Our portfolio followed a similar trend to the TSX and ended the year down 10% from our opening balance. But because of our strategy to hold Canadian eligible dividend paying stocks long-term while living off our dividends, we were not really affected by the volatility. While the value of our portfolio took a dive along with the rest of the market, the total dividends generated by our stocks increased by 5%, with the majority of the companies that we hold raising their payout at least once in the year. Since we first started living off our dividends when we retired in 2012, our total payout has increased over 45% despite a few duds decreasing or eliminating their dividends. When the market eventually recovers, I will look at the feasibility of selling the few stocks that we own which have not raised their dividends for multiple years. This is assuming that I can find replacements that have a better history of raising dividends, but which will still maintain our diversification and dividend yield requirements. We actually see the downturn in the markets as an advantage since it allows us to use the Dividend Reinvestment Plan (DRIP) to purchase more shares at a lower price. We apply the DRIP to companies that we would like to grow, in accounts where we are not using the dividends paid as immediate income.
The next issue to deal with was the $18,000 capital gain that would be triggered in our non-registered account from this forced "sale" of our ECI stock. We already had a $7K loss from the HNZ transaction to partially offset the gain, but still needed a further loss of $11K to offset the whole amount. At the beginning of the year, we assessed the major "paper loss" that we held in our Corus (CJR.B) stock when its price plummeted to less than 20% of our purchase price. We decided that since we would lose so much of our initial investment, it was not worth selling even though they planned to cut their dividend later in the year. We would not recover enough money to buy much of anything else so our best bet was to hold, gather the measly remaining dividends and hope for an eventual rebound or a buyout like HNZ which might artificially inflate the sale price. But now that I needed a loss to cover the ECI gain, it seemed the perfect time to dump some of my Corus stock, which I did.
Like Corus, I had a similar decision to make with my Cominar REIT (CUF.UN) stock, which I held in my RRIF account. After years of paying out a fairly decent dividend, Cominar cut their dividend slightly in 2017 and then more significantly in 2018. I should have cut and run last year but inertia and the hope of recovery prevailed. Now belatedly, it was time to take action and unlike Corus, I would still recover over 67% of my initial investment which was enough to buy a replacement stock. With the cash generated from the sale, I purchased Manulife Financial (MFC) which yields a healthy 5% and has raised its dividend annually for at least the past 5 years.
In last year's blog, I wrote about changing our RRIF withdrawal strategy from taking a monthly cash payout to making a stock withdrawal "in-kind" at the beginning of the year. The goal is to gradually move dividend income from being taxed at 100% in the RRIF to generating Canadian eligible dividend income in our non-registered account which is taxed at a much more lenient rate. We would also be reducing the values of our RRIFs at a faster rate since we are removing both the capital and the income it generated. Finally by taking our RRIF payments as stock in kind, it reduced the amount of cash that we needed to save up in those accounts, and therefore allowed us to DRIP some of our stocks.
My second goal was to smooth out the monthly dividend income being generated from our non-registered account so that each month would pay enough to cover regular expenses. Abnormal or unexpected expenses would require dipping into the cash reserves that we held in our short and long-term "kitties". Since the dividends paid out in the second month of each quarter were relatively meager, I deliberately withdrew stock from our RRIF accounts that paid out in that month. While I made good inroads last year, I am happy to report that at the end of 2018, this second goal has been fully accomplished. For 2019, I no longer need to worry about this requirement when selecting which stocks we withdraw for our annual RRIF payments.
In late 2018, I turned 55 which is a milestone year in terms of our retirement, expense and investing strategies. I now qualify for a few early seniors discounts including 20% off on Tuesdays at Rexall Pharmacy and 10% off at Best Western. While the medical emergency travel insurance that I usually purchase from Manulife costs a few dollars more after turning 55, at least I still don't need to fill out a medical questionnaire to qualify. This is not required until age 60. I also confirmed that I still qualify for the 15 day travel insurance that comes with our Visa infinite Dividend credit card. This ends at age 65.
On the day of my birthday, I called the sales department of my discount broker Scotia iTrade in order to open a locked-in Life Income Fund (LIF). They were able to fill in most of the form for me over the phone and then emailed it to me to print and sign. I dropped off the signed form at my local Scotiabank branch and within a few days, my LIF account was open. I then proceeded to wait and wait for the money to be transferred from my LIRA to my LIF. What I was not informed until I enquired a week later was that I had to send them a written "letter of instruction" before this would happen. It was not automatic as I initially assumed and this delay almost derailed my timing for processing the form to free 50% of my LIF.
In the meantime, I scheduled an in-person meeting with a representative at the Scotia iTrade sales office in order to execute the directive to free the 50% of the LIF. I chose to move the money into my RRIF as opposed to taking a lump sum cash amount, in order to prevent a major tax hit on my 2018 taxable income. This way, I will be taxed on the LIF withdrawal but will be assigned a deduction for the same amount, resulting in no tax being paid on the transfer. I printed off the form and filled out most of the fields prior to the meeting. Part III and Part IV of the form required signatures in front of an impartial witness, which the iTrade sales rep was able to act as. I found out from a friend who had a federally regulated pension plan that he required a Public Notary or Commissioner to be the witness. Luckily this was not the case for my provincially regulated LIF. Noting that Part IV required signed approval from my spouse, I brought my husband with me to the meeting so that he could sign in front of the witness.
I requested to transfer 50% of the value of my LIF into my RRIF as stock in kind. Prior to the meeting, I spent some time analyzing the stock in my LIF to see which companies and how many shares I could move in order to come close to 50% of the value of the LIF. Because I could not predict the stock prices on the day of the transfer, I requested a bit less than the 50% value and made sure that I had accumulated enough cash to make up the difference. I instructed the rep to use the lowest stock price of the day, so that I could free up more shares. As of this year (2019), I will need to start my annual withdrawal from my LIF and will again request to withdraw stock in-kind. At age 55, my minimum withdrawal is 2.86% and the maximum is 6.5%. Unlike the RRIF, I cannot use my spouse's age to set the withdrawal percentages. Now that I have gone the entire process of converting my LIRA to a LIF and freeing 50%, my husband will be ready to do the same when he turns 55 later this year. Since his work pension amount is less, after the 50% withdrawal he may soon qualify to unlock the entire remaining value of the LIF under the "Small Amount" rule. See Question 9 of the LIF FAQs.
For the first time since 2014, we were not able to secure a home swap for our vacation. We still had a lovely 3 week "Off The Beaten Path" trip to London, England in May, but it was quite the sticker-shock when we had to pay for our own accommodations for the first time in years. We also took an overnight cycling vacation to Meaford, Ontario (near Collingwood) in July and an impromptu, last-minute 2 night/3 days stay in Manhattan in November which I am busy trying to blog about. Unfortunately once again, I have not been able to finish writing about our vacations within the year that we took them. We continue to enjoy tennis, cycling, walking, theatre, art galleries and taking interest courses. I have been trying to complete a free online course on Greek Mythology for over half a year now, but keep getting distracted by other activities and social events. Our early retirement continues to be wonderful, active, fulfilling, stress-free and was worth all the saving and planning over the years that made it possible.
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2016 Year End Review
2015 Year End Review
2014 Year End Review
2013 Year End Review
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Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement