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:

  • I never ever buy on margin
  • I don’t employ options (they introduce another variable … time & date). 
  • I never sell short 

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

  1. Hello B and Bob,
    This was a very informative and inspiring article!
    I have a question about dividend investing if I am currently in the highest income tax bracket. Is it still better to earn dividend income rather than capital gain income?
    Do you have any tips about tax efficiency, if my income is capped to the highest tax?

    • Hi Mike:

      Thanks for your question. The short answer is that in the upper tax brackets, capital gains are presently taxed at a lower rate than dividend income – 26.76% for capital gains versus 39.34% for dividends. The reverse is true if one is the lowest tax bracket i.e. dividends are more tax efficient. The problem with capital gains is attaining them – you have to make the right stock picks and know when to buy and when to sell – all easier said than done. Whereas with dividend (growth) investing, you can build up a nice steady monthly income stream; invest in dividend aristocrats and your income stream will grow over time to match or exceed inflation.

      Following is a short discussion on the tax efficiency of different income types when earned in the top income tax bracket. The tax rate info below applies to investments held in a non-registered account and the tax rates are for Ontario – tax rates for other Provinces will differ slightly. Obviously, in a registered account (TFSA, RRIF, RRSP, etc.) taxes are of no immediate consequence …. that is until you try to withdraw $$$ from certain accounts and that’s when you’re “taxed to the max” (TFSA excluded). So be wary of that fact. The TFSA is the greatest investment (and the most tax efficient) vehicle ever offered to Canadians – so try to max it out before placing investment $$$ anywhere else.

      Here are the Maximum Income Tax Rates for 2023 (and 2024) (Ontario).

      The 2023 Upper Tax Brackets are: 1) Federal $235,675 and 2) Ontario $220,000. The Feds have been indexing their upper tax bracket to inflation but the Ontario Government has not being doing so with their upper bracket.

      Different income types have different tax rates i.e. tax efficiency depends on the income type.

      CRA Income Type & Maximum
      T3-T5 Box Numbers Tax Rate (%)
      ~~~~~~~~~~~~~~~~ ~~~~~~~~~~
      Interest/Other/Earned Income 53.53
      T3 – Box 26, T5 – Box 13

      Eligible Dividends 39.34
      T3 – Box 49, T5 – Box 24

      Capital Gains (50% Inclusion) 26.76
      Capital Gains (67.7% Inclusion) 35.86
      T3 – Box 21, T5 – Box 18

      Dividends Other Than Eligible 47.74
      T3 – Box 23, T5 – Box 10

      Foreign Non-Business Income 53.53
      T3 – Box 25

      Box 42 – Return of Capital 0.00

      By looking at the above you can assess the tax efficiency of different income types. The max tax rate is less on capital gains than on dividend income – but will narrow if the two thirds inclusion rate is eventually implemented on annual capital gains over $250K.

      Hope this answers your question.

      Kindest regards,
      Reader B
      May 29, 2024

      • Hello B,
        Thank you so much for your reply! I have yet to learn so much about investing, and I really appreciate you taking the time to share your knowledge and educate us, it is so generous of you.
        Have a wonderful day,

    • If you are working and earning enough to be in the highest tax bracket as already noted capital gains is the most tax efficient by a fair amount, but something worth pointing out is since presumably your wage income is paying for your life plus affording savings in addition, you don’t actually need more income from say dividends. One of the other key attributes of Capital gain investing which this article briefly mentions is when you hold and keep holding you postpone actualizing the capital gains. The benefit is both just not paying taxes but also effectively not stripping off a portion paid to tax then investing from the lower amount. Effectively compounding against you, if you had been making dividends paying tax on the gains and reinvesting. By not selling you are not taking a cut off the top so your fully ‘reinvesting’ the full gain year over year and this really adds up over time. Of course you’ll probably have to be making some sales over time to re-balance your portfolio when certain stocks return much more over time than others and just booting out stocks you no longer like and replacing with new. Hopefully as a top income earning you can do more re-balancing by selecting what to buy with ‘new’ money being saved rather than needing to sell, but there will eventually be the odd losing you want to dump so you will certain eventually end up taking capital gains but hey its still the most efficient taxed so oh well.

  2. These people would have had to save $5,000 per month with a 7% average return to get to $8.5M in 30 years. I’m not sure how they lived off what’s left over for 30 years unless they were gifted a house at age 25, had no kids, and drove the same car for 20 years and rarely had a vacation (or they started with $1M in the bank from an inheritance). I would love to see a chart of savings vs income and expenses over the 30 years to see what % of income they had to save. They must have been saving at least half of their income every month. Most people are lucky if they can save 10%.

  3. Hi Bob & Reader B,

    Greetings from Montreal!
    Our accountant charges us about $7,000 /year to submit our personal and small incorporated business income taxes. I find this a crazy amount, but I am too afraid to do my taxes on my own because I feel there are too many moving parts (rental properties, kids tuitions, stocks, dividends, etc). What if I make mistakes when filing, what happens?

    I read you use Ufile and WealthSimple…Are they good only to do personal taxes and/or also corporate taxes? Do these softwares also support to enter rental property information?

    I wish someone could teach me because I really would like to save these accountant fees.
    Is there a government program that you might know of that teaches people and companies how to do their taxes?

    Thank you for any advice from your experiences!

    • Hi CS,

      Incorporated business typically need the professionals to do the taxes, for personal income, there are lots of great free options available. We’ve been using WealthSimple (used to call SimpleTax) for many years.

    • $7000 sounds like a lot but it also depends on the size, complexity, and state of bookkeeping of your company. You could try shopping around. My info might be outdated but an independent contractor’s T2 and T1 might be $1500 or less. My brother has found places that do it for under $1000 but it may have only been the T2. I use Ufile for T2 but I agree with Tawcan. It might better to hire someone to do the T2. The biggest thing for self employed individuals is tax planning, especially when the business makes quite a bit.

    • My accountant charges $1000 for the corporate taxes, where the corp has active and passive investment income, and about $400 for my personal taxes, with lots of active and passive income. I do my own bookkeeping and tracking of income and expenses, and summarize everything in a spreadsheet.

      The biggest value an accountant brings, however, is planning, strategy and information, not bookkeeping… are you being tax efficient? Will the corp pay you only dividends, salary or both? Do you pay CPP? etc. etc. You can get a virtual assistant to do data entry for bookkeeping, far cheaper than a Canadian accountant would charge you.

  4. Great article! Thank you both for sharing and writing. Thank you also, Reader B for all your detailed explanations. I’ve definitely taken a few pointers from it.

    Have you (or anyone else) done any analysis regarding at what point capital gains are more tax effective than dividends and at what point would you sell the underlying asset. What factors do you consider other than tax efficiency? I’m not as methodical as some of the folks in the comments but I took the $180k Reader B made individually. Input half as dividends and half capital gains in a tax calculator and there were less taxes owing compared to all $180k in dividends.

    • Haven’t done a comparison analysis yet but if you take a look at the tax brackets on it should be pretty straight forward to see the crossover point. 🙂

    • Hi Katie:

      Everyone’s income and tax situation is different. So perhaps in addition to tax cross-over points for dividends vs. capital gains, one might want to look at one’s marginal tax rate on each income type at one’s specific income level. An easy way to calculate your personal marginal tax rate for dividends vs. capital gains for your province is to use your income tax software and your filed tax return numbers for say the last tax year 2022 … note the total tax you paid for the year … add in an extra $100 of dividend income and recompute the tax payable – the extra tax due on the $100 will be your marginal tax rate. Repeat for an extra $100 of capital gain income. Comparing your marginal tax rates for the two income types will tell you which is more tax efficient and by how much for your specific income tax situation.

      As for triggering capital gains … I seldom sell stocks unless “forced” to e.g. stock takeover / buyout, large quick price runup. For the most part, I adhere to the buy and hold “forever” strategy. Every sell that results in a capital gain also triggers income tax due. After paying tax, you have fewer $$$ to re-invest – you’re behind immediately. Defer capital gains taxes as long as you possibly can – keep your $$$ working for you – not the Feds. Also, it’s advisable for each tax year to try to keep your net capital gains as close to zero as possible. Abnormally large or irregular capital gains or losses in any given tax year are likely to raise red flags with the CRA and trigger a request for supporting documentation or worse a CRA audit (no one wants that). So when I do have a capital gain, I sell losers to trigger offsetting capital losses which will bring my net capital gain as close to nil as possible. If I still wish to hold the stock that I sold at a loss, then I wait 30 days and buy it back again.

      The Feds have long wanted to increase the capital gains inclusion rate for tax purposes from the present 50% level to 75% (or higher) …. but the political blowback and damage to the economy would be too great. Be aware that the Feds are about to take a sneaky back-route approach to increasing capital gains taxes (for high income individuals) with their changes to the Alternative Minimum Tax (AMT) starting with the 2024 tax year. In 2024, the AMT calculation will be significantly modified to target high-income taxpayers. The Alternative Minimum Tax (AMT) rate will be raised from 15% to 20.5% and the basic exemption will increase from $40,000 to approximately $173,000. But your taxable income under the AMT must include capital gains at full value and strips away pretty much all your deductions (e.g. charitable donations, RRSP deductions). People who wish to donate stock to charities will no longer receive a tax free capital gains exemption or charitable deduction for the donation under the AMT. In my opinion, the AMT modifications are adding unnecessary complexity to an already far too complicated tax system and will be extremely regressive and detrimental for charitable organizations. So educate yourself on the impending AMT changes for 2024 – they may (or may not) affect your tax situation.

      Reader B

  5. Where in the world do you find 125 high quality Canadian dividend paying stocks? The Canadian Dividend Champions list is about 100 and 32 of them are less than 12 years of consecutive dividend growth. This leaves about 70 stocks and considering the vagaries of the market on even blue chip stocks…I would expect to find, maybe….50 high quality reliable Canadian dividend payers.

    • I use the Canadian dividend all star list. You’re right, there are as many dividend payers in Canad that have very long consecutive dividend growth. For longer dividend growth payers, you’d need to look at US dividend stocks.

  6. Thanks for this incredible interview — definitely inspiring and a great case study for being a dividend investor. Also love the tip on using tax software to be able to understand tax implications throughout the year as opposed to being surprised at the end (like I usually do)!

  7. Thanks Bob for this great two-part post, it has really motivated me!

    I had a question in regards to adding new money to existing stocks if you cannot “average-down” because all prices have gone up (happy problem). Do you or Mr. B buy more and “average-up”?

    I recently bought most of the stocks on your recommended list and the BTSX, but am wondering how other investors come next January 2023, invest new money if all their stocks are doing well?

    • A very good question. Let me ask you this way.

      Would you have bought Apple shares at $50 years ago when it was all time high and average up knowing that Apple will continue making billions of dollars every quarter? Or would you say to yourself.. I don’t want to average up. If you said that you’d be losing more than a 3x gain.

      If you believe in a company’s future profitability and think the share price will continue to appreciate, average up shouldn’t be a concern IMO.

    • Hi Ray:

      Great question on “averaging-up” – thanks for raising the subject.

      Absolutely – I agree with Bob. As an investor, we must continue to use the average down/up/sideways approach – in every which way and in all price directions. Hopefully, one makes great stock picks and the value of the company will grow and the share price will rise along with it – so if the company remains solid, then you should continue to gradually buy additional shares even though the price is higher than your ACB. For example, if your stock has already risen from $8 to $10 but the prospects are good for the stock to reach $15, then why would you not buy more shares at $10?? I just keep adding to my holdings in great companies regardless of the price. Don’t become price obsessed. Trying to save a buck or two now on the stock price is only going to result in far too many cases of “missed opportunity” …. and that means lost profits. In my earlier years, I missed out on more stocks by trying to save pennies on my bid prices – I’d fail to buy my desired stock only to watch the stock get away as it rose to new price heights leaving me behind … empty-handed.

      As long as the company is solid, then keep buying even though the price is going up and don’t doubt yourself. Don’t try to time the purchases. Suppose you make nothing but great stock choices and they all go up in price – then if you don’t buy more as the price rises, then you’d never buy/invest anymore $$$ in stocks at all, would you? So you have to average up if you want to keep investing. Yes, by all means, use price “pull-backs” as buying opportunities – act on them when they happen but don’t procrastinate waiting for them to happen – you’ll lose out more times than you will win.

