Living off dividends – How I’m receiving $360k dividends a year & paying almost no taxes*

Long time readers will know that my wife and I are deploying a hybrid investing strategy – we invest in both dividend paying stocks and index ETFs. It is our goal to have our portfolio generating enough dividend income to cover our expenses. When this happens, we can call ourselves financially independent and live off dividends. By constructing our portfolio and selecting stocks that grow dividends each year organically, we believe our dividend income will continue to grow organically and keep up with inflation so we don’t have to ever touch our principal. 

In the past, I have done a few simulations showing that living of dividends is possible and that dividend income is very tax-efficient in Canada. But simulations are full of assumptions and the numbers can change. Wouldn’t it be nice to showcase someone that is living off dividends already?

As luck would have it, Reader B, a fellow Canadian, recently mentioned that he retired in 2004 at age 55 and has been living off dividends since. I was very intrigued by B’s story when he told me that he worked as a civil engineer and his wife worked as an administrator.

I fell off the chair when he told me that he and his wife started investing with $10,000 and have amassed a dividend portfolio that generates over $360,000 in dividends each year! 

That’s $30,000 a month! Holy cow! 

While working, they had above average salary (B made ~$110k and B’s wife made ~$90k in today’s money). The high household income has certainly helped them build the dividend portfolio. But I believe a lot of it is due to B and his wife’s living modestly – not a lavish lifestyle but not penny pinching either. 

After a bit of emailing exchanges, he agreed to answer my questions about his experience with living off dividends (it took a bit of convincing haha!). I truly believe B’s knowledge will help a lot of dividend growth investors. 

Note: B’s original reply was over 11,000 words not including my comments (our email exchanges were very long too). I went through his answers and edited some parts out. For ease of reading, I have decided to split the post into two posts. 

I hope you’ll enjoy this Q&A as much as I did. 

Living off dividends – How I’m receiving $360k dividends a year and paying almost no taxes

Q1:  First of all, B, thank you for participating. It’s wonderful to learn that you and your wife have been retired since 2004 and have been dividend investors for over 36 years.

A: Thank you, Bob, for giving me the opportunity to share my 36 plus years of dividend investing experience and results with you and your readers. After following your blog, I realized that we and many others were on the same dividend investing path. The only difference being that I was a few more years along in the investing journey. I felt others might benefit from my experience with dividend investing. 

You’re on the right path, Bob, and given your rate of progress to date by the time you reach my age (72) you will certainly attain your dividend income goals and likely well beyond. So I wanted to encourage you to continue along the dividend investing path. It’s a very sound and profitable strategy. 

I’m more than happy to share with others a few of my ideas on dividend investing and how it can be done in a tax-effective manner.

Q2:  How long have you been investing in dividend paying stocks?

A: I started investing in stocks in 1985. After the initial period of learning the ropes and finding my way in the investing and stock market world, it was only in 1990 after subscribing to a weekly investing newsletter that I finally saw the investing light and found that dividend investing was right for us. 

So I guess you could say I’ve been traveling along the dividend paying stock road for some 31 years now. And we’ve been comfortably supplementing our lifestyle with an ever increasing stream of dividends since we retired in 2004 to the present day.

Diving into the dividend portfolio

Q3:  How much dividend income are you getting each year? Can you provide a detailed breakdown across non-registered and registered accounts? 

A: As of April 30, 2021, my wife and I are receiving $360,000 in combined pre-tax dividend income annually – that’s $30,000 per month – and still growing. 

Our combined assets are distributed as follows:

  • RRIFs: 8.2%
  • TFSAs: 1.9%  
  • Non-Reg Dividend Income Accounts: 85.5%
  • Other Short-Term Liquid Assets: 4.4%

So the amount we have in registered tax-sheltered plans totals 10.1% and is decreasing annually in compliance with RRIF mandatory withdrawal requirements. 

These figures illustrate a problem that can develop gradually over time – a severe imbalance between registered and non-registered  accounts caused by the low contribution limits governing registered savings plans. Allowable contributions to registered plans are capped. 

If one’s savings levels exceed the cap limits by a significant amount, then the balance between registered and non-registered accounts can tilt heavily towards the latter. The effect is that registered plans then become less and less significant in the overall account mix. This unbalanced effect means that we now have only 10.1% of our assets in tax sheltered accounts while 85.5% is held in “unsheltered” non-registered accounts. 

So that makes it critical to find ways to ensure that holdings in non-registered accounts are as tax efficient as possible. The most optimum way to achieve tax-efficiency under such conditions is to focus on buying and holding Canadian dividend paying stocks in non-registered accounts. 

We will continue to shift portions of our “other” assets toward Canadian dividend income as we go forward.

Our non-registered accounts are producing the entire $360K dividend income stream referenced above. The annual yield on market value is 4.2%. The actual yield on cost is much higher than the market yield. Our portfolio has returned nicely over the years. 

Our annual mandatory RRIF withdrawals are the minimum required by age and proceeds are immediately re-invested in more dividend stocks and held in our non-registered accounts. We do not touch our TFSAs and contribute the maximum allowable amount each year.

Tawcan: My jaw dropped when you told me about your $360k a year dividend income. That is absolutely amazing! 

At 4.2% yield that means the market value of your portfolio is over $8.5M! Obviously your yield on cost would be much higher than that given you have invested over 30 years. Regardless, I’m betting that the cost basis of your non-registered portfolio is in the multi-million dollars range. It is very impressive considering you and your wife only made around $200k a year in today’s money.  

living off dividends

The Dividend Investing Philosophy

Q4:  Can you give us an idea of your general approach to dividend investing?

A: My dividend investment philosophy can be summed up as: “To buy gradually over time, high-quality Canadian tax-efficient dividend paying stocks and hold them indefinitely.”

I buy stocks gradually in roughly equal amounts and spread the purchases over time. I never invest large lump sums all at once. I’ll take an initial position in a stock, usually in the $10K value range, and then return again at an opportune price point and buy some more (i.e. dollar cost-averaging).

High quality stocks are selected – conservative large cap stocks – most often dividend aristocrats – minimum 2% yield with the odd exception for superior growth stocks or those with growth potential. Great focus is placed on buying dividend aristocrats and stocks in the TSX Composite 60 Index with a nod toward following the Beat the TSX strategy

Tawcan: Funny B mentioned the BTSX strategy. Check out Matt, the brain behind Beating the TSX strategy, and his family’s amazing story about traveling the world with 4 kids

I exclusively buy only Canadian stocks – no USA stocks – none – no exceptions. The only US stocks I would consider are those that have a TSX listing and can be purchased in Canadian dollars for tax efficiency reasons. 

Tawcan: It’s interesting that you only hold top Canadian dividend stocks and no US or international dividend paying stocks or ETFs. 

All our stock buys must be held in non-registered accounts – contributions can not be made to RRIFs and our TFSA contribution room is maxed out. My wife and I also invest in REITs and they require special attention (more on that later).

All stocks we buy must pay a dividend. As mentioned, I usually insist on a 2% yield or higher – but not too high. One never wants to over-reach for yield which is often the warning sign for an impending dividend cut. If a stock does eliminate its dividend, then it’s automatically gone from our portfolios and we move on to another stock that does pay a reliable dividend.

Once a stock is safely and appropriately tucked into our portfolios, we just sit back and hold it “forever”. One can then enjoy living off the ever increasing dividend income stream while watching the stock appreciate in capital value over time. We still hold stocks that we bought back in 1985 like BMO and BCE.

On very rare occasions, it may be advisable/necessary to sell a stock for the following reasons:

  1. When a stock’s prospects have taken a downward turn. 
  2. In the event of a takeover bid – friendly or otherwise – one often has little choice but to sell. 
  3. For tax-loss selling purposes. We seldom pay any capital gains income tax at all. When we do realize a capital gain from a stock sale, then we’ll sell another stock (or partially sell) to realize an offsetting capital loss. But tax-loss selling is not usually done at year-end along with “the herd”. After waiting the mandatory 30 days and if the stock remains a solid investment, then we will often buy the stock back – hopefully at a lower price. 

Under a buy and hold strategy, there is not a lot of opportunity for capital gains. By not selling, no capital gain is realized and so capital gains tax can be deferred indefinitely. 

On the other hand, dividend income can be extremely tax efficient when you are income splitting between two people. We’ll get into the specifics a bit later. 

Q5:  You mentioned that REITs require special attention. What did you mean by that?

A: Not all REITs are equal in terms of tax efficiency when held in a non-registered account where taxes on REIT distributions can vary from 0% to 53.53% (in Ontario). Therefore, the most tax-efficient place to hold a REIT is in a registered account.

REIT distributions often have different income type components with each type having a different tax rate. The best REITs to hold in a non-registered account are those having a high percentage of their distributions classified as “Return of Capital” (ROC). 

ROC is a tax deferred capital gain distribution which lowers the REIT’s Adjusted Cost Base (ACB); this means that tax payment is deferred until the REIT is sold at which point the amount of tax payable is calculated using one’s preferred (and lower) capital gain tax rate. Some REITs have a high “Other/Foreign” income type classification in their distributions which means much of the distribution will be taxed away at one’s highest tax rate. 

The better option with tax-inefficient REITs in non-registered accounts is to sell them or avoid them entirely and simply invest the funds in a much more tax efficient Canadian eligible dividend paying stock. Handling REITs and ensuring they are tax-efficient is more complicated for sure.

Tawcan: This is why we only hold REITs in our TFSAs and RRSPs to avoid the complicated tax consequences. If you’re holding REITs in your taxable accounts, it makes sense to pay special attention to these details. 

How to find dividend investing resources 

Q6: What sources of information do you rely on to help you in making your stock selections and managing your dividend portfolio?

A: Back in 1985 when we started on our investing journey, we didn’t have the Internet. Everything had to be done via a phone call to your broker. At that time, one’s primary source of investment information came from the print media – newspapers, books, financial magazines and investment newsletters galore. 

From 1985-1989, I realized that I was floundering around in the investing environment. I had no direction and no real objectives. The stock selection was pretty much hit and miss with mediocre success and usually only slightly more winners than losers. I did not yet realize that focusing on dividend paying stocks was the best investment plan to follow.

Then I found the publication that finally gave me the investing direction and purpose I needed – focusing on dividend paying common stocks! 

I subscribed to a newsletter called “The Investment Reporter” (not a referral link) in 1990. I still have an uninterrupted subscription to this publication some 31 years later. The eight page report is delivered to me weekly by mail. 

They have been publishing for 79 continuous years now and are still going strong. This publication is a perfect fit for conservative dividend investors like myself.

I also read extensively (both on-line and print) on economics, business, politics, investment and taxation. There are many excellent on-line blogs and investment advice sites. Fellow investors are always willing to share their experience.

