tag:blogger.com,1999:blog-80745584946425176602024-03-14T02:59:33.422-04:00Retired At 48 - BookThe book "Retired at 48 - One Couple's Journey to a Pensionless Retirement" describes how we planned, saved and achieved our early retirement, without the benefit of a company pension.
This blog continues to follow our journey into our retirement years.A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.comBlogger76125tag:blogger.com,1999:blog-8074558494642517660.post-54938777381672601752024-01-17T10:08:00.085-05:002024-01-20T23:31:28.330-05:002023 Year End in Review: After Eleven Full Years of Retirement<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSksoJEZPHv-P-0uERFeigEf7q9U_cTG2SiAZE-rEsdq_Ktp9clAgl3X_1cqpbqW-1hLt1v7vZrJYHmgv3A37DCPCyOy0V4fSuW051pjcm1ZV5ueo09e07O3KCt2GgwvL0Mrx-2mvDnRqinJbEVnGeXeRm-uvHz54quavLJuuhtNAcbImk4cVgoBHmrPs/s264/60.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="113" data-original-width="264" height="171" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgSksoJEZPHv-P-0uERFeigEf7q9U_cTG2SiAZE-rEsdq_Ktp9clAgl3X_1cqpbqW-1hLt1v7vZrJYHmgv3A37DCPCyOy0V4fSuW051pjcm1ZV5ueo09e07O3KCt2GgwvL0Mrx-2mvDnRqinJbEVnGeXeRm-uvHz54quavLJuuhtNAcbImk4cVgoBHmrPs/w400-h171/60.jpg" width="400" /></a></div>My husband Rich and I have been retired for more than eleven years now and hardly remember what it was like to work anymore. In 2023, I reached a bit of a milestone when I turned 60. But while reaching a whole new decade should feel more momentous, in financial terms it was a non-event. When we turned 55, we qualified for our first “seniors” discounts at Rexall and Shoppers Drug Mart, although Shoppers recently raised their seniors discount age to 65 which is why we frequent Rexall more now. Turning 60 does not really qualify me for anything significant in terms of extra seniors’ discounts. I have to wait until I am 65 to really benefit from this. I do qualify to start receiving CPP at a severely reduced rate if I want, but as we don’t need the extra money right now, I will try to wait until I am 70 unless something changes drastically in our portfolio. I do “officially” qualify to play pickleball in the 60+ community centre drop-ins now but we were considered “close enough” at 58 and 59, so we have been playing for the past 2 years anyways. So for now, 60 is just a number and since I still feel 25 at heart, it doesn’t make much difference. I do take note that there are only 5 more years until I am 65 and 5.5 years for Rich. While we will receive more benefits at that age, there will also be more scrutiny and expense in terms of medical and travel insurance. So we are making a 5-year travel plan to tick more places off our bucket list before we hit that next milestone.<p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHjuaQRiNeMyQa23xkwfUKvCUjZeVAiwGWgk4Rk7q4ZdEqSJ4QlH5JbPw4SB9V_0iWZKY3NjQQ813mJNLSdhs2x2fpPjqeU7N6AnEmcmVGiXEjGU5T_jUXA9yPxtKo_ZdMBy5p6z8hUMjtsjFRaEwn2B0MGOgaAIiIToBFv-vwl_pTB_IANa3YVOJZUNg/s238/dividends%20rising.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="212" data-original-width="238" height="212" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgHjuaQRiNeMyQa23xkwfUKvCUjZeVAiwGWgk4Rk7q4ZdEqSJ4QlH5JbPw4SB9V_0iWZKY3NjQQ813mJNLSdhs2x2fpPjqeU7N6AnEmcmVGiXEjGU5T_jUXA9yPxtKo_ZdMBy5p6z8hUMjtsjFRaEwn2B0MGOgaAIiIToBFv-vwl_pTB_IANa3YVOJZUNg/s1600/dividends%20rising.jpg" width="238" /></a></div>Our strategy of holding good quality stock that regularly<b> raises its dividends</b> and using those dividends to fund our income continues to work for us. By the end of 2023, the dividend income generated from the stocks in our non-registered account was up another 4.92% from the previous year, while the rate of inflation in this year was 3.4%. Of the 26 different companies that we held in this non-registered account, 24 of them had raised their dividends. Looking back from the time we retired in 2012, the income generated from this account has risen 60%, to a small degree from adding stock-in-kind RRIF withdrawals that would generate more dividends, but mostly from regular dividend increases. Following the old adage “If it ain’t broke, don’t fix it”, we will carry on doing the same thing which at this point is more or less doing nothing and letting our dividends do the work for us.<p></p><p><b></b></p><div class="separator" style="clear: both; text-align: center;"><b><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjmIM6LoZF9w-idu6Dl_vvZVLkATBwkdy62ZycdiCzUlpzmKU4cltIMvBkEPDyydZwQFI9B4ioH8aSn12xaITF3AzHFo6nRHvxcmta0U4O1kTKfTE3XZ1U7ggRsM8oQaqp6_htnM22XwoFxY3jgIhorpIzUIji5OtTWfCVwfMsizeOn3m2L1DLioyZAtk/s351/EQ%20Bank.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="103" data-original-width="351" height="118" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjmIM6LoZF9w-idu6Dl_vvZVLkATBwkdy62ZycdiCzUlpzmKU4cltIMvBkEPDyydZwQFI9B4ioH8aSn12xaITF3AzHFo6nRHvxcmta0U4O1kTKfTE3XZ1U7ggRsM8oQaqp6_htnM22XwoFxY3jgIhorpIzUIji5OtTWfCVwfMsizeOn3m2L1DLioyZAtk/w400-h118/EQ%20Bank.jpg" width="400" /></a></b></div><b>Equitable Bank </b>(EQ Bank) has been our primary bank for our US dollar savings account since 2021 and currently pays an unprecedented rate of 3% annually on all US funds with no minimum balance required. 2023 was the year that we fully committed to using EQ Bank as our primary bank for Canadian funds as well. Up until then, each month we would remove enough dividends paid to our Scotia iTrade non-registered account into Simplii Financial (the no fee bank under CIBC) to cover our monthly bills plus our credit card bills. Then any excess dividends would be transferred to EQ Bank to bolster our emergency fund savings accounts. In 2023, not only was EQ Bank paying 2.5% annual interest on our savings accounts, but it offered an extra 0.5% if at least $500 of pre-authorized bills were paid from that account. This gave me the impetus to finally contact all of our recurring billers and fill out all the tedious forms required to move our pre-authorized payments from Simplii Financial to EQ Bank.<p></p><p>It took about a month to accomplish but by the beginning of March, I successfully migrated our condo fees, property tax, and heating bill to be deducted from my EQ Bank savings account, pay all our credit card bills from here and reassigned my primary email for Interac payments to point to this account as well. In terms of income, I transfer all of our dividends paid to our non-registered account into my EQ Bank account and I receive an interest rate of <b>3%</b> annually on the daily balance. I also redirected my climate change rebate and income tax refund to be deposited into this account. I still keep my Simplii Financial account to pay any small billers who are not registered with EQ Bank and will transfer money there as required. If I had employment income that I could direct deposit into EQ Bank, I could be earning another 1% bonus for a total of <b>4% !</b> I need to investigate whether having a pre-authorized monthly RRIF withdrawal deposited into EQ Bank would qualify me for this extra bonus. That will be a topic for next year’s review.</p><p>Having some bills be paid from Rich’s EQ Bank savings account so that he could achieve the bonus as well would be too much work to keep track of, since he would then need to continually make sure he had enough funds to cover the payments. So Rich’s account makes the base rate of 2.5% and we just keep enough funds there to use as a short term emergency fund.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq6DfpngzLQRRFf31mQOJ3nlU4ozHu9X8bvIyAsQMcl5i_w22Xcj8t5R6s3pdaF5-bvoQLVb1fuQH63opCdnYBoqZeqUMu3DibOtU4Cyf_7cqRcwUOJOFhffVrw2iMQ6PY3Hgq5_25_1iUoLphUNJ5SZFBmurG6ee4WBVklzsI6tMnD9fNNdUTcMAIQKU/s716/TSX%20S&P%202023.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="288" data-original-width="716" height="258" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgq6DfpngzLQRRFf31mQOJ3nlU4ozHu9X8bvIyAsQMcl5i_w22Xcj8t5R6s3pdaF5-bvoQLVb1fuQH63opCdnYBoqZeqUMu3DibOtU4Cyf_7cqRcwUOJOFhffVrw2iMQ6PY3Hgq5_25_1iUoLphUNJ5SZFBmurG6ee4WBVklzsI6tMnD9fNNdUTcMAIQKU/w640-h258/TSX%20S&P%202023.jpg" width="640" /></a></div>The value of the stock market experienced a steep decline in the 2nd quarter of 2022 and was still relatively low at the start of 2023. This made it a bad time to sell but a great time to <b>withdraw “stock-in-kind”</b> from our RRIFs into our non-registered account for our annual RRIF withdrawal. The lower the stock price, the more shares we can withdraw at the same income level, and the more dividend income those shares will generate for us. Since we did not have any major extraordinary purchases or expenses planned for the year (or so we thought in January!), this seemed like a good thing to do since it would reduce the value of our RRIFs and increase the income generated from our non-registered account.<p></p><p>At the end of 2022, I selected which stock I wanted to withdraw from each of our accounts. I made the decision based on which company was generating less income for us in our non-registered account, and also on which month in the quarter the dividend was paid. I am always trying to smooth out our monthly dividend payouts so that we have enough cash to cover our bills every month of each quarter. The middle month of the quarter (February, May, August, November) is always the most troublesome because for some reason, very few companies pay out in those months, unless they make monthly payments. From my LIF, I chose to withdraw Emera (EMA.T) and from my RRIF I picked Bank of Montreal (BMO.T) since they both pay in the middle month.</p><p>When withdrawing stock-in-kind, you can request the withdrawal to be made at any price that it hit during that day. In general, stock prices rise and fall over a day, usually moderately but sometimes dramatically. By requesting the “lowest price” of the day, you maximize the number of shares that you can withdraw for the same income level. To try to find a day when the stock price has dipped, I set up two alerts in my discount broker account with Scotia ITrade. First I selected a price that I would like to withdraw at and asked to be notified if the stock falls to that price or lower. Next I set an alert to be triggered if the stock price drops 2.5% or more from the previous close. Based on these alerts, on January 5, I was able to swoop in and withdraw some BMO shares at the lowest price of that day which was $124.78. After that the stock market started to rebound and by the end of January, the price was trending around $133. I also completed my withdrawal in time to qualify for the first quarter dividend payout in February, so all in all, this worked out. I didn’t do as well in getting a good price for EMA in my LIF but still ended up withdrawing some shares in-kind to pad our dividend income in the second month of the quarter.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiK6jpNgpLk5XhCnuR6owEIpPRCbTpJB-HCLp2UBbhFHLWCw5NzZ4RhMw1kOLDRae0oyypWQuyDxVp0SMDaZr_5uyA3UAn-F6-menvcBY8NvOe7-GermcMy9jIPmOTbB9sKfQCAFBMPAlJkyoWzmwxM7pZ2nrTaw83MogdMlJt_mvNEGaECWkvek_l298k/s699/condo-renovations.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="431" data-original-width="699" height="246" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiK6jpNgpLk5XhCnuR6owEIpPRCbTpJB-HCLp2UBbhFHLWCw5NzZ4RhMw1kOLDRae0oyypWQuyDxVp0SMDaZr_5uyA3UAn-F6-menvcBY8NvOe7-GermcMy9jIPmOTbB9sKfQCAFBMPAlJkyoWzmwxM7pZ2nrTaw83MogdMlJt_mvNEGaECWkvek_l298k/w400-h246/condo-renovations.jpg" width="400" /></a></div>Luckily, I had not yet gotten around to making the annual withdrawals for Rich’s RRIF and Spousal RRIF accounts since unexpectedly our priorities changed at the beginning of March. We had been discussing for several years about the necessity of renovating our aging condo. By 2023, it was now over 20 years old, and our equally ancient appliances were all at risk of failing catastrophically at any moment. The rest of the unit was looking tired and run down as well, with chips in our hardwood and paint, sagging kitchen cupboard doors and a poorly designed shower in our master bathroom that we have cursed since we first bought the place.<p></p><p>The main issue that had held us back from embarking on a major renovation was finding a trusted contractor who was experienced in and would agree to working on a job in a condominium building, which presents many unique challenges over renovating a house. These include condo rules and regulations as to when work can be done, booking of elevators for delivery and removal of debris, parking, finding staging areas and more. Because of these extra logistical challenges, it is more expensive and might take longer for a condo renovation and from a scale perspective, it would probably be more lucrative for the contractor to work on an entire house. So when our friends recommended a contractor who did good work for them and who had practical experience working on condo buildings around our area, we jumped at the chance to finally get our renovations done. The scope of work would involve a gut job and redesign of the master bathroom and kitchen, upgraded toilet, mirror and light fixtures in the guest bathroom, new hardwood floor throughout, repainting all walls and surfaces, addition of pot lights in the living room, upgrade of other overhead lights and a new electrical outlet on our terrace. As part of the renovation, we would replace the fridge/freezer, dishwasher, stove/oven (finally getting the induction stovetop that Rich coveted) and microwave.</p><p>Now we had to switch gears in terms of our financial goals for the year. Instead of withdrawing stock-in-kind to grow the dividends and therefore income generated in our non-registered account, we needed large amounts of cash in a short period of time. Unfortunately, I had already made my annual in-kind RRIF withdrawal so taking out extra cash to help pay for the renovations meant increasing my taxable income for the year. We would be billed in stages as renovation work was completed so we had to go through an exercise to figure out how/when/where to remove money from our investment portfolio in order to fulfill our payment obligations as they came up. This was similar to the analysis that we did back in 2021 to fund our new car, but at a much larger scale.</p><p>To pay for the renovations, we started out by using up all of our emergency fund cash that we kept in our high-interest savings accounts at EQ Bank, which was augmented each month with excess dividend payouts from our non-registered account that we did not need for paying our monthly expenses. To reduce these monthly expenses, during the renovation period, we cut down extraneous spending including lengthy expensive vacations, dining out and discretionary purchases. We also took out all of the cash sitting in our various registered RRIF and TFSA accounts, using these funds to further top up our EQ bank accounts.</p><p>This kept us going for a while but eventually what we owed outstripped what we earned, so we had to decide which stock to sell to get more funds from the rest of our investment portfolio. The decision was between selling losers which would lock-in what was previously a “paper” loss and not net as much in value since the stock was depressed in price, or selling winners which were paying out good dividend but would yield us more value. There was also the decision of whether to withdraw more from our RRIF accounts which helps my goal of reducing their values to reduce claw-back when we take CPP/OAS but would generate taxable income, or from our TFSA accounts where we could get money out tax free. We ended up with a blended approach, taking funds from all of these accounts.