      To make my point about averaging up in price, I’d like to share data from a real-life example that I did this past year (2021/22) in managing an account for a family member. It’s a perfect example of how to average up on a stock. Back in the spring of 2021, I wanted to add some CIBC (CM) shares to the portfolio. So on Mar 29, 2021 I made an initial purchase of 100 shares at $126.88. I clearly remember at the time somewhat doubting myself for buying at this price – CM had already been on the rise and I thought $126 to be rather on the pricey side. But I reminded myself that CM is a money making bank with excellent prospects going forward in a rising interest rate environment. Plus it was paying a secure 4.5% dividend. By Dec 24th, 2021 things were now looking really good and the price had reached $146.74 – I no longer had any reason to doubt my buy move at $126!!! So I added another 50 shares – the ACB naturally increased going from $126.98 to $133.63. A month later – crazy, but the price is now at $159.46 and rising. So I added another 50 shares – the ACB rises to $140.14. The stock went on up to reach $166+ before slipping off a bit to it’s current $163.81 level as I write (Feb 5, 2022). So what’s to be made of this and what are the worst case scenarios and outcomes?

      As things stand now, we have a 200 sh CM holding, a $4,734 unrealized capital gain (but we’re not selling – I don’t want to pay tax – as long as we don’t sell, the capital gain remains “tax sheltered”) and about $400+ received in dividends so far. Not bad – I’m happy with that. In addition, CM pays an annual dividend of $6.44 which on 200 sh = $1,288 as a dividend income stream for life (and CM being a dividend aristocrat, this amount will increase annually). The yield is 4.6% on the $140 ACB (cost). And odds are that CM is going back to the $166 level and even higher in 2022.

      So what’s the worst that could happen? … and it’s very doubtful. Worst Case 1): The price falls back to our break-even ACB level of $140 which would leave us with no capital gain – but so what? – I did not buy CM with the intent of realizing a fast capital gain (that’s a bonus). So at the $140 level, we would still have a nice 200 sh CM holding and a solid reliable annual dividend income stream of $1,288 going forward – remember, we have no intention of selling CM anyway – so the sagging price does not greatly worry me. Worst Case 2): If the price falls below our ACB of $140, then time to literally stock up again – buy, buy and buy more shares as the stock is on sale!! And all the while during the sagging price period, we will continue to collect our dividend income. So here we have a winning situation regardless of which way the stock price moves in future …. and a perfect example of why averaging into a rising stock price is an equally okay way to build a stock portfolio position. Don’t be afraid to buy more shares at higher prices. Prices are what investors are willing to pay at any given point in time – the price being determined based on a variety of reasons (mostly fear and greed) – but the value of the company that underlies your stock has not changed. Remember, at any given price there is a seller …. but there is also a buyer. In the next day/week/month/year either the seller or the buyer will be proven right and other will be proven wrong – it’s 50-50. Going forward, we don’t know if the price will rise or fall, when or by how much – the only thing we know for certain is that there will be change. In the long-term with a solid stock like CM, we know that the odds are well in favour of the buyer and rising prices.

      • Reader B
        Congratulations on such a long and successful investing track record. I am curious about how you manage through significant volatility for example during Great Financial Crisis (2007), COVID (2020) and then inflation which occurred right after you increased CM to post-split avg cost of approx $70. It has been lagging for quite some time now since then. Did you still hold through that unprecedented interest rate increase period or divest? The yield on CM at today’s price is attractive and you also have a tax loss to use if necessary. Thoughts?

        • Hi Tim:

          Thanks for your most thoughtful question. I will try to respond in kind. And since you referenced CM (CIBC Bank) in your question, I’ll use it as an example at the end to illustrate several key points.

          Yes – I’ve held CM through every financial crisis we’ve had in the past 19 years plus some – the 2007 financial crisis, the 2015-16 sell-off, Covid, and latest rising interest rates phase. I’m a staunch buy and hold dividend growth investor – that means hold and add to positions on price dips as funds become available for re-investment. I never totally divest myself from the market – I’m fully invested at all times – I’m always fully in the game. It is impossible to time market exit and re-entry points reliably or with any degree of consistency. If my stocks are high quality and pay dividends (preferably dividend aristocrats … which the banks are), then I don’t worry about market ups and downs. Yes – it can be nerve wracking at first, but one can develop a tolerance for market swings and learn to seize the dips as buying opportunities (also called dollar-cost-averaging).

          When I talk to fellow investors who tell me they’re getting out of the market (i.e. trying to time the market), I always pose several questions for them to thin about – but I seldom get very definitive or convincing answers back. So you’ve determined your exit point … How did you do that? … Are you certain this really is the time to “get-out”? Are you going to divest yourself of all your market holdings or just some? What’s the timing of your exit? … a gradual exit or are you going to pull everything out of the market by next Friday? And remember … anything you sell (offset by capital losses) means that you have a net capital gain and will have to pay income tax on that. When you re-invest, you’re going to be instantly behind by the amount of the tax you paid – you will have fewer $$$ to re-invest … and fewer $$$ to re-invest means you’re going to have to find some “pretty hot” performing stocks to make up for the taxes you paid just so you can pull even. By selling stocks, you lose the tax sheltering provided by unrealized capital gains in a non-registered account (as opposed to having your funds invested in a TFSA/RRSP/RRIF).

          More questions. So after you’ve divested all your stock holdings – now what? What are you going to do in the mean-time … what are you going to invest your freed-up $$$ in? Obviously because you plan to re-enter the market again at some future yet unknown point, your new “temporary” investment is going to have to be fairly liquid – this usually means the short-term parking of your divested $$$ in some type of interest bearing investment. And remember that anything you earn there will also be taxed and at your highest marginal tax rate – you lose again. How will you determine your market re-entry point with confidence? Once more …. do you buy back in again all at once (not advisable – what if you’re wrong?) or do you gradually re-enter over time (dollar-cost average). I never get satisfactory answers to these questions either from others or myself … and so the buy and hold approach through market ups and downs works best over the long-term.

          As for tax-losses … I have no capital loss on my CM shares. But, yes, when I am “forced” to sell a stock or two and I have a capital gain, then I always use tax loss selling and later buy back (i.e. repositioning to a lower ACB) to offset capital gains. Every year, I try to bring my net capital gains as close to zero as possible. If I have a net capital loss on the tax year, then I carry the loss forward to the next tax year.

          Looking at CM as an example … yes, it’s had quite a market ride over the past 4-5 years. When Covid hit in early 2020 there was a general market sell-off (fear) and CM dipped below $40. Then CM began a pretty steady rise back to the $80 plus range by early 2022 (wow – up 100%). During the period of high/rising interest rates (not really that high historically), CM dropped down to below $50 in late October 2023. Since then CM stock has risen back to the $65 range (Apr 26, 2024). So some price volatility there for sure. But through all this, I continued to hold CM and added 100 shares at one of the lower points.

          Although I hold CM across multiple accounts, I don’t mind sharing specific data for one account (typical) as it illustrates the advantage of a buy and hold strategy throughout market ups and downs. Another big reason why buy and hold works is that throughout the above periods of price fluctuation, CM has continued to be a reliable and solid dividend payer. And Cdn eligible dividend income continues to receive preferential tax treatment (no tax at lower income levels up to a max tax bracket of 39.34% (Ontario) versus 53.53% for earned/interest income.

          Every week, I generate a computerized report which gives me the following info for every stock I own – this way I know exactly where I stand with each. Here are my numbers for CM as of Apr 26, 2024:

          Hold: 100 shares of CM
          Current Price (Apr 26, 2024): $65.37
          ACB: $23.106
          Unrealized Cap Gain: $42,264
          Total Dividend Income Received To Date: $38,850
          Days Held (Weighted): 7,006.4 days (19.1 years – since 2005)
          Total return: 351.1%
          Annualized Return: 18.3%
          CRR (Compound Rate of Return): 8.2%
          % Return from Growth: 52.1%
          % Return from Income: 47.9%
          Note: These returns are pre-tax and do not include the re-investment of dividends earned which were re-invested elsewhere.

          So the above performance results are based on my holding of CM continuously from 2005 through all the aforementioned price volatility. And I’m pretty pleased with the results.

          The annualized return is 18.3%. But the key figure is the CRR which stands at 8.2% – this means that my invested $$$ have compounded annually at a rate of 8.2% for the past 19.1 years!! This is well above the average rate of inflation over that time span. During that time, no capital gains tax was paid; tax was paid annually on dividends earned but at a preferential rate.

          The above also shows the importance of dividend income in the overall performance of CM … 47.9% of the return was provided by dividend income and 52.1% by capital gains.

          I hope the above shows why I don’t try to time the market and why I worry very little about stock price volatility over the years. Buying into the market gradually over time (dollar cost averaging) then holding for the long-term works best. And it lets you sleep soundly at night.

          Kindest regards,
          Reader B
          April 30, 2024

  8. 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.

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

      • 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 🙂

    • The TMX website 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.

  9. 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.

  10. “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.

  11. 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.

  12. 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)

    • 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

      • 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

        • “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.

          • 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

  13. 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.

  14. 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.

    • 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?

      • 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.

    • 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.

      • 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 :-).

    • 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!!!

      • 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.

        • 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

          • 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.

  15. 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.

  16. 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?

    • 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:

      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:

      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.

      • Hi Reader B,

        Thank you for your input on these metrics. I was curious about the specificity of the 13-and 40- week moving averages.

        Is that something you chose or a good rule of thumb? I’m wondering why 13 and 40 weeks as opposed to 10-weeks and 52-weeks etc. Is it arbitrary or is there some reasoning behind it?

        RE: TAWCAN
        Hi Tawcan,

        I’d also appreciate if you can also weigh in on this, as you mentions using some of these metrics as well. I’m curious if you use others apart from the 13- and 40 week averages.

        • I used to do some technical analysis like channel breaking but don’t quite use that anymore with dividend investing. 52 week averages is another indicator a lot of ppl use.

        • Hi DostK & Bob:

          Thanks for your question on why I chose 13 and 40 week moving averages and not some other time period.

          Technical analysis using Moving Averages (MAs) is a huge subject and you can find much solid info on the web which will explain the pros/cons/applicability of MAs. Not only do investors use different time periods for MA calculation but there are also different types of MAs e.g. Simple Moving Average (SMA), Exponential Moving Average (EMA) (which places more emphasis on recent data), Smoothed Moving Average (SMMA), Linear Weighted Moving Average (LWMA), and so on. Each has pros and cons or may be suited for different applications. A day trader for example would likely be using an EMA method.

          The selection of MA type and time period depends a lot on what you want to use the data analysis for and what type of trader you are e.g. a day, short-term or long-term trader. I like to keep things simple – so I use simple MAs. Also I’m a very long-term buy-and-hold dividend growth stock investor. And so mid- to long-term indicators work best for me. There is no one-size fits all answer – it depends on finding what works best for you … and that’s what I did years ago when I started using technical analysis to supplement fundamental analysis in stock selection and timing my buys (and to a much lesser extent – sells).

          Originally, there was no great rationale behind my selection of 13 and 40 week periods other than the simple fact that 13 weeks is a quarter of a year (3 months) and 40 weeks is three quarters of a year (i.e. 39 weeks – 9 months). At first, there really was not much more to it than that. But, both initially and over time, I gained a great deal of experience using 13-wk and 40-wk MAs by applying them to actual stock price data. I tried both shorter and longer intervals and eventually settled on these numbers because I couldn’t improve on them to any meaningful degree – I just kept coming back to the 13-wk and 40-wk periods as being optimum for me. You have suggested 10-wk periods – I found these too sensitive. You have suggested 52-wk periods (ha, 52 weeks sounds a lot to me like one year which is not a much different approach than my selecting quarter years); however, I found 52-wk periods were not sensitive enough. But if these work for you – then stick with them. Just keep in mind that these alternate periods sound pretty arbitrary as well.

          The trick in selecting which simple moving average periods to use depends on the type of trading you do. If you pick indicator periods that are too short, then the buy/sell triggers (bullish, neutral, bearish ranges) will be far too sensitive and will trigger too many buys/sells and quick reversals. You will suffer from whipsaw action. On the other hand, if you choose indicators that are too long, then your indicators will not be sensitive enough and they will not trigger buy/sell action until the optimum buy/sell point is long gone in the past i.e the indicators will not be responsive enough. So the trick is to find the right balance. And I’ve found that 13 and 40 week MA periods work pretty darn well – they really do provide a reliably good indicator when you look at them plotted together on a stock price chart. I feel that the indicators are not over-sensitive but yet they still give me the degree of responsiveness I want.