Tawcan: This is why I love this community so much. People are so willing to share their knowledge and help each other out. 

An equally valuable source of information is your online discount web brokerages. There are many discount brokers to choose from and some promote themselves on the basis of their low transaction fees. As long as one is not paying more than $10 per transaction, one should not be swayed by the lure of low fees when choosing an on-line discount broker. 

Tawcan: This is why I really like Questrade and Wealthsimple Trade. Check out my real user Questrade vs. Wealthsimple Trade review here

What you want from a broker is an efficient, robust and reliable trading platform. But you also want access to top-notch, extensive market/stock research and stock analytical reports. And you need a variety of research tools (screeners, watchlists, news/price alerts, etc.) – and all hopefully offered free-of-charge with your brokerage account. 

Research capabilities and tools should really be your primary consideration when choosing your on-line discount broker – not just low transaction fees.

Tawcan: You can also find many resources in my Dividend Investing FAQ.

how to live off dividends

Q7: Do you rely on any analysis methods to assist in selecting dividend stocks to buy?  How do you buy and avoid overpaying for your dividend stocks?

A: I use a combination of both fundamental and technical analysis. Fundamental to assess stock fair value metrics and attractiveness as an investment. Technical to assist in timing a price entry point. 

The two go hand-in-hand and complement each other. On the technical side I try to keep things simple. The main stock price technical indicators I rely on are: 13 and 40 week moving averages and crossover points, the 14-week Relative Strength Index, and 40-week two standard deviation Bollinger Bands.The latter two indicators I find to be particularly good at identifying stock overbought and oversold conditions. 

Tawcan: I also went through some methods on how to start dividend investing. It’s interesting to note that you use the 13 and 40 week moving average and crossover points. That’s certainly one of the techniques that I use regularly.  

Here are a few practices I have found useful in buying and selling stocks:

Just keep it simple – buy or sell “long” which means the holder owns the underlying asset. I place only day orders and set a limit price. I never use stop loss or stop limit orders.

And here’s a key point – don’t get overly obsessed with price by trying to save a penny or two on your orders

Let’s say you’ve found a stock that will make a solid investment. You’re going to buy and hold it for the long term and you like the dividend yield at the current market price. A penny or two either side of the market price is not going to have any significant impact on your stock holding long-term! 

I’ve learned this lesson the hard way. Too often in my early investing days I’d try to skimp on my offer price to save a penny only to miss getting the stock entirely. Then to my dismay, now empty in hand, I’d watch the stock rise from that point to great new heights while leaving me behind – yet another stock that got away. 

Trying to save a penny a share I lost the opportunity to make a dollar a share. It’s called “the cost of a missed opportunity”. Not the most brilliant investment move to make.

Here’s another way to look at the price of a stock transaction. At any given price, there is a buyer and a seller. Tomorrow, one is going to be proven right and the other wrong – a 50-50 chance in the short-term. The only thing certain is that tomorrow the price will change. 

If I’m right and the price goes up, I’m happy. If I’m wrong and the price goes down, then I will buy additional shares later at lower price levels. This is called “dollar-cost averaging” and I’m a firm believer in the strategy. 

Long-term, stock market prices trend upwards; by averaging down with additional share purchases we can be reasonably confident that in the long-term our solid stock picks will eventually rebound upwards and bring us even greater profit.

Tawcan: Great stuff B! I’ve certainly made the same mistake before! If you plan to hold a stock over the very long term, it’s silly to save a penny or two on the purchasing price. 

Dividend investing – How to minimize taxes

Q8: You’ve mentioned that taxation and the minimization of taxes on your dividend income stream and capital gains is a very important aspect of portfolio management. How do you accomplish this?

A: A good and important question. Minimizing taxes is a vital component of dividend stock portfolio management to ensure that we maximize our returns. After all, it’s the $$$ left in your pocket (after the taxman takes his cut) that counts. 

So we need to structure our dividend income stream, capital gains and registered plan withdrawals to minimize the tax payable. The term I like to use is “tax-effectiveness” i.e. how effectively have we structured our portfolio holdings, stock buy/sell transactions, registered account withdrawals, etc. in terms of minimizing our annual income tax bill. 

Every investor/taxpayer has the right to organize their portfolio in ways that, while adhering to tax laws and regulations, minimizes the amount of income tax they have to pay. One needs to be well-read on methods/strategies for making one’s portfolio tax-effective and above all be knowledgeable in the tax rules that apply to your specific type of investments and the accounts they are held in.

Tawcan: Completely agree with you. I am all for paying taxes but it is important to figure out how to be as tax efficient as possible. 

There are two essential pieces of information one needs to know before any tax planning can be done – they are specific to your level of income, portfolio make-up and overall tax situation.

Firstly, you must know your income types and how much of each income type you receive annually. There are three main types of income: 

  1. Canadian eligible dividends
  2. Capital gains
  3. Other/earned/interest income. 

I sometimes refer to the latter as “straight income” because it is fully taxed at your marginal tax rate. There are many other types of income such as foreign income and foreign dividends. But for taxation purposes these other types usually fall into the “straight income” category.

Secondly, you need to know the Marginal Tax Rate (MTR) for each of your income types. The MTR tells you how much tax must be paid on each new income type dollar that you earn. As an example, at high income levels (> $220K in Ontario), the maximum MTR on “Other” income is 53.53%, on eligible dividend income it is 39.34% and on capital gains it is 26.76%. 

MTRs decline as one’s income falls in lower tax brackets. At high income levels, capital gains are the most tax-efficient type of income to have while dividend income attracts a 13% higher tax rate but still well below the full taxation rate applied to “other” income. 

At lower levels of income, the situation totally reverses and dividend income is taxed at zero to extremely low levels.

So how can you take advantage of the marginal tax rates and make dividend income investing tax-free? (Note: All numbers quoted here are for the province of Ontario but most other provinces are in the same general range.)

A single person who has $55,300 of pure/sole Canadian eligible dividend income will pay virtually no tax and enjoy an MTR of 0.56% on dividend income at that level. In contrast, if the person’s $55,300 was in the form of capital gains income then the tax payable would be $1,604 (with an MTR of 10.03%). And if the person’s $55,300 was in the form of straight (other) income then the tax payable would be a whopping $8,752 (with an MTR of 32.66%)!

This shows quite dramatically that at lower income levels, Canadian eligible dividends are an extremely tax efficient source of income as opposed to capital gains and even more so when compared to straight income.

Carrying this example a bit further, the situation gets even better for a couple because the dividend tax-free income levels double. A couple who has $110,500 of pure/sole Canadian eligible dividend income will also pay virtually no tax and enjoy an MTR of 0.56% on dividend income. In contrast, if the couple’s $110,500 was in the form of capital gains then the tax payable would be $3,347 (with an MTR of 10.02%). And if the couple’s $110,500 was in the form of straight (other) income then the tax payable would be $17,621 (with an MTR of 32.66%)!! 

It is this nil taxation feature of Canadian eligible dividends at low income levels that gives us the basis for our strategy of living tax-free off dividend income. 

A single person can make approx $55,300 and a couple $110,500 in Canadian eligible dividend income (and that’s actual dividend income – not grossed up) and pay practically no tax on that income. 

So for tax-efficient planning, it is essential that you know your income level, income types and MTRs. 

Tawcan: I knew that dividend income can be extremely tax efficient but it’s cool to see you lay out in a couple of examples. It is very beneficial for couples to split their eligible dividend income as a way to effectively lower their income tax.

Q9:  Are there any “tools” or evaluation methods that you rely on to assess and check for tax effectiveness?

A: The best tool you can find is your income tax preparation software. Rough manual calculations are okay but the many on-line tax calculators give you only an approximation of taxes owing and have practically no customization capabilities – so I don’t use them at all. 

My preferred income tax software package is “UFile”. This program is impressive, easy to use, displays results clearly and is also super easy to adapt as a scenario tester.

For example, after you’ve completed and Netfiled your taxes, find the file in which your tax software has stored/saved your data (In UFile it’s the *.u20 file for 2020 taxes). Make multiple copies of the file renaming each file to identify the tax scenario you wish to test. Click on the new renamed file and it should open in your software package and immediately display your current tax situation as you Netfiled it. Add in an additional $100 of “Other Income” on a new blank T3 or T5 slip and recalculate the tax owing. The results will show you the precise amount of additional tax you will have to pay on that extra income or an RRSP withdrawal. 

Make adjustments to other income levels – up or down as you forecast them to be for the coming tax year. Test another scenario by increasing the RRSP withdrawal amount to $15K and see what happens. Using this method you can quickly assess the tax-effectiveness of any combination of income types, amounts and portfolio adjustments you might want to consider. 

You can enter your coming year forecast for income types and amounts and get an accurate calculation of the amount of tax you will owe specific to your situation.

Your annual income tax software (desktop version) is the most powerful tool you can use for accurately assessing tax scenarios specific to your situation. Use the results to guide your investment decisions going forward into the new year.

Tawcan: Great advice. I’ve used Wealthsimple Tax for many years (previously called Simple Tax). You can certainly do similar calculations by setting up a test account. Their simple online tax calculator already does a decent job at estimating the tax consequences but doing full tax estimate simulations with the program is the best way to do it. I highly recommend everyone to run some simulations with an income tax software.

Wrapping it up – Living off dividends

Thanks B for sharing your amazing story and your knowledge with us. There are a lot of things to digest here. As mentioned, since the Q&A is quite long, I decided to break it into two parts. We will continue with the second part next week.

Dear readers, I hope you have enjoyed this Q&A session so far. Stay tuned next week for the rest of the Q&A

Check out Part 2 of the Living Off Dividends Interview.

* A few readers have pointed out that the “paying almost no taxes” part in the title is a bit misleading. Perhaps a little. What I wanted to show and what Reader B has demonstrated is that dividend income can be very tax efficient, even in a high dollar amount.

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121 thoughts on “Living off dividends – How I’m receiving $360k dividends a year & paying almost no taxes*”

  1. Good show on both parties involved. Love the tax software tip. Been doing tjis with turbotax every year prior to the rrsp contribution deadline dates.
    Thanks for the information!

    Reply
  2. So looking forward to reading part 2! Congrats B on a fantastic journey and very appreciative that he is sharing it!

    Really interested in finding out more as we are in similar situation where non registered dividends are the bulk of our income and how to efficiently tax plan when they exceed over $110,000 per couple in Ontario. Should we start investing in more dividend growth stocks with much smaller dividend yields?

    Reply
    • Sabrina – Great to hear that you are making such great progress in establishing a solid dividend income stream. Well done.

      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 you to continue building up your dividend income stream well beyond the $100,500 level.

      I’ve analyzed several tax scenarios to see what the taxation levels would be progressing upward 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 is still 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 – and to do so most tax-efficiently.

