables, assumptions, and long-term forecasts involved.

Withdrawal strategy for RRSPs?  Well, yes we do – and we’re not very happy with it – and we can’t do anything about it. RRSPs is one area that I’ve struggled with over the years and I don’t think handled quite as well as possibly I could have – but then hindsight is always perfect, isn’t it?  

At age 71, an RRSP must be converted into an annuity or a RRIF or withdrawn in its entirety. Prior to the end of the year in which we turned 71, we had our RRSPs converted to RRIFs. 

We both worked until we reached the “Freedom 55” age. In the succeeding years to age 71, we never really had an opportune time or set of circumstances to withdraw our RRSP funds in a tax-effective manner. Now we are forced to make minimum annual RRIF withdrawals each year and pay tax on those withdrawals at our full marginal tax rate – and I’m afraid the CRA has won on this one. 

In my opinion, RRSPs and RRIFs have too many conditions, restrictions, and above all long-term assumptions build into them; if those assumptions don’t pan out, one can ultimately be forced to make annual withdrawals that are taxed at maximum rates.

Perhaps I could offer a few words on TFSAs, RRSPs and RRIFs before answering the second part of your question on RRSP withdrawal strategies. The RRSP is a complicated subject area – and their tax-efficiency in my mind is extremely specific to individual/couple circumstances. To make them tax effective definitely requires a long-term plan and the plan has to be implemented. 

If you already have an RRSP, then see if it’s possible to withdraw the RRSP funds in a tax-effective way at some point in the future; if not, then at the very least don’t make any further contributions to the RRSP. Instead open up your own non-registered TFDA (Tax Free Dividend Account) – the name we use for our tax-free/living off dividends stock account. 

Without question, the TFSA is the most beneficial tax savings vehicle ever made available to Canadians. We should do our utmost to take full advantage of its many benefits – among them tax sheltered growth of both capital gains and dividend income earned within the TFSA. Withdrawals in any amount can be made at any time and are completely tax free. 

Unlike an RRSP, withdrawals made from a TFSA can be replaced at a later date. What’s not to like about a TFSA?  Well, only one thing – the annual contribution amount to a TFSA is presently capped at $6K per year. 

The annual 2021 lifetime contribution limit to a TFSA stands at $75,500 per person – double that to $151,000 for a couple. To the degree possible, one should make the maximum contribution to a TFSA both lifetime and every year – and a TFSA should definitely be the tax saving vehicle of choice ahead of any RRSPs or TFDAs.

I’m not a big fan of RRSPs and if I had to do anything over again it would be to bypass holding RRSPs entirely. But that doesn’t mean that they can’t be used effectively in some situations. Much good guidance can be found on the Internet. 

An RRSP works differently than TFSA and comes with a number of long-term assumptions that limit tax-effectiveness as well as what can be some rather severe tax implications on withdrawals. Because an RRSP is a long-term investment, forecasting and scenario calculations can be very difficult and extremely prone to having the underlying assumptions go wrong. 

It’s pretty difficult to predict what your situation will be like 35-40 years into the future. A lot can go wrong and circumstances can change that will throw your plans off track. Obtaining tax-efficient cash flow is an important goal and it can be very difficult to achieve with an RRSP. Every retiree’s situation is unique and there is no “out-of-the-box” solution.

You receive a tax deduction for making an RRSP contribution. If your marginal tax rate is 40% and you put $1,000 in your RRSP, your reported income is reduced by $1,000 for the year, effectively saving $400 in tax. 

Inside the RRSP, all investment growth is completely sheltered from tax. But all future withdrawals from the account will be taxed at your full marginal rate. It doesn’t matter whether the assets in the RRSP came from interest, dividends or capital gains – they are all taxed at the same full rate!!  And because you got a contribution deduction earlier, even your principal is taxed upon withdrawal and often at a higher tax rate than you received for your original deduction!!

RRSPs first became available to Canadians in 1957. Since then, RRSPs have been and still are promoted/marketed on the basic assumption that you will be contributing during your working years when your tax rates are high. And you get a tax deduction based on those supposedly high tax rates at the time of contribution. Then when you “retire”, you will make withdrawals at a supposedly much lower income tax rate – and this is how you’re supposed to come out ahead. 

But the prospect of lower tax rates in the future is a huge and often erroneous assumption. Do you really think that your marginal tax rates some 35-40 years in the future will remain at the same levels they are today?  

Very, very doubtful. 

Governments desire ever-increasing amounts of revenue and over the years tax rates have consistently risen. Taxes never go down. And with the current sad fiscal situation of governments in Canada, tax rates certainly aren’t about to go down anytime soon – they can’t help but continue to increase. 

If you have pension or other income in retirement and if you are a dividend growth investor, your income tax bracket is undoubtedly going to be higher in future than during the years when you were working and making your RRSP contributions. 

So it’s almost inevitable that you will face higher tax rates when it’s time to make RRSP withdrawals. This makes the RRSP an in-efficient tax saving vehicle when compared to the alternative of investing your dollars in a non-registered dividend income account.

One possible way to make withdrawals from an RRSP tax efficiently would be to plan for a period when all other income stops or is at least reduced significantly. For example, when one retires from work, perhaps pensions (work and CPP) could be deferred for several years – but if you’re a dividend income investor, you can’t just turn off that dividend income stream. 

You would have to find an RRSP exit point in which your other income would be nil or at least very low. Then during that period of low income, one could make RRSP withdrawals to the limits of tax efficiency. 

For example, in Ontario, a single person with no other income can withdraw $21,500 from an RRSP per year and pay no tax on the income. A couple with no other income can withdraw $43,000 from an RRSP per year and pay no tax at all. Using an approach like this could possibly offer a solution to minimizing tax on RRSP withdrawals. All kinds of variations and combination scenarios could be developed some of which might include minimal amounts from other income sources. But because the options are many and varied, this is where using your computer software package as a scenario tester for tax-efficiency can really prove it’s worth.

Tawcan: You made some very good points. I don’t like how restrictive RRIF is and RRSP can get very complicated too. This is why we plan to make early RRSP withdrawals and probably look into collapsing our RRSP eventually

Why it’s beneficial to invest dividend stocks in taxable accounts

Q14: Please elaborate what you meant by TFDA (tax-free dividend account) vs. RRSP.

A: Sure! 

Being a long-term dividend income stream (living off dividends) investor I like to think of our non-registered dividend stock accounts as being another totally tax-free account. I call it the “TFDA” (Tax-Free Dividend Account). 

A Ontario couple can make $110,500 in Canadian eligible dividends and pay virtually no tax on that income. If their account achieves a reasonable 5% dividend yield on cost then that would require a portfolio size of $2,200,000 (halve these numbers for a single person). Now, that’s enough investment contribution room to keep most investors going for some time.

The TFDA comes with an abundance of advantages and none of the disadvantages of an RRSP.

  • A very high almost unlimited contribution limit
  • No penalties for over-contributions
  • Totally flexible contribution plan – as much or as little as you want and whenever you wish
  • No need to report annual plan contribution amounts to the CRA
  • Tax-free growth of unrealized capital gains and streamed dividends (similar to TFSA/ RRSP)
  • Option to reinvest dividends 
  • Make withdrawals of any amount whenever it is tax advantageous to do so
  • No withholding taxes on withdrawals
  • Withdrawals receive reduced capital gains and eligible dividend tax rates – avoid full taxation
  • Contributions (your principal amounts) are never taxed on withdrawal,unlike an RRSP
  • No part of a withdrawal is taxed at the full rate since there is nil to little other/interest income
  • No mandatory conversion to a RRIF with subsequent forced timed withdrawals of funds
  • Never be forced to sell stocks at a specific time
  • Continue to hold stocks indefinitely until death do you part (buy and hold)
  • Life-time deferral of capital gains tax i.e. never pay capital gains tax for the remainder of your life; capital assets can be transferred tax free (even in non-registered accounts) from a deceased spouse to the surviving spouse
  • Enjoy total portfolio management flexibility.
enjoy living off dividends

Now what’s not to like about a TFDA compared to an RRSP?  Not much. Do you still want to invest in an RRSP?

So your first place to deposit investment dollars should be in the reliable registered TFSA – and the 2nd account of deposit should be your non-registered TFDA. 

And those accounts should be maxed out before any consideration is given to an RRSP. Because by the time you build up a TFSA and a TFDA combined portfolio to a value of $2,275,500  – well, you really don’t need an RRSP for the very limited and possibly negative benefits it offers. 

That’s why I say ditch the RRSP – it’s more than likely not necessary if you’re following the “living off dividends” income stream strategy.

Tawcan: Hmmm you made some interesting points. My wife and I aim to maximize our TFSAs and RRSPs first before we invest in taxable accounts. Perhaps we need to run some calculations to see if investing in TFSAs and TFDAs first is more tax efficient in the long run. More number crunchings are required.

Q15:  How long have you been living off dividends for? Has anything changed since you started living off dividends? 

A:  I wouldn’t say that we are actually living off our dividend income stream on a day-to-day basis. We have sufficient income from our work related pensions and “forced” RRIF withdrawals to cover most routine day-to-day expenses and taxes. 

Most of our after-tax dividend income stream is re-invested in additional dividend paying stocks. It is this re-investment factor coupled with annual increases from dividend aristocrat stocks that have been the primary driving factors increasing both our portfolio value and dividend income stream.

Tawcan: But if you don’t have your pensions and force RRIF withdrawals, your dividend portfolio certainly generates enough money for both of you to live very comfortably. 

Yes, things do change and we’re glad we had the foresight to set up a reliable dividend income stream. We retired at the “Freedom 55” age with modest work-related pensions. We deferred our CPP to age 65. Pensions (if you’re lucky enough to have one) provide enough income allowing one to live day-to-day with the basics of life – food, a roof over your head, etc. – but don’t fund very much extra like travel, dining out, new cars, house repairs, etc. 

An “indexed” pension certainly helps, but it does not fully keep up with inflation. As a general rule of thumb, about 10 years out from retirement, one begins to notice that monthly pension income is not quite keeping up with the rate of inflation. 

This where dividend investing truly pays off. It gives you that secondary income stream which ensures the financial freedom to do the things you really want to do in retirement. So that’s how dividend investing has changed things positively for us – increased financial freedom.

Potential challenges with dividend investing

Q15: How do you see your dividend investment plan evolve from this point? What will be the challenges? Any advice to pass on to those of us pursuing the same goals?

A: My wife and I will continue to carry on with our dividend investing approach indefinitely as we think it remains very sound and workable well into the latter years of one’s life. 

Many studies have validated the solid returns that can be achieved with stock and dividend investing over time. We see no need to change anything in that regard. Standard advice says that one should switch to “safe” fixed income investments (i.e. bonds) later in life. 

The logic being, I suppose, to “guarantee” a reliable steady income to meet needs and to avoid having to withdraw assets or sell stocks in a market downturn. But then if one is living off dividends these concerns may not necessarily apply. If one’s stocks are generating sufficient dividend income to live on, there should be no need to sell anything.

For me the February to March 2020 market downturn resulting from the Covid pandemic demonstrated the soundness of the dividend investing approach. We sold nothing and just held on and rode through the market downturn and back on up to even higher levels in the ensuing recovery. 

The dividend income stream remained remarkably solid and reliable with only a few dividend reductions/eliminations in our portfolio. Stocks that did eliminate dividends were culled immediately and replaced with safe and conservative dividend paying stocks . Many were purchased at bargain prices. But then, so much depends on one’s comfort/risk levels in later life. 

We will not be following the traditional financial planning advice which suggests that one should switch to “safer” fixed income type investments in one’s retirement years. Just carry on with time-tested dividend investing that has proven to work.

As investors, we do indeed have to be forward thinking in identifying both life and investment challenges that lie ahead. I can see four major challenges on the horizon.

Challenge 1: One of the most important issues that needs to be addressed by every investor is “succession”. Have you planned for your succession? 

Ask yourself this question: “If something were to happen to me today, should I die or become incapacitated, is there a capable someone who can step in with the legal authority to manage my investments and finances? Do they know what has to be done, can they do the job and do they know where to access all the information/files they will need?”  

Many people don’t consider this aspect at all or procrastinate on taking action. If you hold everything in joint accounts, then the legal authority issue may be solved – but the management capability issue may not have been addressed. 