          Actually, I use a stock analysis software package called “Metastock” which automatically plots all the needed curves on one stock price chart and I review each chart weekly. I haven’t checked recently but I imagine there are many other excellent stock plotting software packages and/or on-line services out there that one can use – and some type of data and plotting capability will be needed. Plotting all three curves on the same chart gives a better visual feeling for how the indicators work and how they relate to stock price movements.

          So here’s how my price, 13 and 40 week moving averages work. Here’s what a stocks cycle looks like trigger-wise using price, 13-wk and 40-wk MAs:

          Bullish – Both Price and 13-wk MA are above the 40-wk MA line;
          Neutral (possible sell ahead) – Price moves below 40-wk MA; 13-wk MA remains above 40-wk MA;
          Bearish – Both Price and 13-wk MA are below the 40-wk MA line;
          Neutral (possible buy ahead) – Price moves above 40-wk MA; 13-wk MA remains below 40-wk MA;
          Bullish – Both Price and 13-wk MA are above the 40-wk MA line (and the cycle repeats).

          Of course the simplest way to use moving averages is to totally ignore the price line and simply compare the 13-wk MA to the 40-wk MA. When the 13-wk crosses above the 40-wk MA you have a buy and you enter bullish territory and when the 13-wk MA drops below the 40 MA you have a sell and you enter bearish territory.

          But I never use Moving Averages on their own. I couple them with two other indicators – which are totally excellent (in my opinion). And they are: 1) The 14 week Relative Strength Index (RSI) and 2) Bollinger Bands (2 Standard Deviation bands plotted above and below the 40-wk simple MA). These two indicators I have found to be very powerful in terms of identifying quite precisely optimum buy and sell points – especially the 14-wk RSI. When the 14 week RSI drops below 30 for a stock, it is almost certainly an excellent time to buy. When the lower Bollinger Bands are touched or broken below by the stock price, again this usually presents an excellent buying opportunity. The nice thing about these two indicators is that they are amazingly reliable and yet they are fairly simple to use and interpret.

          But, I’m a long-term buy and hold (till death do us part) dividend investor – so I don’t use these indicators to do a lot of selling. Often when a sell is triggered, if the stock outlook remains favourable, then I simply ignore the stock sell trigger and hold. Since the over all trend with high-quality dividend paying stocks is upward price movement, then I simply continue to hold and “let the stock run”. I firmly believe in the oft-quoted piece of investment advice “It’s time in the market that counts, not trying to time the market” seeking optimum sell (or buy) price points. Timing the market simply cannot be done with any degree of consistency and will not lead one to better returns than can be achieved using a simple buy/hold approach. And one will never achieve a “home-run” (4-bagger) stock by selling early. All great wealthy families have amassed their fortunes through the buy/hold and control approach – you don’t find the Weston’s, Rogers’ or Thompson’s selling their stock – they hold it tight and keep it in the family and grow the business.

          Overall though I do find 13-wk, 40-wk, 14-wk RSI and 40-wk MA 2 standard deviation Bollinger bands used in combination to be most useful for identifying buy entry points – either to establish an initial stock position or add to existing holdings.

          Hope this helps and clarifies things somewhat.

          Kindest Regards,

          Reader B (Blucat)
          Aug 5, 2022

          • Hi Reader B,

            Thanks so much for that thorough response! I wanted to take my time to research before responding, so sorry for the delay.

            If you don’t mind, I wanted to come back to another point that was discussed in this article around tax efficiency.

            In my case, me and my wife are earning $100K salaries each. We are in our mid-30s, and aim to retire within the next 15-20 years, ideally as early as possible.

            Given your lesson learned on RRSPs, I am hesitant to max that out, as I believe I will also be in a similar position as you when in retirement. That being high retirement income.

            In terms of tax efficiency, my wife and I have already maxed out our TFSAs, but are looking where to go next. You mention a non-registered account (i.e. “TFDA”). Are there any specific types of accounts you’ve opened or that you recommend we look into?

            While on the topic of TFDAs., you mentioned a couple making $110K in eligible dividends could pay virtually no tax on that income. Would that work only in a situation where $110K that is the SOLE income?

            Given that me and my wife each make $100K each, if both of us had an additional $110K in eligible dividends, wouldn’t those dividends be taxed at the highest marginal tax rate?

            Thanks so much for your insight!

        • Hi DostK:

          You’ve asked some very excellent questions in your follow-up post below. I’ll address each as well as shed a little further light on the RRSP conundrum. There is a 2nd post below following this one.

          Firstly, congratulations to both you and your wife – from the sound of things you are definitely setting yourselves up for an early and very comfortable retirement. And you are rightly justified to be concerned about how your present salary combined with your current (and growing) dividend income and future retirement income will eventually impact the taxation of your RRSP/RRIF withdrawals. And now, while in your younger years, is definitely the time to be giving thought to these issues so that you can get the most tax-efficient plan in place going forward. Generally, most would consider this a “nice problem to have” – and I suppose it is – but we still need to organize our future income streams (capital gains and dividends) so as to minimize the income tax payable.

          First off, I’d like to make a clarification. There really is no such thing as a “TFDA account” per se – it’s a fictitious account. I merely coined this term/concept as a way to offer readers a different visualizing “framework” if you will – an alternate way of thinking about how to invest in dividend stocks by using a traditional non-registered stock account as a tax shelter versus an RRSP/RRIF registered account. So a “TFDA” is simply a non-registered stock trading account such as you would open up with your favourite discount broker. My purpose was to ask readers to compare the pros/cons of a “TFDA” versus an RRSP for holding dividend paying growth stocks. I want readers to think of the alternate “TFDA” as also having tax-sheltering benefits – and my worked illustrative example below will make this point.

          Secondly, everyone’s tax situation is different and their tax rates will likewise differ. But for the purposes of this discussion, I’m going to use the maximum marginal tax rates (MTRs) for Ontario – you can establish your own tax rates for your province and your specific tax situation. As you know, tax rates vary depending on income type – for Ontario the max tax rates are: 1) Earned/Interest/Pension Income – 53.53%, 2) Cdn Eligible Dividend Income – 39.34%, 3) Realized Capital Gains – 26.76% and 4) Other Than Eligible Dividends – 47.73%. I’ll use these tax rate numbers in the example below.

          Now to your questions. I think you’re absolutely right to be hesitant to max out (or make any further contributions to) your RRSPs going forward. I’ve often been asked what my single biggest investment mistake has been – and now, but only in hindsight, the clear winner would be having put money into RRSPs over the years. When you’re young (mid-30’s ha!! – lucky you!!) turning 71 years of age seems to be a long way off … the far distant future. Plus one enjoys the tax deductions that go with making RRSP contributions and watching your RRSP funds build up over the years – this gives one a pacifying feeling of satisfaction. But what you don’t think about at a young age is how you are going to get the money out of your RRSPs and the tax implications of doing so. At 71 you’re forced to start making withdrawals from you RRSP – now converted to a RRIF. And those withdrawals are treated a pension income for tax purposes and literally taxed to the max. Now at age 73, I’ve been forced for several years now to make RRIF withdrawals. Because I’m a successful dividend investor, I’m in the upper max tax bracket and I’m paying 53.53% of those RRIF withdrawals right back to the Government in tax!!! That’s a mammoth tax hit. What people don’t realize is that RRSPs/RRIFs only work from a tax-efficiency perspective if the tax rate at the time of withdrawal is equal to or less than the tax rate at the time(s) you made your contributions. And it turns out that is very, very seldom the case – because (like a two-edged sword) your income creeps up and governments are continually increasing tax rates (and it’s only going to get worse). RRSPs are big business for the banks and financial institutions. And they actually market RRSPs on the basis that you will have lower income when you retire – for some maybe – but for dividend investors (like us) who are either building up a dividend income stream for retirement or are retired and enjoying it, this is seldom the case. How often in RRSP advertisements do they ever address the issue of making withdrawals from RRSPs?? – never – they just state that you’ll have lower income when you do retire – well, maybe – but more than likely not.
          I can probably best illustrate the taxation problems inherent with RRSP investing by working through a “simple” numerical example. We’re going to calculate the after tax $$$ we have in our pocket under two long-term buy and hold investment scenarios: 1) the same investment held in a non-registered stock account (a “TFDA”) versus 2) held in an RRSP account. I’ll use the Ontario max tax rates listed above. We will then use our calculations to decide whether we’re better off to hold our investment in the Non-Reg stock acct or the RRSP account. To do this, we’ll look at how our 2 different stock investment income streams perform in each account over a 30-year period. All this assumes (and it’s a big assumption in itself) that tax rates stay the same for 30 years and that no asset (wealth) tax is introduced. With the example, we’ll clearly see that investing in an RRSP is not a good idea at all.

          The Non-Reg vs RRSP Scenario
          Let’s suppose we have $10,000 to invest at age 29 in Bell Canada (BCE) stock which pays a 5% dividend yield. We are going to buy and hold this BCE stock for 30 years. We’ve made a good investment and at the end of 30 years our BCE stock has grown in value to $50,000 (a conservative 5.5% capital gain per year). We’ll look at two scenarios – holding our BCE stock in a Non-Registered acct versus an RRSP acct. We will receive $500/year from BCE in dividend payments and we’ll reinvest all of those dividends. These annual dividends will grow at a compound rate of 3% annually (after tax) in our Non-Reg account and a 5% rate compounded annually (no tax payable) in our RRSP (see below for an explanation of the rates). What we want to find out under each scenario is how many $$$ we have at the end of 30 years after we sell and withdraw all proceeds from our RRSP/RRIF, pay all income taxes and actually have the money in our pocket to spend. The following is a slight simplification e.g. it doesn’t account for potential dividend increases or the initial contribution tax refund …. but I think it’s accurate enough to illustrate the point about RRSPs.

          Non-Reg Acct (After 30 Years)
          Capital Gain: $50,000-$10,000 = $40,000
          Cap Gains Tax: $40,000 x 26.76% = $10,704 which leaves us with $50,000 – $10,704 = $39,296 in pocket after tax.

          Dividends: Because this is not a tax-sheltered account, we must pay tax on our BCE dividends annually which reduces our $$$ to re-invest each and every year going forward. The Cdn Eligible Dividend tax rate is 39.34% – so let’s say 40% – which leaves us each year with $500 x 0.6 = $300 in dividends to re-invest. So , in effect this reduces our annual BCE after-tax dividend yield from 5% to 3%. So over 30 years our series of $300 annual dividend payments will grow at a rate of 3% after taxes are paid. Using an annuity formula, over 30 years these re-invested dividend payments will grow to $14,815 in dividend income (after tax).

          Total Non-Reg Acct Income after 30 years = $39,296 Cap Gain + $14,815 Div = $54,111

          RRSP Acct (After 30 Years)
          Stock Value in RRSP: $50,000
          RRSP Withdrawal Tax: $50,000 x 53.53% = $26,765 which leaves us with $23,235 in pocket after tax (vs $39,296 for the Non-Reg acct). We’re getting nailed big-time on the RRSP withdrawal taxes.

          Dividends: We do not have to pay tax on the dividends in the RRSP and so we keep the $500 dividend payments in the RRSP and re-invest the $500 every year. Our effective annual yield from dividends is a compounded 5%. So over 30 years our series of $500 annual dividend payments will grow at a 5% rate (no tax payable). Using an annuity formula, over 30 years these $500 dividend payments re-invested at 5% will accumulate to $35,700 in dividend income in the RRSP.

          But here’s the catch – in order to get the $35,700 in dividends out of the RRSP we have to pay full tax on it (the Cdn Eligible Dividend tax credit does not apply to RRSP withdrawals). Another tax whammy hit thrown at us.
          So the RRSP Dividend Withdrawal Tax is: $35,700 x 53.53% = $19,110 which leaves us with $16,590 in pocket after tax (vs $14,815 for the Non-Reg acct). So one does come out slightly ahead by holding the dividend income component in an RRSP vs a Non-Reg acct – but not by much.