      As for switching more toward growth oriented stocks …. I’d tend to say a qualified “no”. Carry on with what you’ve been doing – it’s working. But do stick with dividend aristocrat stocks – as their dividend payments increase, then so will the capital value of your stock – and increasing dividend growth is a sure and steady way to obtain also capital growth. Another means you might explore to add higher growth stocks to your portfolio would be to establish (as I have done) a minimum acceptable dividend yield – I’ve set mine at 2%. Then look to add stocks having higher growth potential but which also yield at least 2%.

      I have several problems with chasing capital gains as opposed to building a solid, reliable dividend income stream. Capital gains are not “guaranteed” …. they can be very elusive. Can you really pick the next big winner? Maybe … if you’re lucky. And capital gains are really of no use until you “realize” them which means you have to sell the stock and pay capital gains tax. Paying a 26% capital gains tax (max) can set you back considerably when you try to subsequently re-invest for income. Rather I think you’re better off to continue with the buy and hold indefinitely strategy – you’ll come out further ahead in the end. Remember – rich folk and well off families did not attain their wealth by selling their company or stock – no – they got rich by holding on to it tightly, controlling their company, growing and expanding the business – ever increasing it’s value – and never paying any capital gains tax on their shares. No-one has ever gotten rich by selling their shares – only by holding them indefinitely and letting them grow in value. An excellent example of this principle in action is the recent case of the Audet family steadfastly refusing to sell their Cogeco shares to the takeover bid by rivals Rogers and Altice. Smart move – why sell a great company?!!

      Hope this helps and good luck on your investing journey. It’s sounds like you’ve been doing a great job so far – carry on – and stay invested.

      Reply
      • Wow! Thanks very much Reader B for your detailed reply. I needed that reminder to stay the course since it’s working! When we first read about dividend stock investing, it made sense to us vs. buying stocks for capital gains. Creating a steady dividend income stream has allowed for us to determine when to retire instead of trying to figure out if $x million is enough.

        We also were subscribers to the Investment reporter (only about 15 years ago) and now added the Successful Investor (Pat Mckeough used to be with investment reporter). Wishing you and Mrs. B all the best for your bright future!

        Reply
  3. Incredible investing success and good interview.

    What readers should be very mindful of, though, for sure, while ~ $50K per year of Canadian eligible dividend income has virtually no tax assigned, the reality is, most investors/Canadians who have such an income stream will likely have other income or assets as well. e.g., RRSP, RRIF, future CPP, OAS, etc. So, while tax efficiency is great for Canadian dividend income, in a taxable account, there are other, potentially larger tax issues coming for some investors 🙂

    Also, a few questions…
    1. Given TFSAs were not around until 2009, what prompted the reader to invest so much in a taxable account while working? They would have been taxed heavily while working. No? Can Reader B comment on that?
    2. What was their savings rate while working? Also, how much were they investing, generally speaking per year while following their BTSX strategy? Even during the 1990s and 2000s, you would have needed a pile of money invested then, to compound so well over time.
    3. Given U.S. stocks have generally outperformed CDN stocks, including more recently, do they have any regrets or advice to others about diversification with their approach?

    Overall, incredible (and rare) to see someone with > 85% of their invested assets in a taxable account, let alone churning out so much income. I have more questions but I’ve started with those 🙂

    Thanks Bob and Reader B!
    Mark

    Reply
    • Great point Mark. With CPP and OAS and RRIF’s mandatory withdrawal percentage, Reader B is finding that they are forced to pay a bunch of taxes even though he’s trying to be as tax efficient as possible.

      Reply
    • Great questions, Mark – I’ll do my best to answer.

      Q1: Quite true – TFSAs were not available until 2009. We retired in 2004. The only registered plan options available to us while working were our combined “company pension plan with RRSP top-up” and CPP. We maxed out our contributions on all these registered plans during our working years. We paid off our house mortgage in 6 years by 1983. For several years, 1983-84 we invested our savings in mutual funds. By 1985, we realized our mutual funds were going nowhere fast – the fees were too high – and fees were much higher back then than they are today. We found the answer in dividend paying stocks – no fees, direct ownership, and a dividend income stream. So until TFSAs were introduced there really was no other option for investment than taxable accounts. And, yes, the taxes on earned income were hefty back in the 80’s and 90’s – but nothing like they are today. Taxation rates have constantly increased over the years and they’re only going to get worse.

      Q2: Indeed, our early savings rates were quite high – generally in the 50-65% range of total income (earned and re-invested dividends). So high contribution rates early on are very critical. What we found was that about 15-20 years in our stock dividend investments just began to “explode” in terms of absolute dollar net worth and their dividend income streams. It is very critical to re-invest most to all dividends earned in the early years. It also helps greatly to trim expenses and to increase your savings rate. Bob has written an excellent article (available on his TAWCAN site) suggesting ways to trim expenses. In the late 1980’s, we were investing all our savings into stocks – normally in the range of $45K to $50K per year. And this grew with inflation, increasing salaries and dividend income re-investment over the years. Now, being retired, we live off pension income and so we’re limited pretty much to the simple re-investment of dividends. And since many of our stock holdings are dividend aristocrats, the dividend income stream increases on it’s own as time passes. So yes, especially in the early years, one does have to work hard, trim expenses, save, invest savings to the max and re-invest the dividend income stream …. all crucial to success.

      Q3: There will be more about why I don’t invest in USA stocks in Part 2 – and about alternate ways to achieve international diversification in one’s stock portfolio. So I have no regrets what-so-ever on that front. When you say “U.S. stocks have generally outperformed CDN stocks”, I presume that the reference is more to the capital gain side – i.e. growth. Your statement is quite true for capital gains. But I think it’s been difficult, both in the past and even today, to find high quality USA stocks that are capable of generating the level of dividend income that one can attain from Cdn stocks. And since our investing the focus has been (and remains) on developing a solid and high performing dividend income stream through holding stocks, then capital gains are of secondary importance. I think enough safe diversification can be found in Cdn stocks with international exposure (hint: think ATD.B for example). I don’t believe that lack of directly holding USA stocks has negatively impacted our portfolio strength to any significant degree. After all, it’s not necessary to taste every flavour of ice cream to come away satisfied.

      And 85% of assets in taxable accounts? Once one grows a stock portfolio to high value levels after 36 years, and considering the low level caps placed on RRSP and TFSA registered accounts, there really is little other choice than to hold stock assets in non-registered taxable accounts. There is simply no contribution room left.

      To conclude – a few guidelines/rules I’ve followed for dividend investing success: 1) start early in life; 2) trim expenses and increase savings; 3) invest in high quality tax-efficient dividend paying stocks; 4) preferably dividend aristocrats; 5) preferably Canadian stocks (for tax efficiency); 6) re-invest your dividends; 7) add further savings when/as possible; 8) employ dollar-cost-averaging (it works); 9) hold indefinitely (to have and to hold until death do you part); 10) resist the temptation to draw down on your dividend stock investment $$$ pool; and finally, 11) stay invested at all times – ride the market ups and downs (don’t try to time the market) – and buy more stocks during the down period.

      Hope this helps and answers your questions, Mark. Carry on and stay invested!!

      Reply
      • Thanks for the replies Reader B. Appreciate that.

        A few comments…

        Q1/A1: Yes, makes sense, re: invested in taxable for dividend tax credit (DTC), being doing that myself for many years with TFSAs and RRSPs maxed out.

        “Taxation rates have constantly increased over the years and they’re only going to get worse.”

        For sure, you and I and others can bank on that….people should plan for it.

        Q2/A2: No doubt, I appreciate you sharing since to get to that dividend income value now you would absolutely need to be investing at least $50K per year on average for about 20 years on end, at least. That savings rate was golden.

        I’ve always encouraged my readers to reinvest all dividends (and distributions), I do that myself.

        I can’t imagine your income stream with pensions as well. My goodness….

        Q3/A3: Yes, there are many CDN stocks that have built-in diversification and I too, follow the same (own a small amount of ATD.B as well for years), own other stocks like AQN, etc., that have assets in U.S. or around the world.

        I will be curious to see your answers but total return is important too, very important, so just a caution to share that concept as well as not to mislead any investors. I know that’s not your intent, I can see that tone in your replies, but it might not also be unrealistic for folks to earn $360,000 per year in passive income. The best way they can do that is via low-cost funds or some “core and explore” stocks since good behaviour trumps all.

        That said, your journey is incredible and I thank you for sharing.

        I didn’t mention it, but I suspect my friend Bob might get quite a bit of flack for posting the “no tax” part of this post, since you can’t avoid it with that income level 🙂

        I’m sure Bob will help address and update and clarify.

        Reader B, continued financial success to you. Taxes aside, incredible dividend income that most Canadians can’t fathom!

        Best wishes,
        Mark

        FWIW. I have a LONG ways to go to catch up to you.
        https://www.myownadvisor.ca/may-2021-dividend-income-update/

        Reply
        • Haha, yea I took on a bit of heat on the “no tax” part, hence for editing the title and the disclaimer at the end of the post.

          I personally have no problem with paying tax. We are privileged to call Canada home and to enjoy all the social benefits that come along with living in Canada. The important part is, what can we do to be efficient and minimize taxes?

          We both have a long way to catch up to Reader B. 🙂

          Reply
  4. This is incredible. Really impressive and a great success.

    I only have one question. Would they do anything differently if they could go back in time? Like maybe considering investing in companies like Amazon, Apple, Microsoft for the amazing growth? I am sure their $8.5M would have been a lot more if they had some shares of these companies back then.

    Reply
    • It does surprise me, how many readers need more than $8.5M.
      Like how much more do you need???????? quite frankly, seems alot of greedy people out there.
      If you need more than $8.5M before you retire, you will never reach, Financial Freedom.
      I had a goal of $50k in dividend income and once I achieved that, I was gone.
      I do not want to work for someone, I did have my own business also and was never at home with the kids, that went. I worked for someone again, but once I hit that number. BYE BYE.
      FINANCIAL FREEEEEDOM HELLLLLLLO PEOPLE.

      Reply
      • B and his wife do not need $8.5M worth of portfolio. They retired when they were 55 and their portfolio was way less. It’s just that they have let their portfolio compound over time rather than making any withdrawals.

        Reply
        • Actually it was directed at Dreamer.
          See the fact is, that most people are under the impression you should never touch the principle.
          An example for you. We have family in Austria, and it is virtually impossible to buy a piece of land to build on because:
          a) property taxes are nothing 10000 sq. ft. in town roughly 200 Euros per year.
          b) people say they don’t need the money, they live within their means
          c) what if my grandchildren or their children want to move here? they won’t because they already are established miles away.
          So what happen is, the minute they are put in a home, their relatives can pay for it, or the land gets sold because the State will force them to do it, to pay the home because they own it.
          If they would have sold it, given the money to their kids, or quasi gifted the property to their kids, the State can not touch it.
          That is why I said, when I need all that crap, my wife and I on paper will be worth nothing, except our pension, they can have that.