</p><p>From my RRIF account, I decided to get rid of two losers which had not been pulling their weight over the years. Cineplex (CGX.T) had eliminated its dividend back in 2020 when the pandemic hit and has never resurrected it. Walgreens (WBA-Q) was another loser that had tanked in value since we bought it. Selling these two stocks netted some much needed cash to help pay for the renovations but also increased my taxable income by the same amount. To account for this, I requested that sufficient withholding tax be held back to cover the estimated extra income tax owed. I could not take more out of my LIF account since I had already withdrawn the maximum allowed amount for 2023 at the beginning year.</p><p>Next I raided my TFSA and sold my shares of Plaza REIT (PLZ.UN) since it has not raised its dividend since 2017, as well as Brookfield Renewable Partners (BEP.UN) which was not doing well at the time. I also sold some shares of Exchange Income Corp (EIF.T) despite this being an excellent dividend-paying stock. We hold a lot of EIF shares throughout many of our accounts, so this withdrawal was a good way to rebalance. I was able to get a large chunk of cash out of my TFSA tax-free but have decimated its worth, so I will need to slowly build it up again over the next few years.</p><p>Rich’s RRIF held all winners, so it was a matter of deciding which ones to unload. Thinking ahead to when we could afford to take out stock-in-kind for our RRIF withdrawals again, he would not be choosing any income trusts since they are painfully complex to deal with outside of registered accounts. So he sold shares of Canadian Apartments REIT (CAR.UN) and Brookfield Infrastructure (BIP.UN) as his contribution to the renovation costs. Although it was worth almost nothing at this point, he also dumped Corus Entertainment (CRJ.B) from his Spousal RRIF just to get rid of it, since it was more of a nuisance to keep track of for so little return.</p><p>Finally we decided to dump the Cineplex shares that we held in our non-registered account, having given up hope that this stock would ever recover and start paying dividends again. I would normally <b>never</b> sell stock in our non-registered account to gain cash since reducing dividend-paying stock meant reducing our monthly income. But given that Cineplex had not paid a dividend since the beginning of 2020, there was nothing to lose. Although its sale only gave us a very small amount of extra cash (every bit helps!), we were able to bank the capital loss to apply against any future capital gains. With all of these trades, plus the continuing flow of our dividend income, we were able to pay for our renovations. I did press the contractor for an advanced schedule of when payments would be due so that we would have time to get the funds ready. To sell stock, wait for the trade to settle and then move the funds to a bank that recognized our contractor as a biller could take over a week to complete. An added complication was that the contractor was too small a biller to be registered with EQ Bank where our savings resided. Accordingly, each time we needed to pay our bill, I had to first transfer the sum to Simplii Financial causing a further delay of up to 3 business days.</p><p>After paying a small retainer in March to secure the services of the contractor, we went through a design phase that spanned April to June with a plan to have the work done from mid July through mid October during which we were required to vacate our home. It was important to me that the bulk of the construction be done in the summer since I had a plan in mind for saving the <b>cost of temporary accommodations</b>. Our good friends who lived in the same building but several floors above us moved to their house in the Haliburton Highlands for the summer months. We could stay in their unit for about 9 weeks while still being on-hand to check on the construction work, answer any questions that might arise and book elevators when required. This turned out to be crucial as we caught a few errors early before too much work had proceeded and were able to give timely feedback that kept the job moving smoothly. Having the renovation done during nice weather also meant that our outdoor terrace could be used for staging, sawing, sanding and other tasks that would have caused a huge mess inside our unit. Once the 9 weeks were up, we embarked on a 2-week road trip while our neighbours kept an eye on our renovations and took regular photos of the progress. For the rest of the duration, we went “couch-surfing”, staying a few days at a time at the homes of various friends who were away on vacation or who had a spare room that we could use. We owe a lot of people some big favours!</p><p>All of our belongings had to be removed and placed in storage in order to have new hardwood flooring installed. To save some money on the actual removal and return of our things as well as the storage fees, only the large furniture was taken away by the movers. I spent six weeks packing and finding hiding places for all other items including cooking/eating utensils plus all food items in our pantry, bathroom sundries and towels, knickknacks, wall art, and all excess clothing that we were not taking with us. I filled up both of our storage lockers by stacking boxes from floor to ceiling, hid items under the covers to our patio furniture on the terrace and stuffed every closet in the condo that did not have to be disassembled to install the flooring. This also gave us incentive to mercilessly purge all non-essential items so that we didn’t have to pack and stash them.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwvlHA_mPn1XJY1kA3H1ZM5fRZ2WvCZA66-17p9tJCUaSKc2E4aO6Pmq6E798570fgGna2jeknz75rnBJc3X3w0PAbkkOibeMrSsOc98i_E7VkG8jz_TR6SmSKVezo4OE6gHm4Ct_16r_r6dfzF0RyITIMRK6iiEecZw2x4S4XChI3r0s1yFkN6-PNOkc/s4217/A_2023%20(1).jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1260" data-original-width="4217" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiwvlHA_mPn1XJY1kA3H1ZM5fRZ2WvCZA66-17p9tJCUaSKc2E4aO6Pmq6E798570fgGna2jeknz75rnBJc3X3w0PAbkkOibeMrSsOc98i_E7VkG8jz_TR6SmSKVezo4OE6gHm4Ct_16r_r6dfzF0RyITIMRK6iiEecZw2x4S4XChI3r0s1yFkN6-PNOkc/w640-h192/A_2023%20(1).jpg" width="640" /></a></div>With any large project, there is the risk of unforeseen issues and ours was no exception. The first problem arose when the workmen tore up our old hardwood floor planks. Underneath, they found thick pieces of plywood with giant nails driven through them into the cement subfloor. Removing the plywood involved prying out the nails at great effort which left huge gouges throughout the cement. It took extra days and additional cost to fill all the holes and smooth the cement in preparation for installing the new soundproofing and hardwood. The next two issues were supply-chain related when we learned that both the new solid wood doors that we ordered for our closets and entryways, as well as the bathroom tiles for our new shower would not arrive in time to meet our desired schedule of moving back in by mid October.<p></p><p>Considering the <a href="https://retiredat48book.blogspot.com/2013/02/parallels-of-retirement-planning-to.html" target="_blank">classic project management triangle of scope vs time vs cost</a>, our contractor understood that the most important thing to us was schedule. If something had to give way, within reason, it would be cost as we did not want to cut corners and impact the quality of the work. In each case, they found creative solutions that would keep us on schedule by adding a relatively small amount to the overall budget for the renovations. For the doors, they offered to custom-create the doors for us which would cost about the same as the ones that we ordered, but we would have to pay for two extra coats of primer. The bathroom tiles required a bit more ingenuity since they were to be shipped on a slow boat from Italy! Who knew that we had selected Italian tiles?!? Our alternatives were to go back to the drawing room and select new tiles (with no guarantees that these would arrive sooner) or wait up to 3 months for the tiles to arrive. A third option was proposed by our contractor. The supplier could air-ship the tiles and these would arrive in less than a week. Our contractor even offered to chip in a small portion of the transportation costs and then had to juggle the project plans to account for the delay, moving tasks around in order to maintain our schedule. Although we paid a bit more in renovation fees, this more than offset the extra costs that we would have incurred with a delay of even a week, let alone a longer one. We had run out of friends to impose upon and would have had to find rental accommodations during the delay, as well as continuing to pay for the storage of our furniture. This did not even factor in the emotional cost of living out of a suitcase for 3 months. I don’t think I could have handled continuing like this for even one day longer.</p><p>Understanding our motivations, our contractor did an outstanding job of completing all the “necessary” work that would allow us to move back home. There were still a few minor, inconsequential tasks that needed to be completed and the workmen continued to come by for several weeks after to finish the job. In the end, we are very happy with our newly renovated condo and thrilled to be back home again. Although by no means inexpensive (remember the project management triangle), our contractor did high quality work on schedule, even finishing one day early. On the last day, they sent a full crew of cleaners to vacuum, dust and shine all of our surfaces so that there was very little to do when we returned, other than relocating and unpacking all the items that I stashed away 3 months ago.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP8RxggAqSGoqkzjCgYjHhVE0rr3-yEIm-OoQx-uTROvrAjOfXXG2T670h_b3S7tSHVGdo6ZdYhrMXLX17wtTVsYk_XKEcP0mpDdCESMmu-GwFk37AQkFr9pwYTcj3EojGbHz-M0UJbU25a3VLPDo4M3eeJwlk8YNecauSLG1OgL6qMehmHJX8YkUBRtI/s1685/US%20Funded%20Vacation.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="390" data-original-width="1685" height="148" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP8RxggAqSGoqkzjCgYjHhVE0rr3-yEIm-OoQx-uTROvrAjOfXXG2T670h_b3S7tSHVGdo6ZdYhrMXLX17wtTVsYk_XKEcP0mpDdCESMmu-GwFk37AQkFr9pwYTcj3EojGbHz-M0UJbU25a3VLPDo4M3eeJwlk8YNecauSLG1OgL6qMehmHJX8YkUBRtI/w640-h148/US%20Funded%20Vacation.jpg" width="640" /></a></div>While our Canadian funds were dedicated to paying for our renovations, we also have a stash of <b>US cas</b>h in our US EQ Bank account which pays daily interest of 3% annually. The US account was funded for years from dividends paid in US cash from AT&T and Algonquin Power (AQN) which we held in the US side of our non-registered account. At the end of 2021, there were rumours that AT&T was experiencing financial issues and planned to cut its dividend (which it did by 2nd quarter 2022). Accordingly in December of 2021 we sold our shares of AT&T and added the US cash from that sale to our US account. Because of the pandemic, we had not resumed traveling out of the country until 2022, so by 2023, we still had a healthy balance of US cash. This came in handy in terms of going on vacation in the States using our US cash, not needing to pay currency conversion, and without eating into the Canadian funds that we needed for the renovations.<p></p><p>In May, we took a 7 day trip to<b><a href="https://arenglishtravels.blogspot.com/2023/05/new-york-city-2023-remembering-how-to.html" target="_blank"> New York City</a></b> using travel points for the airfare and US funds for all other expenses including accommodation, food, and entertainment. We brought along some US cash but found out that just about everywhere in Manhattan takes credit card, even the hot dog vendor! In September we took a second vacation the States in order to use up some more of the time that we needed to be out of our condo during the renovations. This was a <b><a href="https://arenglishtravels.blogspot.com/2023/09/pennsylvania-new-york-state-road-trip.html" target="_blank">road trip to New York State and Pennsylvania</a></b>, which I’m still working on blogging about. Once again, other than the initial tank of gas to get us across the border, we paid everything in US funds.</p><p>Despite our focus and finances being devoted to home renovations for most of the year, we still had fun with our usual activities of tennis, pickleball and live theatre. We didn’t do much cycling since our bicycles were blocked by stacks of boxes. Now that we have tackled <a href="https://retiredat48book.blogspot.com/2022/01/2021-year-end-in-review-after-nine-full.html" target="_blank">replacing our old car</a> and upgrading our old condo, hopefully 2024 can go back to being a normal year in terms of spending. We need to replenish our emergency fund accounts and TFSAs but would also like to venture back to Europe (in line with our 5-year plan for traveling more before we hit 65). But you never know what unexpected expenses may come up, so check back in next January to see how we fared.</p>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-34839422176059933152023-04-05T17:24:00.003-04:002024-01-22T17:50:31.743-05:00EQ Bank Enhancements Make it Better Than a "Real Bank"<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBriL8olYCbZKLYr5GUG-x4gIhgwRRLyaoewxNCRmKREXDUfieWahCuWztK2WJBIye1rfMWaFM6t9AxKFlFsF8kTu5pvwH6kCs-ygYBj2ULHE5KVrJFo1ZoGldQWvhkLkPnkUjnpYzs0Ona_y3bYf8JwJ4rOufB85Kdr7dn2sAwFh9-H_Ul9nGbJ6_/s527/EQ%20Bank%20Logo.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="239" data-original-width="527" height="91" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhBriL8olYCbZKLYr5GUG-x4gIhgwRRLyaoewxNCRmKREXDUfieWahCuWztK2WJBIye1rfMWaFM6t9AxKFlFsF8kTu5pvwH6kCs-ygYBj2ULHE5KVrJFo1ZoGldQWvhkLkPnkUjnpYzs0Ona_y3bYf8JwJ4rOufB85Kdr7dn2sAwFh9-H_Ul9nGbJ6_/w200-h91/EQ%20Bank%20Logo.jpg" width="200" /></a></div>When my husband Rich and I first joined the CDIC-backed <b>EQ Bank</b> in 2016, we used it solely as a savings account that paid a great interest rate (2.25 percent at its inception). There weren't any other banking functions available and you needed to link to a "real" bank to to transfer money into or out of the account. Yet as a savings vehicle, it offered everything we were looking for--totally liquid cash (as opposed to locked in term GICs), a steady interest rate that was significantly higher than what was offered at the "Big Banks", no minimum balance required, free unlimited transactions, no service charges (albeit no services to charge for) and no teaser rates that evaporated after some short period of time. We also took advantage of EQ Bank's US savings account which currently pays an unprecedented 2% on US funds, again with no minimum balance required and no fees.<p></p><p>While EQ Bank only acted as a savings vehicle, we used Simplii Financial (CIBC's branchless no fee option) to handle all the rest of our banking needs and to pay off our monthly expenses. Only if we received excess dividends beyond our expense requirements for the month would we transfer the extra funds to EQ Bank for long term savings goals.</p><p>Over the years, EQ Bank has gradually been adding more and more banking functions. Today, we can almost use it as our primary bank. We are now able to set up automatic deductions to pay for reoccurring expenses, set up recurring or one-time bill payments to common vendors, send and receive free unlimited Interac payments and electronic money transfers, generate an online "void cheque" to link to any other bank, deposit cheques using their mobile app, and send money internationally if required.