          Total RRSP Income after 30 years = $23,235 Cap Gain + $16,590 Div = $39,825

          Bottom Line – In Pocket $$$
          Non-Reg Income after 30 years = $39,296 Cap Gain + $14,815 Div = $54,111
          RRSP Income after 30 years = $23,235 Cap Gain + $16,590 Div = $39,825

          So by avoiding the RRSP we come out $54,111 – $39,825 = $14,286 ahead by simply keeping our BCE stock investment in a standard non-registered brokerage account. Going the RRSP route is a losing scenario. This is a HUGE tax $$$ difference/loss via the RRSP. The Non-Reg acct results in 35.9% more $$$ for retirement. In fact, as tax rates fall into lower brackets, the above analysis will become even more skewed toward favouring the non-registered account over the RRSP. As tax rates drop, the effect of the dividend tax credit will even further reduce the tax payable on dividends earned in a non-registered account. Another key point here is that holding a “pure” growth stock (nil to low dividend yield) in an RRSP is a recipe for a total titanic tax disaster.

          So there you have it – why I don’t much care for RRSPs/RRIFs as an investment vehicle – the biggest investing mistake I’ve ever made – and one I can’t correct at this point. One should work their own numbers for their specific situation – then evaluate TFDAs vs RRSPs scenarios to reach your own conclusion. But that’s how I see it.

          What also irks me here is the fact that when the original $10,000 investment comes out of the RRSP (as part of the $50,000) it is subject to full taxation at a rate much higher than the tax deduction we were granted when the contribution was made years ago.

          And one last key advantage. The nice thing about investing in a non-registered stock account is that you will never forced to sell anything. You can hold a stock “forever” which means no tax to pay and in effect the capital gain is sheltered (just as if you were holding the stock in an RRSP or TFSA). But with a RRIF, you will be forced to start making annual withdrawals at age 71 and pay tax on your capital gains at your highest tax rate (in the range of 53.53%). So you never have to sell a stock held in a non-registered account; remember the marriage vow “to have and to hold until death do us part” – this also applies to stocks, ha!! At the point of death, via a will (or joint account), your stocks can pass to the surviving spouse tax free – and capital gains tax will only be payable upon the death of the 2nd spouse. And if you’re already at the max capital gain tax rate of 26.76%, then it makes no difference tax-wise – sell now or then. Buy why sell now if you don’t have to? One should defer taxation as long as possible and keep the $$ working for you – not the government.

          In conclusion, the key point to take away is that for the successful dividend growth investor, using an RRSP as a investment vehicle is generally (and most always) a losing proposition. While one is in the early stages of an RRSP plan, take a good hard look at your withdrawal scenarios and the tax implications. Does it make any sense to continue an RRSP contribution strategy during your working years? Should the RRSP simply be held with no further contributions made? Should the RRSP be collapsed? Can you make a staged “long-term” exit from the RRSP before age 71 that will be tax-efficient? Would you be better off simply investing in a regular non-registered brokerage account? Please do your own calculations to decide what is right for your situation. But my choice years ago should have been to suspend RRSP contributions going forward and do my retirement investing using a standard non-registered DIY brokerage account.

          You had two other questions which I’ll respond to in another comment post below.

          Kindest regards,

          Reader B (aka Blucat)
          August 21, 2022

          • Thank you Blucat for an excellent analysis of the RRSP vs. non-registered problem.
            I too have the “problem” of a too large RRSP as my advisors (long since shown the door) were always pushing “max out your RRSP” – I just wish I had been more aware of the implications of that advice. However to lessen the impact of mandatory RRIF withdrawals I’m attempting to “melt” the RRSP as quickly as possible while minimizing the taxes paid.
            Also your points re doing your own taxes (absolutely!) and having two joint accounts are very useful points – I hadn’t thought about the last one but makes a lot of sense where the account holders have different inputs to the account(s) pool – in my case both partners very careful made sure contributions to the joint account were equal, so equal attribution.
            I’m passing on your sage advice to the younger people I know – hopefully they will use it wisely.

          • Hi Reader B,

            Thanks for this EXCELLENT example using the BCE stock in both a taxable and RRSP scenario. It really helped me to see the difference in income growing in a taxable account and a RRSP as that’s been something I’ve been struggling with myself.

            If you don’t mind, I have a few questions about your dividend income calculations. I’ve put three stars (***) next to my questions so its easy for you to see what the questions are. I tried to bold but this blog platform doesnt seem to allow that.

            1) In your example, you mentioned using an annuity formula, to see how much the re-invested dividends would grow to in 30 years, which was $14,815 in the taxable account and $35,700 in the RRSP. ***Can you share the annuity formula you used? I tried to do it myself using this formula below, but as you can see the final # is off by several hundred dollars:
            • Non-Reg/Taxable: 500*((((1+0.03)^30)-1)/0.05) = 14,272.62 (as opposed to $14,815).
            • RRSP: 500*((((1+0.05)^30)-1)/0.05) = 33,219.42 (as opposed to $35,700).

            2) I see that your annuity calculation already takes into consideration the dividend tax owed each year as we receive the dividends. This makes sense as it tells us what we have in our pocket after tax. But I want to clarify what happens if we re-invest these dividends (i.e. DRIP).

            If we don’t re-invest the dividends, we would have:
            • Non-Reg/Taxable: $300 dividends / yr x 30 years = $9000 (vs. $14,815 if we invest the dividends)
            • RRSP: $500 dividends / yr x 30 years = $15,000 (vs. $35,700 if we invest the dividends)

            In your example, you are assuming that the dividends would be invested and therefore would be compounded. ***Since that is the case, would we not need to take capital gains into consideration? That is, in order for the dividends to compound, we would need to buy additional BCE shares with the dividends (i.e. DRIP). And then when we withdraw these shares from the non-registered account in 30 years, this would result in a capital gains.

            ***If the above assumes to be true, wouldn’t we be left with $13,259 in dividends? (So $14,815 in compounded dividend income – $1,556 capital gains tax = $13,259).
            I arrived at the $1,556 number by using this formula for Capital gains tax payable: ($14,815 – ($300 x 30years)) x 26.76% = $1,556.09

            I also wanted to share that I found it really useful to play out different scenarios using your example to see whether the RRSP ever really does come out on top. I’ve posted that post below this one. I would really welcome your responses on my questions in my second post as well.

          • Hi Reader B, this is my follow up second post to my original post to you earlier today.

            Using your example, I went through 3 different standalone scenarios to see whether the RRSP would be the better option when compared to a Non-Registered/Taxable account:

            • Scenario 1: Analyzing what happens with your example if there is an increase in the capital gains tax (from 50% to 75%), as this is could be likely to occur in the future.
            • Scenario 2: Analyzing what happens if the BCE investment is the ONLY income being received. Since there is no other income, this person would not be at the highest marginal tax rate, instead they will be at a lower marginal tax rate.
            • Scenario 3: Analyzing what happens with your example when accounting for the RRSP tax savings. In particular, the investment gains made over 30 years when reinvesting the tax savings that would occur in the “present day” when making the initial $10,000 investment into the RRSP.

            When analyzing the 3 scenarios, I found that there is a smaller difference between the RRSP and taxable accounts in all of these scenarios. Of the three, scenario 3 is where the RRSP becomes the better option, when one invests the tax savings from the RRSP contribution and allows this to compound. And if one considers the added income from the tax savings under scenario 3 and adds them to scenarios 1 and 2 as well, then the RRSP would seem to be the better option there too. See below for the analysis.

            —Given the length of this post, I wanted to let you know that at the bottom of this post I have a few questions for you (assuming you agree with the numbers/analysis in my three scenarios. Please do let me know if I have misunderstood something or if something seems incorrect to you). I spent many hours trying to make this post as easy to follow as possible.

            Scenario 1: Using almost the same scenario as Reader B but assuming an increase in capital gains tax to 75% (from 50%)
            Background: I am using the scenario you provided but am increasing the capital gains tax rate in the non-registered account.
            As you mentioned, at the highest marginal tax rate, the current marginal rate on capital gains is 26.76% (i.e. 50% of gains are taxed) [source:
            If however 75% of capital gains are taxed, the marginal tax rate would be 40.15%. This would be a substantial hike and I wanted to see how the Non-Reg vs RRSP account would fare.

            Non-Registered/Taxable Account (After 30 Years):
            • Capital Gain on Stock Sale: $40,000 ($50,000-$10,000)
            • Income After Cap Gains Tax: $33,940.00 in pocket after tax ($40,000 x 40.15% = $16,060.0 then $50,000 – $16,060 = $33,940.00)
            • Dividend Income: No change to the dividend amount, still at $14,815 from your example
            • Total Non-Reg Acct Income: $48,755 ($33,940 Cap Gain + $14,815 Dividend income)

            RRSP Account (After 30 Years) – no change
            • RRSP Income after 30 years: $39,825 ($23,235 Cap Gain + $16,590 Dividend income)

            Bottom line: In this scenario, the non-registered account still fares better than the RRSP even if capital gains tax is increased to 75%. However, the difference between the two has narrowed to $8930 as opposed to $14286 when compared to Reader B’s original example. So there is still a savings when choosing Non-registered over RRSP if and when the capital gains tax increases to 75% in the future.

            Scenario 2: There is no other income and the income from the BCE stock being withdrawn is the only annual income available during retirement
            Background: I had a “what if” moment when reading your post. What if this is the only income that a person makes for a particular year? That is, what if I was making a decision today where to hold this investment: RRSP or non-registered account. Which one would be the best place to hold this investment, assuming I will withdraw the entire investment all at once in 30 years, and I have no other income that year.

            In this scenario, we assume that we receive either the income from the non-registered account OR the income from the RRSP, and there is no other income. As this scenario assumes this is the only income one has, this changes the tax rate. For the non registered account this would be the lowest marginal tax rate for the capital gains. But for RRSP it would be a mid-range tax rate because the income in the RRSP is greater.

            We want to understand, assuming there is no other income, will the RRSP option be a better bet?

            Non-Registered/Taxable Account (After 30 Years):

            Background: In this account one would be taxed at the lowest marginal tax rate for capital gains as the income from each stream is under $45K. [tax rate source:

            • Capital Gain on Stock Sale: $40,000 ($50,000-$10,000)
            • Income after Cap Gains Tax: $45,988.00 ($40,000 x 10.03% = $4,012.00 which leaves us with $50,000 – $4,012 = $45,988.00 in pocket after tax.)
            • Dividend Income: There is no change to the dividend calculation here because we are working and paying tax while earning dividends. So using your annuity formula, over 30 years these re-invested dividend payments will grow to $14,815 in dividend income (after tax).
            • Total Non-Reg Acct Income: $60,803 ($45,988 Cap Gain + $14,815 Dividend income = $60,803)

            RRSP Account (After 30 Years)

            Background: Assuming marginal tax rate for annual income of 50K stocks + 35.7K dividends reinvested = $85.7K as per your original example — tax rate would be 31.48% [source:

            • Income after RRSP Withdrawal Tax: $34,260.00 in pocket ($50,000 x 31.48% = $15,740.0 which leaves us with $50,000 – $15,740 = $34,260.00)
            • Income after RRSP Dividend Withdrawal Tax is: $24,461.64 in pocket. ($35,700 x 31.48% = $11,238.36 which leaves us with $35,700 – $11,238.36 = $24,461.64)
            • Total RRSP Income after 30 years = $34,260 Cap Gain + $24,461.64 Dividend income = $58,721.64

            Bottom Line – The in pocket money are almost equal for both Non-Reg vs RRSP if this is the only annual income one has ($60,803 in Non-Reg Account vs $58,722 in RRSP)

            Scenario 3: Reinvesting the tax savings from the present day RRSP contribution
            Background: Assuming a person earns income at the highest tax bracket in the province of Ontario (I plugged in an income of $221,710 into an RRSP calculator), a $10,000 contribution to an RRSP in the “present day” would result in $5,032 tax savings upfront. But let’s say $5000 for simplification. (For reference, I am using the same scenario you have provided but am adding in the tax break to the RRSP using this RRSP calculator:

            Non-Reg Acct (After 30 Years): – no change

            In this scenario there is no change to the Non-Reg Account. The income after 30 years = $39,296 Cap Gain + $14,815 Div = $54,111. This amount is the same as in your Non-Registered/Taxable Account example.

            RRSP Account after 30 years

            For this scenario we are assuming that the $5,000 tax savings in the “present day” (as a result of the original $10,000 RRSP contribution) was then reinvested and compounded in a non-registered account. This amount would compound with implications for both capital gains and dividends, but to keep things simple let’s just assume the capital gains portion.