          Reply
      • Gerhard, Thank you for your concerns. I am neither greedy nor anywhere close to even $1M. I don’t even think I have to worry about anything above $2M in my whole life as it most probably will never happen (The fun of having a family while on 1-income as a 1st generation immigrant to Canada starting late from zero)!

        For me, I will be done and gone when I get to $35K yearly in dividends as long as the kids are independent. That would be more than enough to live an amazing life in 90% of the world.

        Anyway, I was just asking considering the recent growth we saw in companies like Amazon, Apple, Microsoft, and others, if he would have done anything differently to achieve the freedom faster. Why?

        1. You get your growth stocks increase your liquid net-worth.
        2. You sell your growth stocks slowly and replace them with dividend paying stocks.
        3. Your dividend increases.

        Please never assume nor attack others for their thoughts or sincere questions.

        Regards

        Reply
        • Dreamer, it is not an attack.
          I have heard on numerous occassions from numerous people throughout my numerous years of working about how much money they need and it is mind boggling. Most of them still would not retire after winning the lottery in fear that they could not invest or spend wisely and that is a scary thought.
          As far as your comment, why he would not invest in the FAANG stocks or growth stocks in general, that throws me for a loop.
          Why are you actually reading sites that have to do with dividend investing if you would rather be out there investing in growth.
          You have different kinds of investors, persay Liquid who is leverage and invests in such things as TSLA, SQ, WEED, or BB hoping for the big score, oh yes and he has leverage, quite abit. If it happens wonderful, but if it does not what then. He’s young and can earn it back, maybe.
          You have disciplined investors as B who only invest in Canada and only dividend paying stocks. that my friend is true DISCIPLINE, especially when you see MSFT, AMZN, GOOG and the rest explode and you still stay the course.
          What you should be taking away from an article like B is that you do not need those kinds of stocks to reach Financial Independence.
          Through every single “CRASH” 1987, 2000,2008,2020, I was there, did I lose money, NO, because I never needed that money for my day to day operations. Did I make money ,yes, because I averaged down.
          As far as Growth stocks, by July AMZN YTD will look like an EKG of cardiac arrest, it has done no growth, no dividend. AAPL by August will look the same.
          I prefer my 4 to 6% yield anyday of the week with the occasional CAGR of 5 to 10% thrown in.
          Good luck in your investing future.

          Reply
          • Hi folks,

            Let’s keep the comment civil please. No need to attack people. Civilized and educated discussions please.

            We hold FANG stocks too even though we are dividend investors at heart. There’s nothing wrong with having a core investing strategy and branch out to something else with a small portion of your portfolio. Mr. Dreamer simply had a question in his original comment. Let’s not turn this into an argument and start taking offense. Thank you.

      • You don’t need to turn into a vegetable after you hit FI. You already spent years learning how to increase and the system is pretty much setup for you like the palm of your hand, so why stop. Maybe they will leave all this behind for their kids and grand kids or charity.

        Reply
    • Thanks Mr. Dreamer.

      One thing B pointed out is that they would definitely do more with RRSP early withdrawal. In terms of buying US stocks, he and his wife only focused on Canadian stocks to avoid foreign property exceeding $100,000.

      Reply
      • Impressive accomplishment. But I am confused by wanting to “avoid foreign property exceeding $100,000”. Why does he want to do that? If you have that, you must complete an additional income tax form (Income Tax Form T1135 ), but that is just an information reporting requirement. There are no special or additional taxes related to having foreign property over $100K. Is there some other reason not wanting to have foreign property over $100K is important to them?

        Reply
        • I’m not sure the exact reason, I didn’t ask B for more details. They just decided to invest only Canadian dividend paying stocks in their non-registered accounts.

          Reply
    • Thanks for the question, Mr. Dreamer …. and a very good one. Most investors would love to have bought shares early on in those big growth companies. But sadly, all most of us can do is “dream” about landing the “big one”.

      Go back in time? Well that would involve hindsight which is always perfect, isn’t it? Sure I’d love to be able to go back in time – but not for the reason you might think – and certainly not to chase the stellar companies you mention above. That’s just not me; that’s not my style; that’s not my type of investing. I’m not interested in chasing the latest “hottest” stock. More luck than anything else is involved with buying into a big winner in the early days. Way more company startups fail than succeed -how do you pick the right one? And then if you do, you need the wisdom to hold on to it and not cash out in the early days. Few people can do that successfully – the odds are stacked heavily against them and also against me if I get into that game. So I didn’t and I don’t.

      But I sure would like to go back in time to correct all the silly, dumb investing mistakes I’ve made over the years. We all make mistakes and I’ve certainly had my share of missteps and disasters. If I could go back and correct those mistakes, I’d be more than happy with that!! And my portfolio performance would be improved even more dramatically. Investing mistakes and losses, poor decisions and calls – these can have a severe impact on one’s portfiolio development and performance – they can really set one back. Eliminate the mistakes and one doesn’t need to chase the next hot stock.

      From the early 1990’s on, I settled on the conservative dividend stock approach to portfolio building. Focus on stock dividend growers and your capital gains will grow right along with the dividends. But the problem for many “investors” is their impatience – they’re looking for the overnight road to riches – they seek the quick but far too often elusive big stock. The alternative of solid conservative portfolio building takes time (and a lot of it), perseverance and dedication to the plan – straying can be costly. So one really has to figure out what type of investor you want to be – speculator, growth focused, conservative dividend type (me), a mix or whether you sleep better at night by leaning towards “fixed income” investing because the thought of any loss is unacceptable. So as a conservative dividend investor, I really have no interest in trying to find the next hot stock. If one invests in a controlled disciplined fashion then all the pieces of a great portfolio that performs will eventually fall into place.

      I wish you the best of luck in your investing journey whatever your path.

      Kindest regards,
      Reader B

      P.S. – I’ve never bought a lottery ticket or gambled at a casino in my life. Horrible odds. That’s not my type of “investing”. And, through conservative dividend investing, I have already managed to land my one-in-a-lifetime big”home-run” stock …. BAM.A. I managed to get in on the ground floor way back in the late 1980’s by buying several solid dividend paying companies that at the time went under the names of Pagurian and Hee’s International – they eventually merged and morphed many years later and went on to evolve into the Brookfield Asset Management Empire. So it just goes to show that the home-run stock can be landed by following a conservative dividend investing approach …. it just takes “a little time” than many are willing to spend on it.

      Reply
  5. Interesting.
    There are alot of waos to achieve Financial Freedom.
    Some use real estate, other the stock market and some of us use a mix of both.
    I was in the same boat as B when I started in the markets back in the 80s and yes phoning the broker at 6 am in vancouver to find out what was happening when you had no cellphone or internet was tedious. That is why the post war generation never felt comfortable with the stock market, they were more worried about getting to work on time.
    My brother started a subscription with the “Investment Reporter” in the early 90s and it is an invaluable tool for investing in Canadian stocks.
    We pull in roughly $60k in dividend income a year, and it is enough for us and that is pre retirement. Once you add CPP and OAs and private pension on top, my children will need to spend it for us.
    I really do not need $30k a month for the simple fact, that by the time I may need Pharmacare or a home, all my money will already have been gifted to my children. I plan on letting my government, for whom I have diligently paid taxes to for 40 odd years, pay for those things. On paper I will be worth next to nothing.

    Reply
  6. Thank you for posting this real life scenario and giving such wonderful information. It is great to see that Mr and Mrs B did so well in the stock market and build themselves a nice divident income.
    I look forward to part 2 of the interview.

    Reply
  7. This is a great interview. Very well done for B and his wife. 🙂 It shows patience and a focused mindset can have huge payoffs. I like how he uses technical analysis to help determine his entry points into stocks. It suggests that timing the market does have certain advantages. I wonder if B has any fixed income assets like bonds which are traditionally recommended for retirees. Looking forward to the second part.

    Reply
    • Thanks Liquid. It is a very inspiring story and I’m glad that B agreed to do an interview with me. Goes to say that a dividend portfolio isn’t built in one day. 🙂

      Reply
  8. I had been waiting for this to be posted with great anticipation and thoroughly enjoyed reading it. What a wealth of knowledge Mr B provides with his successful investing story. Impressive indeed!

    My biggest take-away was that no US stocks were held – I didn’t see that one coming.

    I also agree with other commenters, that building that type of wealth over 30 odd years must have shown a significant investing regime (cash to buy more + reinvested dividends). I am interested to know if Mr & Mrs B have children – it was just something I wondered as I was reading because we all know kids cost an arm and leg, which usually results in less $ for mom and dad and their investment accounts! No need for an answer, it was just something I wondered.

    I can’t wait for Part 2. Great interview Tawcan!!

    Reply
    • Glad you enjoyed reading Part 1, Our Life Financial!

      Mr. & Mrs. B have no children. This may have helped them to save more over time but the modest lifestyle probably contributed a lot.

      Reply
  9. Great interview and a wealth of insights. Curious how many positions Mr B has, many people with smaller portfolio tend to have so many holdings. Is that necessary?

    Reply
    • Hi Rick,

      My understanding is that B has many holdings, I didn’t want to get into the specifics in the interview to keep some into anonymous, but he and his wife holds many of the Canadian all-stars.

      Reply
  10. Great article. Really nice to read these amazing stories. Very inspirational!
    My question would be if they revealed if they limit as a % how much is allocated to a specific stock or a specific industry. I say that because with Canada I would think to achieve these results they probably focused a lot on the Finance, Telecom and Pipelines sector.

    Reply
    • Hi Jacob,

      That’s a good question. I didn’t include the specifics in this interview b/c a few reasons…

      1. I wanted to do more of a big picture type of Q&A session.
      2. During our email exchanges, we didn’t get into the specifics of what B holds. I could sense he didn’t want to discuss the specifics.
      3. The Q&A was intended to demonstrate that one can build up a very successful dividend portfolio over time.

      Reply
  11. Do you have any resources for a step-by-step guide to dividend investing for an absolute beginner? Perhaps one like the blog by Millenial-Revolution? My head is spinning with all these terms, let along exactly the steps to take or what to do after opening up a brokerage account. 😀

    Reply
  12. great article / interview.

    Makes me think more about taxes in the future for sure.

    Any idea how many individual holdings they have? Seems risky to have 8.5 mil in like 10-15 holdings, but obviously it has worked for them.

    keep it up B and thanks for your knowledge. You as well Bob for putting it together

    Reply
  13. Interesting interview! I would have loved to see a graph of his progress over the years. What kind of returns were they seeing through the 80’s and 90’s.