Everyone should have a will and a Power of Attorney (POA) for property. In fact, the selection of a knowledgeable and capable POA is far, far more important than one’s choice of a will/estate trustee (executor). A POA generally has unlimited power over one’s finances with many decisions to make over what could possibly be years. On the other hand, an estate trustee is bound to act in accordance with instructions contained in the will. Everyone’s situation is different but don’t let this be an oversight. 

Nothing wrong with having multiple POAs, but ensure that they are compatible and trustworthy. And always give them the legal power to act “jointly and severally” without the “severally” power, acting effectively as a POA is virtually impossible.

Challenge 2: The Covid pandemic has created not only a health crisis but I believe an impending and long-term world financial crisis as well. And the looming financial issues are likely to have a detrimental effect on those in pursuit of tax-free dividend investing. 

Governments around the world, and especially Canada, have rung up massive and unprecedented levels of debt simply by printing and spending “free money” obtained from their central banks. This debt can never be repaid without politically unacceptable cuts to services or drastically increasing taxes. 

You simply cannot increase the money supply as is being done now without severe consequences. This will likely take the form of very high levels of inflation. So we can expect greatly increased taxation in future which is going to affect all income types – dividends, earned/interest/other income and capital gains. 

Marginal tax rates are going to increase significantly. The capital gains inclusion rate is also going to rise. Governments now tax both income and consumption – a new tax form is about to be launched – the asset tax aka. a wealth tax. Not only will you be taxed on income and consumption, but soon you will be penalized for simply owning something. 

Inheritance taxes also loom. Even a tax on the sale of your principal residence is being considered. So there’s no doubt that taxes will soon be on the rise. This is not a favourable prognosis for RRSPs. 

Fortunately, for dividend investors, to date, there seems to be absolutely no indication that the Canadian government is considering making any changes to how Canadian eligible dividends are taxed. However, taxes are out of our control. All we can do is try to minimize their impact on our investments and income streams.

Challenge 3: The third issue involves what I refer to as the “Senile Years”. Most investors and investment/financial planners never give the “Senile Years” any thought. 

We’re all duped into thinking of those live-happily-ever-after years where we’re shown a photo of a senior couple holding hands and looking off into a beautiful sunset. We’re told that these are the “Retirement Years” or the “Sunset Years”  when we’re able to enjoy retirement – we’re healthy, mobile and of sound mind. 

For those of us who are fortunate enough to be able to live entirely off tax-free dividends, our “Retirement Years” come early. But no one ever talks about what happens after the “Retirement Years”. 

The “Senile Years” are the final stages of our lives when we may not be of sound body and mind and our cognitive powers may have waned. These are the years when one may have to move into a retirement or long-term care home.

If one can remain at home, they may need to hire supportive help/care. Providing for these life changes can be very expensive and often the balanced expense/income budget used in the sunset retirement phase will not suffice here. 

Additional funds may be required and planning for this is often overlooked. The case of pension payments can be an especially critical issue. When one spouse dies, the pension amount available to the surviving spouse is often reduced by one half. This can make maintenance of the previous lifestyle impossible – and that’s where planning for a supplementary and supporting dividend income stream comes in to play in a very handy way. 

Some people gain the extra funds they need by selling their home. Be sure that you have both a POA for property and a POA for health care who are prepared to step in and assist you as needed. Make sure you can fund the supportive care you will need in your “Senile Years”.

dividend investing challenges

Challenge 4: The fourth challenge involves the transfer of assets and taxation on the death of the first spouse. If assets are held in a joint account, then assets automatically belong to the surviving spouse. Assets in registered plans (RRSPs/RIFFs/TFSAs) will quickly and smoothly be transferred to the surviving spouse provided they have been designated in each plan as being the beneficiary with the right of survivorship. 

Also important to note is the fact that a TFSA can be transferred to the surviving spouse along with the deceased contribution room to the year of death. 

For non-registered accounts, provided the surviving spouse is named as the beneficiary in the deceased’s will, all capital assets (which include dividend paying stocks) can be transferred tax free “in-kind” to the surviving spouse. 

The “in-kind” transfer simply means that no tax is immediately payable on any unrealized capital gains associated with the transferred stocks and that the cost base of the transferred stocks is carried along with them when added to the surviving spouse’s non-registered account. 

Don’t let staff at financial institutions tell you that an in-kind transfer from spouse to spouse can’t be done – it can be – insist on it. The deceased spouse’s estate does not have to sell anything (which could trigger a substantial capital gains tax). All can be transferred directly in-kind to the surviving spouse. 

But here’s the bad news – upon the death of the 2nd spouse, all assets – including a stock portfolio, TFSAs and RRSPs/RIFFs – are deemed to have been sold on the day of death and full tax is payable on the deceased final T1 tax return on all unrealized capital gains. And that can amount to a huge tax bill. 

A TFSA loses it’s tax free status on the day of death and is considered to be collapsed. Fortunately, the entire TFSA assets remain tax-free to the day of death. Spousal and family trusts used to be available to shield/alleviate the amount of tax payable on death but the Canadian government closed those family trust type loop-holes in 2012. 

Everyone’s situation is different and it may be advisable to consult with an accountant/tax advisor to see if anything can be done ahead of time to structure one’s dividend stock account holdings so as to ensure a tax-efficient transfer to designated beneficiaries. It remains to be seen what will develop in future in the way of inheritance taxes when passing an estate through to one’s children.

Q17: Any final advice to someone like me who is planning to live off dividends one day? 

A: I have two things.

#1. Have patience and faith in your plan. It’s not all going to be smooth sailing. Ride out the downturn storms (i.e. what happened between February to March 2020 due to COVID) by just holding on to your stocks and buying more as you can over the course of the downturn. 

In my 36 years of investing, I’ve seen many market downturns, and I must admit that the February to March 2020 Covid induced market downturn was definitely the most gut-wrenching I’ve ever been through. I’ve never seen a market turn down so sharply and so quickly. The volatility was unprecedented and extreme. 

But the markets rebounded very quickly afterwards and actually went on to surpass previous highs. View the downturns as a buying opportunity. Do not sell and do not attempt to time the market. No one can time those swings perfectly on a consistent basis. And if you try, you’re likely to be left behind and find yourself unable to buy back in at the most opportune time. 

Tawcan: Although we were down by as much as over $250k in late March 2020, we never sold anything. Instead, we moved money around and invested a lot throughout 2020. We invested over $115k throughout 2020.

Did we time the market perfectly and bought stocks at the market bottom? No we didn’t. But market timing doesn’t work. Time in the market is far more important

Riding through a downturn can be very tough on an investor mentally. Which brings us to a golden investing rule: 

The time to buy into a market is when pessimism is at absolute rock bottom – and the time to sell (but only if you really have to) is when optimism is at a peak. 

Doing this is extremely difficult on a personal level, especially on the buying side. Covid provides an excellent example. Doom and gloom was all prevailing at the market bottom. 

But where is the market bottom if there even is one? Mentally the investor was down too.  They’d just lost a ton of money on dropping stock values and now they’ve got to convince themselves to buy more? 

Holding on and buying more when pessimism abounds is a very, very hard thing to do mentally. But if you can master the mental aspects of a downturn, you can greatly advance your portfolio value. At the very least, riding out a downturn will keep you from losing money by exiting the market at the wrong time and subsequently failing to get back in.

Everyone can develop some form of a tax-free dividend plan, even if it is only a partial plan. We all have unique personal and financial situations – family, employment status, differing abilities to control expenses and opportunities to save towards a stock dividend investing program. Even if your situation makes it difficult to take the dividend investing approach to its fullest level of being able to live entirely off dividend income, then even a partial plan can prove to be of great benefit. 

A dividend investing program at any level can provide much welcomed supplementary tax-free cash flow to help with expenses and gain a degree of financial freedom. And that’s the beautiful part – dividend investment planning is fully adaptable and can be adjusted to suit the abilities, circumstances and comfort levels of everyone who chooses to pursue the “live off dividends” goal.

Q18: Any final comments to wrap up this awesome Q&A? 

A: Sure, a few last words.

Some people think that one can only build a large dividend portfolio and become financially independent by having a very high paid job. But that’s not true at all. 

I’d say our dividend income success was achieved by working both sides of the income/expense equation. And that is very, very important – just as you stress on your blog. There’s no point in having a decent income going into one pocket if it just goes right out the other.

And you know, Bob, here’s the crux of it. My wife and I have had a great time in life. We’re happy and comfortable. We don’t live a lavish lifestyle but yet we don’t penny pinch either.

We certainly have achieved financial freedom and in the end that’s a super great feeling.  We still don’t “waste” money but we’re generous and helpful with others. What I really like at this point is that if we need something, then we can afford it. In the end, that’s a nice feeling.  Money does indeed give one freedom of choice.

Tawcan: It’s important to keep a balanced approach. It’s about finding the personal balance between saving for the future while spending money to enjoy the present moment

I chose to wrap up the Q&A article with a note of encouragement recognizing that everyone may not be as fortunate as we are. We all have differing circumstances in life, varying abilities and income opportunities for setting up a tax-free dividend plan. But even if one can’t develop or take dividend income to the ultimate level, then a partial plan of any type or degree will be of benefit.  

Whatever one can do, they should do it! 

The end result doesn’t have to reach the full “living off dividends” status. It’s the ultimate goal but not all will be able to attain it. Any level that produces a supplementary income stream is going to help, even if it’s only $1 K per month, it will help out mightily with buying the groceries and other expenses – maybe even dine out a little more often (when Covid’s over, ha!).

Tawcan: I full heartedly agree with you. It’s all about creating a better financial future for you and your family. Who cares about whether one retires early or not? I mean, what exactly means “early?” If the traditional retirement age is 65, if you retire a day before you turn 65, you still “retired early.”

Early retirement doesn’t mean success in life. Rather, I think it’s all about whether you have made an impact in other people’s lives or not

Living off dividend – Wrapping all up

Wow, thank you B for sharing your amazing story and your knowledge with us. I love how our email exchanges turned into a multi-week-long email discussion and eventually to this lengthy Q&A. This is why I love this community so much – we can all learn from each other and everyone is so willing to share their story and knowledge.

A few years ago, I interviewed other Canadians that have reached financial independence or near financial independence. In case you want to read all their stories, please check out the following interviews.

Dear readers, I hope you have enjoyed this Q&A as much as I did!

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117 thoughts on “Living off dividends – My $360k per year dividend income”

  1. Thanks for sharing!

    I’m most fascinated with estate planning. Can you guys share your thoughts on how much you plan to leave and what you plan to do?

    Here in America, we can leave $11.7 million per person estate tax free when we die. So that is what some personal finance enthusiasts aim to leave per person to help their children and create giving machines to charities.

    But I’m curious if leaving our adult children so much is wise or helpful. Is it better to spend more on our adolescent children or young adult children, but risk spoiling them? Something I’ve been thinking about for a while and I don’t know what’s best.

    We have about $310K/year in passive income and I plan to re-retire within 12 months after taking a sabbatical.

    Thanks for any pieces of advice!

    Sam

    Reply
    • Hi Sam

      Gifting in Canada has no limit. You can buy a house in your children’s names and not have to pay a cent of tax on it. There is also no upper limit as there is in the US.
      Unless you leave a house which is not your principle residence, then you would be subject to capital gains tax on that property.
      Canadians have alot more advantages to leaving inheritence to the children, since for now there are no taxes.

      Reply
  2. Really enjoyed that series, so thanks to you and B for sharing his story.

    It’s always inspiring to read success stories about people who worked ordinary jobs and didn’t have big incomes during the accumulation phase. $360,000 in annual dividends (and mostly tax free) just blows my mind!

    We’ve dedicated a portion of our retirement portfolio to dividend producing assets, but currently plan to use a mix of dividends combined with lower withdrawals to fund our early retirement. It’s interesting to follow your journey (and read stories like this) though, because the all in approach does have it’s appeals and clearly can be successful.

    Reply
    • You’re welcome Mrs. RFL, glad that you enjoyed reading the interview series. I was so inspired by Reader B’s story I wanted to share it with my readers. So happy that he agreed to participate in the interview.

      Reply
    • Reader B and his wife retired in 2004 and at that time they were puliing in a combined $200k in salaries. I certainly would not call that ordinary jobs.

      Reply
          • I think there are a few lessons here, especially that there is a way to live my life with a little less; less Starbucks, less take-out, less vacations, etc. I’m on this site because I have a vested interest in securing a reasonable retirement with a significant effort to save money. Otherwise, why else would I be here?