</p><p>Most recently, EQ bank has added yet another feature which brings it even closer to being a "real bank". It introduced a <b>bank card</b> onto which you can preload funds from your savings account. You continue to earn the going interest rate while the money sits on the card, and you can withdraw funds from the card using ANY Canadian bank's ATM for free (EQ bank covers the charges). The convenience of this is staggering as we are no longer tied to our own bank's ATMs. On top of that, you earn 0.5% cashback on any purchases made using the card, with the rewards being deposited into your savings account. This certainly beats the debit card from our current bank which offers no rewards. It can be used internationally anywhere that Mastercard is accepted and charges no foreign transaction fees.</p><p>In effect, our EQ Bank has turned itself into a high interest savings AND chequing account all in one. With all these new features, it makes sense for us to use EQ Bank as our primary bank for most of our banking needs while earning the excellent interest rate (currently 2.5% calculated daily) on all funds that we store there. I have been working over the past month to make this happen. I contacted each of the billers that we had set up to automatically pay monthly from our Simplii account and provided the banking info for our EQ Bank account instead. This included our condo fees, property tax, and hydro bill. I updated the banking info on our CRA accounts so that our tax refunds would be automatically deposited into EQ Bank. I registered each of our Canadian credit cards so that we could make monthly one-time payments to pay off the balances. I reassigned my primary email address to link Interac payments to EQ Bank while assigning a secondary email to Simplii Financial. This way, nothing changes for all the people who have set me up as a contact for Interac e-Transfers but now the money automatically routes to EQ Bank. I applied for an EQ Bank card, loaded it with some funds and will use this for any "debit-like" payments at stores that don't accept credit cards. And most importantly, I linked my EQ Bank account to my Scotia iTrade non-registered account so that each time we receive dividend payments in our non-registered accounts, I can transfer the cash directly to EQ Bank, minimizing the lag time before our money starts earning the daily interest.</p><p>Today I closed my Simplii Financial "High Interest Savings Account", leaving only my chequing account with that bank. When the agent asked me why I was closing the account, I replied that despite its name, at 0.40%, it does not actually pay high interest (or even medium interest), relatively speaking.</p><p>At this point, EQ Bank meets about 90% of our banking needs but there are still a few things that it doesn't do (yet?). </p><p></p><ol style="text-align: left;"><li>Even though I have an EQ Bank US funds savings account, I cannot directly pay off my TD US VISA from those funds. EQ Bank does not recognize non-Canadian currency credit cards as billers. When I need to pay off my US credit card, I will have to transfer US cash from my US EQ Bank account to my US TD Bank account (which pays no interest!) and pay off the credit card from there. </li><li>Smaller vendors are not currently registered with EQ Bank. When we needed to pay an invoice issued by the contracting firm who will do renovations on our condo, I could not add them as a biller within EQ Bank as they were not found in the billers list. National Bank has an interface where you can add unknown billers by providing info including their bank, transit and account numbers. So far, there is nothing like that in EQ Bank.</li><li>There are no physical cheques provided with EQ Bank (other than the online void cheque for linking accounts), so when there is a need to write a cheque, I need to move money back to my Simplii chequing account and write the cheque from there</li><li>You cannot specify a beneficiary for your savings account(s)</li></ol><p></p><p>These are infrequent inconveniences that I can happily live with in order to reap all the benefits of my EQ Bank account. </p><p>While we can't use EQ Bank as our only bank account, in so many ways it is better than anything the Big Six banks are offering. EQ Bank has a referral program that pays $20 to both parties for the first 3 successful referrals, $30 for the next 4 and $40 after that up to a maximum of $500. If all this sounds good to you and you want to join, shoot me an email at retiredat48book@gmail.com and I can refer you. We can both make $20 😁</p><p><b>UPDATE: </b>As of 2023, EQ Bank offered 0.5% extra interest on your savings account if you direct at least $500 of pre-authorized payments to be regularly paid from that account. As of 2024, they are offering an additional 1% on top of that if you direct your pay into the account, for a total of 4% if you do both.</p><p><br /></p>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-29033594565535420092023-03-05T19:46:00.010-05:002023-03-10T07:13:06.178-05:00Banks Show No Respect for Retirees or Retirement Income<p><span face=""Segoe UI", "Segoe UI Web (West European)", "Segoe UI", -apple-system, BlinkMacSystemFont, Roboto, "Helvetica Neue", sans-serif" style="background-color: white; color: #242424; font-size: 15px;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1eAC6OHlOHkXvDiqeM2AcN6Q5Og7uvZx_W-4Ozn29MTP-3xxWxBW5Cma0ArXA_cxLMpYQd1MBJkJgz5OJBZku2GKOACEdrPbYXRV5vQw3i6FXF-IHtl9IMB-nyYR2HFA8mDMbGXejoWHtp7-Fe6hKpILROx6d60_wJxKAGPG92iSmwUP3q3t60-jR/s3855/BoomerBlog.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1174" data-original-width="3855" height="194" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1eAC6OHlOHkXvDiqeM2AcN6Q5Og7uvZx_W-4Ozn29MTP-3xxWxBW5Cma0ArXA_cxLMpYQd1MBJkJgz5OJBZku2GKOACEdrPbYXRV5vQw3i6FXF-IHtl9IMB-nyYR2HFA8mDMbGXejoWHtp7-Fe6hKpILROx6d60_wJxKAGPG92iSmwUP3q3t60-jR/w640-h194/BoomerBlog.jpg" width="640" /></a></div><div style="background-color: white; border: 0px; font-family: "Segoe UI", "Segoe UI Web (West European)", "Segoe UI", -apple-system, BlinkMacSystemFont, Roboto, "Helvetica Neue", sans-serif; font-stretch: inherit; font-variant-east-asian: inherit; font-variant-numeric: inherit; line-height: inherit; margin: 0px; padding: 0px; vertical-align: baseline;"><p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Considering that we are in midst of a time when most of the Baby boom
generation are either retired or close to retirement, it boggles the mind as to
how little understanding Canadian banks have regarding retirees who no longer have employment income.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Case in point, my husband Rich has been trying since the beginning of
January to apply for a CIBC No Fee Dividend Cash-back VISA and has been jumping
through hoops in trying to prove that he makes enough income to qualify.<span style="mso-spacerun: yes;"> </span>This is despite the fact that he already has
excellent credit history and a fee-based BMO World Elite Mastercard for which he is
repeatedly offered higher credit limits. As an aside, new immigrants without jobs and students just out of school seem to have less issues with getting credit cards.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Even though Rich clearly stated on the application form that we are retired
(and have been for over 10 years now), the agents that he spoke to via email,
chat and phone all insisted that he send proof of employment income by showing
the EFT payment of his last pay cheque.<span style="mso-spacerun: yes;">
</span>He repeatedly informed them that he has no employment income and no
pension.<span style="mso-spacerun: yes;"> </span>All his income comes from
annual RRIF withdrawals as indicated by T4RIF statements, dividend income from
our joint non-registered account (T5 statements) and interest from his high
interest bank account with EQ Bank (T5 statement).<span style="mso-spacerun: yes;"> </span>Yet even after sending in images of all these
tax statements from 2021 (the most recent available at the time), he was still
sent emails demanding proof of EFT transfers and told that his application
would not be processed without this.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">After spending what felt like an eternity on the phone speaking to multiple
CIBC agents, he finally (or so we thought) got them to understand that he had
no employment income, no pension, but he did have investment income.<span style="mso-spacerun: yes;"> </span>He was next informed that the 2021 tax statements
were not recent enough.<span style="mso-spacerun: yes;"> </span>The last agent
idiotically asked for <b>2023</b> T4/T5 statements!<span style="mso-spacerun: yes;"> </span>Clearly this person does not live in or pay
tax in Canada, or she would understand that this is not how Canadian tax system
works.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">This process took so long that Rich received his 2022 T4RIF and T5
statements and could send those in to show more current income.<span style="mso-spacerun: yes;"> </span>But he needed a secure portal to send in these
sensitive documents.<span style="mso-spacerun: yes;"> </span>He was asked to use
the portal that was open for him back on January 18, 2023.<span style="mso-spacerun: yes;"> </span>That email is long gone but consider this --
How secure is a portal that stays open forever?!?<span style="mso-spacerun: yes;"> </span>Asking for a new secure portal to be sent to
him proved to be the next challenge.<span style="mso-spacerun: yes;"> </span>After
waiting over a week and not receiving one, Rich decided to make an appointment
with a live agent at our local branch so that he could show all his
documentation personally and explain the situation.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">On the day of his appointment, the email with the secure portal finally
came and this is what the email said:<o:p></o:p></span></p><p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0t1pDmXoZ1ytT_IiseWIPWSGBoeLJ-9cBDbPgpDsNO8C7TzzX1K3aOwNIIglifUa8KN0wfvv8IputvvcGUX7qWguJK2OEL172XNLWobrEyVWHBhe9Lb1WitY1NaZC7qYDjGRJKYsA-Zhx0GZ-WVkv5u195hncQVBD4NbIE3dbzKeglfHfAo9L72Gr/s858/CIBC.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="293" data-original-width="858" height="218" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj0t1pDmXoZ1ytT_IiseWIPWSGBoeLJ-9cBDbPgpDsNO8C7TzzX1K3aOwNIIglifUa8KN0wfvv8IputvvcGUX7qWguJK2OEL172XNLWobrEyVWHBhe9Lb1WitY1NaZC7qYDjGRJKYsA-Zhx0GZ-WVkv5u195hncQVBD4NbIE3dbzKeglfHfAo9L72Gr/w640-h218/CIBC.jpg" width="640" /></a></div><p></p><p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">It is like the previous 5 agents that Rich spoke to totally ignored the
conversations and just could not grasp the concept of someone not having
employment income.<span style="mso-spacerun: yes;"> </span><span style="mso-spacerun: yes;"> </span>Are we not now at the tail end of the baby
boom and have there not been masses of retirees to deal with over the past 30
years?!?<span style="mso-spacerun: yes;"> </span>Even if this was a form letter,
where is the option for retirement income (be it pension, investment or other)?<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Ignoring this last frustrating email, Rich proceeded to the meeting with
the bank representative at our local branch.<span style="mso-spacerun: yes;">
</span>This time he went in armed with his tax notices of assessments from
2020, 2021 and his T4/T5 slips from 2022, all showing that he had more than sufficient
income to qualify for this credit card.<span style="mso-spacerun: yes;"> </span>After
another hour of questions, a credit check (which presumably was already done
before) and viewing of driver’s license and other credit cards, the agent was finally
able to approve Rich’s credit card there on the spot.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">If you think this is just an issue with CIBC, we have found that this
culture of disrespect for retirement income is consistent through all the
banks.<span style="mso-spacerun: yes;"> </span>A year after we first retired, we
thought it would be smart to have a small line of credit for emergencies,
although we never intended to use it.<span style="mso-spacerun: yes;">
</span>When we applied for the line of credit with one of the other big banks, we were told
that our investment income (which consists of mostly dividend payments from
blue chip stock) is not reliable since at any time, we could sell our stock and
lose that income.<span style="mso-spacerun: yes;"> </span>In contrast, this was
compared to a steady employment pay cheque, yet there was no consideration that
one could lose or quit their job and therefore lose that income.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">Rich also ran into trouble when he initially applied for the BMO World
Elite credit card.<span style="mso-spacerun: yes;"> </span>Once again, our
investment income was discounted, and he was looked down on for not having
employment income.<span style="mso-spacerun: yes;"> </span>It was not until we
sat with the bank manager and showed financial statements reflecting our
investment portfolio that he was finally granted this initial card.<span style="mso-spacerun: yes;"> </span>At the time, we thought it was because he did
not have much credit history, but this is no longer the case.<span style="mso-spacerun: yes;"> </span>Rich now has over 3 years of stellar credit
history and should have an excellent credit score since he has never missed
paying his balance in full.<o:p></o:p></span></p>
<p class="MsoNormal" style="color: #242424; font-size: 15px; line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">There are a few lessons learned for retirees or soon-to-be retirees.</span></p><p class="MsoNormal" style="line-height: 115%; margin-bottom: 10pt; text-align: left;"><span style="color: #242424; font-size: 15px;">1. Forego the “convenience” of an online credit card application and head straight to the bank to begin with. You will save many agonizing hours on the phone speaking to agents who just don’t get it</span><br /><span style="color: #242424; font-size: 15px;"><br /></span></p><p class="MsoNormal" style="line-height: 115%; margin-bottom: 10pt; text-align: left;"><span style="color: #242424; font-size: 15px;">2. If you can, get all your credit cards, line of credits, loans, etc. locked down before you retire, while you still have employment income</span></p><p class="MsoNormal" style="line-height: 115%; margin-bottom: 10pt;"><span lang="EN" style="font-size: 15px;"><span style="color: #242424;">3. </span></span><span style="color: #242424;"><span style="font-size: 15px;">Banks need to change their antiquated processes that are totally focused on the employed. There is a large contingent of responsible, financially secure retirees that are being shafted by this mindset.</span></span></p></div>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-33959487838876271782023-03-02T23:02:00.001-05:002023-03-04T12:24:41.325-05:00Handling US dollar income and capital loss on Canadian tax returns<p></p><p class="MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOWPdVwNu7_rYyDewmwbSrKF5KF5DPUTwbF-zi4Mzd_IqgFMkD0bdiL0-C4ValyhIB4jmD3Q-2TUqFd-i781tqt_3zUCvoCmewk2e_VaS9skm1HiSWdjKI3TU0oNKuQm_JF4fdt-KlounXqqaChCfR-2_6O4fLRp0_7I18pmzWb_1AfjSRgz7mZwh3/s1735/US%20Dividend%20on%20Tax%20Forms.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="396" data-original-width="1735" height="146" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgOWPdVwNu7_rYyDewmwbSrKF5KF5DPUTwbF-zi4Mzd_IqgFMkD0bdiL0-C4ValyhIB4jmD3Q-2TUqFd-i781tqt_3zUCvoCmewk2e_VaS9skm1HiSWdjKI3TU0oNKuQm_JF4fdt-KlounXqqaChCfR-2_6O4fLRp0_7I18pmzWb_1AfjSRgz7mZwh3/w640-h146/US%20Dividend%20on%20Tax%20Forms.jpg" width="640" /></a></div><p></p><p class="MsoNormal">This year, just before we were about to file our 2022 tax
