Friday, April 25, 2014

Our Investment Strategy Featured in the Globe and Mail Me And My Money Column

Our investment strategy was featured in the column called Me and My Money in the Business section of the Globe and Mail. You can read the article here:

Globe and Mail Me and My Money Article

This strategy is described in greater detail in our book "Retired at 48 - One Couple's Journey to a Pensionless Retirement" and is serving us well in retirement.  Because our non-registered income is all in the form of Canadian eligible stock dividends, the tax burden of this income is significantly less than other forms of income such as bonds, GICs, foreign stock, registered income from our RRSPs, or employment income when we were still working.  We really noticed this with our 2013 tax returns, which marked the first full year where we had no employment income.

Using a Tax Estimator that is also described in the book, you can see the difference in tax resulting from the same amount of dividend income versus the other forms of income described above.  The dividend income is grossed up to produce a higher taxable income, but then the amounts of federal and provincial tax owed are each reduced by a generous dividend tax credit that more than offsets the increase.  Note that the tax advantages of dividend income start to decrease as the amount of dividend income increases.  This is because the gross-up eventually pushes you into a higher tax bracket so that there is more tax that needs to be offset, while the percentage of the dividend tax credit remains the same regardless of income level.

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