            Of course not everyone is the same as B’s family. I have no chance of achieving the same result, with only 6.5 years to my retirement goal. We’re a mostly single income family, with two adult children that still need to go to post secondary. COVID sucks.

            But, I take great inspiration from his story. I don’t need anything close to $30,000 / month – but $5,000 – $6,000 / month – yes, that’s about what I need and having read about his experience I think it’s achievable in the next few years – more than I ever did before.

            I’m grateful for learning about how and what he did. I think everyone, no matter what their situation can have at least one takeaway that they can implement.

            For sure I have way less anxiety over my “lack of diversification” and also feel I need to rethink my RSP strategy, by only contributing my employer match dollars and then, after contributing my maximum TFSA put everything else in my non-Reg account.

            I now see a path where that makes sense.

        • If you were to do the math :
          Roughly 2000 hrs/yr x 2 = 4000 hrs

          $200,000/ 4000hrs= $50/hrs
          Show me an ordinary couple that averages $50/hrs and to boot I will give you the, NO CHILDREN.
          I will not tread on that because they did not elaborate why no children. Multitude of reasons and some of them I will not broach, that is too personal.

          Reply
          • Children or no children, it doesn’t take away their accomplishment. They should have easily spend all that money and not saved.

            Yes, not every couple can make $200k a year but many people can save $1k every month or two. Let’s focus on the saving and investing part, rather than just throw the “oh they have no children and make a lot of money, that’s why they could do it” statement around.

  3. Hi Bob,

    I’m a recent follower of the blog having been attracted to your site via myownadvisor.ca

    I seem to recall that Mr. and Mrs. B did not have any children – correct me if I’m wrong.

    I will say that in my own experience in 2019 of having acquired a modest inheritance (most of which I did not receive until 2020), when both my parents passed – three months apart to the day – I really appreciated their foresight in purchasing life insurance which greatly helped in offsetting inheritance taxes when their (again modest) portfolios were passed down to my sister and I.

    I can appreciate that this topic would not be too relevant to Mr. B. For my wife and I, we do have some life insurance, meant to retire some debt, and cover initial costs, should one of us pass in the near term. For the longer term, if we do indeed get our portfolio to the kind of levels where we can generate significant dividend returns, which is definitely our objective, we will acquire additional life insurance to help our children manage the tax burden that will occur with the future transfer of wealth.

    Other than that – our portfolio is already heavily weighted in our non-registered account (about 62%), but after reading about Mr. B’s experience I must say I’m more inclined now than before to only utilize my company’s RSP / matching program and contribute everything else to our TFSA and unregistered accounts!! Especially since I’m already using the dividend investment strategy in our RSP accounts, but of course when I withdraw those dividends in retirement they’ll end up getting taxes as income. I still feel it’s a conservative, yet effective way to invest those dollars, but I’d rather get my dividends at the dividend tax rate – as Mr B clearly described.

    Thanks for this very informative opportunity to learn from someone who has “been there and done that”!!

    Reply
    • Hi James,

      Thanks for the follow. Mark has a great site.

      Mrs. B and Mr. B don’t have children but that’s not the main reason why they are able to build up such a large dividend portfolio. 🙂

      After emailing back and forth with B I definitely see how powerful non-registered accounts can be and how important it is to have a withdrawal plan for RRSP.

      Reply
      • I would certainly say not having children allowed them to invest more after tax dollars than if they had children.
        Investing in an RRSP is always a tricky subject unless you can plan ahead and pull that money out before you get into retirement age and want to have CPP and OAS.
        Also when RRSPs first came out, you were only allowed to have 18% foreign content before the government did away with that and opened up the flood gates.

        Reply
  4. Great multi post interview B!

    While I am not a dividend chaser at all and see the benefits to an RRSP (especially for early retirees who can withdraw from their RRSP sooner rather than later without other income streams to report) I applaud your reasonings for doing what you did over the years. It just shows that consistency and investing early and often does pay off.

    I agree with your strategy of maintaining your mainly stock portfolio vs shifting into more bonds as you age. You already have well more than enough – even if stocks go through a volatile patch for a few years you’ll still end up far ahead since you’re only withdrawing a small fraction annually (or not and just living off pension earnings during those down years).

    I’m curious, have you done any sort of comparison of what your portfolio would look like today if instead of building your 110 dividend paying stock portfolio you went with a much simpler all in one ETF tracking a more global market? (I know these are more recent investing options and likely weren’t available at the beginning of your journey so hard to actually compare. Just curious how the gains would compare as well as the taxes over the long run.)

    Reply
    • Hi “Court”:

      No I have not done any direct comparisons between ETF performance and our dividend stock account performance. I do not invest in ETF’s or mutual funds but prefer to own stocks directly – in effect creating my own no fee 110+ stock mini-mutual fund (or ETF if you wish). As stated in the Q&A, I began investing in stocks in 1985. Back then the only option other than a non-registered account was the RRSP. Mutual funds were certainly available and I dabbled in them briefly during the early-mid 1980’s, but the performance simply wasn’t there compared to direct ownership and the fees/MERs were much higher then than they are even now. ETFs were unheard of. The TFSA only became available to Canadians in 2009. There weren’t a lot of options.

      However, I do have some historical data to share re: our total account values and performance. You can assess the data against your favourite global ETF performance numbers if you wish. Here’s the numbers.

      My wife and I both retired in 2004 – so that’s 16.5 years ago.

      On Dec 31, 2004, our account values totaled: $1,776,300.

      On June 18, 2021, account values totaled: $9,590,578 (markets are higher since 2020 year-end).

      Since retirement, we’ve been able to pretty much live off our work pensions, CPP and additionally in past year RRIF withdrawals. So our two non-reg investment accounts have remained pretty much “intact and untouched” for the past 16.5 years – capital gains have been allowed to accrue and dividends remained in the accounts and were re-invested in additional dividend paying stocks.

      Using the above figures and the simple annual compound rate of return formula:

      The CRR formula is: CRR(%) = {[(FV/PV)**(1/n)]-1} x 100

      where: FV = Future Value ($9,590,578)
      PV = Present Value (1,776,300)
      n = Years held (16.5 years)

      …. we get an annual compound rate of return (CRR) of 10.76% – a pretty decent and acceptable rate of return in my opinion – and that’s not an annualized return …. that’s 10.76% per year compounded year after year for 16.5 years. I’m happy with that. Is there an ETF that beat that kind of performance? Maybe … but I’ll bet it won’t be by much.

      The point here is that once the million dollar level is reached in account value, relatively speaking, the percentage annual increases in value are reasonable at 10.76% – but when viewed in absolute dollar terms, then one’s account values really skyrocket. So it takes time, a lot of patience and much perseverance to build a high-end dividend income producing portfolio. But it can be done.

      As for the traditional advice of shifting assets into “safer” fixed income type investments to avoid volatility – why do that? If one has a solid dividend income stream established, then an asset type switch is not necessary at all. In fact, with interest rates now at all time lows and about to rise in the next year or so (and with inflation also on the upswing), I think that a switch into fixed income would be ill-advised. Some stocks like utilities will get hurt with rising interest rates – but banks will thrive. The fear that the financial “industry” instills in us is that we might have to sell stocks into a market downturn – but if you’re a dividend investor, the idea is to “live off the dividends” – which is what you do – this means you don’t have to sell anything. Just ride the downturns out. We just went through one of the most gut-wrenching market downturns I’ve ever experienced (Covid) – we sold nothing except for culling and replacing 5 stocks that did cut dividends. The dividend income stream held up amazingly well during the Covid downturn.

      Another concern people have is that their estate may forced to sell stocks in a down market. Again, this does not have to be a major concern. Beyond selling the minimum amount of stocks (or using cash assets) to pay income taxes owing and probate fees, don’t sell the stocks – transfer them. If there is a surviving spouse named as beneficiary in a will, then simply transfer the stocks over “in kind” to the surviving spouse with no tax implications. If there is no surviving spouse, then set up accounts and transfer the stocks to beneficiaries in accordance with the will. The beneficiaries can then benefit from their portion of the deceased’s dividend income stream and hold for subsequent rising stock prices if they wish. Or they can liquid their stocks at depressed prices if they so choose – but at least that’s their call – not the executor’s.

      I’m not a fan of investing for limited returns on fixed income type investments. Even returns on seemingly “safe” fixed debt type investments are risk free. I feel badly for retirees who planned and setup what they thought was going to be a reliable/steady income stream via bonds and GICs only to have interest rates drop to historic lows along with their retirement income. Once a dividend investor gets that income stream established, they should stick with it to the end – ride the bull and the bear – just hang on tight. Remember the old adage when it comes to the deciding whether it’s better to own stocks or debt instruments: “I’d rather be an owner than a loaner”. I’d rather own the banks than buy their “products”.

      Kindest regards,
      Reader B

      Reply
      • I have been absolutely enthralled reading your interview. Thank you so much for sharing such an inspiring story. I am a firm believer in the ever-growing dividend stock portfolio. My parents believed in it too, and I was able to witness their success, although it pales greatly in comparison to yours. Congratulations to you for not letting the naysayers get into your head all those years and for going against the grain. You have motivated us all with your personal story. Thank you!

        Reply
    • Actually since the government started the TFSA, you are far better off to max that out and forget the RRSP.
      As the limits go up every year for the TFSA and being able to take money out and replenish your supply as need be, I would be hard pressed to advise anyone to start a RRSP.
      Too many restrictions concerning RRSPs and the minute you take funds out, the taxman also gets paid an amount.
      Where as a Taxable account or TFSA, the government has to wait until you file your tax return. By that time, you could well be in the Caribbean or somewhere in Europe or Latin America, I hear Belize is nice.
      You cash out January 2 and I mean everything, house, lakeside vacation property, the rental apartment in the Westend, your investment accounts, I mean EVERYTHING and you have 16 months to decide where to go.
      Without children, that decision would be much easier.

      Reply
  5. Hi guys,

    Great article, could you please expand on what is exactly meant by a non-registered TFDA and how does one go about creating it? Is it similar to a TFSA (but a TFSA is registered right)?

    Thanks
    Sam

    Reply
        • I thought so also, but really, what is meant by it is that up to a certain level, if one’s own income was solely dividends, then that income would be tax-free (the Ontario example was about $53,000 a year in 100% eligible dividends).

          But most of us will have CPP, and OAS, and income from an RSP/RIF. Very few of us will have a moment in time when we only have dividend income (although, I’d sure like to make it happen!!)

          Reply
  6. I don’t have any questions nor any comments. I just have huge respect to this couple. Their wisdom and knowledge can be a book guiding future Canadian generations. I really hope Reader B writes a book! He has so much to share and teach all of us.

    The 3 challenges made me sad but they are true! Very well said Mr. B! You are awesome. Thanks for sharing your story!

    Reply
  7. This was a great part 2 interview. Props to the wise couple. B makes a good point that a lot of Canadian companies are earning money from around the world so it’s possible to get global exposure that way, without paying withholding taxes. 🙂 Hopefully the government won’t increase how Canadian eligible dividends are taxed. A lot of Canadians are counting on dividend income to retire on.

    Reply
  8. I thought to myself…. how much more could be said in a 2nd post? Well you really nailed it ….with now that you have become a multi-millionnaire and followed a great patch and have lots of dividends coming in… what do you do now? And what happens when you die? And us there really value in an RRSP for all or are there alternatives?

    Reply
  9. Bob and the B’s:
    thank you for telling us your stories. I am re-assured that I can dividend my way through retirement with my simple Canadian only portfolio. Focusing only on dividend paying companies that are financially stable is my lone criteria.
    Bob, is it possible to obtain the B’s thoughts on capital gains; that is what to do with the gains at 30%+ that they received in the past 14 months of investments made during the covid period. Or gains they have achieved as long time investors in a company.
    Do they sell the required shares to obtain the gains and then re-invest the gains into more dividend paying stocks? During part 2, Mr B commented that some companies stopped paying dividends and they were then culled and new investments were made. I assume that upon culling there were some capital losses created.
    So, were gains taken and then capital losses applied ??
    On long time investments, do you simply pay the tax on the capital gains and move on?

    thank you in advance

    Reply
    • For capital gains, you may want to look into superficial gain… basically you sell the investment (in taxable account) and buy back shortly after. This will allow you to spread out your capital gains across different tax years. There’s a 30 day time requirement for superficial loss but I don’t believe there’s such a rule for superficial gain.

      Reply
        • Perhaps the right term isn’t “superficial gain.” What I meant was considering selling portions of your stocks in years that you have low income. You’d pay the capital gain tax in your marginal tax rate that same year. Then buy back the stocks at a higher price than your original ACB and you can continue to receive dividend income.

          For example…
          Purchased 200 shares of RY at $20 many years ago
          You retired in 2020, so in 2021 you have no working income
          Sell 100 shares of RY at $100 in 2021 at $100. You’d pay taxes on the $4,000 capital gain (50% of $8,000).
          You’d buy 100 shares of RY at $100 a few days later.
          Your new ACB is now $60

          This is something that I came across recently and must be researched a bit more.

          Reply
          • Bob, I now understand what you are getting at . The problem was the terminology you were using as there is no such thing as a superficial gain. You sell the stock today and you recognize the gain. Period. If you are in a low tax bracket today but you think you may be in a higher one in later years and you want to keep the dividends coming , buy the stock back and your cost base increases which will reduce any future capital gain.

            On a separate note , I found these 2 articles very informative particularly when Mr B talks about effective tax investing which means capital gains and Canadian dividends.

          • Yeah and if you sell all 200 shares @ $100 you would pay taxes on 50% of $8,000 or $ 4,000 capital gains. So where is your logic behind the new ACB of $60. You still pay capital gains on $4,000.

        • Ha – good discussion going on here in the following replies. I’ve never heard of the term “superficial gain” either – only “superficial loss”. If we look a little further down on the http://www.adjustedcostbase.ca web page referenced by James Rankin, there is a section which reads:

          “What About “Superficial Gains”?

          Since the superficial loss rule denies capital losses under certain circumstances, you might ask, can capital gains be avoided in certain cases? For example, if you sell shares and realize a capital gain, but immediately repurchase the shares, can you call this a “superficial gain” and defer the capital gain? The answer is no: you cannot defer the capital gain and there is no such thing as a “superficial gain.” The capital gain is taxable immediately in the current tax year, even if the shares are repurchased within 30 days.”

          So there you have it. Bob clarified the intent of his statement – which is simply a suggestion that a large capital gain can be strategically realized in small increments over a number of years so as to keep total income in a low tax bracket and minimize the tax bill. Bob also illustrated how to do that with his excellent RY stock example under which the sold shares are “immediately” bought back and the ACB modified accordingly. The CRA always it’s tax whenever a capital gain is realized and the CRA doesn’t care if or when the investor might buy the stock back.

          Reply
          • Correct, I didn’t mean to defer the capital gain, so yea, superficial gain isn’t the right term to use here. Basically I’m suggesting spreading out the capital gain across lower income years so you don’t get hit by a huge capital gain tax when the 2nd spouse is deceased and the entire portfolio is then taxed using a very low ACB.

            Obviously some more number crunching and analysis are needed to see whether spreading out the capital gains across different year makes sense or not.

          • Yes, I agree with this concept – that there could be some value to harvesting some capital gains incrementally. My own challenge would be that as my career progresses my salary hopefully increases. I therefore don’t anticipate a lower income opportunity where this would make sense – but it could be part of my “earlier” retirement strategy.

      • I’ve never heard of a “superficial gain” . Are you sure about this ? If so could you please provide a reference.

        Reply
          • You haven’t addressed the point from both James Rankin and my self. There is no such animal as a superficial gain and if you sell an investment in a taxable account and buy it back immediately (not sure why you would do that) you pay tax in the year you dispose of it. The fact you bought it back immediately doesn’t matter. I don’t believe you can spread your capital gain over different tax years as you indicate . Could you please provide a tax reference that allows such a transaction

          • Hi Ron,

            You’re essentially creating an opposite of superficial loss when you do that. There’s no official term to it, it’s something that I’ve come across.

            Say you purchased 200 shares of Royal Bank many years ago at $20 per share. In your lower income years, you may choose to decide to sell 100 shares of these, say at $100 per share, pay the capital gain ($4,000 or 50% of $8,000 gain), buy back the shares again so you can continue to collect the dividends. This way, you may be able to minimize the amount of capital gain when you do have to sell the stock later on (i.e. when deceased or passing on the portfolio to your beneficiaries).

            I’m not a tax specialist so this idea needs to be researched a bit more.

    • Hi John:

      You asked several questions about capital gains and how to handle them that haven’t been answered yet.

      One option, as Bob suggested, is to realize your capital gains in small incremental amounts each year while you are still in low income tax brackets – this assumes that you will be in much higher tax brackets in later years with all that dividend income rolling in, ha … Ka-ching!!

      But as your income increases over the years, either via your job or re-investment of your growing dividend income stream, you will gradually keep moving up the taxation rate ladder into higher tax brackets. And as you do, the incremental approach will become less and less advantageous. When you reach the maximum tax bracket, the strategy of selling stocks to realize capital gains no longer makes any sense at all because there is no longer any “discount” taxation room available. At this point, the only real option left (unless you want to pay the tax) is to simply keep holding your stocks “forever” – as the vow goes “to have an to hold until death do us part”. So, that’s a 2nd way of looking at the capital gains issue and I did touch on this in the Q&A session. The beauty of dividend investing in a non-registered account is that (unlike a RRIF) you are never forced to sell any stock at all if you don’t want to – just keep holding and keep deferring those capital gain taxes.

      The only time you might sell would be: 1) out of necessity e.g. if you really need the $$$ (but I don’t think you will), 2) you’re forced to sell due to a takeover/buy-out, or 3) a company no longer meets your investment criteria (see examples below). So just keep holding your stocks forever and never pay any tax. People don’t get wealthy by selling great companies – they do so by holding on to them. By continuing to hold, you benefit by keeping “tax” dollars working for you and not the government. Also, if you sell early, then you will never get a chance to realize your “home-run” stock i.e. that stock gem that’s soars to astronomical heights.

      If each spouse names the other as the beneficiary in their will, then on the death of the first spouse, their stocks can be transferred “in kind” without any tax having to paid to the surviving spouse. It is only on the death of the 2nd (surviving) spouse that the full capital gains tax will finally be payable on the 2nd spouse’s final T1 tax return. And because the capital gains will be taxed as a lump sum, generally the resulting rate of taxation will be close to or at the maximum capital gains taxation rate of 26.76%. But remember … tax is only applied to the capital gain portion – the ACB portion of the deemed sale on death is always tax free. By taking this approach, a couple can keep most of their capital gains out of the taxman’s reach for their entire life while they enjoy/live off an ever-increasing dividend income stream. And in the end, their beneficiaries, even after taxes, will still receive a sizeable inheritance.

      As for “30%+ gains” during the last Covid market run-up …. don’t forget sizeable losses were incurred by almost all stocks during the Feb-Mar 2020 down period – so part of the subsequent price run-up represents really recovery of those losses. But again, as described above, you could employ the incremental sales approach to the capital gains or just keep holding all the stocks. I prefer the latter – hold.

      When a company eliminates their dividend, I sell the stock off and replace it with another conservative dividend paying stock. Yes – in some cases, gains were realized and in other cases there were losses. I’m an advocate of tax loss selling – unless the stock is still a sound business, has merit or is oversold for some external reason, then there is no point in holding on to losers hoping that they will eventually recover. That’s “dead” money – one needs to get it working again. So I sell true losers – this has three advantages: 1) re-investment in a new stock that has real upward potential, 2) triggers a capital gain loss which is beneficial for tax purposes as the loss can be used to offset other capital gains, and 3) the investor does not have to keep looking at stocks in their portfolio that didn’t live up to expectations.

      I do tax-loss selling throughout the year … seldom in November and December when other investors are doing the same thing. November and December … that’s usually when I’m buying. Throughout the year I maintain a running tally of where I’m at in terms of net capital gains and losses for that tax year. I try to keep the sum as close to zero net capital gain as possible so that no capital gain taxes will be payable by year-end.

      The CRA allows you to carry unused capital losses forward indefinitely to apply against capital gains in subsequent tax years. Since I seldom sell stocks, I often have a capital tax loss carry-forward on my income tax return each year. The CRA will also allow you to carry capital losses back for up to 3 prior tax years I believe – but I don’t do that. I prefer to always carry the losses forward – it’s a little “comforter” I carry with me – a cushion – to shelter future capital gains and lessen the tax impact – and hopefully at least bring any capital gains tax close to zero.

      Sometimes it’s necessary to sell a stock because it becomes the target of a take-over – there’s little to be done here except sell. Some recent examples are the Brookfield/Pembina bidding war for Interpipline (IPL), Rogers proposed takeover of Shaw, and Power Financial being absorbed by Power Corp. If I can offset some or all of those “forced” capital gains with capital losses, great – otherwise there’s nothing to do but pay the tax. Sometimes negative factors develop that make a company less favourable to hold and the best option is to sell. Again a capital gain or loss may result. I recently discovered after filing my 2020 taxes that I had too much “Other” or regular income being reported on my T3/T5 slips – after investigating I found it was coming from about 3 non-tax efficient REITs – I was paying 53.53% max tax on the distributions from those REITs – that’s not acceptable – I’d be better off holding BCE or BMO which pay Cdn eligible dividends taxed at 39.34%. So I’m in the process of selling off and replacing those REITS with ones that have a distribution tax rate equal to or less than the eligible dividend tax rate. Another example – First Capital Realty (FCR) used to pay Cdn eligible dividends – they recently restructured into a trust that pays distributions that are sadly classed as regular and hence fully taxable income – so that FCR holding will be sold off. My general strategy then is to buy dividend paying stocks and hold them indefinitely. But the economy, business and companies are always changing, merging, evolving – and as dividend investors we have to be continually monitoring these changes and fine-tuning our investment portfolios to bring them in-line with our goal of producing a tax-efficient dividend income stream.

      Having said all that, not all is going to be smooth sailing for capital gains taxation moving forward. There are two huge problems looming on the horizon that I can see for stock investors of all types – and especially those of us who are of the buy-and-hold type and who build up sizeable unrealized (i.e. taxable) capital gains.

      The first problem is the near certainty that the capital gains tax inclusion rate is going to be increased from the present 50% to 75%. The effect of this will be to increase the capital gains tax rate from the current 26.76% to 40.14%. This will bring the capital gains taxation rate pretty much even with the Cdn eligible dividend tax rate. This is not a good tax prognosis for investors to say the least. I do believe, however, that the government will have to provide some type of grand-fathering provision that will allow past accrued capital gains to be taxed at the present 50% inclusion rate. Such a grand-fathering provision will be needed in order to gain political acceptance for the tax increase among investors and the business community. So this is definitely cause for worry re: capital gains going forward but at least it likely will not result in a retroactive tax on accrued capital gains. Let’s hope it works out that way. Better yet let’s hope for no tax increase at all.

      The second problem … so far we pay both income and consumption taxes. But there is a new tax coming – the asset tax – aka the wealth tax. As discussed above, if investors choose to follow a buy-and-hold strategy, then there is never any tax payable on accrued/unrealized capital gains until the surviving spouse dies. Wealthy families have built up vast unrealized and untaxed capital gains as well. Modern day socialists don’t like not being able to access this unrealized source of capital wealth. There are strong cries coming from segments of society demanding a piece of the unrealized capital gains/wealth pie for social programs. And how do they propose to access this untapped wealth? … through the introduction of an annual percentage wealth tax on everyone’s assets. In my opinion, a wealth tax will be a nightmare to administer and ensure “fairness”. In order to gain initial acceptance, the wealth tax rate will start off small and the upper threshold defining “wealth”will be set high. But that won’t last long – and once in place the wealth tax net will be tightened to generate ever increasing amounts of government revenue.

      There are changes coming with respect to capital gains taxation and they’re going to end up costing investors dearly.

      A bit of a long reply/answer I’m afraid – but there’s much to consider when trying to find the most tax-efficient way to deal with capital gains.