returns, Rich received a notice of reassessment for his 2021 tax return.<span style="mso-spacerun: yes;"> </span>It indicated that he missed declaring some
income and as a result, would need to pay an extra amount in
tax, as well as a small interest charge.<span style="mso-spacerun: yes;"> The issue turned out to be on the</span> T5 form for our dividend stock that
<b>paid in US funds</b>.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">In 2021, we had two stocks in our non-registered account
that paid in US funds.<span style="mso-spacerun: yes;"> </span>The first is
Algonquin Powers (AQN.T) which is a Canadian stock that qualifies for
the dividend tax credit but pays dividends in US funds.<span style="mso-spacerun: yes;"> </span>These dividends were shown at the top of the
T5 form in boxes 24-26 and were declared properly.<span style="mso-spacerun: yes;"> </span>We also owned AT&T which is a US stock
and its dividends appeared at the bottom of the T5 in boxes T15 and 16.<span style="mso-spacerun: yes;"> </span>In a careless clerical error, I totally
missed these lower boxes while preparing our tax returns. Both of our tax returns should have been reassessed since we split our non-registered income 50/50. But for expedience, CRA attributed all of the missing income to Rich, since his name was listed first on the Joint T5 form and my name came after.<o:p></o:p></p>
<p class="MsoNormal">That was just the start of the issues.<span style="mso-spacerun: yes;"> </span>The amounts of dividend shown on the T5 were
in US dollars but on the tax return, we were required to declare in Canadian
dollars.<span style="mso-spacerun: yes;"> </span>Some currency
conversion was required, but at what rate?<span style="mso-spacerun: yes;">
</span>The agent we spoke to on the CRA help line informed us that we needed to use <b>the Bank of Canada annual
exchange rate</b> for 2021, which can be found here:<span style="mso-spacerun: yes;"> </span><a href="https://www.bankofcanada.ca/rates/exchange/annual-average-exchange-rates/"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">https://www.bankofcanada.ca/rates/exchange/annual-average-exchange-rates</span></a><span style="mso-spacerun: yes;"> </span><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">For 2021, the rate was
1.2535.<o:p></o:p></span></p>
<p class="MsoNormal"><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">The day after we spoke to this agent, I realized that on our 2021 returns, </span>I
also neglected to submit the<b> T5008</b> form that listed our capital loss when we sold AT&T
in Dec 2021. Without a record of this form on our 2021 tax return, we
would not be able to claim the loss against any future capital gains.<span style="mso-spacerun: yes;"> </span>I did not realize this at the time, and since
there was no income to declare, I hadn't included it.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">I was back on the phone with the CRA info line to find
out what was the best course of action to retroactively add this.<span style="mso-spacerun: yes;"> </span>Before talking to an agent, I did my own
investigations and came up with two possible solutions.<span style="mso-spacerun: yes;"> </span>I could try to do a REFILE on my 2021 tax
return to add the details of the T5008 form.<span style="mso-spacerun: yes;">
</span>This would be a viable solution if I had not also been reassessed (I
got a small additional refund, which I accepted without question).<span style="mso-spacerun: yes;"> </span>If I did a REFILE, I would be resubmitting my
“pre-reassessment” form which would be out of date.<o:p></o:p></p>
<p class="MsoNormal">The second alternative was to log onto my CRA Account to select
the “<b>Change My Return</b>” option.<span style="mso-spacerun: yes;"> </span>I
would not be able to enter all of the fields from the T5008, but this seemed to
be OK since CRA already had this form on file.<span style="mso-spacerun: yes;">
</span>Instead I would update <b>Schedule 3, line 13200</b> and enter the
amount of loss that we incurred when we sold the AT&T stock.<span style="mso-spacerun: yes;"> </span>But once again, the amount was in US dollars
so it was not as simple as taking the Book value and subtracting it from the
Disposition proceeds.<span style="mso-spacerun: yes;"> </span>Once again, I had
to convert to Canadian dollars.<span style="mso-spacerun: yes;"> </span>But this
time, I needed the <b>Bank of Canada historic noon rate for the date of the
sale</b>, which in this case was December 8, 2021.<span style="mso-spacerun: yes;"> </span>Now I had to go to this link to get the right
exchange rate:<span style="mso-spacerun: yes;"> </span><a href="https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup%20%20">https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup
</a><span style="mso-spacerun: yes;"> </span>I multiplied our loss by the stated
exchange rate and submitted this new value in line 13200.<span style="mso-spacerun: yes;"> </span>I got a rapid reassessment that indicated my
loss was now on record and I could claim 50% of it against my next capital
gain.<span style="mso-spacerun: yes;"> </span>Note that I applied all the loss
to myself rather than giving half to Rich.<span style="mso-spacerun: yes;">
</span>That was more complexity than I wanted to deal with and since CRA did the same with Rich's reassessment, I figured this would be OK.<span style="mso-spacerun: yes;"> </span>I was just happy that we didn’t lose the
right to use our capital loss in the future.<o:p></o:p></p>
<p class="MsoNormal">So, this tax reassessment led to several lessons
learned.<span style="mso-spacerun: yes;"> </span>Ironically, we learned these
lessons too late to be of use to us, as we have since sold both AT&T and
AQN from our non-registered accounts and currently no longer have US dividends
as income from that account.<span style="mso-spacerun: yes;"> </span>But in
sharing our lessons learned, hopefully others will not make the same mistakes
that I did.</p><p></p>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-15464973938497463482023-01-13T12:11:00.001-05:002023-01-13T12:11:46.486-05:002022 Year End In Review: After Ten Full Years of Retirement<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpfDs-xCakiNRpH5h-9ZT0NEnxDgD7h4icpXNloTedBzj81QFZ0KqljU-aSx2qeaZITJdLR-_q1mJT7gPBnhwx0G8DlfOyM318Ht8JjgDBUxMYM8PssJ1IyHEkRGtUOB-3FwY0JcezKjhxGMQyyZKuO9DOhxJ9k3qAz9UVArMK2W3mPf1YzZe1t-FT/s1698/10%20Year%20Retirement.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="681" data-original-width="1698" height="256" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpfDs-xCakiNRpH5h-9ZT0NEnxDgD7h4icpXNloTedBzj81QFZ0KqljU-aSx2qeaZITJdLR-_q1mJT7gPBnhwx0G8DlfOyM318Ht8JjgDBUxMYM8PssJ1IyHEkRGtUOB-3FwY0JcezKjhxGMQyyZKuO9DOhxJ9k3qAz9UVArMK2W3mPf1YzZe1t-FT/w640-h256/10%20Year%20Retirement.jpg" width="640" /></a></div><div><p>My husband Rich and I can hardly believe that we have now been retired for over 10 years! At ages 58 and 59 respectively this January, we are now welcoming many of our friends and family as they join us in retirement. I feel like we have fulfilled so much of our early retirement wish list with extended travel and the luxury of free time to explore hobbies and interests. Now it feels like we are in the "gravy years". I am grateful that we were able to do all of that before the pandemic brought social life and travel to a halt. I feel sorry for those who retired just as COVID-19 reared its ugly head, but hopefully they can now resume their post-retirement plans. At least they had the silver lining of preserving extra retirement capital during the period of lockdown when there was nowhere to spend discretionary money.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEQwy10DfzGHJcrh3Gb_zhAfshgMJQ1TRuL4PRrNQWAcl8_L6H_CwBShxe8A-MRj9yfX1HBh7RtI9XXsUpTEDWv83KCPsyTytbdw-KYIjBUB_p5Ep3QzV5JuEDCbsQY4jWqo1UGk9kpvqwiAC3w1H8sywbFEYRn92w6IedyWQiAac1L6dlKTb6gmyX/s577/Inflation.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="340" data-original-width="577" height="236" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhEQwy10DfzGHJcrh3Gb_zhAfshgMJQ1TRuL4PRrNQWAcl8_L6H_CwBShxe8A-MRj9yfX1HBh7RtI9XXsUpTEDWv83KCPsyTytbdw-KYIjBUB_p5Ep3QzV5JuEDCbsQY4jWqo1UGk9kpvqwiAC3w1H8sywbFEYRn92w6IedyWQiAac1L6dlKTb6gmyX/w400-h236/Inflation.jpg" width="400" /></a></div>2022 was a strange and stressful year for the economy. Weather factors impacting crops, global political strife and uncertainty, as well as grain and oil shortages due to the Ukraine War all contributed to soaring <b>inflation</b> experienced around the world. In Canada, the 2022 inflation rate ended just under 7%, impacting cost of living across the board. Two examples include a bag of three romaine lettuces that cost around $2.99 only a year ago now selling for $8.99, and the price of poultry which increased by between 10-20% over the last two years.<p></p><p>For years, Canada’s inflation rate was steady at around 2% and this is the rate we used in our <a href="http://retiredat48book.blogspot.com/p/blog-page.html" target="_blank">Retirement Plan</a> that tracks how our portfolio is doing. At the beginning of 2022, I <a href="http://retiredat48book.blogspot.com/2022/02/updating-retirement-spreadsheet-to.html" target="_blank">adjusted our plan</a> to reflect an average of 4% inflation rate going forward. This acknowledges the increase in inflation rate but optimistically assumes that inflation will not continue to trend at 6-7% for the long run. Even with this change, I was relieved to see that although our capital would reduce more rapidly, we still have sufficient funds to last beyond our expected lifetimes. I will keep my eye on this rate going forward and may need to make more adjustments in the future including reducing our rate of spending if required. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUeu6y-OJrlv-D2vYj4aqJxuyaMOZ0A8wByH3GuxHwGD6FXx1sHRAd4wSUH3wJCe-W3u1xYGdBfp2i9s8GLhj3Q05fLWlDqtw5c27z0BMa02tp_RlRP4IKNhS56B0cCPQuWtXg_igzlqUYrNOSOT7SGFRLgauCxaia59D8AwORJrruqNMuR_Zx-nkT/s772/TSX-S&P%202022.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="215" data-original-width="772" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgUeu6y-OJrlv-D2vYj4aqJxuyaMOZ0A8wByH3GuxHwGD6FXx1sHRAd4wSUH3wJCe-W3u1xYGdBfp2i9s8GLhj3Q05fLWlDqtw5c27z0BMa02tp_RlRP4IKNhS56B0cCPQuWtXg_igzlqUYrNOSOT7SGFRLgauCxaia59D8AwORJrruqNMuR_Zx-nkT/w640-h178/TSX-S&P%202022.jpg" width="640" /></a></div>Inflation, supply chain issues and global uncertainty took its toll on the stock market, as the <b>TSX/S&P Composite Index </b>was down by over 9%. The value of our portfolio took an even bigger hit as our value decreased by over 11%. It was dragged down by the 1-year returns from long-term losers like Corus (CJR.B – down 51%) and Cineplex (CGX.T – down 40%). But unexpectedly, we also took a hit from the former stock darling, <b>Algonquin Power (AQN.T) </b>which unexpectedly plummeted in 2022 with a negative return of over 46%! This further illustrates the need for diversification and not putting all your eggs in one basket by owning just a few companies or industry sectors.<p></p><p>Things looked dire for <b>Algonquin Power </b>in November as the stock price plunged. There were rumours of the possibility of the company cutting its dividend and this came to fruition in the second week of January 2023 when the dividend was slashed by 40%. We still like this stock for the long term, so we decided to hedge our bets on it. At the end of November when the AQN stock price in our <b>non-registered account</b> dropped to just about the amount that we originally bought it for, we decided to sell these shares, triggering a tiny capital gain. We will use the proceeds to purchase stock that will provide us with more stable dividends. At the same time, we doubled down on Algonquin in my RRIF, enrolling in the DRIP (dividend reinvestment plan) to pick up more shares while the price is low. If the stock does rebound as we hope, then we will have increased our holdings at a discount and can move some shares back out to the non-registered account then. Algonquin is a Canadian stock that qualifies for the Dividend Tax Credit, but pays its dividend in US Funds, so it would be nice to eventually have our regular source of US cash again.</p><div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgckv5LKYXpOjfBnsBAbMyFzmu90GjxV33imJirCezAY3rEDu-ubqM82mIZdF8q_NOM6s7LBeYNwZ0mkkhHG6qXkjfWti0W1GuX44zAg_Z_GkRu4V6jt-MoSWzHjYpjM_sfgFCoi6xq-miML4JKM8iMtJvcLKztqB2OATnr3Wn9aw7-89p-Lj00oiim/s222/Dividends%20Rising.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="107" data-original-width="222" height="193" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgckv5LKYXpOjfBnsBAbMyFzmu90GjxV33imJirCezAY3rEDu-ubqM82mIZdF8q_NOM6s7LBeYNwZ0mkkhHG6qXkjfWti0W1GuX44zAg_Z_GkRu4V6jt-MoSWzHjYpjM_sfgFCoi6xq-miML4JKM8iMtJvcLKztqB2OATnr3Wn9aw7-89p-Lj00oiim/w400-h193/Dividends%20Rising.jpg" width="400" /></a></div>Despite the dismal year for the value of our portfolio, 2022 was a good year for <b>dividends</b>, which is the main thing that we care about. Our income strategy has been to buy and hold good companies and live off the dividends that they pay. This strategy has sustained us through several bear markets over the past ten years. The dividend increases were especially strong in our non-registered account, which is where most of our large-cap, blue chip stocks are held, and where we source our annual income. Within this account, our dividends rose by over 6%, which just about covers the high rate of inflation for 2022. I think we are still feeling the effects of the post-COVID boost that started at the end of 2021 when banks and insurance companies were finally allowed to raise dividends and other sectors also started to ease their pandemic fiscal restraints. It is uncertain what 2023 will bring with inflation is still running rampant. Yet so far, seven of the companies in our portfolio (BMO, CIBC, ENB, NA, RY, Telus and TD) have already declared dividend raises for 1Q2023, albeit much smaller raises than the double-digit anomalies that we enjoyed when the restrictions on the financial sector were finally released. Despite a bad year for the value of our stock holdings, our income strategy of living off our dividends remains a winning one. Since we first retired in 2012, our dividend income has more than doubled.</div><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiv2ETaDv-aIYZE7IsFW_up0Ab-c2YoOREyGFJVIpzkwY1PwTamnFa-ftkqrK0rxJ1c0v_xnOVHL4SBaV_Y6ivX0D8GrH1QaCrdB9JEgOOlwmNfvIH6NRYHIEDfdZsJfE6KhMuKvPHqjzDs02bfQ2iRist-qhxjP4iK66vLufZbxeX4xb8pMrK3J7-O/s527/EQ%20Bank%20Logo.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="239" data-original-width="527" height="145" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiv2ETaDv-aIYZE7IsFW_up0Ab-c2YoOREyGFJVIpzkwY1PwTamnFa-ftkqrK0rxJ1c0v_xnOVHL4SBaV_Y6ivX0D8GrH1QaCrdB9JEgOOlwmNfvIH6NRYHIEDfdZsJfE6KhMuKvPHqjzDs02bfQ2iRist-qhxjP4iK66vLufZbxeX4xb8pMrK3J7-O/s320/EQ%20Bank%20Logo.jpg" width="320" /></a></div>Another benefit of the pandemic subsiding is that <b>savings account interest rates</b> started to rise again. For years now, we have used <b>EQ Bank</b> as our no-fee, high-interest savings bank. We like this company because it consistently has better than average interest rates (especially compared to the big banks) and doesn’t play the “bait and switch” game of teaser rates that only last for a few months. I like the stability that this bank offers and can’t be bothered trying to chase higher rates offered for short periods of time.