            In this scenario, the only time the Non-Registered account wins is if we do not reinvest the initial $5000 tax savings up front and just spend it as normal income. In this case, we would have $44,825 in our RRSP after 30 years ($23,235 Cap Gain + $16,590 Dividend income + $5000 tax savings upfront). The difference between the Non-Registered and RRSP account is $9,286, with the non-registered account faring better than the RRSP even when factoring in the tax savings.

            But what if we do invest the $5,000, and it grows at the same rate as our $10,000 initial RRSP investment?

            Calculations to compound the tax savings: Here we invest the $5000 tax savings in a non-registered account for 30 years. (It is in a non-registered account assuming we don’t have RRSP room). We use the future value of money formula for growth at 5.5% (the same as your initial assumption for the original $10,000): 5000*((1+0.055)^30) = $24,919.76. Assuming this is all capital gains, and taxed at the highest marginal tax rate in a taxable account: 24919.76*(1-0.2676) = $18251.23 remains in your pocket with the RRSP tax savings. Now we would add this to the RRSP income.

            The RRSP Income after 30 years is $58,076 ($23,235 Cap Gain + $16,590 Dividend income + $18,251 tax savings compounded for total of $58,076).

            When comparing the RRSP income with the tax savings compounded, it is $58,076 vs $54,111 in the Non-Registered Account with a gain of $3965 in favour of RRSP.

            Bottom line: Based on my analysis above, it seems like the RRSP option seems to be a better option when you re-invest the tax savings from contributing to the RRSP immediately in a non-registered account. From my analysis above, the only time the Non-Registered option wins out is when the $5000 tax savings from contributing to the RRSP is not reinvested and does not benefit from compounding in a Non-Registered account.

            Conclusion, Comments and Questions
            In conclusion, these are just some scenarios I ran based on your numbers. I am doing this exercise as a thought experiment, not to criticize or critique what you’ve laid out – I think you’ve done the dividend investing community a massive favour with your wealth of knowledge.

            Having said that, I would be curious to learn the following from you:

            1. ***Have you found any instances in your analysis where RRSP is the better option than Non-Reg/Taxable? I am also taking your advice and in the process of running scenarios using tax and other software to determine which account would be the best option for holding investments tailored to my personal situation.

            2. You said that at lower marginal tax rate, a non-registered account would be more favourable, but when using your example I see there is very little difference in the after tax dollars available if the investment is held in a non-registered account or a RRSP account, if this is the only income that is available. My analysis in scenario 2 tries to account for this. ***Can you share some scenarios where a non-registered account would be more favourable at a lower marginal tax rate?

            Would welcome your thoughts on these findings, thank you so much for your time to read my (long) post and for sharing your knowledge with all of us and for Tawcan for graciously hosting your great interview on his platform!

          • I´m 44 years old now. As of next calendar year I will be in a very low tax bracket and that is exactly what I am planning to do…slowly start depleting my RRSP.

            Actually, thanks to one of Tawcan´s previous posts on the Smith Manoeuvre, which I am fully diving into, I will take those RRSP withdrawals and make a ¨pre-payment¨ on my principal residence mortgage (Smith Manoeuvre ¨debt-swap accelerator¨) and then borrow the same amount from my HELOC´s line of credit and invest in my TFDA (non-registered account) in dividend paying stocks. The interest on the borrowed money can now be tax-deductible.

            Anyways, maybe another idea for some readers here.

          • Hi Reader B,
            The information you shared is excellent, many thanks!
            A question for you:
            In calculating the TFDA v RRSP return, wouldn’t it make sense to add the initial tax savings to the $10K BCE investment?
            Let’s say the person the person pays 40% margin tax on that money. They would get a tax refund of $4K but doing the RRSP investment. If you roll the tax savings into BCE, you would start with $14K versus $10K?

          • Reader B’s Reply to “The Stock Reporter” re: Not Accounting For The Initial $4K Tax Refund on the BCE Stock: You are entirely correct – we could factor in the initial tax savings for a more accurate evaluation. However, I did state about the BCE example that “The following is a slight simplification e.g. it doesn’t account for potential dividend increases or the initial contribution tax refund …. but I think it’s accurate enough to illustrate the point about RRSPs.” Another reason I left the initial tax saving out is because everyone’s tax rate is different and in most cases it’s highly likely that the tax rate for the initial deduction is considerably lower than the RRSP withdrawal tax rate some 30 years down the road. One can certainly make the example calculations as detailed as desired. As mentioned, I also did not account for dividend increases. Sincerely, Reader B (Feb 9, 2023)

          • So you have total non registered account at $54,611. If you take $5,000 tax refund from RRSP investment of $10,000 (50% tax savings) and invest it in non registered account, you would get an extra 27,000 (half of what 10k gets you in non registered account) for a Total of $66,825 ($39,825 as in your example plus $27,000). To me you are way further ahead in RRSP account. On top of that let’s say you take the $5,000 refund and invest it in a TFSA (for people starting up and TFSA room available) instead of non registered account you would be even farther ahead. Am I missing something. Also, having such a large amount wouldn’t it be better to at least spend some of that dividend income now and enjoy yourself even more instead of dying with all that money in the bank.

        • DostK:

          You had two final questions.

          Q1: “You mentioned a couple making $110K in eligible dividends could pay virtually no tax on that income. Would that work only in a situation where $110K that is the SOLE income?”

          Answer: Yes – you are correct. But many couples facing retirement may not have a work pension plan or even the Canada Pension Plan (CPP). Faced with having to provide retirement income on their own, an excellent option is to set up an income stream of eligible Cdn dividends. The tax-free nature of dividends from Canadian companies is one of the least known and last great tax breaks to be found in the Canadian income tax system. That plus the TFSA. Taking advantage of the tax-free nature of dividend income is a great way to provide a safe, steady and adequate retirement income stream. After all, tax-free income of $110K per year is pretty sweet stuff. One must also keep in mind that dividend income earned above the $110K level remains taxed very favourably compared to earned income right on up to the $360K level.

          Q2: “Given that me and my wife each make $100K each, if both of us had an additional $110K in eligible dividends, wouldn’t those dividends be taxed at the highest marginal tax rate?”

          The short answer here is “yes” – but a qualified one. Those dividends would be taxed at your highest marginal tax rate (MTR) for that income type – but that MTR is going to still be very, very favourable and well below the max tax rate possible. It’s important to distinguish between MTR and max tax rate for an income type – they are not the same thing. I do think though that you might want to realign your thinking here and actually in this case “put the cart before the horse”. Here’s how I put this issue into proper perspective …..

          My wife and I, being both retired and successful dividend investors, have developed an annual dividend income stream that is really (by a wide margin) our primary source of income i.e. our dividend income stream far exceeds our pension income (company and CPP). So I like to put a reverse slant on this issue and think of our first $110K of dividend as being income tax free with subsequent dividend income still being very favourably taxed; then it’s our company/CPP/RRIF pension income that serves as our secondary income source (which is true) and it is this pension income that goes “on top” and that’s being hit hard with upper/marginal/max tax rates. So try to adjust your thinking a little bit here and come at the visualization issue from the opposite direction.

          Scenario Evaluation Using Tax Preparation Software
          Just a parting tip – and I can’t emphasize this one enough.

          It’s highly desirable (if possible) that all investors prepare their own taxes. Yes – it’s work – but it’s a must to invest successfully and you must understand how the tax system works. And to understand, you simply have to roll up sleeves, get to work and slog through the taxes. Half of one’s successful investing effort is the investment process itself – but the other half is learning how to being tax-efficient so that you keep more $$$ in your pocket and end up contributing unnecessarily to government coffers.

          If you don’t (or can’t) prepare your own taxes, then you should make every attempt to at least go through the material given to you by your tax preparer – understand your sources, types and amounts of the three basic income types: earned income, dividends and capital gains. Or get your tax preparer to explain it all to you and offer pointers on how to reduce your taxes.

          Here’s one valuable tip that I use all the time to understand my taxes and to work through various tax scenarios …. Use your tax preparation software (I use UFile) to work though various tax scenarios that are specific to your situation. If you don’t have tax prep software, buy some this December (again I suggest UFile) – UFIle has a great user interface coupled with clarity of data input and report presentation. If you do use a tax preparer, then enter the data from the completed tax forms the preparer gave you into your tax software. Then with your specific tax data set as the baseline, you can begin to explore all manner of tax “what if” scenarios.

          How to you do this? Run your current tax file. Note the amount of tax you presently have to pay. Now say you want to test what would happen if you generate an additional $30K of dividend income. First, make a backup copy of your tax data file, then open the backup copy in your tax software package. Add in a new T3, T4, or T5 slip and enter an additional $30K of dividend income in the appropriate box. Run the tax calculation again and note how much tax you have to pay under the scenario. Calculate the difference in tax owing – this is the additional tax you will have to pay on that new $30K of dividends and from there you can work out the % marginal tax rate. If you repeat this procedure using $100 increments from your baseline tax, then you can very easily calculate your marginal tax rate – and one that is bang on to your specific tax situation. You can test all manner of tax scenarios this way. For example, try switching some earned income to dividend income and see how much you’ll save in taxes.

          Joint Spousal Investment Accounts
          Here’s a final thought . On death, couples like to pass assets tax free to the surviving spouse (and avoid double probate fees) by holding their assets in a joint account. That’s fine but it complicates things. The CRA has attribution rules for the purposes of taxing joint accounts. Tax is supposed to be paid by the spouse who makes the investment contribution to the account. The purpose of such attribution rules is obvious – to prevent income spitting between spouses and tax avoidance. For example, if one spouse is the family “bread-winner” they cannot open an joint account with the other spouse and then declare one half of the income earned in the account on each spouse’s income tax return in order to split income and benefit from lower tax rates. Hence the CRA attribution rules kick in which will attribute all income earned back to the originating “bread-winning” spouse for taxation purposes. Adhering and keeping track of all the attribution $$$ amounts can get very “messy” when several income earning spouses are involved. Many couples have only one joint account – but the trick is to have not one but two joint accounts – one spouse uses one account and the other spouse uses the 2nd account – but both accounts are jointly held. This makes it very easy to adhere to the CRA’s attribution rules while still maintaining all the benefits of having joint accounts.

          Hope all this answers your questions.

          Kindest regards,

          Reader B (aka Blucat)
          August 21, 2022

          • Hi Reader B,

            Thank you for the excellent insight into RRSPs vs. Non-reg accounts, I have a much clearer idea of how I want to proceed!

            Going back to our discussion regarding stock analysis metrics, I had some more questions related to;

            A.) Technical Analysis Metrics
            B.) Feasibility/viability of reformulating financial statements

            A. Technical Analysis Metrics

            You mentioned that the 14-week RSI is a particularly good indicator for identifying overbought and oversold stock conditions.

            When I look at the 14-week RSI on any stock chart, I notice that when I change the timeframe of the chart (1 day / 5 day / 15 day / 1 month / 3 month, etc), the RSI also changes as well.

            For instance, when I change the timeframe of the chart from one day to one year, then the RSI correspondingly changes.

            I don’t have this problem with the other technical indicators (like Bollinger bands, simple moving averages, etc) because the values don’t change when I change the time period.

            It may be because the RSI is a “relative” index so it changes with the timeframe and it is using more data points the further back in time you go.

            1) Given this, what would your recommendation be on the right timeframe to use for the 14-week RSI?

            2) Is there a caveat to which timeframe is used for the 14-week RSI?

            For instance, if I use a 14-week RSI on a one month timeframe, there could be a risk of not having enough data points for it to be a reliable indicator.

            Or conversely, if I use a 14-week RSI on a YTD timeframe, there could be a risk of having too many historical data points which can skew the results from the most recent months.

            B.) Feasibility/viability of reformulating financial statements

            I’ve also been exploring the potential of business valuation methodologies like the reformulation of financial statements as part of fundamental analysis.

            3.) I was curious, do you use reformulation of financial statements and forecasting as part of your fundamental analysis toolkit? If so, do you conduct the analysis yourself or use a trusted source such as Investment Reporter?

            One caveat I’ve found when trying to do reformulations is that it takes time (sometimes weeks) to perform calculations. By the time the analysis from the reformulation is complete, it may be too late to support a buy-or-sell decision. I’m wondering if you ever came across this technique and if so, your experience with it. This brings me to my next question.

            4.) How long does the process of fundamental analysis take for you, for any single company? Do you analyze them separately or track them in tandem with something like Excel?