      Kindest regards,
      Reader B

      Reply
      • The minute the government deides to put in a wealth tax, is the minute I start to research where I can park my money outside of Canada so they can not touch it.
        Wonderful having dual citizenship.
        I have never and will never be a Socialist. I firmly believe that if you educate yourself, work hard, live within your means, you will never have aproblem in your lifetime that you can not solve.
        I refuse to pay for people, who believe or insist that it is the government’s job to povide for them or believe it is owed to them because they “perceive” that they have had it harder than everyone else.
        My parents emigrated from Europe in the 1950s, educated themselves, raised 3 children who have all done extremely well.
        I do not believe in “English as a second language”, I do not believe in gaining citizenship, just because you were BORN in Canada, I also do not like the fact that Quebec and the First Nations still consider themselves above the ordinary Canadian, I do not like the “political correctness” that has arisen over the past 5 years, people had tougher skin 40 years ago and alot that was said slid off, like oil on sardines.
        I am a Capitalist and I provide for my family and no one else.

        Reply
  10. Fantastic conclusion to a great interview. The point I like the best was his suggestion to minimize ones RRSP. This should be the main point for any young investor, and recognize that they should maximize their TFSA(s) and RESP, if they have kids, before even thinking about an RRSP.

    Reply
  11. Hey Bob & Reader B

    This has to be the best interview I’ve ever read. It really covered all the important points and then some and I pretty much agree on all points.

    Coincidentally, my wife and I have a very similar setup with only owning TSX listed dividend income/growth stocks with no fixed income or direct foreign exposure. The big difference is we only have 22 holdings in 5 sectors – banks, utilities, midstream, telcos, and REITs.

    I’ve been retired for 8 years without any company pension and my wife was stay at home. We generate more than 2.5x the dividend income we need for all our expenses and our portfolio and income continue to grow. We have also been gifting some significant dough to our two children for their mortgages so all is very good.

    Take care
    Don

    Reply
  12. Hi Bob,

    Incredible post! Thanks to you and Reader B for sharing so much valuable information. I especially liked how Reader B shattered conventional wisdom (I call them investing myths):

    1. Always max out your RRSP
    2. As you get older shift your portfolio from stocks to bonds
    3. Dividends are insignificant, focus on growth stocks

    Reader B is proof that conventional wisdom isn’t always right.

    Keep up the great work Bob! I really enjoyed reading this 2-part series, I hope to see more posts like this in the future.

    cheers,
    Kanwal

    Reply
    • Kanwal Sarai, You took the words right out of my mind when I was composing my initial comment. This is a terrific couple of posts and I thank both Reader B and Bob for sharing them with us. I stopped contributing to my RRSP several years before my retirement for these same reasons. No one was writing or talking about that strategy then. It was an excellent move for me now that I am retired.

      WOW what a terrific contribution to investing education for those interested in learning more. Thank you both again.

      Reply
  13. What an excellent and informative article series. Great work Bob and Reader B! I believe I learned more about taxation planning in these two posts than I have in reading numerous other sources. The questions and answers are very clear to understand.

    I do have a couple questions if Reader B is able to answer.

    You mentioned you and your spouse hold non-registered accounts individually and not jointly. Was this done for any tax saving purpose? As I believe you mentioned, it is ultimately better to have them jointly held in the event of a death of the first spouse to avoid estate taxes?

    I believe Bob mentioned Reader B does not have any children. With a very sizeable portfolio, and as you and your spouse get older, would you ever consider starting selling to withdraw (even though triggering some sizeable capital gains) – or is your plan to continue on holding with the assets ultimately passing on to the estate?

    Thanks!

    Reply
    • Hi “D Investor”:

      I’ll answer your second question first: “…. would you ever consider starting selling to withdraw (even though triggering some sizeable capital gains) – or is your plan to continue on holding with the assets ultimately passing on to the estate?”

      Please see a very detailed response on the selling of stocks to trigger capital gains/losses that I wrote and posted above for Reader “John” (he posed similar questions on June 21, 2021 @ 2:10 PM).

      The short of it is that, because of the sizable dividend income stream we’ve established coupled with pension income, CPP and RRIF withdrawals (a nice “problem to have” I agree), we are now both in the very top tax bracket. So there is absolutely nothing to be gained by selling off our stock incrementally at this point – we’ll be paying max tax anyway. So, the only viable option is to continue holding all stocks until “death do us part” (subject to the exceptions I mentioned in my write-up to “John”). By continuing to hold, all unrealized stock gains continue to work for us; why liquidate stocks and pay part of the proceeds to the taxman now? That’s not tax-efficient. Keep the stocks growing in value and the dividend income stream flowing.

      In the end, the estate of the surviving spouse will have to pay capital gains tax on everything – no way around that. All stocks are deemed to have been sold on the day of death and full tax is payable on the deceased’s final T1 tax return. At that point, the capital gains tax rate will be at the max as well. So whether we sell now in chunks, employ incremental selling, or have the estate pay it all at the end, really doesn’t matter – the end result is the same ….. except that by holding on to our stocks, they continue to work for us and increase our future estate value rather than be diminished through early taxation. One can really think of this strategy as being another contribution unlimited tax sheltered plan – but way better than an RRSP. And no forced RRIF withdrawals; and when the stocks are eventually sold, tax will be paid at the preferential capital gains rate (26.76% in Ontario) versus the max tax rate for RRSP withdrawals of 53.53%. So we’ll just continue to hold on tight.

      On your second question ….. a spousal joint account. This is not as simple as it might seem. You are quite right that many couples setup a joint account and for some very valid and beneficial reasons – automatic transfer of assets to spouse on death and bypass of estate probate administration taxes (probate fees).

      We’ve considered a joint account over the years but we’ve purposely steered clear … so far. A lot really depends on how a couple wishes to manage their overall finances and their degree of comfort with a joint account. A primary consideration in setting up and maintaining a joint account over a lifetime are the income attribution rules imposed by the CRA. All income earned in a joint account (including realized capital gains and dividend income) must be attributed back to the contributor for tax purposes. These attribution rules are obviously in place to prevent a high income spouse from transferring income to a low bracket spouse and avoiding tax. With deposits by both spouses being made over the years, keeping track of all attributable contributions and continually having to readjust attribution percentages can be a lot of work (more like hassle we don’t need); we didn’t want to get into all the record keeping. I don’t think many couples realize the CRA attribution requirement associated with joint accounts and simply split earnings 50-50 for tax purposes which is not in accordance with income tax laws.

      The primary sought after benefit of a joint account is the avoidance of estate administration taxes, or probate – when one partner dies, the assets become the sole property of the other partner, bypassing the estate and therefore probate fees. One also must make sure they have the right type of joint account – and that is one designated with the right of survivorship (not the “tenancy in common” type). Remember too, that a joint account only eliminates probate fees on the assets of the first spouse. If those assets are passed to the surviving spouse, full probate fees will be payable on the death of the 2nd spouse. With a sizeable estate, the probate fees can likewise also be quite sizeable (1.5% on estates over $50,000 in Ontario) and the executor could have trouble raising the cash to pay the probate fees and those fees must be submitted with the probate court application. But, in our case, we each have sufficient personal assets to fund probate fees and provide cash for the surviving spouse until the estate is settled. So joint ownership facilitates immediate and ongoing access to the account when one owner dies.

      You also have to be careful how joint accounts affect your wills. Wills have no effect on joint accounts. Any $$$ in joint accounts are excluded from asset distributions specified in a will. Things can get quite out of balance leading to some bizarre distributions (or lack of) to beneficiaries if you’re not careful; estate distributions may not end up being in the proportions you specified in your will. So joint accounts have to be properly setup to mesh with one’s will and vice versa.

      The only joint item we hold is our house – that way the house avoids probate and the surviving spouse will continue to have a place to live.

      Here’s the best solution for joint spousal accounts that I’ve been able to come up with over the years – and we may consider this option further. You do not want to have a single combined joint account … but rather establish two (2) joint accounts – one for each spouse. Or add your spouse’s name on as joint owner to your existing personal account (if permitted). This approach gives the clarity of separate investment accounts for attribution purposes. So the idea is to establish two joint accounts, with each spouse’s SIN listed first on only one account. Each partner contributes only to the account on which they are listed first. This approach makes it easy to attribute income and gains to the correct spouse, and both accounts are immediately accessible when one partner dies. Probate is also avoided on both accounts. This approach solves all problems related to the CRA’s attribution requirements and still provides all the advantages people seek in a joint account including the bypass of probate fees. Something to think about.

      Kindest regards,
      Reader B

      Reply
      • “B” “All income earned in a joint account (including realized capital gains and dividend income) must be attributed back to the contributor for tax purposes.”
        I’ve never found this a problem, because the solution is simple:
        1. The account may be call Joint, but when stocks were purchased we made a decision whether it was her stock or mine. A joint stock owned by one, was never recorded as owned by the other.
        2. When we bought more of a joint stock, the purchase was recorded to the existing joint account which currently held the stock.
        3. In our stock worksheet, our joint stocks were separated between hers and mine, therefore ACB was also separated, automatically.
        4. When we foolishly held GICs, they were recorded as hers or mine.
        5. The only truly joint account held was our bank accounts. We never separated cash.

        Reply
        • In a joint account, it is very rare for CRA to ever look at who it belongs to or who is the contributor.
          Considering that if I work and my wife decides to be a stay home mother, who else would be bringing in the income, ME
          Now, the arguement to this is, if my wife and I were to divorce, half of all assets belong to her whether she earned them or not, therefore if we are together, half of all assets also technically belong to her.
          CRA would have a hard time convincing a judge that this is not the case.

          Reply
      • Thank you very much for your very thorough and detailed reply. This helps me a great deal in planning.

        A quick question – do you ever decide to ‘rebalance’ when a stock holding has shown a large amount of capital growth – effectively lowering your dividend yield on equity – into another holding with a better dividend yield that still shows good dividend growth prospects? I know this would trigger capital gains, however if the focus is on dividend income, the ‘future’ potential dividend income from a holding with effectively higher yield may offset the capital gains tax paid on the ‘capital growth’ stock.

        Thanks!

        Reply
        • Hi “D Investor”:

          You have raised an excellent point here and identified a very viable strategy that is employed by many investors. Essentially, the “rebalancing” that you’re referring to involves the selling of a stock that has had a big run-up in capital value, paying the capital gains tax, and then, even after the tax is paid, you still have enough $$$ left in pocket to re-invest in a higher yielding stock which can significantly improve your dividend income stream. In the past, I have indeed run calculations on this approach for some of my high growth stocks and it certainly can be made to work. But I very seldom did this in the past and certainly don’t now. In my case, at the moment, I do not need any more dividend income – and I have to pay max tax on all new dividend income. So for me at this investing stage, there really is little point and nothing to be gained.

          But the strategy is excellent and I’ve noted through Internet readings that many investors use it – both now and plan to in future as they head into retirement. The idea is that in your working years (when you may not need dividend income) you invest not in high yield/income stocks but in high growth stocks. Then as you near retirement, you employ the strategy you’ve identified – sell off the growth stocks, pay the tax, and invest in dividend stocks to provide income for retirement.

          That all makes perfect sense so far – it sounds good – but will it all play out as planned? I’d be a little cautious. In my experience, governments never lower taxes – they only raise them. And that’s part of the reason why investors are getting caught in the “RRSP/RRIF tax trap” discussed in the Q&A. And the same tax trap is looming for capital gains as well. You have no doubt heard rumblings about increasing the inclusion rate on capital gains from 50% to 75%. Frankly, I think it’s pretty much a given that this will happen as soon as we get the next majority government. The effect of the increase in inclusion rate will be to raise the present max capital gains taxation rate from 26.76% to 40.14% (Ontario) – bringing the tax rate pretty much in line with the eligible dividend tax rate of 39.34%. Such a capital gains tax increase could throw a real “monkey-wrench” at investors hoping to employ the growth to income rebalancing strategy.

          I do believe that in fairness and to gain political acceptance, the government when it increases the capital gains inclusion rate is also going to have to introduce some type of grand-fathering provision that will allow for the continuation of capital gains accrued to the date of implementation to be taxed at the 50% inclusion rate. But when are government ever fair? Who knows. We’ll have to see how this one plays out.

          There is one other reason that I’m not in favour of the high growth “rebalancing” strategy – especially in an investor’s early years. Every investor dreams of finding and owning that one mammoth “home-run” stock – the next Amazon, Wal-Mart, Apple, Shopify and so on – an investment that results in an especially large capital gain in a very short period of time – or the high gain could even be over a longer period of time. If one is always selling off and taking profits in high growth stocks after they’ve had a certain percentage run-up, then fine, you get a single or a double but your never hit a home-run. And many times in seeking high growth stocks you will strike-out and it’s back to the dugout. I’ve been fortunate to have one “home-run” stock in my life – purchased back in the late-1980’s and I’m still holding on to it. And I’m sure glad I didn’t sell early on to rebalance anything. I’ve analyzed my home-run stock from every angle trying to figure out what I should do with it – and the conclusion I’ve come to is simply continue to hold – “till death do us part”. No other option makes any investing or taxation sense. Plus it’s a great stock “to have and to hold” … BAM.A. Maybe Bob and I will do a little “case study of a home-run stock” at some point in the future … we’ll see.