<p></p><p>In January 2020, just prior to the start of COVID-19, EQ Bank was paying 2.45% on Canadian dollar savings accounts, with no minimum balance requirement. As the pandemic dragged on, the bank gradually lowered its rates, going from 2% in March, to 1.7% in August, 1.5% in October and then as low as 1.25% in April of 2021. During that same period of time, my so-called “high interest account” with Simplii Financial was paying 0.01%! In 2022, EQ Bank’s rates started to slowly rise again and as of September 2022, they are paying 2.5%. With Simplii Financial, my high-interest savings account is currently paying $0.4% for balances up to $50,000. Note that it is offering a teaser rate of 5% for new accounts, payable only between November 1, 2022 to January 31, 2023. Guess which rate is touted in large black letters and which one is only found in tiny print if you persistently to search for it deep within the website.</p><p>Even more exciting than <b>EQ Bank’s </b>Canadian savings account interest rate is the<b> 2% </b>that it pays for <b>US dollar savings accounts</b>, again with no minimum balance requirement! Prior to opening a US account with EQ Bank, I had a TD Bank US Daily Interest Chequing account that paid 0.01% (equivalent of 10 cents annually on $1000) and required a $1500 minimum balance to have the monthly transaction $1.25USD fee waived. I used this TD US account to accumulate US cash from the US dividends paid by some of our stocks. This provides me with a physical bank where I can withdraw US cash for travel without incurring foreign exchange rates. </p><p>I have always wanted a <b>US credit card</b> so that I could make purchases in US funds and pay off the balance with the US cash from my bank account. To achieve this, I switched over to the <b>TD Borderless US Dollar </b>account which pays no interest (but I was getting just about no interest anyway) and requires a $3000 minimum balance to have the $4.95USD transaction fee waived. But this account also waives the annual $39USD fee for owning a <b>TD US Dollar VISA card</b>. So now I transfer any US dividends that we receive into my EQ Bank US savings account where my money is finally growing due to the great interest rate. When I purchase anything from the States using my US credit card, I then transfer money from EQ Bank to TD to pay it off. This year we plan to start traveling abroad again, starting with a trip to New York City. I will be able to pay for our accommodations, meals, theatre tickets and other expenses using my US credit card and US cash.</p></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO2jTYDblJBuy2E0tu-KLUUOjsvOGPJjqd1LpqEEvU-OhMWjhA3uvh3VDWVxVX7aktO3LjR45FidbZG-tWjfTKufLBQQh3BRpiPo0GO9pDwk0VuO9OLjcvJPSdwsTg4Nx-Xz_9anCU75xfFvU1ZB4vgWQVRPbpI5B_dths4bbl2tXfb03GYqIZhwKi/s597/stock-split.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="221" data-original-width="597" height="148" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiO2jTYDblJBuy2E0tu-KLUUOjsvOGPJjqd1LpqEEvU-OhMWjhA3uvh3VDWVxVX7aktO3LjR45FidbZG-tWjfTKufLBQQh3BRpiPo0GO9pDwk0VuO9OLjcvJPSdwsTg4Nx-Xz_9anCU75xfFvU1ZB4vgWQVRPbpI5B_dths4bbl2tXfb03GYqIZhwKi/w400-h148/stock-split.jpg" width="400" /></a></div>Although our portfolio is set for the most part and we don’t really do much trading anymore, we still had some interesting events happen to some of our holdings. In May, <b>CIBC issued a 2 for 1 stock split</b>. While I don’t really care about stock prices, I do check on dividend payouts quite regularly to determine whether any of our stocks have raised or cut their dividends. When I noticed that our payout for CIBC reduced by half, I was able to quickly confirm that our number of shares had doubled accordingly and then googled to confirm the stock split. I was not really that concerned because if one of the big banks ever did cut its dividend (let alone slash it by 50%), that would have been big news! In June, <b>BIP.UN and BIPC.T had a 3 for 2 stock split</b> and I went through the same exercise to confirm. Starting July 2022, PKI moved from monthly to quarterly dividend payouts. The annual net result is still the same, but I miss getting a bit of income every month!</div><div><br /></div><div>At the beginning of 2021, <b>Cenovous Energy</b> bought Husky Oil, which I held in my RRIF. As part of that transaction, I received a “purchase warrant” for the right to buy extra Cenovous shares at a given price. Through a complex formula that I<a href="http://retiredat48book.blogspot.com/2021/01/2020-year-end-review-after-eight-full.html" target="_blank"> wrote about earlier</a>, I could either buy the shares if the market value exceeded the strike price or sell the warrant (which has its own stock ticker CVE.WT) before it expires in 2026. In May 2022, the price of <b>CVE.W</b>T rose to $22.62 from an initial value of $3.62. I could have held on longer to see if the price would continue to rise, but I knew that as we got closer to the expiry date of the warrant, the value of it would start to drop. Not wanting to worry about this anymore, I decided to cash out and make a small profit. So far this has looked like a good move, since the current price of the warrant is $18.19.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB5qcPxCw8iFYqayQmwGZYrCXY7sKetmSVnii3WUlqKH8ahyjonqcPucZPjh5qiJ9h8mye-ldTxKZTBxRGTtTT5zgbUyxKpo-UyZ3F4UsVM-d8_BjY7qiqzrOrK7pX5YE7RC5kisx3ilbyHlLybEOVOsKffbeqosZH_dSIrcNs4_ejT64BhS_9HZ0S/s800/Income%20Tax%20Form.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="366" data-original-width="800" height="183" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgB5qcPxCw8iFYqayQmwGZYrCXY7sKetmSVnii3WUlqKH8ahyjonqcPucZPjh5qiJ9h8mye-ldTxKZTBxRGTtTT5zgbUyxKpo-UyZ3F4UsVM-d8_BjY7qiqzrOrK7pX5YE7RC5kisx3ilbyHlLybEOVOsKffbeqosZH_dSIrcNs4_ejT64BhS_9HZ0S/w400-h183/Income%20Tax%20Form.jpg" width="400" /></a></div>Since 2019, Rich and I have been actively trying to reduce the sizes of our RRIF accounts so that we can minimize CPP and OAS clawback when we hit age 70. To accomplish this goal, we pay<b> extra withholding tax from cash within our RRIFs </b>to pay for the year’s income tax, rather than using the dividend income generated from our non-registered account or from our savings account to pay in the new year. An additional benefit of pre-paying our taxes via withholding tax is that it eliminates the need for CRA-enforced “installment payments” that are required if you owed more than $3000 in tax the previous year.</div><div><br /></div><div>To estimate how much tax we might have to pay, I use the previous year’s tax program and guess at how much the dividend income in our non-registered account might grow. I then control how much we withdraw from each RRIF including the withholding tax to reach our desired net incomes. Since 2021, I have even tried to pay enough withholding tax to give each of us a small refund. We are therefore incented to file as soon as possible in order to receive our refunds. NETFILE makes this really quick and easy. Last year we filed on February 23 and had money refunded to our bank accounts by March 3.</div><div><br /></div><div>Because we filed so early, I did not realize that I qualified for the <b>Digital Subscription Credit</b>, since our Globe and Mail Saturday paper delivery subscription qualified us for a complimentary digital subscription. The tax receipt arrived after I had already filed, so I did an online <b>REFILE</b> and got the extra refund a week later. I now know to claim this on my tax return going forward.</div><div><br /></div><div><div>We took multiple overnight trips within Ontario during 2022 in order to take advantage of the <b>Ontario Staycation tax credit</b>, which applies to money spent on accommodations during the calendar year. An individual can claim up to $1000 and a family up to $2000 in order to receive a tax credit of 20% on these expenses. This worked out great for us since we were still hesitant to travel or fly abroad, given all the travel horror stories we heard about delays, lost luggage and intermittent COVID resurgence. Instead, we had lovely times spent in Stratford, Ottawa, Perth, and Fergus/Elora Ontario, keeping track of our receipts so that I can claim this tax credit.</div></div><div><br /></div><div><div>Part of the analysis that we did before retiring at age 48 in 2012 was deciding whether we should purchase medical insurance to replace the coverage that we each had when we were working. It would be another 17 years before we qualified for the Ontario Drug Benefit at age 65. After reviewing multiple plans and calculating the annual premiums vs. estimated claims, we decided that it was not worth it. Especially given the fact that most medical insurance policies have annual caps on claims, we were better off self-insuring and paying for our expenses out of pocket. This turned out to be a good choice since in almost every one of our 10 years of retirement so far, we did not accumulate enough <b>medical expenses</b> to claim a credit on our tax returns. That changed in 2022 when we incurred some extra dental and drug expenses. Once we realized that that our combined medical expenses had exceeded the threshold of $2421, we tried to front-load as much as possible into 2022 in order to maximize our benefit claim. This included refilling all of our prescriptions and scheduling Rich’s eye doctor and dentist appointment before the end of 2022. Had I been more on the ball, I would have scheduled an eye appointment for myself as well. But by the time I thought of it, I was too late to get an appointment. We transferred all of Rich's expenses to me (his spouse) in order to consolidate all the expenses in one tax return. </div></div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaMV6-89nrIu9rO_FpWZuZyJk0AYClvfr07vm0ZKjDno3bRLsLcE6NKcKaBEQfnNkTYjKX3iIAtlum4lGASibynT5EkOQhaIdp8LUovc45COTjZGoIn07R7U0NrXVupe4a2N_TPhsmiuRitmmae_rU2DGqGQTf6mfhhoJioQ7pJyuZl0hyt-4T7Ti6/s1600/ARetirement2022.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="443" data-original-width="1600" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaMV6-89nrIu9rO_FpWZuZyJk0AYClvfr07vm0ZKjDno3bRLsLcE6NKcKaBEQfnNkTYjKX3iIAtlum4lGASibynT5EkOQhaIdp8LUovc45COTjZGoIn07R7U0NrXVupe4a2N_TPhsmiuRitmmae_rU2DGqGQTf6mfhhoJioQ7pJyuZl0hyt-4T7Ti6/w640-h178/ARetirement2022.jpg" width="640" /></a></div>Finally, in terms of personal interests, 2022 felt like the first “almost normal” year after all the COVID years. In addition to our Ontario Staycation trips, we went on the longest vacation since before the pandemic when we took a 15-day driving trip out to the <b>Nova Scotia and Cape Breton Island</b>. We still haven’t resumed trips that involve flying yet, but probably will start in 2023. In preparation for more international travel to the States and Europe, we finally applied for NEXXUS cards, although it will probably be over a year before they are processed. 2022 was a time for re-socialization where we spent more time dining out, visiting and entertaining friends and family, going to more theatre and museums, like we used to do pre-COVID. I wonder if all milestones will now be designated as "pre" and "post" pandemic? All this additional activity showed up in our year-end spending analysis as our discretionary spending has increased again, now that the opportunities to spend money have reappeared. And finally, we have joined the <b>Pickleball craze</b>, purchasing racquets and playing both outdoors in the summer and indoors at community centres through the colder months.</div>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-13152395370251380772022-02-12T13:01:00.001-05:002022-02-12T13:01:56.303-05:00Updating Retirement Spreadsheet to Reflect Current Realities<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh1FL5MN1RS4oTrQGgI1-mHr3amQ205IBC5vJbgVlh7nxLPqzNEPyZBzmtqxOU7lDWcyqOBPq4jc2rVr2StfGDrfxXHVlnmP8uveGvB-qmsgcRfSUz1HYLC04kWRSa8ScuuJI5Xe7HPx2AA-Xx8HIH2RSjFBvk9d4pgJelfFSsaNLSZqeRu35u-YJMT=s2905" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="876" data-original-width="2905" height="192" src="https://blogger.googleusercontent.com/img/a/AVvXsEh1FL5MN1RS4oTrQGgI1-mHr3amQ205IBC5vJbgVlh7nxLPqzNEPyZBzmtqxOU7lDWcyqOBPq4jc2rVr2StfGDrfxXHVlnmP8uveGvB-qmsgcRfSUz1HYLC04kWRSa8ScuuJI5Xe7HPx2AA-Xx8HIH2RSjFBvk9d4pgJelfFSsaNLSZqeRu35u-YJMT=w640-h192" width="640" /></a></div>Those who follow this blog or have read my book <a href="http://retiredat48book.blogspot.com/p/where-to-buy.html" target="_blank">Retired at 48 - One Couple's Journey to a Pensionless Retirement</a> know that we use a <a href="http://retiredat48book.blogspot.com/p/blog-page.html" target="_blank">Retirement Spreadsheet</a> which both estimated and tracked our portfolio growth progress during the savings phase prior to retirement, and created a spending plan to track against during the "draw-down" phase (post retirement) to ensure we do not prematurely run out of funds. At the beginning of every new year, I update our actual year end portfolio balance in the "Actual Ending Balance" column for the previous year. This causes the rest of the projections going forward to recalculate, thus providing a more accurate view of the future. In creating my spreadsheet, I reverse-engineered from a online small app and then expanded upon it to support the extra data and functionality that I desired in my retirement plan.<p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhsdUjOZV6mwBQ1fhkARHpxukqUs5PSp4SEdFt3vBTyFrFux3EDlVOCPxjZSN1nOjk1YhMOazxy-0j6dramdN4eNkubO6xqZFlIm3uFx_W00xuHGYQHz9SInaMLiNZlNyv5ptSnrTcsqhHm7jZ_4aipqL0KE1PSqgmHt59YRC2SVttqER1etB7bKi2Q=s1151" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="826" data-original-width="1151" height="460" src="https://blogger.googleusercontent.com/img/a/AVvXsEhsdUjOZV6mwBQ1fhkARHpxukqUs5PSp4SEdFt3vBTyFrFux3EDlVOCPxjZSN1nOjk1YhMOazxy-0j6dramdN4eNkubO6xqZFlIm3uFx_W00xuHGYQHz9SInaMLiNZlNyv5ptSnrTcsqhHm7jZ_4aipqL0KE1PSqgmHt59YRC2SVttqER1etB7bKi2Q=w640-h460" width="640" /></a></div>Since we first started using this spreadsheet and in the sample spreadsheet that I distribute for anyone who requests it from me, I have used<b> 2%</b> as the <b>estimated average</b> inflation rate within cell J9. In the spreadsheet's predictive estimate, the following fields are increased annually by that rate of inflation.<div><ul style="text-align: left;"><li>Income Sources</li><ul><li>Canada Pension Plan (CPP) - Indexed to Inflation</li><li>Old Age Security (OAS) - Indexed to Inflation</li></ul><li>Expenses</li><ul><li>Retirement Spending</li></ul></ul><div>This rate had been relatively stable for so many years (especially during our retirement years) that I not really given it much thought. Unfortunately in 2021, driven by stresses caused by the pandemic which show no sign of easing, the rate of inflation has risen to almost 5%. It seems short-sighted not to reflect this in our ongoing projections for the future.</div><div><br /></div><div>I have updated the latest version of the spreadsheet that I distribute to reflect this by increasing the predicted rate of inflation to <b>4%</b> in cell J9 (couples examples) or I9 (individual example). This is an input field that you can update to whatever you want, but I thought I would put something more realistic in the sample for now. Given that the same rate will be used to predict all future years until you change it, I did not use 4.8% which is the current rate as of January 19, 2022. I tempered the prediction a bit with the hopes that after the pandemic is done, the rate will ease a bit. Anyone requesting my retirement spreadsheet going forward will get the version with this new rate (unless things radically change again). </div><div><br /></div><div>Anyone who <b>already has my spreadsheet </b>but would like to address this issue themselves have the following options:</div><div><ol style="text-align: left;"><li>Update Inflation rate in Cell J9 (or I9 for individuals) to 4%. </li><ul><li>Unfortunately this will affect all the previous years' calculations which in turn will affect the estimates going forward</li><li>This does not matter to anyone still in the <b>savings phase</b> since you will not have started using CPP/OAS/Retirement savings yet.