            Thank you again so much Reader B for your insightful analysis and input on dividend investing!

        • Reader B Response – Part 1
          (Note: I have made 3 responding posts in total – each labeled as above).

          Super work here, Glen – thanks for sharing your calculations and findings. Great to see that you’re running various scenarios to help make RRSP vs Non-Reg account decisions specific to your income and tax situation. Your calculations and notes are indeed written-up very clearly, presented logically and are easy to follow. Thanks for your efforts and contributions on our mutual interest topic.

          Q1: The Future Value “Formula”

          Future cash flow investment calculations can get rather complicated and it’s pretty easy to get tangled up in numbers. Also, the old saying …. “garbage in = garbage out” – so our assumptions and simplifications must be reasonable or we’ll end up with poor results. I prepared my scenario calculations in a very quick fashion and tried to keep them simple – and so, yes, a number of simplifying assumptions were made and a few oversights are inevitable. But I believe the errors are minor and am confident that a rough “guesstimate” will suffice to give us a general indication of how an RRSP stacks up against the Non-Reg alternative in different situations. Calculations can always be “fine-tuned” later.

          What we’re calculating in our scenarios is the Future Value (FV) (30 years down the road) of a series of initial and periodic cash flows, investment returns, tax payments, etc. – and then using the 30-yr FV to assess RRSP vs Non-Reg performance. We’ve been using a simple but accurate FV formula. To do this type of calculation right, I suppose one should really set up all annual cash flows in a spreadsheet and carry each through to a 30 year FV. But that’s quite a bit of work. We’ve also chosen only one conservative dividend paying stock (BCE) for analysis – whereas in reality we might have 25-30 stocks in our portfolio; each stock should then have a similar analysis performed on it’s income streams to assess FV performance when held in an RRSP vs Non-reg account. Other aspects we haven’t accounted for and which could be evaluated are: different stock capital growth rates, dividend yields, dividend growth rates, USA stocks, fixed income, etc. – but all this creates additional complexity.

          Firstly, I ‘d just like to confirm several assumptions we’ve made for scenario calculations. In order to account for taxes in the Non-Reg account we assume a 3% return on dividends and $300 for re-invested dividends. In the RRSP account where no tax is paid, we assume a 5% return on dividends and $500 for re-invested dividends. These assumptions are based on applying max tax rates. Also, the calculations apply only to Cdn stocks eligible for the Cdn Dividend Tax Credit.

          I did a couple of calculations using your formula as well as using a quick on-line FV calculator. And your formula is definitely correct, Glen. So the values for the dividend components in our scenarios are:

          – Non-Reg/Taxable: 300*((((1+0.03)^30)-1)/0.03) = $14,272.62 (FV).
          – RRSP: 500*((((1+0.05)^30)-1)/0.05) = $33,219.42 (FV).

          If we want to get even more precise, strictly speaking, the above numbers are not correct because the FV formula is not fully applicable to our BCE dividend re-investment scenario. The FV formula assumes that both of our $300 and $500 payments are made in years 0 thru 29 with no payment being made in year 30. However, that’s not how our BCE dividend re-investment scenario works in which we make our first payment after year 1 and our last payment in year 30 (with no interest applied). So really in the FV formula we should be using n = 29 years with a $300 or $500 dividend payment being added in at year 30. If we do this, then the dividend component value is reduced by $407 for Non-Reg and $1,558 for RRSP.

          – Non-Reg/Taxable: 300*((((1+0.03)^29)-1)/0.03) = 13,565.66 + 300 = $13,865.66.
          – RRSP: 500*((((1+0.05)^29)-1)/0.05) = 31,161.36 + 500 = $31,661.36.

          Here is a link to a good FV Calculator which gives results identical to those above:

          Enough on calculators.

          Q2: Capital Gains on Dividend Re-Investment
          You’re right here, Glen – capital gain on re-invested dividends has not been accounted for in any scenario. But, of course, the annual dividends have to be re-invested in “something” to earn a 3% (Non-Reg) or 5% (RRSP) annual return. Yes – this could well be accomplished via a DRIP program. In the scenario calculations, I did assume that the dividends would be re-invested …. in “something or other” that earns 3% or 5% – and to keep things simple for the scenario analysis I chose what amounts to a fixed debt instrument such as a GIC (not optimum of course). But certainly, if one wants to get into a more detailed calculation, then one could add in a capital gains component for re-investing the dividends in more shares of the underlying stock. Doing so would certainly increase your end in-pocket $$ numbers for both RRSP and Non-Reg, but, because capital gains are sheltered until year 30 in both the RRSP and Non-Reg accounts, I doubt it’s going to affect the Non-Reg vs RRSP comparison very much. If anything, inclusion of capital gains on re-invested dividends would I think slightly favour the Non-Reg over the RRSP account.

          Q3: Wouldn’t we be left with $13,259 in dividends (after applying capital gains tax)?

          I don’t think the logic here is quite right. If you re-invest the dividends, then you will still have your previous dividend stream component plus now a new capital gain on dividend income component. By accounting for capital gains obtained on newly purchased shares via dividends or via a DRIP, you will have one additional capital gain stream (not accounted for in my analyses). So your overall numbers re: in-pocket $$$ after 30 years should be quite a bit higher (comparatively speaking) I would think.

          Perhaps one easy way to account for this re-invested dividends for capital gains bonus would be to simply adjust the interest rates upwards from the 3% or 5% we’ve assumed for dividend re-investment. For example, in the Non-Reg case, if you think the DRIP shares will appreciate in value by a conservative say 4-5% per year, then add in another dividend capital gains income stream using 4-5% as a growth rate and see what happens. Obviously, your capital gain income in each account would then approach close to the same magnitude as the dividend income stream and your overall income (div + capital gain on rein-div) will almost double. Remember that the new capital gain in the Non-Reg account will also be “tax-sheltered” (as it is in the RRSP) but you are going to pay considerably more tax at the end of 30 years to release the capital gain from the RRSP than you will with the Non-Reg account.

          If one wants to spend the time, another way to do all these calculations with higher accuracy would be to work up a spreadsheet analysis to account for all the different income streams – but this would be very time consuming.

          These are all good points, Glen – thanks for raising them. I’ll respond to your Part 2 in several separate posts of my own.

          In closing this post, I reminded myself that whenever I encounter a problem in life, be assured…. I’m not the first person to have exactly the same problem. So what have others before me done??? And RRSPs are exactly the same – we’re not the first people to ask the question: “Are RRSPs worth it??” Type that question into Google and dozens of linked articles will appear (some quite detailed and insightful) that attempt to answer that exact question. It always helps to know what others think and how they solved the decision making issues you presently face.

          Kindest regards,
          Reader B (aka Blucat & Bruce)
          Aug 31, 2022

        • Reader B Response – Part 2
          Thanks, Glen, for running the numbers and sharing your scenario results with us. Great work!!

          Following are my thoughts on your scenarios.

          Scenario 1: Capital Gains Inclusion Rate Increased to 75%

          Horrors – but I’m afraid that this is going to happen some day – and probably much sooner than later as socialists take over our governments … not only this but an even worse asset (or wealth) tax.

          I have reviewed this scenario and your calculations are A-okay. I had not checked out this 75% cap gains scenario to date, but based on your calculations, I am now greatly relieved to learn that the Non-Reg account still wins – although the CRA is still taking more $$$ from everyone’s pocket with this new tax scheme. As discussed in our Part 1 post, if we were to add an income stream in the scenarios to account for the value increase of new stock shares bought with re-invested dividends, then I would think that adding more capital gain income to a Non-Reg account would place it in an even more favourable position versus the RRSP.

          Scenario 2: No Other Income In The Cash Out/Withdrawal Year

          This is the most interesting scenario of all because in my opinion it’s the only way an RRSP can be made to work. An extension of this scenario would be to not cash everything out in one year but over a multi-year period of nil to low other income. A multi-year withdrawal program would benefit from lower overall tax rates being applied to the RRSP withdrawal $$$. But for the successful dividend growth investor there is a problem with this approach – so I don’t believe it can be done effectively. See explanation further down.

          Okay – in this scenario we have a problem with the way the tax calculations are done. But it doesn’t affect the final outcome very much.

          Firstly, the “” web site is an absolutely super-duper knowledge resource. Good choice!!

          Now the problem: One cannot simply take max tax bracket rate numbers from the table of “Combined Federal & Ontario Tax Brackets” ( and apply them to our income examples. The tax rates listed in that combined Fed/ON tax table are only applicable to the portion of the income that falls within each income bracket and for the income type. Taking the RRSP as an example, the total pension income being withdrawn from the RRSP is $85.7K – so reading from the table, the tax rate for that income bracket is indeed 31.48%. But ….. only the portion of income at or above the $81,411 level is taxed at the 31.48% rate – not the entire $$$ income amount. Income below the $81.4K level is taxed at 3 different rates depending on what portion falls into the various income tax brackets. For example, all income up to the first $46,226 is taxed at a lower rate of 20.05%. So really, what one has to do is figure out the amount of income that falls into each of the 4 tax brackets and then apply the appropriate tax rate to calculate the tax payable.

          Doing this manually can be a “pain in the ….”, so what I suggest doing is use tax calculating software. You could use your tax preparation software – but that’s not necessary here. has provided a very handy and accurate Tax Calculator right on their site for us to use. Go to the “Calculator” page and select the “Basic Canadian Income Tax Calculator” – you could use the Detailed calculator – but the Basic one should suffice. The Basic calculator is limited as it only contains one’s Basic Personal Deduction – no other deductions – so it’s simple – but still accurate enough for making comparisons. Of course, your tax prep software is the ultimate scenario tester because it is tailored to your specific tax situation and deductions, etc. The Basic Tax Calculator can be found at:

          The calculator allows you to enter amounts for the four basic income types and will then compute the tax owing for each Cdn Province as well as showing your average tax rate and your marginal tax rate on the next $100 for all income types. So I entered $40,000 for the capital gains in our Non-Reg account (only $20,000 is taxable) and the calculator shows only $1,288 in tax owing (ON) – not the $4,012 you have shown. So with this in mind, I’ve reworked Scenario 2 below.

          Scenario 2 (Reworked)
          Background: There is no other income in the cash out/withdrawal year. In this account one would be taxed at the lowest tax rate for both capital gains and pension income. Tax has already been paid annually on the dividend income stream. The Basic Tax Calculator for Ontario was used to determine the tax owing for the various income types.

          Non-Registered/Taxable Account (After 30 Years):

          – Capital Gain on Stock Sale: $40,000 ($50,000-$10,000)
          – Income after Cap Gains Tax: $48,712.00 (Tax owing on $40,000 of Capital Gains = $1,288.00 which leaves us with $50,000 – $1,288 = $48,712.00 in pocket after tax.)
          – Dividend Income: There is no change to the dividend calculation here because we are working and paying tax while earning dividends. So over 30 years these re-invested dividend payments will grow to $14,815 in dividend income (after tax).
          • Total Non-Reg Acct Income: $63,527 ($48,712 Cap Gain + $14,815 Dividend income = $63,527)

          RRSP Account (After 30 Years)

          Background: The RRSP withdrawal consists of 50K stocks + 35.7K of reinvested dividends = $85.7K. All withdrawals from RRSP accounts are classed as employment/earned/pension income for tax purposes – taxed to the max. The Basic Cdn Tax Calculator was used to calculate the tax owing on the $85.7K of pension income as it is spread over 4 income tax brackets.

          • Income after RRSP Withdrawal Tax: $67,590 in pocket (Tax owing on $85.7K of Earned Income = $18,110 which leaves us with $85,700 – $18,110 = $67,590)
          • Total RRSP Income after 30 years = $67,590

          Bottom Line – In-pocket $63,527 from the Non-Reg Account vs $67,590 from the RRSP account. The 30-year return is slightly more ($4,063) for the RRSP account compared to the Non-Reg account. At this point, one should ask the question: “Is the RRSP worth it?”

          Reader B’s Bottom Line on Scenario 2: There really isn’t a lot of difference here between the RRSP and Non-Reg accounts as investment choices – not enough in my opinion to merit managing the restrictions and hassles of an RRSP over a 30 year period. An extension of this scenario would be to use a multi-year low/no income withdrawal period instead of cashing the entire RRSP out in one lump sum. Spreading the withdrawals out over several low income years should reduce taxes even more and further favour the RRSP option.