          In closing and while we’re on the subject of capital gains taxes …. most investors do not realize that the capital gains tax is the most unfair of all investor taxes in the government’s arsenal – and they don’t want you to know it’s unfair. Why? Because they would lose too much revenue if they taxed capital gains fairly. The capital gains tax (and especially if they introduce a principal residence tax) is in essence a tax on inflation – it is not a tax on only your pure capital asset gain. For example, if you hold a stock for 25 years say, how do you calculate the capital gain? The government has you use an Adjusted Cost Base (ACB) value that is expressed in dollars 25 year ago; then you subtract that 25-year-old ACB from the value of your asset expressed in present day dollars!!! What kind of price comparison is that? Totally not correct or fair at all. A very large portion of the “capital gain” is in essence pure inflation – taxpayers should be permitted to increase the ACB to present day dollars, eliminating the inflation effect, and then apply tax only to the true capital gain component.

          As another example, governments would dearly love to introduce a capital gains tax on the sale of your principal residence …. let’s say you purchased your house 30 years ago for $100,000 and today it’s worth $750,000 – the pure capital gain is not $650,000 and you should not have to pay tax on that amount. You cannot fairly compare a 30 year-old price with a present day price – we all know that inflation raises prices. All past cost base dollars must first be converted into present day dollars before capital gains tax is applied. This fact alone is all the more reason for Canadians to oppose the introduction of any capital gains tax on the sale of their principal residence.

          But as I said, don’t expect governments to always be fair. Jean-Baptiste Colbert, French “finance minister” under King Louis XIV once said “The art of taxation consists of plucking the goose so as to obtain the most feathers with the least possible amount of squawking.” This statement is as relevant today as it was then. Put another way: It is in the interest of government to make the collection of taxes as painless as possible – but it is not necessarily in the best interests of taxpayers to leave the methods entirely up to government.

          Kindest regards,

          Reader B

          Reply
      • My wife and I tore down our origianl house in 2001 and built it ourselves with as few contractors as possible. Since we are a single income family and my wife is the housing engineer, my income was responsible for the lot and past savings.
        In 2011, we sold that house and that money went straight into buying stocks and what have you. The income from the sale is joint, so for the CRA to come back and try to acertain attribution would be rather difficult.
        We have been FI since 2011 and have always filed two tax returns, one with the income and one just because. Have never had CRA question them and probably never will.
        In future years, will probably show income and earnings on oth, and if the CRA would like to question it, I have all the time in the world to chat.

        Reply
  14. Congratulations on your success. You have done the work of thinking through what it is that you want from your investments. And what you are willing to do to achieve it.

    It is always the investor not the investments which determine success.

    You seem to know thyself quite well.

    Nicely done.

    Reply
  15. Mr B talks about an abundance of advantages from having a TFDA. perhaps he could explain what he means by “withdrawals” which are referred to five times. Since this appears to be a taxable account , are withdrawals meant to be sales of investments ?
    Also it states
    1. “Tax-free growth of unrealized capital gains and streamed dividends (similar to TFSA/ RRSP)” — what are streamed dividends that are tax free?
    2.”Withdrawals receive reduced capital gains and eligible dividend tax rates – avoid full taxation” — not sure what this means?
    3 .”No part of a withdrawal is taxed at the full rate since there is nil to little other/interest income” What is this withdrawal referring to?

    Reply
    • Yes withdrawals would mean sales of investments.

      For non-registered accounts (i.e. TFDA), you don’t have to pay any capital gains until you sell the stocks. When you do sell, the capital gains are only taxed at 50% of your marginal rate. This is much better than if you were earning an active income.

      Reply
  16. Thoroughly enjoyed these two articles. Thank you both for sharing. Totally agree with B on his Canada first policy. CPP is 85% invested outside of Canada as well. My pension is also 45% outside of Canada, that means I can be more Canadian focused.
    If you have a work pension a large RRSP can be a problem. This is especially true if one partner passes and income splitting opportunities are gone. Thanks for confirming.
    Pension income can be split at any age however RRSP/RRIF cannot be split until 65 so use spousal.
    Curious if B is using any of his dividends to give to Charity to offset taxes? This is obviously money they don’t need. Either way it’s some accomplishment.

    Reply
  17. This is a mathematical likelihood for someone who stayed fully invested and barely spent the money.

    This couple mainly lived off their pensions and did not have children.

    How many woman have had their career earnings derailed with children?

    Plus they paid minimal management fees so kept costs low. Furthermore they have 90%+ in equities and REITs in their 70’s. Most people would not do that.

    I get 100K from my VGRO dividends alone. I feel that is too much dividend income. And I am 52.

    I have children and I have told them to buy the world. You can know less than nothing and still get good returns on your investments with asset allocation ETFs.

    Mr. B, part of being wealthy is to use it to decrease one’s financial worries. I think at this point, you can happily pay taxes. You have avoided it long enough for compounding to work it’s a magic. Set up a simple estate plan and don’t stress about finances any longer.

    Congratulations on your success. There are many routes to success with investing.

    I do not agree with advisors who discourage dividend investing. Getting paid dividends straps these investors to their seats when the markets are tumultuous. It works.

    Investing in mainly behavioural. Thus anything that works to keep one invested is to be applauded.

    But I would not tell my children in their twenties to only invest in Canada. Plus it is unlikely this younger generation will enjoy pensions.

    Dividend investing only in Canada is not a timeless strategy.

    None of this is to take away from your accomplishments B. I think your habits as an investor would have worked for you with almost any strategy you chose.

    Reply
    • Great comments. There’s definitely food for thought in the Canada vs ‘ex-Canada’ investment options.
      I think there is a good argument for diversification due to the globalization of economies, but what I agree with from B’s accomplishments is selecting Canadian listed companies with broader market exposure, such as TD, BNS, MFC, AQN, FTS, etc.

      These are all great ways to receive unencumbered dividends (e.g. no 15% withholding taxes) from companies that have global exposure. I’ve always considered this an option for global diversification and it is even more compelling now having heard about someone who did quite well using this strategy.

      Reply
    • The interview series is by no mean a recommendation that people should just go with dividend investing or that people should investing 100% in Canadian dividend stocks. My intention was to show that there are many different ways to build up your dividend portfolio. Reader B has stated that he and his wife are not typical investors.

      Reply
  18. Bob
    Your title, “Living off dividends – My $360k per year dividend income”
    Should have read, “How a Professional couple achieved $360k per year in dividends with only Canadian Stocks”
    I never once put them down for what they did or how they did it.
    But, also you must admit, most couples are not in that situation.
    Most couples dream of pulling in $200k per year and you are probably in that boat also.
    I have no problem with what they did and how they did it and I applaud them.
    My wife and myself also retired early, simply put, on much less.
    This article should have been to show people that you do not need the markets south of the border or 10 baggers to achieve your goals.
    There are a multitude of strategies.
    What everyone should take away from this interview is:
    a) Do your research and read
    b) YOU DO NOT NEED TO PAY A COACH (including you)
    c) you do not need a financial advisor, all the information is out there if you look
    d) stay LONG
    e)RRSPs are passe instead TFSA much better leverage on what you can and can not do

    Reply
  19. Hi Reader B,

    I’m 45 years old single living in Ontario. I’ve started dividend investing about 20 years ago in non-registered accounts. I’m also buy and hold stocks, DRIP, so dividends keep growing every year.

    Similar to your strategy, my non-registered account 90% invested in Canadian dividend aristocrats (banks, pipelines, telecoms & utility companies), it generated $35K dividends in 2020.

    This post really makes me consider stop contributing RRSP in the future and make a plan for RRSP withdrawal.

    I’m currently in the middle tax bracket with net income $135K, what is your tax bracket before retirement? I guess contribute RRSP make sense for you in your working years, is that why you have this nice-to-have problem now?

    I haven’t decided when to retire, it’s difficult to predict the future. How did you make up your mind to retire at age 55?

    Happy investing 🙂

    Reply
    • Hi “TCG”:

      Thank you for your very thoughtful post and great questions.

      Firstly, my congratulations to you on your investing program and the considerable success you have undoubtedly achieved so far … you are well along the road to financial freedom and being able to live off dividends … well done!! Sounds like we agree on and have been using very similar dividend investing strategies. We both know … they work!!

      Perhaps I could add an observation and word of encouragement. When I started out on the stock and dividend investing path way back in 1985, I frankly had no idea what-so-ever that things were going to work out so successfully. You mentioned that you’re 45 years old and single … I can say that it certainly sounds like you’re well ahead of where I was at your age. The thing is that both annual stock growth and dividend values are seemingly slow to build when you start out – but what you’re going to find is that, as you near retirement (and even more so afterwards), the whole portfolio value situation simply begins to “blow up like a mushroom cloud”. Consider for example …. you are now obtaining $35,000 per year in dividends at age 45. Now, if you re-invest that $35K this year and attain a reasonable and achievable 10% return per year (including capital growth and dividends), then in 15 years time you will have $146,204. And, if you repeat this again next year with an additional $35,000 plus of dividend income, then in 14 years you will have $132,912 on that investment. Keep going with this and it’s not hard to see what happens when you add up all these income investment streams over the next 15 years. By the time you’re 60 years old, you will have amassed a very sizeable portfolio with a considerable accompanying dividend income stream that will set you up for a very comfortable retirement.

      As for the RRSP …. I certainly think everyone should at least review the tax-effectiveness of their RRSP in light of what’s been discussed in this Q&A to see if it’s tax-efficient. But again, everyone’s financial situation is different as are their income levels, tax situations and tax brackets. At least it doesn’t hurt to re-assess your RRSP and see if it still makes sense in light of other investment alternatives. As for future contributions to registered plans … the TFSA should definitely be the first choice and topped to max.

      I don’t recall my exact tax bracket when I retired – but it was probably about mid-range. Over my working years I definitely began amongst the lowest tax brackets and gradually progressed upwards to where I find myself now. When I first started working as a junior engineer back in 1970, my salary was in the range of $6,500 per year and there were many deductions from those early pay cheques too. So contrary to critical salary comments found in another post here, I was far from pulling down a top salary in the my early and mid-years employment years. I worked hard and put in my time …and slowly advanced my career and salary levels. Most importantly, I also set aside $$$ for investment very early on and got those $$$ working for me.

      My RRSP (now converted to a RRIF) actually comprises only 6.5% of my total net worth which is primarily held in non-registered accounts. But my RRIF $$$ amount really has to be considered as only half (3.25%) because I must pay 53.53% in full tax just to get it out of the RRIF. As discussed in the Q&A’s, that’s how I got caught in the ugly “RRSP/RRIF Tax Trap”.

      RRSPs were first introduced to Canadians in 1957 and TFSAs only in 2009. So yes, back when I started working in 1970 and for all my subsequent working years, the RRSP was the only tax-sheltered plan available. And naturally I faithfully topped up my RRSP contributions every year – and it all made “sense” … at the time. The idea used by government and financial institutions to promote and “sell” RRSPs has always been that one gets an immediate tax deduction when you are in a high income tax bracket and then one will withdraw from the RRSP in retirement at a lower tax rate. Sounds good at the time … but that’s not how it works out when you pursue and are successful with a dividend investing plan. Another major factor that contributed to RRSP failure was that successive governments from 1970 to the present day have continued to drive income tax rates higher and higher so that now even low income tax brackets almost match higher brackets of the past. Income tax rates have shot up almost 10% since 2009 alone – and they’re going higher still in future. RRSPs quite simply amounts to a losing investment strategy – there are too many unknowns and variables that prevent an accurate assessment of their tax-effectiveness 35 years down the road.
      How to decide when to retire? You have to do your own financial calculations depending on your financial situation, expenses and the lifestyle you want to live in retirement. One other poster in this Q&A session indicated that discussions here gave her a new way of assessing and providing for her financial needs in retirement. Rather than trying to assess the $$$ needed for retirement in terms of a lump sum, it’s much clearer and easier to think in terms of how much annual income do I need? The annual income stream can be provided either all or partially from dividends, and one can then compare the annual income stream available against one’s annual expense/lifestyle budget. I agree with that suggestion – it’s an easier way to visualize and answer the “when to retire” question. So often people ask: How many $$$ in savings do I need to retire? Will it last me? What if I live to be 95 …. will it be enough? Those are hard to answer questions when framed that way. But if one thinks in terms of a monthly or annual income stream (provided by dividends), then the retirement cash flow decision is much easier to assess.