    More details about how much they spend of that 30k per month would also be helpful. The law of large numbers tells me they likely spend a fraction of that and reinvest a large chunk of it.

    Reply
    • I kept the interview somewhat high level as B wasn’t comfortable sharing all the details when we first discussed about it. I didn’t want to be too pushy when it comes to these kind of details. 🙂

      Reply
  14. WOW. For a second, I thought it was you Bob who was making $360k a year in dividend income, where’s the subscribe button so that I can learn how to make 360k per year in dividends also?!

    Jokes aside, it’s truly amazing what you can accomplish when you’ve been investing for 30+ years. There’s a lot of people who are even making millions of dollars from their jobs but have nowhere near the dividend income that the interviewee has. Well done.

    Reply
  15. I turned 40 and have never invested before. Did I miss the boat to even consider earning 100k/yr in dividend income before I’m too frail and in an old age home? haha

    Reply
  16. Wow…another great article! Learned so much again and thank you to both you and B for being so generous in sharing your knowledge and experiences and for all the hardworking in putting this together.

    I am late in the game of investing but I am glad to be in the game now. As the saying goes, better late than never! If I can achieve even a $25K dividend income per year, I would be happy. There are many places in the world where that kind of money goes a very long way!

    Thanks again and looking forward to part 2!

    Reply
  17. Thank you for such wonderful internet and new interesting resource (https://www.investmentreporter.com).

    This interview got me thinking, for the long run what would better to max out RRSP/TFSA or start building a Canadian dividend portfolio in a taxable account to “offset” taxes.

    For example, if I have 25k/year to deploy should I max out RRSP or for example – put 70% in RRSP and the rest in a taxable account.

    Reply
      • Thank you. Yes, I need to think about non-registered account as a not only investment strategy but from tax optimization point of view

        Reply
        • I will answer your question and I am no tax expert.
          Depending on how old you are and where you want to invest in US or CDN.
          IF you have $25k/year to invest and you are young and do not need the money, max out the RRSP and invest in US, REITs or growth verses dividends.
          Take the amount saved in taxes, max out the TFSA and invest in Canadian REIT or growth stocks.
          The reason being, if you have $25k/year for RRSP purposes then you already make too much to take advantage of the Canadian dividends stocks.
          Depending on age, maxing out ones TFSA is always first and foremost, then RRSP and lastly taxable

          Reply
  18. Hi Bob,

    Great article. Can you and/or Reader B comment on CIPF (Canadian Investor Protection Fund) with reference to large portfolio(s)? CIPF provides up to $1000000 for each savings or retirement account should a discount brokerage go bankrupt. Does B invest only using one discount brokerage or multiple brokerages given his large portfolio? I really would like to know what is the best strategy to invest once your portfolio reaches a large size.

    Cheers,
    Lawrence

    Reply
    • Great question, Lawrence.

      There are a wide variety of investments (including cash) that can be held in brokerage accounts – so you really should check the degree of coverage you have with your brokerage or financial advisor.

      In my case, I do hold all my dividend paying stock securities in multiple accounts but with the same brokerage (one of Canada’s big banks) and the securities are quite safe should the brokerage become insolvent. The reason is because all my stock shares are designated as being “segregated”. Look on your brokerage account statement – if your stock is “segregated”, it should have a designation beside the shares that looks something like “SEG” (the way my account statement reads). Essentially, this means that your shares are segregated or held separately from the assets of the brokerage.

      The chief aim in segregating assets at a brokerage firm is to keep client investments from co-mingling with company assets so that if the company goes out of business, the client assets can be promptly returned. It also prevents businesses from using the contents of client accounts for their own purposes. So SEG shares will be returned to the investor and would not be part of the firm’s insolvency proceedings. The CIPF (and CDIC) do provide limited protection for other types of investments and will assist in returning stock shares to the owner should they go “missing”.

      Investors automatically receive coverage by opening an account with a CIPF member. Each investor’s coverage, when held at a CIPF member, is:

      – Cdn $1 million for all non-registered accounts and TFSAs combined,
      – another $1 million for RRSPs and RRIFs, and
      – a further $1 million for RESPs.

      So if a person’s assets are distributed between the different classes of accounts, they have up to Cdn $3M in coverage at a particular CIPF member institution. An individual then may also have these accounts at other institutions for further diversification and coverage. When a CIPF member becomes bankrupt, the CIPF will move the investor’s account, within the limits of coverage, to another investment dealer where the investor can access it.

      Do not confuse the use of the term “segregated” as it applies to stock securities with mutual fund or segregated mutual funds (not the same type of investment at all). Again, it’s best to seek out advice specific to your brokerage, account types and investment holdings.

      Reply
        • Just checked this my account with the banks have “SEG” however Questrade doesn’t. Hmmm – I guess that explains the lower fees. Anyways I have a ways to go yet.
          Thanks again for teaching me something new – I really appreciate it.

          Reply
  19. Great interview. Looking forward to part 2.

    However, the title seems misleading unless I’m missing something. While you can receive almost $60K in Ontario in eligible dividends tax-free, once you get to $360K per couple (or $180K per person), your taxes come out to around $60K per person with an average tax rate of 33%, assuming no other income. If I’m mistaken, I’d really like to know how to pay no taxes on $360K.

    Reply
    • Oops sorry, on $180K dividends, taxes in Ontario is $32K with an avg tax rate of 18%. Still good, but not close to nothing.

      Previous calculations was on other income.

      Reply
      • Sorry, perhaps the title should say paying very little taxes. According to B as a couple you can receive $150k as a couple and pay ~6.3% in taxes. That’s a lot lower than earning active income.

        Reply
        • Your numbers are correct Bob. A couple can earn $110,500 in tax-free dividend income. Beyond that level, some tax must be paid – but it is a very modest amount. Advancing to the $150,000 dividend income level, a couple will pay $9,571 in tax which represents a 6.38% tax rate. Still a pretty sweet deal!!!!

          I believe the numbers that Eddie is quoting above are also correct but they are for a single person – not a couple.

          Reply
  20. Great interview!

    I am interested in the tax efficiency which you said you will share next week.
    What is the composition of their portfolio across all accounts? Is it 75% Canadian dividend stocks? What do they keep in their TFSA (I am assuming not Canadian eligible dividends?)
    How much tax do they pay from the $360,000 in investment income?
    Don’t they have to mandatory draw down the RRSP and isn’t that taxed?
    Is there no work pension too?

    Reply
    • Thanks for the questions GYM. I’ll do my best to provide further clarification below.

      – As stated in the first part of the Q&A, our Non-Reg Dividend Income Accounts represent 85.5% of our investment assets. This dividend income portion is what I will be referring to below. Our maxed out and capped RRIF and TFSA accounts combined comprise 10.1% of assets being dwarfed by the size of the dividend income accounts.

      – Our portfolio composition is 100% Canadian stocks. No USA stocks – that will be explained in Part 2 next week. I hold 113 high-quality dividend paying stocks in the portfolio. Yes – you read that right. Every stock must pay a dividend or I don’t follow it – minimum 2% yield on initial purchase. Any stock that significantly cuts or eliminates it’s dividend is immediately culled from the portfolio and replaced with a conservative dividend paying stock. For example, during the recent severe Feb-Mar 2020 Covid induced market downturn, I only had to cull 5 stocks – none of which have yet re-instated dividend payments.

      – I fully recognize that I am not your traditional investor who plays by the standard portfolio building rule-book. But this approach has worked for me for some 36 years now (since 1985) with a level of growth in capital gains and dividend income that I’m more than pleased with; and the portfolio has held solidly and proved to be remarkably resilient through many market ups and downs during that period. The portfolio remained fully invested in stocks throughout all bear markets. I am a buy and hold investor and have no interest in playing the “time the market” game.

      – Portfolio Sector breakdown is as follows:

      39.7% – Financials
      13.8% – Real Estate
      11.5% – Consumer Defensive
      10.3% – Industrial
      7.5% – Energy
      6.6% – Telecommunication Services
      5.6% – Utilities (this needs to be higher)
      3.6% – Consumer Cyclical
      1.4% – Other

      – TFSA holdings are maxed out and are invested primarily in fixed income type mutual funds. Perhaps when the asset value gets larger, I’ll consider moving the TFSA accounts to a discount broker and investing in additional Canadian equities.

      – I’ve analyzed several tax scenarios to see what the taxation levels are progressing upward from the $110,500 (dividend tax free level) 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 with dividend income up to the $360,000 level, the average tax rate would be 18.37%. And in my opinion this is still very tax-efficient compared to generating any other type of income on which the taxation rates will be at least double.

      – At age 71, RRSPs must be converted to RRIFs. RRIFs do indeed have mandatory annual “draw- downs” associated with them and RRIF annual withdrawals are taxed to the max as pension income at 53.53% (Ontario). Investing in RRSPs over the course of our working careers has been the single biggest investment mistake I’ve made. Fortunately, RRIFs only represent 8.2% of our assets being dwarfed by the dividend stock component (which frankly I should have stuck with from the get-go and ditched the RRSPs early on). More on the “RRSP/RRIF” tax trap in Part 2 of the Q&A.

      – Yes, my wife and I both have work pensions. Pension income is taxed to the max as well at 53.53%, the same as for RRIFs. Needless to say, taxation rates in Canada are horrendous and they’re only going to move higher in the very near future. An increase in the capital gains inclusion rate from 50% to 75% is a given after the next election.

      I hope this has answered your questions and presented a clearer view of both our portfolio make-up and our approach to dividend investing. Non-conventional for sure – but it works.

      Reader B

      Reply
      • Reader B’s comments on his RRSP point out an often overlooked angle to RRSPs. It is not only a tax deferral vehicle, it is also a tax rate arbitrage vehicle as well. What that means is because it is a deduction from taxable income, the benefit is based on your marginal tax rate at the time the contribution is made, and the cost is based on your marginal tax rate at the time you take the money out. So it works best if you contribute when you are working and your income is high, and you take it out when retired so your income is lower. But if you are a successful investor/saver like Reader B, and you have lots of retirement income so you take it out when your income puts you in the top marginal tax bracket, any contributions you may have made when your income put you in a lower tax bracket means you are transferring income from a lower tax time in your life to a higher tax time. This changes the cost/benefit calculation of the RRSP to reduce some of the benefit. This is something to be aware of, and one reason why as a younger person saving it is often better to focus on maxing your TFSA first and leaving your RRSP contributions until your income and tax bracket are higher. It’s true that having too much retirement income is a “high quality problem”, but it doesn’t feel great as a retiree to be giving more than half of that portion of your retirement savings to the government in taxes.