          But there is one huge question that lingers over Scenario 2 —> How is a dividend investor going to wrangle a no (or low) income year (or multi-years) in which to make RRSP withdrawals at the lowest possible tax rates?? As a successful dividend investor, I consider the achievement of a low/nil income year to be highly unlikely. About the only way to accomplish this (as I see it) would be to retire and not work for a year or two and live off the RRSP withdrawals alone. If one has a pension, then it would have to be deferred. My wife and I were never able to find a suitable no income year following retirement. Why? … Because we had built up high level dividend income streams. But that’s the big problem that works against being able to setup a low/no income year. If one is a successful dividend investor, then after 30 years one will have built up a sizeable dividend income stream. By that time, the investor will have maxed out RRSP and TFSA contributions due to their limited contribution caps i.e. one will be increasingly forced to shift dividend investment activity over to non-registered accounts. And that means steady income on which tax will have to be paid. In my experience, it’s highly unlikely that a no/low income year will be possible – one cannot simply turn off the dividend income stream “tap” for several years and then turn it back on. If one adopts the tax-free dividend income plan I outline in Part 3, then it might be possible to get the RRSP $$$ at relatively low tax rates.

          Scenario 3 – Reinvest the Tax Refund Obtained from the Initial RRSP Contribution

          I like this scenario – very good, Glen. One should definitely account for re-investment of the RRSP contribution tax saving. I like your method of correctly adding this amount into the Non-Reg account for investment purposes, letting the capital grow over 30 years and then adding the after-tax amount back into the RRSP “profits”. Well done. In the final analysis the RRSP wins by a slight margin. But is going the RRSP route worth the marginal benefits considering all the future unknowns? And one must be a disciplined investor (we are, ha!) to ensure that the $5K tax refund does indeed get re-invested and is not spent on something else.

          Continued in Part 3.

          Kindest regards,

          Reader B (aka Blucat & Bruce)
          Aug 31, 2022

          • Very interesting to see the updated analysis on non-reg vs. RRSP. Agree that the differences isn’t huge and we’re probably splitting hair at this point. I think the key point here when it comes to RRSP is to plan for small withdrawals throughout the year to spread out the tax consequences rather than one big withdrawal.

        • Reader B Response – Part 3
          Your Questions

          Hi Glen:

          Here my take and discussion re: the two questions you posed at the end of your last post.

          Q1: Have you found any instances in your analysis where an RRSP is the better option than a Non-Reg/Taxable?

          The short answer is no – and certainly if it did, the RRSP would never win over the Non-Reg account by any significant amount. In my and wife’s case, investing in RRSPs over the years has been without doubt our single biggest investing mistake. The situation never arose to develop those no to low income RRSP “exit years”. But that’s us and our specific situation.

          I do have to qualify that “no” answer. Please don’t think that I have total negativity about the usefulness of RRSPs. I’m just negative on them from the viewpoint of what this group is all about – building a tax-efficient dividend income stream for FIRE, the “sunset” retirement years, and, yes, even the life-ending “senile” years (if we make it that far). Overall though, in most cases, I don’t believe there is very much of an advantage to be gained for the dividend investor by employing RRSPs. I think you can do better elsewhere, enjoy more flexibility and achieve greater returns.

          Granted, RRSPs do have advantages for certain types of investors and investments. If you’re an ultra conservative investor who wants absolutely nothing to do with the stock market or any type of “risky” investment, then an RRSP would likely be a good fit for you. Such investors (and I know a few) will only invest in fixed debt instruments such as GICs, income funds, etc. For such folks, an RRSP could well be a very advantageous place to hold fixed income investments. RRSPs are most suited for investments that are taxed unfavourably in Non-Reg accounts i.e that would benefit from tax sheltering. Possibly RRSPs are also a good place to hold US stocks (if you must hold them – I’m not a big fan) that are not eligible for the Cdn Dividend Tax Credit. Also, RRSPs encourage people to save for retirement (albeit often in a non-tax- advantaged way). RRSPs are good because one’s money is “contained” – “segregated” – “locked away” – and tends to stay safely “tucked in” until retirement. This was a major objective of the Cdn government way back in 1957 when RRSPs were created under the Cdn Income Tax Act – to encourage people to save for retirement and get them off public social assistance programs. The financial industry of course could be counted on to promote RRSPs encouraging people to make annual contributions and keep those funds locked away under their control for years to come. Client $$$ held in RRSPs would naturally increase the managing firm’s assets under management in turn making big $$$$ for financial institutions including the promotion and sale of their proprietary investment products (i.e. mutual funds).

          On the other hand, everyone’s first priority should be a TFSA – maxed out each and every year – by far the best registered tax-free savings account available to Canadians. But with TFSAs presently being capped at a $6K contribution level per year, the aspiring and successful dividend investor will soon have to look at non-registered accounts out of investment necessity as a means to contain their growing dividend stock/ETF portfolio.

          Some RRSP concerns I foster are:

          a) Never hold a pure growth (or a very low paying dividend) stock in an RRSP – this is a recipe for a titanic tax disaster – hold and grow your capital gains outside an RRSP;
          b) Don’t hold an RRSP at low income tax levels – you’ll lose. The purpose of an RRSP is to gain a tax deduction and to shelter income from tax. At low levels of income you’ll have little income to shelter from tax which renders the RRSP inefficient tax-wise – basically useless. Better to invest outside the RRSP and take full advantage of tax-free Cdn Eligible dividend income right up to the $65,500 level (see below);
          c) At age 71 you must convert your RRSP to a RRIF and then you will be faced with forced annual withdrawals – you want to be free of that mandatory withdrawal requirement; and
          d) RRSP investing is fraught with many assumptions – the most famous being the salesperson who points out all the supposed advantages of investing in an RRSP – most notably the immediate tax deduction/refund (I fell for this candy floss) – while giving practically no consideration to how you’re going to get the $$$ out of the RRSP many years down the road – all this dismissed with a simple hand wave saying that you’ll be in a lower tax bracket when you retire. More often than not the promise of a lower tax bracket at retirement does not turn out to be the case. And who knows what the tax rates and tax regime are going to look like 30 years from now? During my earning years I can attest to seeing nothing but slow upward creeping tax brackets and rates imposed on us by money-hungry governments at all levels.

          Q2: “You said that at lower marginal tax rate, a non-registered account would be more favourable, but when using your example I see there is very little difference in the after tax dollars available if the investment is held in a non-registered account or a RRSP account, if this is the only income that is available. My analysis in scenario 2 tries to account for this. ***Can you share some scenarios where a non-registered account would be more favourable at a lower marginal tax rate?”

          To answer the first part of your question: the Scenarios we’ve been running here have for the most part been using max tax rates over the entire 30 year analysis period as well as for the final “cash-out” year. Your Scenario 2 does not account for low tax rates over the entire 30 year period – it only accounts for low tax rates instigated by a 1-2 low/nil income year during the “cash out” phase.

          Low to nil marginal (and average) tax rates are indeed achievable at low income levels …. and at much higher income levels too. The secret is to invest in dividend paying stocks where the income is eligible for the Cdn Dividend Tax Credit. If you are self-employed or are faced with having no company pension plan, then you must provide your own retirement income. And investing your savings in dividend paying stocks (or possibly ETF’s) in a non-reg account is the soundest way to provide for a comfortable and long retirement supported by a steady and growing dividend income stream.

          “Some scenarios where a non-registered account would be more favourable at a lower marginal tax rate? Examples?” Absolutely. To demonstrate low tax situations, I’m going to use the Basic Cdn Income Tax Calculator that we talked about/used earlier to generate a few numbers that should give everyone both pause and cause to not think any further about investing in RRSP’s at any income level. Again I’ll use tax numbers for Ontario but, using the tax calculator you can easily generate similar numbers for any Cdn Province.

          Scenario: Tax Free Income
          The Ultimate Dividend Income Scenario!!

          Under this scenario, you must provide your own income for retirement. You’ve led a full working life and have wisely been investing only in high-quality (hold’em forever) dividend paying stocks – preferably dividend aristocrats. You have no other sources of income – no further employment income, no pension plan, no GICs, no mutual funds, no RRSP – but you do have a maxed out TFSA and a non-reg account holding a portfolio of cherished high-quality Cdn aristocrat dividend paying stocks.

          Over the years, you have built up a solid dividend income stream. Everyone will have varying financial capabilities – but start small and build it up. No matter what dividend income level you eventually manage to attain, you will be able to achieve totally tax free dividend income to very liveable levels (for most modest people anyway) ….. and even to income levels as high as $250K where the average tax rates will still be very reasonable (compared to the alternatives). So have a look at the table below which is based on a single person living and “paying zero taxes” in Ontario.

          Cdn Elig Div Income / Tax Payable / Avg Tax Rate
          $10,000 / Nil / Nil
          $50,000 / Nil / Nil
          $60,000 / Nil / Nil
          $65,000 / Nil / Nil
          $65,500 / $33 / 0.1% <———- ****** Wow!! ******
          $70,000 / $373 / 0.5%
          $75,000 / $922 / 1.2%
          $100,000 / $4,905 / 4.9%
          $150,000 / $20,220 / 13.5%
          $200,000 / $39,157 / 19.6%
          $250,000 / $58,829 /23.5%

          Double the above figures for a couple!! By investing solely in Cdn Eligible Dividend paying stocks a single person can obtain an income of $65,500 per year and pay no tax at all – absolutely none – zilch. And a couple can make double that – imagine $131,000 income per year – and all income tax free. Now that's pretty sweet stuff. And if you are able to achieve super elite dividend investor status and reach a dividend income level of $250,000 single ($500,000 per couple), then the average tax rate will still be a very tax-efficient 23.5% compared to the average 37.7% tax rate you would be paying on the same $250,000 as earned income. All this works because at low income levels the amount of the Cdn Dividend Tax Credit far exceeds the income tax payable on eligible dividend income. It's not until the $65,500 dividend income level is reached that the tax payable is no longer balanced off by the tax credit.

          And that is the best example I can give anyone as to why dividend growth investing in a non-reg account (or TFSA) is by far the best income producing investment option available. If you invest $$$ in an RRSP then you will not be able to take advantage of the dividend tax credit and the tax-free income it unlocks. Forget about RRSPs. The dividend investor doesn't need RRSP or their associated long-term unknowns, restrictions and hassles. There are easier ways to make money.

          In closing, I'd like to refer back to an earlier post in which I stated that we dividend investors need to realign our thinking. We need to think of our dividend income stream as being our primary income source – and for a single person the first $65,500 of dividend income is tax free ($131,000 per couple). Then think of other not-as-tax-efficient sources of income as being the "problem" … because from a tax perspective other income goes on top of our dividend income – and it is that other income that is being taxed in a heavy, non-tax-efficient manner.

          That's it for now. I hope all this helps to clarify things a bit more and why investing for retirement via dividend paying stocks in a non-registered account is a sound way to ensure a long and comfortable retirement while keeping the taxman in the background shadows.

          If you wish to discuss any aspects further, let me know.

          Kindest regards,

          Reader B (aka Blucat & Bruce)
          Aug 31, 2022

        • Hi Glen:

          Following are answers to questions in your post of Sep 14, 2022.

          Q1: It may be because the RSI is a “relative” index so it changes with the time-frame and it is using more data points the further back in time you go. Given this, what would your recommendation be on the right timeframe to use for the 14-week RSI?

          A1: RSI is indeed a “relative” index – it’s really what you would class as a stock price momentum indicator. RSI looks at nothing but the internal up/down price movements of a stock over a period of time – nothing else. The RSI formula is very simple – and it only examines price changes within whatever time period you select – 14 weeks being a generally accepted timeframe. I have done 14-week RSI calculations manually and compared my manual numbers to those generated by a stock graphing/technical analysis package I use called “Metastock” (I have an older version). The two RSI numbers match exactly. If a stock chart does not have 14 weeks of data, then Metastock refuses to compute a 14 wk RSI value rather than give me an erroneous value – it will only compute when the data is sufficient to give a meaningful number.

          So the right timeframe to use for an accurate calculation of a 14-week RSI value would be at least 14-weeks of data or greater. And remember … the RSI value changes with each and every new data point added i.e. the oldest/earliest data point is dropped off and excluded from the calculation while the new/recent data point added and the RSI calculation updated to that point.