      How did I make up my mind to retire? Part of the decision was looking at the above dividend income flow. But what you really need to do is work through two semi-complex but detailed scenarios (which is what I did). The scenarios are:

      1) If I retire now, how much money will I have coming in and how much will be left in my pocket after taxes? and

      2) If I keep working for one more year, then how much will be left in my pocket after work pay cheque deductions, taxes, work expenses, travel and so on?

      In my case, I found that the difference was about $11,000 (year 2004) – in other words, if I worked at a high-stressed job and dedicated a minimum of 40 hours of my time to work every week, I would have an extra $11,000 in my pocket. I asked myself if that work sacrifice was worth $11,000 or would I rather have a year of stressless retirement freedom. Everyone’s situation and value system will be different, but faced with those facts, it didn’t take me long to opt for retirement. So that’s one way of looking at retirement timing – but again, everyone’s work, family and financial situation will be different. I simply decided that the money versus time trade-off wasn’t worth it. So work out your own numbers; you will almost certainly find that by continuing to work you will have more $$$ in pocket, but only you can decide your $$$ versus time cut-off point and whether continuing to work makes sense for you.

      Hope this answers your questions and gives you some new ideas and strategies.

      But you’re on the right path for sure “TCG” … just keep going … keep doing what you’re doing … it’s working. All the best to you.

      Kindest regards,

      Reader B

      Reply
  20. Awesome post here Tawcan! There is so much depth and you cover so many areas of investing and financial/estate planning. One of the most comprehensive interviews!

    Reply
  21. This is an excellent interview! I finally got the answer I have been asking about (my most burning question) re. RRSP. With such detailed and thorough explanations, even when answering the questions, there is a tremendous amount of information and one can learn so much from Reader B.

    This is from someone who truly has been there and done that. Even financial advisors only know about the conventional method that most people already know. I would love to sit in a room and have a conversation with Reader B, I’m sure I can learn a lot of valuable lessons.

    There are two questions that I have and perhaps Reader B would be able to elaborate.
    1. Do you sell your stocks if a stock has cut its dividends or only when it’s eliminated entirely?
    2. During years of higher income, do you just pay the income taxes to CRA rather than contributing to RRSP?

    Reply
      • That’s not what I was asking. I know Reader B has a RRIF and he no longer can contribute to RRSP.

        I was wondering whether the reason he contributed to RRSP during his working years (before retirement) of high income was to avoid paying income taxes. Or would he have preferred to invest in a non-registered account and just pay CRA the taxes?

        Reply
    • Hi Sharon:

      Thank you for your very thoughtful questions on RRSPs.

      Q1: 1. Do you sell your stocks if a stock has cut its dividends or only when it’s eliminated entirely?

      A1: I am dividend investor – so yes, if the dividend is eliminated entirely, then the stock is sold off very quickly. If the dividend is re-instated at some point in the future, then I will look at the stock metrics, dividend and future growth prospects and decide whether to re-purchase or not.

      When a dividend is reduced? – that’s a bit trickier. There’s no clear-cut answer other than it depends. So often an initial dividend cut portends financial trouble for the company – both in the past and likely even more for the company going forward. Also, I have found that often an initial dividend reduction is likely to lead to yet another reduction in the near future. You’ve got to find the reason for the dividend reduction. What one has to do is look at the company finances – especially the 5 year trends in revenue growth, earnings per share, and the past history of dividend increases. If these metrics are not in an upward trend but declining, then that’s not a company you may want to stay invested with. A company can’t pay dividends if it’s not making $$$. So you have to do a little research – find the cause of the dividend reduction, assess whether it’s just a temporary blip and assess the prospects for the company and dividend re-instatement/increases going forward.

      Reliable, increasing dividends are sought after … so one needs to invest in companies that can increase their profits and thereby increase their dividends at a rate at least equal to or greater than the rate of inflation i.e. invest in dividend aristocrats. If you invest in a stock that has merely maintained it’s dividend for say the past 5 years, then your dividend stream is going to be diminished by inflation. Dividend reductions make the loss to inflation even greater. So you want stocks that have a history of annual dividend increases.

      If you’re not already familiar with it, you may want to look into using the Chowder Score/Rule and a stock screener for finding the best dividend stocks. You can find much written on the Internet on the Chowder method and it’s not hard to calculate or use. Very simply, the Chowder Score = Stock Yield + 5 yr Dividend CAGR (Compound Annual Growth Rate). The higher the number the better. Try to keep the number at least at the 9 level (10 is better) and up. You can also use the Chowder Score/Rule to help assess the dividend performance of your existing stocks. For example, stock IGM is having it’s dividend eaten away by inflation – even though it has not reduced it’s dividend. For the past 5 years, IGM’s dividend has held steady at $2.25 per year – that’s a current 5% yield. But the 5 year dividend growth rate is 0%. So the Chowder Score is 5.0 and the stock doesn’t make the cut as a desirable dividend growth stock. You can buy IGM if you wish for it’s 5% yield, but just be aware of what you’re getting into – loss to inflation and low prospects of a dividend increase anytime soon. You’d can research this further if you’re interested as there are some variations, but I’ve found Chowder a very handy aid in dividend stock selection.

      Q2: 2. During years of higher income, do you just pay the income taxes to CRA rather than contributing to RRSP? I was wondering whether the reason he contributed to RRSP during his working years (before retirement) of high income was to avoid paying income taxes. Or would he have preferred to invest in a non-registered account and just pay CRA the taxes?

      A2: Please see a detailed write-up on why I invested in RRSPs during my working years in my reply to “TCG” immediately above. All I can re-iterate is that “Well, it seemed like a good idea at the time.”

      I invested in RRSPs because their were no other tax shelter options available until the TFSA in 2009. The lure, yes, was the immediate (albeit short focused) tax deduction from income and I was also attracted by the idea of having my investment in an RRSP grow tax-sheltered and not have to pay any tax on it. So that was my rationale for contributing to the RRSP over the years – as so many others have done and continue to do. The problem was that I never really gave much thought (others too) as to just how I was going to get my money out of the RRSP or the tax implications of doing so. I also didn’t think much about a RRIF and it’s forced withdrawals i.e. when you’re 25 … 71 seems so far away – but yet here I am. I also figured that tax rates would not increase over the years – boy, was I wrong on that one!!! So hindsight is always perfect; and, if I knew then what I know now, I would never have invested in an RRSP. We hope that through the Q&A and it’s replies, Bob and I have been able to alert investors to a looming potential “RRSP/RRIF Trap” and why it happens; and that there might be some better alternatives to explore. For those with an existing RRSP, thought should be given to developing an “exit plan” to minimize withdrawal taxes. So definitely, yes …. if I could go back and do it again, I would have totally foregone the RRSP and invested in a non-registered account – my “Tax Free Dividend Account” (TFDA) for all the reasons I mentioned in the Q&A.

      Remember you essentially have two income components: capital gains and dividends. In a non- registered account, theoretically you never have to sell anything – which means you never have to pay any capital gains tax until the day the 2nd spouse dies. And even then the tax rate is 26.76%. If you instead achieve your capital gains growth inside an RRSP, then there is no difference in the amount of capital growth versus a non-registered plan. But at age 71, you are faced with forced sales and withdrawals at a 53.53% tax rate; and in the end, when the 2nd spouse dies, the tax bite on the entire capital gain component is subject to the max tax rate of 53.53% on withdrawal from the RRSP. Now that is not tax-effectiveness!! As for the dividend income component held in a non-registered account, you have to pay tax on dividends earned annually as you go. But the tax rate on this dividend income is very low and very tax-efficient – especially at low income/earning levels – and that’s a fact that I failed to recognize in my younger years. And even now, the dividends I earn at the upper income end are still preferentially treated being taxed at 39.43%. In an RRSP, it is true that the dividend component grows and can be re-invested tax free (temporarily). But it the early income earning years, the difference tax-wise between having the dividends tax sheltered or in a non-registered account is really very little – later on the difference is greater. But in the end, dividends in an RRSP/RRIF are absolutely no good to you unless you can get them out – and to do that you have to pay a 53.53% penalty to the taxman.

      When the government first setup the RRSP back in 1957, I’m sure they had their accountants and financial wizards running the numbers and they knew from a tax and $$$ point of view that in the end they were easily were going to recoup any tax breaks given to investors in earlier years .. and even more. Sure holdings in an RRSP grow sheltered – but the government tax revenue grows right along with the increase in the value of your RRSP. The government knew – but investors never really had the RRSP exit implications fully explained to them.

      Now I will say, that one of the early incentives (and it probably was a good thing) for establishing the RRSP program was to encourage workers to save for retirement. And that I believe the RRSP has accomplished. After all, if the government can encourage a worker to provide for their own retirement, then the worker does not become a burden on the public pension support system – especially since payments made under public systems like the OAS and GIS are income-tested. Remember too, only earned income is eligible for contribution to an RRSP (unlike a TFSA).

      It is interesting to take a quick look at the history of public pension plans in Canada to see where the RRSP fits into the over-all scheme of things and why it is so popular.

      The Old Age Pensions Act was established in 1927 which enabled the Federal government to give assistance to the provinces that provided a pension to British citizens 70 and older. In 1952, the Old Age Security Act came into being which established a federally funded old age pension taking the pension responsibility away from the provinces; old age benefits were, however, income-tested. In 1965, amendments to the Old Age Security Act lowered the eligible age for the OAS pension to 65. The Canada Pension Plan (CPP) began on January 1, 1966. In 1967, the Guaranteed Income Supplement (GIS) was established under the Old Age Security program. So really, prior to 1957, workers were pretty much on their own to provide enough savings for retirement (if that was even possible for most). Politically it was smart vote-getting move to introduce the RRSP as a means for workers to establish their own “private” tax free pension plan which would reduce reliance on public pension plans. So one can see why RRSPs were and remain popular.

      I hope this answers your questions and I’m sure a bit more.

      Kindest regards,

      Reader B

      Reply
  22. Hi Bob

    See it does not really matter how one invests.
    Some like the foreign markets, other the domestics. Some prefer growth, some dividends and other prefer to play it safe with the bonds.
    The major takeaway from this piece is that Reader B wanted dividend paying Canadian stocks to minimize their exposure to taxes and that is still evident to this day.
    You can lead a horse to water, but you can not make him drink.
    I know the Investment Reporter having read it at my brother or when he sent me it via email and they are not strictly Canadian Stock based, they also skim the US market.
    Taxes were and are not a bad word in my dictionary. You can various ways of limiting them but to be totally devoid is another matter. Sooner or later, WE ALL PAY.
    It is like trying to insulate your house to cut down on the cost of heating and you will find, there comes a point where it just does not pay.

    Reply
  23. I’ve been fascinated with this interview (both parts). A newb question:
    If $360k in dividends is being earned then isn’t that taxed every year (even if reinvested)?
    I.e at 39.3% as the highest marginal tax rate (on income above $220k) in Ontario?

    I understand that taxes on capital gains are not paid till received but I thought dividends are taxed as they are paid out even if reinvested. So, I didn’t quite understand how this is truly a tax free dividend account.

    Wanting to understand all the implications as I start my own investment journey.

    Thanks!

    Reply
    • Hi Richard:

      Glad to hear that you found the interview both informative and helpful. Perhaps I can shed a little further light on your questions. You are quite right with the Ontario max tax rate you quote for dividends – and yes, dividends are taxed each year as they are paid out. And yes, in my case, some tax is payable on upper level dividend income but this happens in a very tax-efficient manner compared to other income types.

      If there is one thing I would hope readers take away from the interview, it’s this. As explained in the Q&A, in Ontario, $110,500 is the dividend income level that a couple can reach before any tax has to be paid. Above that level, one cannot avoid paying tax entirely – but the tax rates on dividend income still remain at very minimal to modest levels – in other words, dividends are still very tax-efficient compared to the alternative of earned/other/interest/foreign income. So it’s very worthwhile for one to continue building up your dividend income stream well beyond the $100,500 level. Note: These figures apply to dividend income earned in a non-registered account.