</li><li>For those in <b>retirement spending phase</b>, you may want to use the next option although if you have been updating the spreadsheet with your actual ending balance each year, the impact is negligible.</li></ul><li>Update inflation rate only the years going forward starting from a given year</li><ul><li>Make a copy of the spreadsheet before you start so you can try again if you make a mistake</li><li>Enter <b>1.04 </b>(or whatever you want your going forward inflation estimate to be) in cell <b>AD4</b></li><li>Click on the first <b>Retirement Spending</b> calculation cell (e.g. <b>Cell AF21</b> for couples examples, <b>AB21</b> for singles example)</li><li>Change the last part of the formula in that cell from <b>$AC$4</b> to <b>$AD$4</b> (couples) or from <b>$AB$4</b> to <b>$AD$4 </b>(singles)</li><li>Click and hold from the bottom right corner of your starting cell and drag down to the end to update the formula for all subsequent Retirement Spending years.</li><li>Repeat the previous 3 steps for CPP and OAS (if desired)</li></ul><li>I can send you a new spreadsheet but you would have to re-input all of your previous data.</li></ol></div><div><p></p><div>In order to have an even more conservative estimate in our own personal spreadsheet to make sure we don't run out of money, I only updated the retirement spending estimate to use the higher inflation rate but left the OAS and CPP estimates with the lower rate. By increasing our spending estimates but keeping our income estimates lower, I generate an extra buffer to make sure we don't overspend.</div></div></div><div><br /></div><div>As Rich and I creep closer to the age where we might start taking OAS, I realize that based on the amounts remaining in each of our RRIF accounts, we may qualify for different amounts of OAS. I have therefore updated my spreadsheet to split out the OAS estimate for Person 1 vs Person 2 in the couples examples. Currently there is only one field to represent both people. I should have done this from the start. I also found an error in the starting year of taking OAS for Person 1 which I have now fixed. It was previously hardcoded at age 67 but now uses the age entered in the input field.</div><div><br /></div><div>Again, for anyone who already has a spreadsheet but would like these changes, email me to let me know and I can help you modify yours or send you a new one (but you would have to replicate the inputs from your current spreadsheet).</div>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-62951519923408033332022-01-14T09:32:00.606-05:002022-01-17T16:52:29.805-05:002021 Year End In Review: After Nine Full Years of Retirement<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEioK4qP4I0pTMEnqu_JwLqsB1sTnCLZWQDguZwRU-PrxgCtzXzCtssun_KsfpO4SqMPs3EROU3CVH7jIYyUQIk6RBQfBbZYBU8qZ2XIK89YHtaule7YoGOVB-nNxjRIqmiRLOC85vhOCAekCy17IOH426NzfftK0cAONGLSRCKDY9gAhhvtIYh889Lq=s1557" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="827" data-original-width="1557" height="340" src="https://blogger.googleusercontent.com/img/a/AVvXsEioK4qP4I0pTMEnqu_JwLqsB1sTnCLZWQDguZwRU-PrxgCtzXzCtssun_KsfpO4SqMPs3EROU3CVH7jIYyUQIk6RBQfBbZYBU8qZ2XIK89YHtaule7YoGOVB-nNxjRIqmiRLOC85vhOCAekCy17IOH426NzfftK0cAONGLSRCKDY9gAhhvtIYh889Lq=w640-h340" width="640" /></a></div>Another year has gone by and we are still dealing with COVID. But from a market perspective, the initial shock and panic seems to be a thing of the distant past. While there was a big dip in the stock market in March 2020 when the impact of the pandemic was first felt, the S&P/TSX index quickly recovered and has continued to climb steadily ever since. At the end of 2020, although we had mostly recovered from the massive dip, the total value of our portfolio was still 3% lower than the start. By the end of 2021, we were almost 18% higher than the start of the year. Once again the common wisdom of not panic-selling during temporary adversity continues to hold true.<p></p><p>As always, it is a bit easier for us to follow that common wisdom since we do not rely on the value of our portfolio to fund our income. After many years of allowing them to grow and compound, we are now very comfortably living off our dividends without the need to touch our capital (other than for exceptional cases - more on that later). </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEghiAeaERQHFo7qJawR28OmF8wcUXvKOg1eiqpVtb6eyc7bBlNKr5WiCYqxDGjGlKOeWFjvxiQmNgj4NB51bKCffjVhjfJYkbR1nR7dwhQ_f69ESRgaskPlpXtP1LgvdODVCin3cRDTPMMayPWshSJPdc0IaTTAb_K6p5v8z_xx5dywR4aoj47FfhK2=s600" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="288" data-original-width="600" height="193" src="https://blogger.googleusercontent.com/img/a/AVvXsEghiAeaERQHFo7qJawR28OmF8wcUXvKOg1eiqpVtb6eyc7bBlNKr5WiCYqxDGjGlKOeWFjvxiQmNgj4NB51bKCffjVhjfJYkbR1nR7dwhQ_f69ESRgaskPlpXtP1LgvdODVCin3cRDTPMMayPWshSJPdc0IaTTAb_K6p5v8z_xx5dywR4aoj47FfhK2=w400-h193" width="400" /></a></div>Even in the difficult year of 2020, our dividend income still rose by 2.6% in our non-registered account, almost keeping up with the soaring inflation rate. The picture improved slightly in 2021 as by December of that year, our dividends had increased by a further 3.2%. This was driven by the stocks we owned in non-financial sectors such as Telcom (Bell, Telus), Transportation (Canadian National Railway), Utilities (Emera, Fortis, Canadian Utilities, Atco, etc.), and miscellaneous stocks including Premium Brands and various Brookfield subsidiaries. AW.UN raised their dividends twice in 2021 and end the year at about 97% of their pre-pandemic payout. In December they paid out a special dividend to disburse extra cash, similar to what they did twice in 2020, despite needing to slash their payouts due to lockdowns that year. I like their slow and steady strategy of rewarding investor loyalty without over-committing.<p></p><p>Throughout most of 2021, we were still not getting any dividend increases from the financial sector. At the start of the pandemic, the OFSI (Office of the Superintendent of Financial Institutions) put a freeze preventing any banks or insurance companies from raising their dividends. This ban was finally lifted on November 4, 2021. Immediately after, all the financial institutions announced their intention of declaring larger than usual dividend raises, in order to make up for a 1.5-2 year period where they were held back while still racking up huge sums of excess cash. Because the ban was lifted so late in the year, the banks had already paid out their 4th quarter distributions. This meant that the raises for the banks will not be paid out until first quarter of 2022. We are expecting a huge boon in dividend income by the end of March 2022 since we own shares in all of the big six Canadian banks. Toronto Dominion, Royal, Bank of Nova Scotia and CIBC each raised their dividends between 10-13%. Bank of Montreal and National Bank raised their dividends in the 23-25% range, probably to make up for the gap in their yield relative to the other big banks.</p><p>The three insurance companies that we own all pay out at the end of December, so we received the dividend raises in 2021. Great West Life raised its dividend 12%, Manulife Financial 18% and Sunlife Financial 20%, in each case either double or almost double their normal annual increases. Because of these last minute raises, by the end of 2021 our dividend payout had increased by 5.11%. With the large bank raises still to come, things continue to look up for 2022!</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgMA6NfyAMel6ACZJoGam3mY8blqhQTFrn6FJVdVY3DaQDQJXQtiFOVdXrAgOWJnrD8GbZ-bay7DqdrcqmKwhsQpQdLY3SE6W2_lUWCxi7fnKb3fHg6Xql1f_oa8vqqsnXUUUdDwduYvZs98_xafkXmwPRZzvrnssElubXACr4ybhGp0JzY4TEa-8kS=s278" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="99" data-original-width="278" height="142" src="https://blogger.googleusercontent.com/img/a/AVvXsEgMA6NfyAMel6ACZJoGam3mY8blqhQTFrn6FJVdVY3DaQDQJXQtiFOVdXrAgOWJnrD8GbZ-bay7DqdrcqmKwhsQpQdLY3SE6W2_lUWCxi7fnKb3fHg6Xql1f_oa8vqqsnXUUUdDwduYvZs98_xafkXmwPRZzvrnssElubXACr4ybhGp0JzY4TEa-8kS=w400-h142" width="400" /></a></div>In filing our 2020 taxes this past April, I misunderstood how one of my husband Rich's tax receipts should be interpreted and he ended up claiming an incorrect deduction and under-paying the tax owed. In 2020 Rich took advantage of the pandemic induced temporary market crash to collapse his Life Income Fund (LIF) under the "Small Amount Rule". He took out the remaining cash and moved it to his RRIF account, receiving a "Self-Directed Retirement Savings Plan Official Contribution Tax Receipt" for the same amount. I assumed that he could use it all as a tax deduction to offset the income generated when withdrawing from the LIF, resulting in a tax-free transfer from one registered account to another. This seemed like a reasonable assumption since that is what happened when we first converted our LIRAs into LIFs and were able to move 50% of the value into our RRIFs. Unfortunately, in his notice of assessment, Rich was informed that his RRSP contribution room did not match the amount on the tax receipt and he had overcontributed. This would result in a 1% monthly tax on the excess contributions until more room would be generated. Given that we are retired and would not earn any further employment income, we did not have a way to generate more contribution space. In addition, he still owed more income tax than what he paid at the time of filing.<div><br /></div><div>Paying the excess tax owed was not an issue, but rectifying the situation so that Rich would not be penalized in an ongoing manner for the over-contribution was a different matter. To address this, in April 2021 he filled in a <b>paper T1 Adjustment Request form </b>to apply the correct RRSP contribution amount, mailed it to Service Canada and paid the outstanding tax owed. While writing this blog, I logged onto his Service Canada account to confirm that that the adjustment was applied. To our dismay, we do not see any record of the adjustment and instead on the Service Canada website, there is a notice of "COVID-19: Processing delays for T1 paper adjustment requests"!! Instead it advises that we should have submitted an <b>online "ReFILE" request </b>using the same tax software that we originally used to file. He has now re-filed online and has a confirmation number to prove that the filing has been received. We won't know for sure until we see an official reassessment record on Rich's Service Canada account, but hopefully this puts an end to this situation. We now also know about the online ReFILE option if we ever need to do something like this again.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjcUlRQCsO4036p2U6m9B3w3yzuaXd8NsZPYAcW_Og70cJKpzoNctsQLdQFRFYhKEiz41v7J0shKl04fv__kNCEd3kLe-JE6H1uf5RbIEAx4MsZIWx-YgvTeyHP6hxiAK7Bpt5jKXVY8q14vw2AGhepYjFozqqtD4yDw4wUPx-Ku1-JqkXGDUZqR8hl=s1920" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="858" data-original-width="1920" height="143" src="https://blogger.googleusercontent.com/img/a/AVvXsEjcUlRQCsO4036p2U6m9B3w3yzuaXd8NsZPYAcW_Og70cJKpzoNctsQLdQFRFYhKEiz41v7J0shKl04fv__kNCEd3kLe-JE6H1uf5RbIEAx4MsZIWx-YgvTeyHP6hxiAK7Bpt5jKXVY8q14vw2AGhepYjFozqqtD4yDw4wUPx-Ku1-JqkXGDUZqR8hl=s320" width="320" /></a></div>As previously mentioned, we have accumulated enough dividend payouts for each month from our non-registered account so that we can cover the normal day to day expenses. We also have two separate "high-interest" savings accounts with EQ Bank. One is for unexpected/emergency expenses such as the need to repair or replace a broken appliance. The other is to save up for planned major expenses such as vacations (remember those?!?), renovations or large purchases. In 2021 we decided that it was finally time to replace our 16-year-old car which had given us many good miles but was on its last legs and would start to become a money-pit to continually repair. Funding our desired new car would include not only clearing out our planned expenditures account but also selling some capital from our portfolio.</div><div><br /></div><div>We considered what would be the best way to extract the extra funds that we needed. We knew for sure that we did not want to sell good dividend-paying stock from our non-registered account since we would be both decreasing the income that we used to pay our day to day expenses, as well as generating capital gain. Should we sell losers from our RRIF accounts that were not paying good dividends? This would help our long term goal of decreasing the size of our registered accounts before we hit 70 in order to minimize OAS claw back. But it would also trigger extra income that we would need to pay tax on. Alternately, should we sell winners from our TFSA, locking in profits and withdrawing them tax free? If we did this, we would still have the opportunity to contribute back the funds in future years once we accumulated more savings again.</div><div><br /></div><div>In the end, we ended up selecting a combination of the two strategies. I sold some losers from my RRIF account that were not generating much income for us and which we didn't feel the need to hold on to long term in hopes of a recovery. I withdrew some of the resultant funds as cash while also paying extra withholding tax to cover the additional income tax that I generated. I made sure that the extra income would not push me into the next tax bracket. At the same time, Rich sold the shares of Granite Real Estate Investment Trust (GRT.UN) from his TFSA, locking in the tax free capital gains that he had made since purchasing this stock. While this had been an excellent stock that rose in both value and dividend payouts, we had purchased it in the wrong place. This is because part of Granite's distribution is paid in US funds and unlike the RRSP/RRIF accounts, there is no agreement with the US to waive withholding tax in a TFSA account. Every month Rich would lose a little bit of his dividend payout to US withholding tax, which was a pain to keep track of. While we like this stock, if we decide to repurchase it, we will do so within our RRIF accounts. In the meantime, selling from Rich's TFSA provided us with the cash we needed and opened up contribution room to buy something else in the future.