          Q2: Is there a caveat to which timeframe is used for the 14-week RSI? For instance, if I use a 14-week RSI on a one month timeframe, there could be a risk of not having enough data points for it to be a reliable indicator. Or conversely, if I use a 14-week RSI on a YTD timeframe, there could be a risk of having too many historical data points which can skew the results from the most recent months.

          A2: We need to understand how the RSI value is calculated. An accurate RSI calculation requires enough data to completely fill whatever timeframe you select and likewise if you provide the RSI “calculator” more data than it needs, then it will only use data it needs from within the selected timeframe – no data before your selected start date will be used. So in your case above, asking for a 14-week RSI while only giving it one month of data will not give a correct result – in fact, as with my “Metastock” program, the RSI calculation, if it’s any good, should simply “shut-down” and refuse to compute; and in your 2nd case of a YTD timeframe, yes – you’ve given the RSI calculator too much data – so it will simply use the most recent date (or the end date you selected) and go back to grab 14 weeks of data from the end point and re-do the calculation.

          Q3: I was curious, do you use reformulation of financial statements and forecasting as part of your fundamental analysis toolkit? If so, do you conduct the analysis yourself or use a trusted source such as Investment Reporter?

          A3: I practically never look between the covers of an actual company financial report. Like you’ve already found out, it’s far too time consuming – I simply don’t have the time (or frankly, the interest either). But I’m still interested in viewing and using summaries of fundamental data albeit prepared by others. Naturally, I’m interested in assessments of future prospects for a company. But we also have to recognize that there are many unknowns involved with forecasting future financial metrics, cash flows, FFOs, revenue growth, sales – much I feel amounts to educated guesswork (for what it’s worth). And the validity of these numbers and what to look for can vary from economic sector to sector as well. I don’t like companies carrying a lot of debt though – but even that depends on how sufficient cash flows will be to service the debt. It’s all too complicated for me beyond the basics.
          So I’ll leave the slogging through financial reports to others who are more knowledge in such matters. But even amongst so-called analysts experts there are differences. There’s the old story (and I believe it’s true, ha) that you could take a dozen analysts, sit them down in a room, give them a copy of the latest company annual report, ask them to analyze the data and give me a buy/hold/sell recommendation and a “target price” – the result will be a dozen answers ranging all over the place. So who’s right?

          I do rely on the recommendations of others – such as The Investment Reporter. But then I never rely on just one source – because sometimes one source will speak favourably of a stock – but another analyst/source will not share the same opinion – and I may not like the stock for my won reasons as well. For example, I never invest in airline stocks and practically never in mining stocks – I don’t care how glittering the future may look for the miner. Marijuana stocks were an absolute disaster. And so on.

          There are many other trusted sources I rely on – I find Yahoo Finance is particularly good as a screening tool. I also make heavy use of the research reports, data, and screeners available through my on-line discount broker (TD Direct Investing – first rate and well-known for it’s research info). There are others too.

          Q4: How long does the process of fundamental analysis take for you, for any single company? Do you analyze them separately or track them in tandem with something like Excel?

          A4: Most of the companies I invest in are rock-solid companies that have already been analyzed every which way. For me, I guess it’s more a matter of re-affirming fundamental numbers – what’s the P/E ratio, how much debt, book value, yield, revenue growth, market cap, revenue growth, earnings growth, dividend growth, valuation metrics like price to book, etc. As a dividend growth investor I also find the Chowder Score to be very useful. And – no – I don’t actually track any fundamental data except for dividends.

          In closing, I’d like to mention one of the very best fundamental data sheets I’ve ever found – and, now that you’ve got me thinking about it, these data sheets are probably the reason I don’t feel the need to track fundamental data for any stock – and that’s because I can call these data sheets up anytime I desire via my discount brokerage’s account research section. The reports I refer to are called a stock “Quantitative Equity Research Report” – they are produced for even minor stocks and updated almost daily by Morningstar. These QE reports give you everything you need to know about a stock on one page – the organization and formatting is beautifully presented and easy to interpret. The nice part is that one can see the past 10-year history of a stock’s fundamental values at a glance. For example, one line shows dividends paid for the past 10 years – at a glance I can see if we have a dividend aristocrat in hand. Another very helpful number on the sheet is what’s called a “Fair Value” for the stock and a Price/Fair Value history for 10 years. The “Fair Value” takes Morningstar’s quantitative analysis and places an actual $$$ value on the stock shares. This is a great number to have because it takes the results of a complex numerical/fundamental analysis and places a value number on the stock that the investor can relate to – a fair price. I use this number a lot to help in identifying undervalued (and overvalued) stocks as potential buys. You maybe able to find these Morningstar reports in your broker’s research section – otherwise you’d have to subscribe to the Morningstar service.

          If you wish to discuss any aspects further, let me know.

          Kindest regards,

          Reader B (aka Blucat & Bruce)
          Sep 15, 2022

          • Hi Reader B

            Some truly great insights reading from you based on others replies.

            Given your large and growing portfolio, I had a few questions for you whether you ever considered establishing a holding company for tax efficiency purposes?

            Some context: I have a decently sized portfolio just under $1M and make a very good income. I’ve been thinking about the pros and cons of setting up a holding company for my investment portfolio for tax purposes.

            Up until this point, I havent created a holding company because
            • a) I do not own a business (I only invest the income that I earn from my job),
            • b) I am not taxed at the highest marginal tax rate.

            Therefore there doesnt seem to be any tax or material advantages in having a holding company. In fact, based on what I have researched, there may be a tax disadvantage in having my investments in a holding company.

            I was wondering to know:
            1) Did you already research whether to create a holding company for your investments when you were on your investing journey? If so, could you share what you may have ended up learning?

            In my research into the viability of a holding company for investment purposes, I read that a holding company only makes sense for people with “substantial” investments. But what isn’t clear is what would be considered “substantial” in terms of personal investments in order to make having a holding company worthwhile? Would this be a dollar number (e.g. my portfolio grows to $1 million)? Or would it be based on my marginal tax rate (so when I am at the highest marginal tax rate then it would make sense to create a holding company)?

            2) Based on the above, if there are tax benefits that I could be making here, I wonder if I should I set up a holding company right now, in anticipation of it making sense in the future? Or should I wait until it makes sense (let’s say it will be 10 years from now)? Is there is a disadvantage of setting it up when I already have personal investments that are substantial and transferring these investments over to a holding company?

            3) Do you know if there are there any fees that would be involved in transferring these investments from my personal taxable account to a corporate holding company in the future? Like, for example, would I have to “sell” my personal investments then “buy back” these investments in the holding company?

            Thanks for your help!


        • Hi Rose:

          You’ve posed some thoughtful questions on the investment “Holding Company” (Holdco) option. I don’t have any definitive answers for you but I will point out a few concerns I have with adopting this approach.

          A1: I’ll admit right off the top that I did not at any time investigate the option of setting up a Holdco for my investments. I have no experience with them. The primary reason would be the introduction of additional and unnecessary complexity and cost for the likelihood of very little gain.

          A2: As you’ve already discovered with your investigations, setting up both an operating company and a holding company is a very complex undertaking – both legally and from a tax perspective. I think firstly, that if you decide to go this route, you should definitely engage the services of a professional business tax advisor, accountant and lawyer. I’m sure you would need legal advice/help to set up the companies and make sure they’re structured properly for tax purposes. Tax and legal professionals could review your entire financial situation and advise on whether a holding company would have any benefit.

          A3: I suspect there would certainly be many fees for setting up a holding company – and we know such professional fees are not cheap. I’m sure there would be on-going annual fees as well. Are you prepared to pay them? As for transferring your assets, again seek tax help. The CRA takes a very dim view of tax schemes that deprive them of revenue – my guess would be that you probably can transfer shares from your personal name to another entity, but the CRA would likely deem the shares as being sold and you would have to pay tax on all unrealized capital gains to date. Again, consult a tax professional.

          For the “smaller” investor, I think we are better off to keep our investments as simple as possible and to stick with the hands-on approach. Going the Holdco route sounds incredibility and unnecessarily complex to me. I can think of some concerns and issues that would need to be addressed.

          1) Ask yourself exactly what problem you are trying to solve? All I see here is some improved degree of tax efficiency i.e. less tax to pay. Are the tax savings really there considering all the added complexity and both the initial and on-going expenses involved? Frankly, I doubt it.

          2) Are you going to be able to manage all this yourself? Can you do the taxes? Do you know how business taxes work? If not, then you will have to hire someone – and that will entail on-going fees. Personally I find it hard enough to stay on top of personal income taxes let alone take on the business tax regime as well.

          3) Can you continue to use an on-line discount broker to manage your account?

          4) You will have to file additional annual tax returns for likely 2 companies in addition to your personal return – likely one for the operating company and another for the holding company. This will be an ongoing headache and expense.

          5) How will the Holdco approach affect the distribution of assets under your will? Will your beneficiaries still receive assets in accordance with your wishes? Will you have to rewrite you will? – I suspect so.

          6) Have pity on your executor or POA!!! If you become incapable of managing the Holdco investment arrangement, then your POA for Property is going to have to step in and manage your financial affairs. This may involve a lengthy period of time. Is your POA capable and willing to handle the Holdco arrangement, file taxes, etc? Speaking from experience, being a will/estate executor/trustee is not an easy job. If you’ve chosen a family member as executor, will they be able to cope with this added complexity? Highly unlikely – more likely they will have to hire help. Again, additional estate tax filings and expenses will be required.

          7) The CRA is always closing “tax loopholes” and whose to say they won’t in future act to curtail any tax advantages investors are enjoying via Holdcos. The CRA/govt did this with family, spousal, child and other trusts back in 2012 by making all income earned in trusts taxable at the max rate – no graduated taxation. You can be sure that action pretty much killed the trust business as a tax reduction scheme.

          8) As for the statement that a holding company only makes sense for people with “substantial” investments – I don’t think there’s any definitive number here – but as you can see, there will be a number of initial, ongoing and wrap-up expenses involved with a Holdco – and the answers would have to ask at point do the tax savings offset the considerable expenses involved? And one would have to go well beyond the break-even level in tax/expense savings for a Holdco to make any sense i.e. what’s the point of setting up a Holdco only to break even or achieve minimal tax savings?

          Anyway, for myself, considering the above, I wouldn’t go anywhere near the Holdco option. Again, if you wish to purse the idea then it’s an absolute must to seek tax and legal professional help/advice. Only then can you determine if the Holdco option makes any sense for you.

          Kindest regards,

          Reader B (aka Blucat)
          Sep 18, 2022

  17. 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

    • 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 🙁

  18. 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 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 ( – 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.

  19. 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.

  20. 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!

  21. 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.

    • 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.

    • 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

      • 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.

  22. 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!

    • 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

      • 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!


  23. 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?

    • 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

      • 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.

        • 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. 🙂

        • 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.

      • hello – i am interested to know what are the 113 stocks you have in your portfolio ? can you share a list 🙂 thank you ! Wade

  24. 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.

    • 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.

      • 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.

        • 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.

  25. 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.


    • 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.

        • 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.

  26. Thank you for such wonderful internet and new interesting resource (

    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.

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

        • 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

  27. 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!

  28. 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

  29. 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.

  30. 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.

    • 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. 🙂

  31. 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

  32. 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. 😀

  33. 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.

    • 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.

  34. 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?

    • 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.

  35. 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!!

    • 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.

  36. 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.

    • 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. 🙂

  37. 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.

  38. 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.

  39. 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.

    • 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.

      • 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.

        • 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.

      • 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.


        • 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.

          • 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.

    • 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.

      • 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?

        • 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.

    • 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.

  40. 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!

    • 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.

    • 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!!

      • 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,

        FWIW. I have a LONG ways to go to catch up to you.

        • 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. 🙂

          • I have found this thread highly informative. B’s explanations are exemplary and I am grateful to be able to bookmark and have access to his info.

            We are a retired couple (I am 69. My wife is 71) who have annual dividends at this point of $112,000.00 + and I learned a great deal from this thread.

            Like B, we receive more dividends now that we actually need and while we could continue to re-invest (we do invest roughly $25,000.00 annually still) and increase our annual dividend income, we intend to start spending it through travel… not excessively but we are not looking to leave any money leftover, so, while I have enjoyed learning how to invest over the past 45 years – I bought my first RRSP in 1978 – I now like planning trips which we can both enjoy.

            Thanks for the article.

  41. 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?

    • 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.

      • 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!

  42. 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!


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