      I’ve analyzed several tax scenarios to see what the taxation levels would look like as one progresses upwards from the $110,500 to the $360,000 level. Here’s what I found:

      Dividend___Tax_______Average
      Income_____Payable___Tax Rate
      ~~~~~~~~~~~~~~~~~~~~~
      $150,000___$9,571____6.38%
      $200,000___$18,064___9.03%
      $250,000___$30,741___12.30%
      $300,000___$43,753___14.58%
      $360,000___$66,142___18.37% *

      * The marginal tax rate at the $360,000 income level is 39.34% which is the full tax rate on Cdn eligible dividend income.

      So you can see that if you continue to increase your dividend income up to say even the $250,000 level, then your average tax rate would be only 12.30%. And in my opinion, this remains very tax-efficient compared to generating any other type of income. So you really still have plenty of room to grow your dividend income stream beyond the tax free level of $110,500 and to do so most tax-efficiently.

      The above illustrates why setting up a dividend income stream is a very tax-effective strategy for a couple who must provide for their own retirement in the absence of company pension plans, government assistance, etc.. Indeed a very comfortable retirement can be achieved by employing the “living off dividends” approach. And furthermore, if one strives to hold dividend aristocrats, then your total annual dividend income will gradually increase over time helping to alleviate the effects of inflation. And in turn, increasing stock dividends will drive stock prices upwards leading to capital gains. It’s a winning strategy that can be customized, personalized and taken to a variety of income levels based on specific individual or couple situations.

      Kindest regards,
      Reader B

      Reply
        • Sharon: Sorry about the confusion.

          For a couple earning dividend income up to the $110,500 level, absolutely no tax is payable – none whatsoever. Referring to the table above – if a couple were to make $150,000 in dividend income, then the total tax payable on that $150,000 would be $9,571 which represents an average tax rate of only 6.38% on the entire $150,000 – and that’s pretty tax-efficient. And the table goes on up until at the $360,000 dividend income level the tax payable is $66,142 for an average tax rate of 18.37% – still pretty reasonable considering one is making $360,000 in income!! The marginal tax rate is different from the average tax rate – it is the amount of tax one pays on each new marginal dollar earned at a given income level. In this case, at the $360,000 dividend income level, if you earn just $1 more you will pay the marginal tax on that dollar which is 39.34 cents. So 39.34% is the max tax rate than can be charged on a high-end dollar of dividend income. Obviously, at the $110,500 level, both the average and marginal tax rates are close to zero. Then as income rises toward $360,000, both the average and marginal tax rates rise gradually to the max levels shown.

          Hope this helps.

          Reader B

          Reply
      • Amazing! I wish everyone knew this: “if one strives to hold dividend aristocrats, then your total annual dividend income will gradually increase over time helping to alleviate the effects of inflation. And in turn, increasing stock dividends will drive stock prices upwards leading to capital gains. It’s a winning strategy that can be customized, personalized and taken to a variety of income levels based on specific individual or couple situations.”

        And the most important point for those living in Ontario: “As explained in the Q&A, in Ontario, $110,500 is the dividend income level that a couple can reach before any tax has to be paid.”

        Reply
  24. Just to be clear. The $110 500 is only tax free IF there are no other forms of income. Add on CPP, OAS, RRSP/RRIF etc… and taxes can become due on the dividend income. I believe it’s still a great idea to have dividend income but it does get taxed.
    During working years, the same thing happens and since dividend income must be included in income tax every year, there will be some tax owing. It’s not at the marginal rate however.

    Reply
  25. You know, this comment section really became dull when everyone just wanted to know, how much reader B pays in taxes or how he minimized his taxes.
    I thought the whole gist was to take away how you can reach FI by even only being invested in Canadian stocks.
    But alas, every second comment seems to do with, how do I pay less taxes? How can I take out my RRSP now, because reader B seems to think it is a waste of time and now that I think about it, it is a waste of time.
    How much RRSP can I take out? Can I take it out in-kind or is that BAD? Do I get dinged on taxes, if I take out my RRSP and how much should I withdraw? Can I convert into a RRIF early and what taxes do I need to pay?
    Seems everyone here who commented, has absolutely no investment strategy and just wants advice on how they can do the same thing as READER B. I have also been in the investment game as long as Reader B, but a stay at home certified household technologist, three kids, vacation property and holidays have taken their fairshare.
    Yes, we were FI at 49, do not write a blog about it( no time too busy with the family), actually never thought other people needed so much handholding investing(left that to my sister,FINANCIAL ADVISOR CERTIFIED, more degrees than a compass),yes also FI at 55.
    Do not know how many comments I read on, how much you can make tax free in dividends before you need to pay. Everyone seems to think they are a tax expert.
    See, I could recommend stocks for you to invest in, but honestly, get the Investment Reporter, best money you could ever spend.

    Reply
  26. Given Reader B’s story, do your views on the RRSP change Bob?

    I’ve been thinking about it for a while as once I reach my TFSA limits whether it’s worthwhile to invest in the RRSP or go to a non-registered account. The prospect of being highly taxed on my tax-deferred savings at a likely higher tax rate in the future does not really sit well with me. Even though I understand the reduction in taxes that’s been hammered into our psyches by the Canadian financial industry is it still worth it in your opinion?

    Reply
    • See Mark, it does not really matter where you decide to park you money, RRSP or non. The only difference is, the RRSP is fully taxed, no capital gains, no 50% of gains taxed, but the full amount of what you withdraw.
      If you have losses they can not offset your RRSP withdrawal because they are taxed as income. The only reason, we the baby boomers put money into RRSPs was because at the time, none or few of us invested in the markets. Interest rates on term deposits were double figure, DOUBLE FIGURE. We were obtaining 15% at one time on our term deposits and to keep that away from the taxman as income, we used RRSPs.
      Everyone had to have a broker, internet or online brokerage was non existent, you had to phone, using a landline at work to talk to them. When the recession of 1981 hit and real estate tumbled and the added impact of Black Monday in 1987 it scared everyone away from the markets.
      Nowadays the last thing you want to do is give control of your hard earned savings to the government and there are no advantages to an RRSP. If I were to do it all over again, I would have done the same thing.
      But if I were to be given the chance in this day and age to do it again, I would stear clear of RRSPs, invest it in growth and dividends until I acquired FIRE, sell it all and kiss Canada good bye.
      The USA might have the resources to track you down wherever you go, but to extradite and prosecute you for a few million, please, John Gotti you are not and RICO, forget it.
      MY 2 CENTS WORTH.
      PS: Then I would write a Blog for all you future FIREs, sipping my Mai Tai or Pina Colada, looking at all the hotties in their string bikinis (no touchie, married) . I would end up writing a book under a pseudonym of course, and title it, Canada Garnished My Pension But Who Cares.

      Reply
  27. Congrats on an excellent interview with B. So much to learn!!
    I’ve basically been following the Couch Potato investing philosophy for many years and its done well for me. As a new retiree I’m debating flipping to some type of dividend investing to create that needed monthly cash flow. My question is what are the pros/cons of investing in a few dividend ETFs versus buying individual shares… aside from the MERs?

    Reply
    • Hello katinv

      Like to know, why after years of investing, and after recently retiring, now you would want to generate monthly cash flow. Dividend investing is not about flipping from one to the other, it is a practice or habit that is developed through the years.
      The only pro you need is make money while you sleep
      The only con YOU SHOULD HAVE DONE IT SOONER-HELLO

      Reply
    • Hi Katinv,

      I think it is probably wise to continue with the Couch Potato investing strategy. If you want to consider with dividend investing, I’d suggest start off with maybe 5% of your overall portfolio to provide some small amount of cash flow. Stick with your core investment strategy IMO.

      Reply
    • Hello katinv

      It depends on what you mean by ” needed monthly cash flow”.
      It depends on the the size of your portfolio and if we are talking about selling inside or outside a taxable account.
      Any of the banks will provide you with a stable 3.5% income, also pipelines and oil will not disappear in the near future and if anything will continue to dividend cash cows.
      Monthly REITs are not a bad investment with interest rates at an all time low and no foreseeable rate rises in sighPaying capital gains or taking capital losses at this time especially if you are Canadian is also not a bad idea, considering we have an election around the corner and most likely the new government will increase the capital gains taxation from 50% to 75% to pay for the covid checks that they have been writing for the past 18 months. Meaning you will be taxed on 75% of your capital gain not just 50%.
      Due diligence are called for and pay as little taxes as possible.
      If you have a TFSA use it for needed cash because everything is tax free, remove funds from your RRSP as income and then redeposit in you TFSA come January 1st and buy your dividends funds there. Ready cash when you need it and all tax free.
      BTW did not mean to be so abrupt with my previous comment, sorry.

      Reply
    • Hi Katinv,

      In my opinion, here are the pros and cons of investing in dividend ETFs vs individual dividend stocks:

      Pros of dividend ETFs:
      – you don’t really need to spend time to think about which stocks to buy, just pick an ETFs and be on your way (though in my opinion this can be dangerous)
      – if the stock market crashes, it’s easy to blame the ETFs, or other people

      Cons of dividend ETFs:
      – people will say that ETFs provide greater diversification, but George Athanassakos (professor of finance and holds the Ben Graham Chair in Value Investing at the Richard Ivey School of Business, University of Western Ontario) wrote a great article on Nov 15, 2015, describing the fallacy of believing in “greater diversification = lower risk”.
      – with ETFs you are inadvertently investing in dividend stocks that are not undervalued (priced low)
      – with ETFs you are inadvertently investing in dividend stocks that may have a high payout ratio, high debt, low dividend growth, low EPS growth, or negative EPS
      – with ETFs you are inadvertently investing in dividend companies that might not be recession proof
      – generally the dividend yield for an ETF will be lower than what you could get with an individual stock
      – with ETFs you are still paying fees (MER), I know you said to ignore the MER, but most people are not aware of the total cost during their lifetime. For example $500,000 invested for 25 years in a “low cost” ETFs with an MER of 0.06% would cost you $57,068.32 in fees. With an MER of 0.5% after 25-yrs your cost would be $472,344.58. I don’t know about you but I could certainly use an $57K or $472K in my life.

      Pros of individual dividend stocks:
      – you can save on the MER, in the example I used above, a $500,000 stock portfolio of individual stocks will cost you $250 on-time, versus $57,068 in MER fees. Remember the stock trading commission is not a recurring annual fee like the MER
      – you get to select high quality stocks (stocks with a low payout ratio, low debt, history of good dividend growth and good EPS growth)
      – you get to select stocks that are priced low (undervalued)
      – you get to invest in companies that are recession proof
      – you have control over when to sell a stock and how long to keep it
      – you can get a higher dividend yield than ETFs

      Cons of individual dividend stocks:
      – you need to spend time to find quality stocks that are also undervalued (this can be learned and is not complicated or time consuming, but most people spend more time researching their next vacation, new car, or smart phone).
      – you are responsible for your own investments and investing decisions, there is no one to blame if things go sideways
      – you need patience, and a long-term time horizon

      When it comes to dividend stocks, here is how I know when a stock is undervalued or overvalued:

      A stock is undervalued when its current dividend yield is higher than its 20-yr average dividend yield.

      A stock is undervalued when its current dividend yield is lower than (or equal to) its 20-yr average dividend yield.

      cheers,
      Kanwal

      Reply
      • Sorry for the typos here are the corrections:

        “I don’t know about you but I could certainly use an extra $57K or $472K in my life.”

        “A stock is overvalued when its current dividend yield is lower than (or equal to) its 20-yr average dividend yield.”

        Reply
    • We switched totally to investing in individual dividend growth stocks several years before retiring. Now at age 80 your question as to DG vs ETFs, is easily answered, IMO:
      1. We earn double the income from our stocks, than if invested in ETFs (and the difference grows over time).
      2. We don’t care about the “value” of our investments, or market corrections.
      3. Our income has grown Continuously, even during retirement.
      4. We do not need to sell capital to receive our income (except where we wish to gift shares or funds).
      5. Our income far exceeds our expense needs.
      6. We never expect out outlive our investments.
      7. Our stocks require little maintenance, other than tracking our income and income growth.
      After following this strategy for almost twenty years, I can’t think of a downside of DG stocks, or a good reason to own ETFs.

      Reply

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