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi3RHUsmSppPitok3dsmmIcqC0X8VDJaJx2uBpZaYHiUDxAC_dJvUGkUvOknkmfQjk0b-TseSIuyOLwqmDscrU0LkYCTxB8Z7CY1XXvOXzjVheLmtiSdZhw7lDifZuzNtNU0u1Jy8g2Lo8CQM1q7TwBHaMC1FV_tu_XMoTKxiA9sU3dKla3ZuX38tHG=s4308" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1260" data-original-width="4308" height="188" src="https://blogger.googleusercontent.com/img/a/AVvXsEi3RHUsmSppPitok3dsmmIcqC0X8VDJaJx2uBpZaYHiUDxAC_dJvUGkUvOknkmfQjk0b-TseSIuyOLwqmDscrU0LkYCTxB8Z7CY1XXvOXzjVheLmtiSdZhw7lDifZuzNtNU0u1Jy8g2Lo8CQM1q7TwBHaMC1FV_tu_XMoTKxiA9sU3dKla3ZuX38tHG=w640-h188" width="640" /></a></div>In terms of <b>vacation</b> (or lack thereof), we had canceled a couple of major trips to Europe in 2020 at the start of the pandemic and for the rest of 2020, we hunkered down at home. Although we were double-vaccinated and despite COVID numbers starting to decline in the summer/early fall of 2021, we still did not feel comfortable flying or even traveling outside of the country. Instead we were early adopters of what the provincial government has recently titled "<b>Staycation in Ontario</b>". We started with same day road trips exploring areas a couple of hours outside of Toronto, including Kleinburg, Barrie, Guelph, <a href="http://arenglishtravels.blogspot.com/2021/10/day-trip-2021-mono-cliffs-provincial.html" target="_blank">Mono Cliffs</a>, <a href="http://arenglishtravels.blogspot.com/2021/10/day-trip-2021-goodwood-durham-forest.html" target="_blank">Uxbridge, Goodwood, Durham Forest</a> and <a href="http://arenglishtravels.blogspot.com/2021/10/paris-ontario-day-trip-2021.html" target="_blank">Paris, Ontario</a>. A silver-lining of the pandemic has been our discovery of fabulous places to explore right within "our own backyard". Dipping our toes into overnight trips, we visited some friends in the Haliburton Highlands and stayed over for a few days. In September we rented a house in <a href="http://arenglishtravels.blogspot.com/2021/10/niagara-on-lake-2021-day-3-home-via-st.html" target="_blank"><b>Niagara on the Lake </b>for 2 nights</a> and enjoyed 3 days of cycling, hiking, wineries, dining out and even watching a show at the Shaw Festival. Finally we went on a 4 day road trip which Rich sold to me as "<a href="http://arenglishtravels.blogspot.com/2021/11/europe-in-ontario-4-day-road-trip.html" target="_blank">Europe in Ontario</a>" where we would drive a big loop in western Ontario and visit a bunch of little towns and communities named after European cities, including Vienna, Brussels, Dublin, Zurich, Copenhagen and Lisbon. If you are interested in reading more about our travels, visit my travel blog <a href="http://arenglishtravels.blogspot.com">http://arenglishtravels.blogspot.com</a></div><div><br /></div><div>For 2022, there will actually be an "<a href="https://www.ontario.ca/page/ontario-staycation-tax-credit" target="_blank">Ontario Staycation Tax Credit</a>" that encourages Ontarians to vacation in their own province, allowing individuals to claim up to $1000 and families up to $2000 in travel accommodation expenses. We already have a new slew of places that we are anxious to explore once the weather warms up.</div><div><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgp4V8kmffiZYm_RV30ciaLWuG63rdbaPVSWrfNDeezypE9jBtsmC1OV-DC7QfbnVv5wT-d_Rd_inCE1pYQTSZsHEhuoRySD1nagQe3Th-mwCTzupaquEl_vzeUYUMwQN3blSLNzntCqkorkoUEPmVeuPJY6jVzpQVSWgXpZxVsIRDtvm_jUnMTpse6=s2603" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="872" data-original-width="2603" height="214" src="https://blogger.googleusercontent.com/img/a/AVvXsEgp4V8kmffiZYm_RV30ciaLWuG63rdbaPVSWrfNDeezypE9jBtsmC1OV-DC7QfbnVv5wT-d_Rd_inCE1pYQTSZsHEhuoRySD1nagQe3Th-mwCTzupaquEl_vzeUYUMwQN3blSLNzntCqkorkoUEPmVeuPJY6jVzpQVSWgXpZxVsIRDtvm_jUnMTpse6=w640-h214" width="640" /></a></div>As a final note, this blog, which supports my book <a href="https://www.amazon.ca/Retired-48-Couples-Pensionless-Retirement-ebook/dp/B00BMUUEQM" target="_blank">Retired at 48 - One Couple's Journey to a Pensionless Retirement</a>, was recognized as one of the <a href="https://blog.feedspot.com/canadian_early_retirement_blogs/" target="_blank">top 15 Canadian Early Retirement blogs</a> by the organization <a href="https://www.feedspot.com" target="_blank">Feedspot</a>, an amalgamation website that allows you to access your favourite blogs, podcasts, news sites, Youtube channels and RSS feeds from one place.<p></p></div>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-82037374605207974612021-08-12T09:41:00.003-04:002021-08-12T09:41:39.399-04:00Coming out of the pandemic - Looking forward to bank dividend raises<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuimlLVyVWH248m3_mjdq_HPOr2H39S6NrS5D2nEdEPSmuANbGcsQaIbIB6rXOdyeZZ46orfBqJdFvAXdTHKeH_8l4wkowGaug4Rp-OBt3bm1OZuWz4p0b_TlFk7fSFya371OMHRtTHNg/s650/dividendincrease.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="321" data-original-width="650" height="316" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjuimlLVyVWH248m3_mjdq_HPOr2H39S6NrS5D2nEdEPSmuANbGcsQaIbIB6rXOdyeZZ46orfBqJdFvAXdTHKeH_8l4wkowGaug4Rp-OBt3bm1OZuWz4p0b_TlFk7fSFya371OMHRtTHNg/w640-h316/dividendincrease.jpg" width="640" /></a></div><p><span style="color: black; font-size: 13.5pt;">For buy and hold dividend-paying
stock investors like ourselves, Canadian banks have traditionally been safe
bets in terms of continuing to provide a steadily increasing source of income. Dating
back to the period after the Great Depression, the banks in general have shied away from cutting their
dividends despite numerous recessions and economic downturns.<span style="mso-spacerun: yes;"> </span>In fact over the past several decades, all 5
“big banks” plus National Bank have consistently raised their dividends
annually, just like clockwork.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">The COVID19 pandemic brought on a
good news/bad news situation, depending on your perspective.<span style="mso-spacerun: yes;"> </span>The good news is that despite enduring over 1.5 years of lockdowns, job losses and business closures that brought instability
and uncertainty to the economy, none of the banks cut their dividends. The bad
news is that during this same timeframe, the OFSI (Canada’s banking watchdog)
has prevented the banks from increasing their dividends in order to ensure the
financial health of the banking system. This has continued despite the banks
all generating better than expected profits and accumulating huge levels of excess capital.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">Now with the lockdowns coming to
an end across the country and the economy rebounding, investors are anxiously
awaiting the easing of these restrictions on the banks, although the
possibility of the Delta variant triggering a dreaded fourth wave and another
lockdown may put a damper to these hopes.<span style="mso-spacerun: yes;">
</span>Dividend declarations for the banks have already been made for the first
3 quarters of 2021 without any dividend raises.<span style="mso-spacerun: yes;">
</span>The 4<sup>th</sup> quarter dividend declarations for each of the banks
should occur around the end of August, with Ex-Dates (the date before which you
need buy a stock in order to qualify for the upcoming dividend payout) ranging
between end of September to end of October, and the payout dates from October
to November.<span style="mso-spacerun: yes;"> </span>This will be the last chance
for the banks to increase their dividends for 2021, and if they do come, the
payouts are likely be larger than normal to make up for the missed increases of
the past two years.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">If and when banks are allowed to
resume their raising of dividend payouts, it will be interesting to see how
they do it.<span style="mso-spacerun: yes;"> </span>There have been talks of
increases in the range of 13-20%, when prior to COVID, the annual increases
were around 3%.<span style="mso-spacerun: yes;"> </span>To me, it seems more
likely that a huge dividend boost would be paid out as a one-time special
payout rather than a straight dividend raise.<span style="mso-spacerun: yes;">
</span>As history has shown, once a bank raises its dividend, it does not
decrease it again, come hell or high water or even pandemic.<span style="mso-spacerun: yes;"> </span>If the banks raised their dividends by
double-digits, future raises would compound upon this.<span style="mso-spacerun: yes;"> </span>Giving out a special dividend to reduce the
excess coffers, on top of the normal 3% raise, seems much more reasonable and
sustainable.<span style="mso-spacerun: yes;"> </span>Regardless of how it is
done, there seems to be a large (but potentially one-time) increase in income
coming our way, since we hold stock in all 5 big banks plus National Bank.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">This leads to an interesting
quandary for us with regards to our annual RRIF withdrawals, our taxable income
for the year, and the resultant tax bracket that we will end up in.<span style="mso-spacerun: yes;"> </span>In a normal year, we can come pretty close to
predicting what our net income will be, since our income consists of the
dividends paid out from our non-registered account (which we split equally),
plus the annual mandated withdrawal that we make from our individual RRIF
accounts.<span style="mso-spacerun: yes;"> </span>We can roughly guess what the
dividend payout from the non-registered will be by assuming a small increase
fueled mostly by the dependable dividend-raising stalwarts that we own, including banks, telco, and railways.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">We usually withdraw more than the
government-mandated annual minimum from our RRIFs since our goal is to reduce
the size of our RRIFs by the time we are 70 to minimize Old Age Security (OAS) claw-back.<span style="mso-spacerun: yes;"> </span>Balanced against this goal is the need to
keep our taxable income below the higher tax brackets in order to keep our
income tax owed at a reasonable level.<span style="mso-spacerun: yes;"> </span>By deciding
which tax bracket we want to stay within, we can work backwards to determine
how much we can withdraw from our RRIFs.<span style="mso-spacerun: yes;">
</span>I use the previous year’s <a href="http://retiredat48book.blogspot.com/2014/04/studiotax-2013-integrates-netfile-to-cra.html">StudioTax online tax program</a> to help make this determination.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">In the past we would usually do
this calculation at the beginning of a new year and make an early RRIF
withdrawal.<span style="mso-spacerun: yes;"> </span>Since our early retirement
in 2012, we have been taking out stock-in-kind from our RRIFs as opposed to
cash, continually increasing the dividend income coming from our non-registered
account.<span style="mso-spacerun: yes;"> </span>Having done this for almost 10
years, we are now in a position to fund all normal expenses just from that
dividend income.<span style="mso-spacerun: yes;"> </span>Now the annual RRIF
withdrawals just act as further on-going “boosts” to that income to help combat
inflation.<span style="mso-spacerun: yes;"> </span>The earlier in the year we
make the RRIF withdrawal, the sooner we can start adding the additional
dividend payouts to our income for the year.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">This year, knowing that the
dividend flood-gates may be unleashed, we only took out the government-mandated
minimum for our RRIF withdrawals.<span style="mso-spacerun: yes;"> As we have done the previous 3 quarters, w</span>e
will wait for the 4<sup>th</sup> quarter dividend declarations by the banks
before determining whether we should make a second RRIF withdrawal and if so,
how much.<span style="mso-spacerun: yes;"> </span>If the bank dividend increases
are declared, we can recalculate the projected income that our non-registered
account will produce.<span style="mso-spacerun: yes;"> </span>Doing so will
protect us from taking too much out from our RRIFs and inadvertently bumping us
into higher tax brackets.<o:p></o:p></span></p>
<p><span style="color: black; font-size: 13.5pt;">If the restrictions on the banks
continue through this next round of dividend declarations, then we will know
that no raises will come this year.<span style="mso-spacerun: yes;"> </span>But
sooner or later, they will come, so we would take the same precautions next
year.<span style="mso-spacerun: yes;"> </span>Not exactly a bad “problem” to
have!</span></p>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-78149209739381901122021-01-22T22:12:00.002-05:002021-01-24T09:57:30.574-05:002020 (COVID) Year End Review: After Eight Full Years of Retirement<p>What a crazy year 2020 has been! For almost a year and counting, COVID 19 has impacted the lives of people around the world in every conceivable way, ranging from economics, finance, social interactions, physical and mental health. As mentioned in previous blog entries, the situation for my husband Rich and I has luckily insulated us from most of the economical effects of the pandemic. Since we are now seasoned retirees with a stable and established income flow, we have not had to worry about how to continue doing our jobs in this strange and danger-fraught<span></span> environment, or worse yet, about losing our jobs or struggling to pay our bills. We also have been able to stay healthy and don't have any close friends or family who have been stricken with the virus. We count our blessings and our hearts go out to all the people who have been adversely affected by this deadly disease.<br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEaEtj7GGChH5ttTj869swUp9fWM9PqDOJg2u0LI-yGf2sgTW9wbi8xoXCQt65BF7t-EYW58dSmfDnScdZCsiOEIiA1VvXonpFKUkvDM0WtrorqBxoijjUmUuvLq6rLjM3EtPgGEbzmjE/s946/TSX-S%2526P+2020.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="946" height="432" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEaEtj7GGChH5ttTj869swUp9fWM9PqDOJg2u0LI-yGf2sgTW9wbi8xoXCQt65BF7t-EYW58dSmfDnScdZCsiOEIiA1VvXonpFKUkvDM0WtrorqBxoijjUmUuvLq6rLjM3EtPgGEbzmjE/w640-h432/TSX-S%2526P+2020.jpg" width="640" /></a></div><br />In light of this strange and (excusing what has now become a hackneyed cliché) "unprecedented" year, it was not at all surprising that the markets tanked when the pandemic was first declared back in March. What does seem astounding is how quickly stocks rebounded. Within a few weeks, prices were back on the rise and by year end, the TSX/S&P Index actually closed 2% higher than where it opened on January 2, 2020. Much of that recovery was fueled by the surge of tech stocks such as Shopify, as well as cannabis, lumber and gold stocks. Is it the modern spin on an old adage that when hunkering down for the Armageddon, you should stockpile gold bars, SPAM and weed? <div><br /></div><div>Since we only care about dividends and not the value of our holdings, it has never been our strategy to chase the latest "flavour of the month" fads hoping for quick gains. Instead we continue to hold time-tested stalwarts in unglitzy industries such as Finance, Utilities and Transportation. So our portfolio, which was down as much as 30% at the bottom of the crash, has not experienced the full impacts of the TSX/S&P Recovery. Still, by the end of 2020, we were down less than 3% relative to the start of the year. <div><br /></div><div>Yet of only importance for us is the fact that despite suffering dividend cuts or stoppages from 7 of our stock holdings, the overall dividend payouts within our non-registered account (which sources our monthly income) rose by <b>2.6% </b>while the dividends in our portfolio as a whole rose by just under 1%. This is because by the end of the 2020, out of the 40 companies that we held in our portfolio, 26 had raised their dividends. A caveat to that last statement is the fact that 19 of these companies declared their dividend raises prior to March when COVID struck, and the ones that raised after often did so by smaller amounts than in the past. Most of these increases sit in our non-registered account while almost all of the cuts reside in our registered accounts. This is by design since we tend to move the larger or more stable companies into the account that pays our bills while leaving the riskier ones in the registered accounts in hopes of long-term growth.