        Reply
        • Yes RRSP is a tax deferral/arbitrage vehicle. If you end up with Reader B’s situation, then you have done well. It’s a “nice” problem to have I suppose. 🙂

          Reply
        • Excellent comment Teddy – the mantra of maximizing RRSPs espoused by most advisors can come back and bite you – as I well know. I agree completely with Reader B that setting up (and maximizing!) RRSPs was a mistake.
          Looking forward to part 2.

          Reply
  21. While I’m not a dividend investor, I still enjoy learning how others reach financial independence via dividend stocks. This is an amazing story and Mr. B and his wife deserve a HUGE round of applause for what they’ve accomplished.

    It takes many years of dedicated focus, diligent saving and intelligent investing to achieve what they have. None of those factors are easy to follow through on, year after year—for decades. Bravo to them!

    Reply
    • Thank you for the kind words and encouragement, Chrissy. I’m glad you enjoyed Part 1 of our Q&A on “living off dividends” as a means to attain financial freedom. And my congratulations go out to you as well. I’ve visited your “Eat Sleep Breathe FI” web site – very impressive work you’re doing there – most informative, well-written and enlightening posts. I especially like your concept and series of articles on the “Cost to Live the FIRE Life …” in various locations – very novel – excellent idea and development. Keep up the great work. And best of luck to you in your FIRE journey as well.

      Reader B

      Reply
      • Hello Reader B,

        I’m honoured that you took the time to check out my blog. Thank you! Although most people would have a hard time matching your level of success, there’s so much to take away from your story. Thank you for sharing with everyone here!

        Chrissy

        Reply
  22. Hi Bob,

    Thanks for forwarding my question to Reader B, very insightful. Reader B mentioned that he is using his accounts with one of the five big banks. I was just wondering, when you grow your portfolio to a certain size, do the big bank discount brokerages give you any additional perks? Like free trades, free estate planning, tax services, etc? Thanks again.

    Reply
    • In my experience, the big bank discount brokerages don’t offer the perks you mentioned. The only perk I used was waiving the transfer fee from another financial institution. Supposedly I can get priority access to representatives but I haven’t noticed a difference.

      Reply
    • Lawrence:

      I can confirm what Bob (Tawcan) and Sabrina have stated above – no perks or free services from the bank brokerages – and certainly no free estate planning or tax preparation services – and absolutely no reduction in trading fees either. The banks exist to make money!!

      The services you mention are certainly provided by the banks but only for a hefty fee. As Sabrina says, you might be able to get them to waive a transfer fee – but that generally only works if you want to transfer money to their bank – but will seldom work if you want to transfer assets to another financial institution.

      I’ve held the same brokerage account with my bank since 1985 – now that’s customer loyalty – but no freebies have ever been offered to me. Instead, what I’ve found as I grew the size of my stock account over the years, is that frequently I’ll be approached by one of their high-value wealth mangers who want to take me on as a client – as if I’m not capable and doing quite well with management of my account. Somehow, these wealth managers are going to improve my portfolio holdings and performance for me. Typically, wealth managers will only take an interest in you if your account is valued at $1M plus – and they do indeed have a way of sniffing out high-end clients. They will charge at least 1% and up annually to “manage” your account – and that can amount to a lot of $$$ out the door in needless annual fees. So, in effect, this means a wealth manager will not take you on as a client for less than $10,000 in annual fees. No way – no thanks – I’m doing just fine on my own.

      Reader B

      Reply
      • Reader B as you say “The banks exist to make money!!” – good reason to own them 🙂 – also concur they do not not offer any freebies.

        Reply
  23. Hi Tawcan! I just discovered your site and I wish I find it sooner.
    You have some great articles and I will be coming here alot.
    Have a great day!

    Reply
  24. One service my discount brokerage provides to high NW clients is a separate phone number and a human account manager. It does make things much easier when I need to speak to someone for things which cannot be done online.

    Reply
  25. Hello Reader B,

    I wonder if you can share how you track your dividend stocks on a frequent basis.
    Do you use an online tool, or an excel sheet etc.

    Thanks.

    Reply
    • Thanks for the question, Bhai.

      Actually, I use a custom software package that I personally developed years ago to track all aspects of my stock portfolios and my wife’s. I revise it and add in new modules from time to time. I presently monitor 127 stocks. Every weekend I enter the Friday closing (end of week) prices for each stock. Any buy/sell or other transactions I made during the week are also entered. Then I use the software to generate a number of reports which give me details on the performance of each stock held in my portfolios including rates of return. I also track all dividends received and each is dividend is attributed to the generating stock. ACB’s are kept as well as the number of days each stock has been held. Then using the current price, I can compute 3 rates of return – dividends are factored into the performance ratings. For each stock I can see the accrued capital gain to date and the total dividends received – this tells me what percentage of my profit on each stock can be attributed to growth and to income. You’d be surprised just how much of each stock gain can be attributed to dividend income.

      You can find many on-line tools to track your stock portfolio – or better yet, develop your own spreadsheet program. The nice thing about a spreadsheet is that you can customize it to your preferences. Template portfolio tracking spreadsheets can also be found on the internet. If you’re looking for a great spreadsheet software package I highly recommend the free Open Office package (https://www.openoffice.org/) – it’s fully featured and open source. It includes a word-processor and great spreadsheet plus other modules.

      You can also find many websites that allow you to enter your own portfolio stocks and track them. One advantage is that you don’t have to enter weekly/daily prices. But a word of caution –> with that approach you can spend considerable time entering your data and then you have to hope that the service continues. But perhaps your best alternative is simply to use the portfolio tracking features that come with your web-broker service. My brokerage is with one of the major banks and they have all kinds of portfolio viewing, arranging, tracking and performance assessment tools – more than I can use.

      Hope this helps. Reader B.

      Reply
  26. It is refreshing to hear from someone else who has succeeded by doing the exact opposite, of what most investors and financial advisors insist is the only way to achieve financial success, ignoring Total Return and diversifying outside Canada.
    The interview highlights the simplicity of investing in quality dividend growth stocks and staying the course. I must add that Tom Connolly has been recommending this approach since 1981 as well.
    “B”, thanks for being so generous your personal information

    Reply
    • I agree! I’m not Canadian and i won’t get these tax advantages you get.
      E.g. when i earn 100k in (gross) dividends, i get 80-90k net (after tax), depending on my other earnings. But i think that’s still a lot left.

      Regardless of taxes, i like reading these stories/interviews that prove that inactivity and buy and hold, as “easy” as it is, still allows you the most efficient way to invest in stocks. I mean once you bought a stock, the only thing you have to do is counting the money and choose the next stock to invest in.

      In fact, i have my watchlist of approx. 250 stocks, where i do one big update a year, entering the earnings a.e. Then i review all of them to get about 5-10 stocks which i consider buying over the next year. When i have enough money (3-4 times a year), i buy the cheapest stock of that list. I spend a lot more time watching the stats and “counting” my money, sometimes feeling like Scrooge McDuck 🙁

      Reply
  27. Can you elaborate on use of 13 and 40 week moving averages and crossover points, the 14-week Relative Strength Index — I won’t ask about the 40-week two standard deviation Bollinger Bands (sounds complicated!).

    Are you looking to enter a stock when its price crosses above the 13 week or 40 week moving average?

    Reply
    • Stock price moving averages are used to show the directional trend by smoothing the price data. They are normally calculated using closing prices. Shorter length moving averages (like 13 week) are more sensitive and identify new trends earlier, but also give more false alarms. Longer moving averages (like 40 week) are more reliable but less responsive, only picking up long-term trends.

      The simplest moving average system generates action signals when the stock price crosses over the moving average line i.e. buy when the price crosses above the moving average from below, and sell when the price crosses below the moving average from above.

      Moving average analysis is not error free by any means – the system can often be prone to whipsaws with the price crossing back and forth across the moving average, generating a large number of false signals. For that reason, moving average systems normally employ filters/modifications to reduce whipsaw effects. The MACD (“Moving Average Convergence Divergence”) is a very popular indicator plotted as an oscillator which subtracts the slow moving average from the fast moving average.

      But moving averages are useful in smoothing price data and showing price movement and momentum trends. You can find more info on moving averages here as well as on many other sites:
      https://www.investopedia.com/terms/m/movingaverage.asp

      The Relative Strength Index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.

      Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a stock is becoming overbought/overvalued and may be getting ripe for a downward trend reversal or corrective pullback in price. An RSI reading of 30 or below indicates an oversold/undervalued condition. I have found the lower 30 RSI to be quite a valuable indicator – when the RSI nears or falls below 30 I’ve found it’s often an opportune time to buy-in. Use with caution however – it’s a technical indicator and there could well be some negative stock business, factors and/or fundamentals that are driving the stock price lower.

      The Relative Strength Index (Indicator) is widely written up the internet. Here is one source:

      https://en.wikipedia.org/wiki/Relative_strength_index

      Remember though, that both of these indicators are based on price changes/momentum and tell you nothing about the fundamental value of the underlying stock. Don’t use them blindly – do your own research – technical analysis is only another tool in the box.

      There are many web sites that allow you to quickly chart stock prices on-screen; these sites usually also allow you to customize the chart by adding in various types of technical indicator calculations and plotting them against the corresponding stock price display/graph.

      I have found Bollinger Bands to be very useful as well – they’re not something you want to calculate yourself by any means but programs/web sites will do it for you. Bollinger Bands are simply upper and lower band limits that move along with the changing stock price. When the stock price crosses over an upper Bollinger Band this can be interpreted as a sell signal – a stock price crossing below the lower Bollinger Band can be seen as a buy signal.

      You can make stock technical analysis as complicated as you wish – but my goal was to find something relatively simple but yet reasonably useful/helpful.

      Reply
  28. I see the comment in the article that all margin is bad. It isn’t. Excessive use of margin can result in margin calls at a time that share prices are depressed, and that certainly is bad because you are forced to sell low.

    I have bought dividend paying shares using margin many times. When stock prices get hit in a general downturn, and you can load up on shares with a yield of > 6% using money borrowed at < 3%, then you get to keep the difference. Better than that, the interest paid is 100% tax deductible, whereas the dividend income is taxed at lower rates based on the mix of income types (interest, eligible, capital gains, ROC). You can easily model that for every candidate share. You need to have a view on where interest rates are going and how the dividends are likely to grow over time, but there is a lot of safety margin if you are not reckless..

    So, when you are fully invested (that's me), and the stock market gives you a gift, reach for a sensible amount of margin. You can calculate how much further share prices would have to fall to embarrass you with a margin call, and it is very much worth understanding how lenders tighten their margin rules when things get turbulent.

    Just saying that margin is bad is a little irrational, and misses an easy way to amplify returns. Just do the math, understand the conditions under which it might get ugly, and tread carefully.

    Reply
  29. Congratulations Mr. B, your accomplishments are nothing short of extraordinary. I am a dividend investor as well, and it has made me financially independent. Looking at your success and others that I have tracked, I can say, at least anecdotally, that it is the best path to FIRE.

    I’m one of the interviewees in Bob’s FIRE interview series. Since that interview (pre-covid), I was “forced” into early retirement because of the impact of Covid and my company having to downsize. I’m in good financial shape but many of my co-workers are not. It is now that I’m truly grateful of having the discipline be financially responsible. I have a few questions/comments and would appreciate your feedback:

    1) RRSP: Back in March/April 2020, I went all in, 100% dividend investing in my registered accounts (spouse and myself) and the portfolio took off. It now generates 60K+ in dividend income. You already talked about this: the combination of registered withdrawals, non-registered dividends and pension income means anything withdrawn from RRSP will be heavily taxed. At this point I’m just going to treat it as an annuity, and pull the 60K annual from it and leave the principal to our kids, who will still be well off with whats left over after the taxman is finished with it. Do you think this makes sense or should I expedite the withdrawals by selling shares. I did some rough calculations and think that our kids will be better off I just let it continue to compound for another 30 years.

    2) We are very quiet about our wealth. I had no problem maintaining a “stealth wealth” facade during my working years pulling in a very modest income. However, its what I’m not doing or saying under difficult circumstances that has led a few people to suspect that I’m in a different situation and it has led to the loss of some good friendships. I’m seeing the ugly side of human nature – did your relationships/friendships with others change after reaching FIRE? Your situation is obviously nowhere near ordinary, so what did you have to do to maintain or keep meaningful friendships during your retirement and as you see your personal wealth take off to levels that your most people will never see?

    3) Risk – having reached the finished line, and setting up a fairly reliable income stream, I’m not worried about market collapses. I just see these as more opportunity to deploy my strategy for further gains. What I’m really worried about are things like fraud or litigation that has the potential to destroy everything that I have accomplished. If someone trips and falls on my property, or I’m involved in a car accident that results in a lawsuit, I could lose everything that I have. Have you done anything to mitigate such risks, e.g. increased insurance coverage etc. that goes above/beyond what “average” folks have?

    Thanks and congrats again for such an amazing accomplishment.

    Reply
    • Good to hear from you again J!

      I think your RRSP withdrawals make sense but maybe consider taking out a bit less so you don’t get hit significantly by tax. Maybe see if you can stay in the 1st tax bracket?

      Reply
      • Yes, I will play around with the numbers and look at various scenarios to see what will work best.

        Thanks for sharing the great interview with us.

        Reply
    • Interesting question re RRSP. I have the same issue. Should I leave it in to compound tax deferred, or take it out, pay the tax now and then let the net of tax amount compound and pay a capital gains tax rate at the end. So I did a spreadsheet. The net of tax amount is greater in the “leave it in the RRSP” scenario. Greater by 21% after 10 years and 29% after 20 years at a tax rate of 53%. It makes sense that the advantage goes up the longer the time horizon. The advantage goes down as the tax rate goes down, but there is always more money left after tax in the “leave it in the RRSP” scenario.

      Reply
      • I came to the same conclusion. I ran the numbers and what’s left over, assuming I live to a normal lifespan (knock on wood), won’t be chicken feed. Kids will be happy and of course I won’t care at that point. I still can pull a decent amount each year in dividend payments, less taxes. I see it as win-win. I love dividend investing :-).

        Reply
    • Congrats on your dividend investing success, J. Sounds like you’ve done a superb job of achieving the “living off dividends” goal. Sorry to hear of your “forced” retirement but glad that your dividend investing foresight has left you in good shape.

      You’ve posed some very interesting and valid questions on issues we all face.

      On the RRSP issue, $60K is a lot of dividend income in an RRSP – well done. Off the top, I’d agree with Bob (Tawcan) and Teddy (below) who has confirmed the “keep-it-in-the-RRSP” result with some spreadsheet number crunching. I’d say so too – leave the $$$ in the RRSP – sounds like you’ll come out ahead after tax. Just a couple of comments though.

      I don’t know what your full situation is, but you can prolong the payment of all tax on death by willing the RRSP to your spouse (assuming she survives you – do the reverse if not). Make sure you each designate your spouse as the RRSP beneficiary with the “right of survivorship” (doing so at the bank will suffice – it doesn’t have to be in your will). That way no tax will be payable on the RRSP until the death of the 2nd spouse.

      But there’s another issue. At age 71 you’re going to have to convert the RRSP to a RRIF and annual mandatory withdrawals will start. Sounds like you’re going to have a pretty sizeable RRSP by the time you reach 71 which means some hefty tax payments ahead on those RRIF withdrawals – and likely full tax at 53.53%.

      Another reason to leave the money in the RRSP relates to the capital gains tax rate – and we have to look ahead here. If you were to pull some $$$ from the RRSP and invest it in a taxable account, then capitals gains both now and when you pass on will be taxed at 26.5% . Okay for now … but we all know that inevitably in the next few years (probably after the next election) the capital gains inclusion rate is going up from 50% to 75%. The effect of this increase in inclusion rate will be to bring the capital gains tax rate up to pretty much even with the Cdn eligible dividend tax rate of 39.34%. This will certainly make capital gains held and realized in a taxable account (and at death) hugely less advantageous.

      One final caution. Be aware too, as I mentioned in the Q&A, on the death of the first spouse, all stocks held in taxable accounts can be transferred “in kind” to the surviving spouse with no tax payable. Don’t let the banks tell you otherwise (as they did when I was executor for my father’s estate) – insist on it. But when the 2nd spouse dies – that’s when the big tax problems hit. Your executor/trustee is going to have one pile of probate fees (now called the Estate Administration Tax in Ontario, ha, ha) to pay and all stocks will be deemed sold on the date of death whether they actually were or not. RRSPs/RRIFs will be considered collapsed and full tax payable. TFSAs are tax free but lose their tax-free status on the day of death when they become part of the estate. So what I’m saying here is that on the day of death of the 2nd spouse, all assets are deemed to have been sold at close of day prices. Since your estate will be sizeable, all taxable income over about $212,000 will be taxed at the full rate of 53.53% – and that will be a huge tax hit. Your executor will also have a mammoth problem in that before they can even get probate, they will have to come up with the full probate fee amount (1.5% of assets in Ontario). Also, when they file the final T1 return for the deceased, that’s when the mammoth tax bill comes due. I’m still struggling with ways to minimize the end-of life tax bill – not too many satisfactory answers yet – and this will affect how much is left for the beneficiaries. There aren’t many palpable ways around it – you can try gifting – but when you give stock to anyone either attribution rules kick in or you are deemed to have sold the stock and must pay tax on the unrealized capital gain. Not an easy situation to wiggle out of.

      As for keeping relationships/friendships … I’ve not had any problems in this regard – sorry to hear that you did. Basically, as you did at work, one should be prudent and not talk about one’s financial situation very much – be the politician and dance around the subject if it comes up. But I suppose the biggest thing is not to modify one’s lifestyle too much – at least not in overt ways i.e. don’t get $$$ flashy, show yourself as an obvious big spender or buy fancy sports cars, etc.. One should continue leading the same modest but comfortable lifestyle that gets us to the “living off dividends” plateau in the first place. All easier said than done I suppose – and not always possible to control.

      You mentioned two other subjects – fraud and liability risk. I don’t worry about either too much – all one can do is be smart, watchful and careful. I keep all my assets with big banks – my parents did too – never any problems with fraud. I think it’s pretty hard for bank employees to embezzle $$$. But what I would be leery of and really avoid is placing sizeable assets under the control of “wealth managers” in small private financial companies – and avoid independent small financial management firms. It seems to me that most fraud cases I’ve heard of involve private operators with small firms. The big banks certainly don’t want their names and reputations sullied – and if an employee did do something irregular, then the bank is sure to make it right with their client. I always think of the classic Bernie Madoff case … in that situation the problem lay with the fact that he was chairman and founder of the Wall Street firm Bernard L. Madoff Investment Securities – the fraud took place in the wealth management arm of his business. So the fraud occurred in a private investment firm. And the big problem was that investors would faithfully (and possibly blindly) turn over their $$$ to be managed on their behalf leading down the road to riches. And then what did his clients really know about the soundness of the investments or the company when all appears to be in order on their monthly account statements? That’s the situation that we as investors have to be alert too. Keep hands on and manage your investments yourself. Stick with the banks. Avoid the small guys. I’m sure the vast majority of private firms/managers are completely honest – but as an investor we never really know for sure until after something happens. So we need to make choices and take action that will mitigate our risk.

      Legal liability is always there – things happen – accidents can happen – not matter how careful we are. There are some liability horror stories out there for sure. I think it’s advisable to carry the maximum of normal liability insurance for both home and car – which is what we do. But I wouldn’t go overboard with insurance and try to insure all your assets – it would be excessively expensive.

      I wish you every continued success on your investing journey. Carry on …. and stay invested!!!

      Reply
      • Mr. B, thank you very much for such a detailed and informative response. Much to think about here, especially around estate planning. Your guidance regarding RRSP/RIF withdrawal makes alot of sense. Retirement withdrawal/spending sequence is something that I’m thinking about alot, given my personal situation. I’m still crunching the numbers but based on my situation, the following withdrawal order, in theory, should be optimum to balance cash flow and maximizing what my heirs will get at the end of a 30+ year period from now to to then: 1. Pension income, 2. Non-reg dividends, 3. RRSP Dividends 4. RRSP principal liquidation (done in compliance with mandatory RRSP/RIF withdrawal rules), 5. Non-reg principal liquidation, 6. TFSA. Your thoughts on this would be appreciated and sorry if you have already discussed it somewhere in parts 1 / 2 or any of your response to comments.

        Reply
        • Mr. J – Your retirement funding withdrawal sequence looks absolutely perfect to me. You’ve got the priorities right – the logic is there. And I think it’s as tax-efficient as you can make it.

          I had another thought after I replied to you earlier … since you have done so well in building up your RRSP and set it up to produce a $60K dividend income stream, then I think that’s further rationalization in itself for keeping the RRSP right where it is for the long haul. Not sure I would make any further contributions to it though – I’d cap it off where you have it – but just let it continue to grow under the RRSP shelter.

          Pension should be the first retirement income source for sure. A thought here … give serious consideration to deferring your CPP to age 65. I always tell people the only reason you should take CPP at age 60 is if your really need the $$$ to fund living expenses – and I don’t think you do. There is a 5% penalty per year for each year one takes CPP before age 65 – taking it earlier than 65 is not worth this level of penalty (at least in my mind).

          Your income order of 2, 3 & 4 makes perfect sense to me. And hopefully, you will never have to implement options 5 and 6.

          Looking at item 5) –> You see this is what I like so much about holding stocks in a non-registered account – theoretically you never have to sell them until the 2nd spouse is deceased. Just keep holding your stocks – let them keep churning out and increasing your dividend income cash flow (you can use the cash flow either for living expenses or re-investment); and you pay tax on the dividends at pretty tax efficient and low rates as you go. Plus you never have any capital gains tax to pay while you and your spouse are living!!! I still have many stocks that I bought back in the late 1980’s – like BMO, BAM.A – as the saying goes, “to have and to hold until death do us part” (literally with my stocks …. and my wife too, ha, ha). And that’s really what “living off dividends” is all about, isn’t it? – to provide a comfortable independent free lifestyle for you and your spouse as long as you’re both living. And it is the fact that you never have to sell any stocks in non-registered accounts that ultimately becomes the source of a very generous inheritance for your beneficiaries.

          And Item 6 – the TFSA – this really can’t be beat as a tax saving vehicle. Absolutely do not touch it and max it out every year. As I indicated in my first response, the TFSA, via the beneficiary designation you make with the holding financial institution, will be transferred smoothly to the surviving spouse and rolled right into their TFSA along with the deceased contribution limit. Then when the 2nd spouse dies, the entire TFSA goes totally tax free to your estate. Another great inheritance gift.

          Your plan sounds great to me, Mr. J. Carry on!!

          Kindest regards,
          Reader B

          Reply
          • Two thumbs up to you Mr. B. You are truly an inspiration and your thoughts/advice are validation for my strategy going forward.

          • Congratulations J and B on your successful Dividend Strategy.

            Regarding J’s RRSP situation. Without knowing your age or the size of your non-reg. there may be few things to consider. 60K from your RRSP is a fantastic number, but it would be much more tax favourable if you had 60K coming from your non-reg due to the tax favorability of Canadian Eligible dividends, as B mentions in his interview.

            Additionally, as B also mentioned, once you hit age 71 there are mandatory withdrawals from RRSP that may result in large tax consequences.

            You should consider running numbers to see if taking out a small portion of the principal annually from your RRSP now into your non-reg makes sense. Once in your non-Reg, you can buy the same dividend stocks but now the dividend is tax favourable. This will give the following benefits:

            1) Avoid massive taxes due to mandatory RRIF withdrawal once you hit 71+ by spreading out the taxes at a lower marginal tax rate (assuming you are relatively young).
            2) Dividend income shifts to non-reg where you can earn 55K tax-free per person vs taxed as income from your registered account (assuming you are not already maxing this number in eligible dividends in your non-reg today).
            3) If you have heirs and both you and your spouse die pre-maturely, your entire RRSPs / RRIFs will be cashed out fully taxed. Taking the above advice will reduce the size of your registered accounts, which will reduce this tax. Of course, this strategy will increase your non-reg accounts, but they will only be taxed on the capital gains, not the full amount. Capital Gains harvesting of your non-reg would also need to be employed strategically.

          • Great stuff Eddie. It is definitely very important to run some calculations to make sure you can avoid the massive taxes caused by the mandatory RRIF withdrawal at 72. This is something many people don’t consider early on in their investing career.

  30. One additional thing I thought I would mention. I just finished reading Bill Perkins’ book “Die with Zero”. As I am an early 60s retiree with a mid 7 figure portfolio, I found some interesting things to think about there in terms of managing spending patterns through one’s life. An interesting read for anyone who has succeeded in their saving/investing plans and has gotten to a point where their portfolio is more than enough to meet their lifetime needs.
    Teddy

    Reply
  31. Interesting article. To clarify the total investment value is $8.5M now, but what was the value when he retired? And at that point what was the annual dividend income? Since it’s been quite a while since retirement my guess would be a significantly lower total (and dividend income)

    Reply
    • Hi Michael:

      I do have some historical data to share re: total account values … but no past data on the level of annual dividend income (without a lot of file digging) other than the current figure of $360K per year (there haven’t been too many dividend increases since pre-Covid).

      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 i.e. that’s 10.76% per year compounded year after year for 16.5 years. I’m happy with that.

      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.

      Kindest regards,
      Reader B

      Reply
      • Thanks for the information. That makes more sense. If the total portfolio value was $1.7M on retirement that would mean about $71,000 annual dividend income split between 2 people, is that right? The real growth happened after retirement (from $1.7M to $9.5M).

        I think a lot of people are blown away by $360K annual dividend income…..but in reality it was $71,000 annually split between two people when you retired

        Reply
        • “B”, I’d be interested to hear what your actual investment has been to achieve the $360k dividends. We don’t bother calculating market value of our investments. We keep track of our purchases and reinvestments, calling that our Total Investment. Then we track our portfolio income. As we’ve been retired for 12 years, we don’t care what our portfolio is worth (market value), just what our income is, and is our income continuing to grow, even during retirement. Like you we don’t sell, other than if we wish to gift shares, which we are doing more often. Our income far exceeds our needs, and because we accumulated most of our investments in our RRSP/RRIF, we are now paying the tax piper.

          Reply
          • Hi “Henry M”:

            For dividend income investors, it makes sense as you state to focus primarily on stock purchases, dividend reinvestment, total portfolio cost (i.e. the adjusted cost base …we must for tax purposes) and the resulting portfolio income.

            Please find below the portfolio info you requested for clarification purposes. All values have been determined using closing market prices for Friday, June 25, 2021.

            Total Market Value: $10,626,561.00

            Total Adjusted Cost Base: $4,903,338.97

            Total Annual Income: $365,582.00 (this keeps rising – it was $360K when the Q&A was done)

            Yield on Cost: 7.46%

            Yield on Market: 3.44%

            Unrealized Capital Gain: $5,723,222.03

            Tax Liability: $1,531,534.22 (at Ontario max capital gains tax rate of 26.76%)

            Estate Administration Tax: $158,648.42 (Ontario EAT – a most appropriate acronym – is 1.5% on all estate assets over $50,000).

            Estate Value Available For Distribution to Beneficiaries: $8,936,378.36 (pretty sweet stuff).

            There are several things we have to keep in mind about the “Total Adjusted Cost Base” (TACB) figure. The TACB has and will continue to increase over time. The reason for this is twofold: 1) re-invested dividends are used to buy new/additional stock shares usually at a cost above the average TACB; 2) stocks are often by necessity sold as a result of takeovers and portfolio culling for one reason or another; when a sale happens, the low stock cost base is removed from the TACB and the sale proceeds (hopefully with a capital gain) are re-invested; the re-investment is done at a higher cost (because capital gain profits are now included) which increases the overall TACB. So the TACB is going to experience continuous upward creep over the years. The above TACB number may seem high but we must recognize that it includes all past capital gains, dividends re-invested and new funds added (especially in the early years).

            As dividend investors, we may not be immediately concerned with the overall present market value of a portfolio, but eventually the estate and beneficiaries are going to be very interested as they stand to benefit via a sizeable after-tax estate distribution.

            Estate income taxes can be reduced, if one so desires, by the direct gifting of shares to registered charities; when this is done, there is no capital gains tax payable on the transferred shares and the charity has no tax to pay either as the share transfer establishes a new cost base for the charity at the current market price. As an added benefit, the estate gains a charity receipt for the full value of the donation which can be used to further reduce estate taxes.

            I believe you made an earlier comment about joint accounts and how you track income attribution for tax purposes. You might want to take a look at the 2 joint account approach that I wrote about in earlier comments. This would totally eliminate the need for you to do all CRA attribution tracking because income in each joint account would be 100% attributable to just one spouse – the primary spouse designated on the account.

            Hope this clarifies some of the numbers and strategies discussed in our Q&A.

            Kindest regards,
            Reader B

  32. Congrats to Reader B for success in investing in dividend stocks for the long haul. How do you deal with drawdowns of the overall portfolio as a retiree? Seems like you just buy and hold and incur those potentially big drawdowns in bear markets, and it sounds like you’re prepared to mentally deal with that as a retiree. I’m afraid of being anywhere near 100% invested in equities (even though there isn’t much alternative these days for compounding) because I’d hate to potentially see 30% or more of my entire life savings evaporate (even if it’s temporary) if we should ever see another real bear market. I don’t know if we’ll ever see, say, another 50% decline in equities anytime soon, but if it were to ever happen again, then I certainly don’t think I’d be able to mentally accept a 50% decline in my entire life savings, even if I could still live off the dividends during that time. I’d be thinking “I just lost half my entire life savings. I can’t believe I allowed this to happen!” I realize I’ll likely underperform the stock market over the long haul though by only having, say, 30% in equities and the rest in cash and other things like tax free munis, etc.

    Reply
  33. “B” Thanks.
    What most people concentrate on is Market value, and as impressive as it is, I believe that Income investors should stick with their Adjusted Cost (what I call Total Investment) and the income they earn from their investments.
    By doing so I believe the numbers will have more meaning, and they’ll see their income grow, regardless what the market value is. In fact their income will grow more during down markets than up (unless more companies raise their dividend when the market is up). In your case your reinvested dividends, is what is now powering your income growth. There comes a point when investing for income, that the dividends become large enough that they accelerate compounding at a much faster rate.
    As you say, market value is only a factor when selling or the estate is settled.

    Reply
  34. Super impressive portfolio.
    Im incredulous at the tax rates on dividends. My own country charges a flat tax of 20% on local dividends from the first cent, no deductions. I cannot imagine what a nice benefit it is to compound the divis =)
    Instead we pay marginal tax rate linked CGT, so it is quite efficient to live off harvesting gains as you need income, especially at lower levels since you could pay zero. Strangely International equities (like US or Canadian divis) would be marginal tax rate linked, so could be more efficient to own non local shares versus my own country.

    The only problem I fear is that it pushes you towards shares that are not dividend payers and may be more risky/growth shares.

    I guess everyone optimizes for their tax jurisdiction.

    Reply
  35. Is there a way to get notified when a given stock increases or decreases its dividend? Or more generally, is there a place where I can see any Canadian stock’s eligible dividends (even if paid subscription)? Thanks.

    Reply
    • Hey C Cool
      Check out The Investment reporter.
      Probably one of the better subscription for Canadian stocks that I have followed for years.
      Cheers

      Reply
      • Thanks Gerhard. I was going to go for it but to be honest the site didn’t inspire confidence (looked like one of those ‘buy this book to get rich quick’ sites). Also it invites you to sign up for a free trial, only to find out on the next page it’s a paid weekly subscription. Maybe they’re just too busy working on the newsletter that they don’t have time to modernize their site 🙂

        Reply
    • The TMX website money.tmx.com has all of this information for TMX listed companies. Most dividend raisers stick to fairly regular/ predictable schedule-ie they raise in the same quarter (or 2 if they raise twice a year) every year. So on the spreadsheet where I track my dividend payments, I have notes on when to expect the next raise and how much to expect based on their guidance or their history.

      Reply

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