</div><div><br /></div><div>The fact that we made it through a pandemic year and still came out ahead in terms of income continues to strengthened our confidence in our retirement strategy. If we can make it through the past year, we can make it through anything. Things continue to look up for 2021 with vaccines starting to become available. This seems to be reflected in the market which continues to rise, as well as for our dividends. Four companies in our portfolio (Telus, Enbridge, Atco and Granite REIT) have already declared dividend increases for first quarter 2021. Unfortunately there still seems to be a regulatory ban preventing any of the major banks from raising their dividends. Hopefully this will be lifted as more vaccines roll out.</div><div><br /></div><div>Of the 7 companies that cut their dividend, 5 of them (Chemtrade, Cineplex, Husky, Suncor and Corus) have lost so much value that they are not worth trying to dump in order to buy better yielding stocks. We will just let them ride out the pandemic and hope for even a partial recovery. Luckily these are mostly in our registered accounts which we now withdraw from just once a year and no longer count on for monthly income. </div><div><br /></div><div>Of note is <b>AW.UN</b>, which eliminated its dividend in March 2020 when the initial lockdown meant that ALL restaurants had to close. But by July when eateries were allowed to reopen for takeout, this stock resurrected 62% of the payout. As well, we received extra bonus amounts in October and December. This seems like a smart way to further revive the original dividend payout without committing to doing so every month.</div><div><br /></div><div>In April 2020, <b>Methanex (MX.T)</b> eliminated 90% of its dividend payout and sank in price leaving us with a large loss in value. In November on rumours that various vaccines were close to becoming ready for distribution, the price started to rise again. Uncertain about whether this streak would continue, once the price rose to the point where we were actually in a slight profit situation, I decided to dump the stock and replaced it with one which paid a decent dividend. To my chagrin, the share price of MX continued to soar and had I waited, we could have reaped an even higher profit with which to buy even more shares of the new stock. But having been burned before waiting too long to try to maximize profits, I had to remind myself that we only care about dividends. I had achieved my goal to replace a the dud that continues to yield almost nothing to one that paid 90% more per share. Still, I guess it is just human nature to a little bit miffed at the lost opportunity<span face="arial, sans-serif" style="background-color: white; color: #202124; font-size: 16px;">😊</span> .</div><div><p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgukS1Mhz388JILTlJxJY80zjyTsYJv_H84xec2HV1VwCQrS7FZ4RbWohUGn995iLD5zDOWXieaVytRsGW5uVVdrx2HyWkY_KSDJGxsC7cIPnS2Gmf3t4N6kH7fKAfGYR2n2rXYpcbZtkE/s1181/2020-2019+Mkt+Cap+%252B+Div.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="595" data-original-width="1181" height="322" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgukS1Mhz388JILTlJxJY80zjyTsYJv_H84xec2HV1VwCQrS7FZ4RbWohUGn995iLD5zDOWXieaVytRsGW5uVVdrx2HyWkY_KSDJGxsC7cIPnS2Gmf3t4N6kH7fKAfGYR2n2rXYpcbZtkE/w640-h322/2020-2019+Mkt+Cap+%252B+Div.jpg" width="640" /></a></div>Each year I perform a review of our holdings in terms of market capitalization and sector diversity. For the most part, we stand pat in terms of which stocks we hold, as long as they continue to pay us a healthy dividend. So most of the changes in terms of market capitalization were due to the COVID-driven loss of value in the companies. Only 13/40 of our companies showed any value growth after 2020, while the rest lost value with some showing a negative 1-year returns in double digits. As a result, our large and medium cap percentages declined while our small cap increased, even though we mostly held the same companies.<p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-YSQVvLm5c8kBZzoVHGxm8pkcPeJpg0VV_NtcS_atbfovm6WvRYYKCEJMdLH0Iuc33XKL_Hor_Bjkv6EKLoKXZ0cTATdJGt729qeeASZEoV9Qdv97eapdNK2jRhJHeOqWjcA-k-vMsBo/s1515/Mergers+%2526+Splits+2020.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="444" data-original-width="1515" height="188" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj-YSQVvLm5c8kBZzoVHGxm8pkcPeJpg0VV_NtcS_atbfovm6WvRYYKCEJMdLH0Iuc33XKL_Hor_Bjkv6EKLoKXZ0cTATdJGt729qeeASZEoV9Qdv97eapdNK2jRhJHeOqWjcA-k-vMsBo/w640-h188/Mergers+%2526+Splits+2020.jpg" width="640" /></a></div>Similarly the change in sector holdings were mostly driven by mergers and splits initiated by various companies, as opposed to any active trading on our part. <b>Power Corporation (POW.T)</b> re-absorbed its financial arm <b>PWF.T</b> which it had spun off years ago. Unfortunately this transaction generated a small but unexpected capital gain for us in our non-registered account. The amount was not large enough to bother selling stock to trigger an offsetting capital loss. We do live in fear that one of our companies that has soared in price since purchase will one day be bought out and trigger a huge capital gain that we will not have enough loss to offset.</div><div><b><br /></b></div><div><b>Brookfield</b>, which already has numerous corporations with varying interests under its umbrella ranging from asset management, renewable energy and infrastructure, created two more. <b>BIP.UN</b> and <b>BEP.UN</b> are both income trusts that pay distributions which may not be entirely "eligible dividends" that qualify for the dividend tax credit. Historically the distributions have also included foreign dividend, interest income, capital gains and return of capital. Each of these Brookfield subsidiaries spun off a new corporation (<b>BIPC</b> and <b>BEPC</b> respectively) that pays 100% Canadian eligible dividends as opposed to distributions. This is of great interest to us since we would like to hold Brookfield in our non-registered account but have previously held off because of the accounting headaches of calculating ever-changing adjusted cost base (ACB). These new corporations now give us an opportunity to do this, but first we would like to grow more shares tax-free within our registered accounts via the Dividend Reinvestment Program (DRIP). <p></p><p>Speaking of DRIPs, after the market plunged in March, we started to DRIP in our registered accounts to take advantage of depressed prices in companies whose holdings we wanted to grow. Our only other major trade was to sell Rio Real Estate (<b>REI.UN</b>) in January 2020 for a slight gain. Because REI.UN had not raised its dividend since 2018, in we replaced it with Granite REIT (<b>GRT.UN</b>), which has raised its dividend every year since 2015. We were rewarded when Granite raised its dividend in 2020 and now has announced its annual dividend raise for January 2021. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSTyBfRAEFh8tFPvSt4nHXehdMQg5xjZe6FRxid7DVPX3FGqDpq7YGc6_nE9UvLzwFryaf12x63x7KhOJBdfK5JRKyvjRAvnGPDBGGAnx56uAqdcGKoUkxmiAB9CXIdQW_GBL-5YxYSf0/s1677/Cenovous-Husky.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="676" data-original-width="1677" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiSTyBfRAEFh8tFPvSt4nHXehdMQg5xjZe6FRxid7DVPX3FGqDpq7YGc6_nE9UvLzwFryaf12x63x7KhOJBdfK5JRKyvjRAvnGPDBGGAnx56uAqdcGKoUkxmiAB9CXIdQW_GBL-5YxYSf0/w400-h161/Cenovous-Husky.jpg" width="400" /></a></div>Another interesting acquisition/merger was announced 4Q2020 but did not finalize until January 2021 when Cenovus Energy (<b>CVE.T</b>) bought out Husky Oil (<b>HSE.T</b>), whose shares I own in my Registered Retirement Income Fund (RRIF). For each share of Husky, I received 0.7845 shares of Cenovus as well as 0.0651 of a "<b>purchase warrant</b>", providing an opportunity to buy additional Cenovus shares at the set "strike price" of $6.54. Similar to a stock option, the purchase warrant has an expiry date<span face="arial, sans-serif" style="background-color: white; color: #4d5156; font-size: 14px;">—</span>January 1, 2026 in this case. But the purchase warrant can also be sold in and of itself and has its own stock ticker (CVE.WT), average cost and market price.<p></p><p>Both these companies (and in fact the entire Oil Sands Industry) have been struggling for years now and the pandemic has not helped. CVE and HSE have 5-year returns of -56% and -47% respectively and both slashed their dividend payout last year. Having the former buy out the latter seems like a case of "The Blind Leading The Blind", even though this acquisition will turn Cenovus into the 3rd largest oil and gas producer in Canada. Hopefully synergy and cost savings from redundancy elimination, plus the pending end of the pandemic will lead to brighter days for this company.</p><p>So the question remains regarding what to do with my existing Cenovus shares plus the purchase warrants. If CVE continues to pay no dividends, I will hope for the share price to rise to the point where it would be worthwhile to sell my shares and buy something else. The same thing applies to our warrants. I have 5 years to wait for prices to rise before exercising my warrants. Whether I use the warrants to buy shares at the strike price and then sell for a profit, or just sell the warrants will depend on the price differential between the two options. </p><p>As an example, as of this writing, the share price for CVE is $7.83 while the strike price is $6.54. Buying today at the strike price and immediately selling would net me a "profit" of $1.29 per share. At the same time, I could sell each warrant today at $3.53 which nets me to profit of $2.24 (the price for sale of the warrant less the profit I could have made from exercising them and reselling the CVE shares). Currently the sale of the warrant has a "time value" since there is so much time remaining before it expires and therefore time for CVE price to rise further. This is why the profit made from selling the warrant is more than that of exercising it. This time value will decrease as we get closer to the expiry date. </p><p>Currently the differential between the stock price and the strike price is not large enough to do anything. I will monitor the situation over the next few years to see what happens. When I do act, I would have to ask my broker to make the transaction and probably would have to pay the $9.99 fee for each transaction. I don't have enough warrants for any of this to make a noticeable impact on our total portfolio value, but it was fun learning about how this all works.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKYBOsWyOkcR0M_yooWwjpN46Vgt1CHikq5YS0etbUEeR1m_xe5XHRsxeJR9n1VucMFmylY3UdxD4IiwB1YbfNJQA2-3Eb2faQ5Fn7WBoFKL0h2cVy7ggFvrsW3uREMtsbavPOb03Go54/s1023/2019+vs+2020+expenses.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="714" data-original-width="1023" height="279" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKYBOsWyOkcR0M_yooWwjpN46Vgt1CHikq5YS0etbUEeR1m_xe5XHRsxeJR9n1VucMFmylY3UdxD4IiwB1YbfNJQA2-3Eb2faQ5Fn7WBoFKL0h2cVy7ggFvrsW3uREMtsbavPOb03Go54/w400-h279/2019+vs+2020+expenses.jpg" width="400" /></a></div>Reviewing our actual spending for 2020 versus the estimates created at the beginning of that year, we found that we spent <b>33% less</b> than anticipated. Compared to 2019, our spending was down almost <b>30%</b>, as opposed to the expected increase in spending due to inflation. The pandemic took away most of our opportunities for discretionary spending. We cancelled all our planned vacations for 2020 and 2021 and luckily received most of our money back. Similarly we received refunds for most of the theatre tickets and other events that we pre-purchased, although a couple of venues only offered credits for future shows. We also saved on transit since there was no where to go, and a bit on medical by deferring our regular dental cleanings while in lockdown. Interestingly, our food bill came out just about even. While we could not go out to dine at restaurants (other than a slight reprieve in the summer), we did order takeout regularly and cooked at home more, leading to a rise in our grocery bill. The increase in our grocery bill almost exactly offset the decrease in dining out.</div><div><br /></div><div>We ploughed the extra savings into our "high-interest" savings account with EQ Bank, which unfortunately dropped its interest rate several times during the pandemic, starting at 2.4% and ending up the year paying 1.5%. However this is still significantly better than my savings account with Simplii Financial, which now pays 0.10%, while the major banks pay even less according to the <a href="https://www.cannex.com/public/depa01e.html" target="_blank">Cannex Deposit Account Report</a>. The unexpected savings come at an opportune time since we will probably need to replace our 16-year-old car in 2021.<br /><p></p><p>As described in an <a href="http://retiredat48book.blogspot.com/2020/03/looking-for-silver-linings-in-face-of.html" target="_blank">earlier blog</a>, aided by the market crash at the start of the pandemic, Rich was able to collapse his locked-in <b>Life Income Fund (LIF) </b>because its value fell below the "Small Amount" rule. Rather than removing this value as cash or stock-in-kind, which would have increased his net income by over 20K, he opted to move it tax-free into his Spousal RRSP which he has not yet turned into a RRIF. The value of the withdrawal was added to his net income but he received a corresponding RRSP contribution deduction for the same value to offset and reduce his net income by the same amount. The result of this is that we now have one less account to worry about, no longer have to calculate minimum or maximum annual withdrawal requirements for this LIF and no longer have to suffer from the snail's pace at which one is allowed to draw down a locked in retirement fund. Unfortunately although I try to take out the maximum allowed from my LIF each year, unless I encounter <a href="http://retiredat48book.blogspot.com/2020/12/lif-withdrawal-maximum-second-rule.html" target="_blank">another opportunity like last year</a>, it will take me decades before I can collapse my account.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4ZrQ8IkUz52AWVseTIvSwTUad0or8B2hP8Z84W2gKTTyiU0QjHT__8UxONsoS5mLj0rF3l4EZ1hudaXzMm2Z2ngIiSX6TgCVTq9rb3RvfFMVA4EgZRLPXhcPLAmBnr0uE3NwJ7zHO_o8/s1948/RRIF+Reduction+Strategy.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1056" data-original-width="1948" height="346" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4ZrQ8IkUz52AWVseTIvSwTUad0or8B2hP8Z84W2gKTTyiU0QjHT__8UxONsoS5mLj0rF3l4EZ1hudaXzMm2Z2ngIiSX6TgCVTq9rb3RvfFMVA4EgZRLPXhcPLAmBnr0uE3NwJ7zHO_o8/w640-h346/RRIF+Reduction+Strategy.jpg" width="640" /></a></div>For many years now, we have worked to move dividend paying stock in-kind from our registered accounts into our non-registered account. We are now at the point where we can fund most of our annual expenses from the Canadian-eligible dividends paid to that non-registered account. Our annual RRIF/LIF withdrawals just add more dividends to it. Along with any increases in dividend payouts from the stocks in the non-registered account, the added dividends from the RRIF/LIF withdrawals act as income growth to counter inflationary impacts in our expenses.<p></p><p>The goal for our RRIF accounts is to reduce their values as much as possible before we turn 70 in order to minimize Old Age Security (OAS) claw back. Since 2019, we have been using the following strategy. At the beginning of the year, we take out the minimum required withdrawal as stock in kind into our non-registered account. For this minimum withdrawal, no withholding tax is required. As part of this minimum, we usually also take out any accumulated US dividends to bolster our cache of US cash in our US bank account. Whenever we can travel to the States again for vacation, we will be ready to pay for most of it in US currency without needing to incur exchange rates. </p><p>Throughout the year, we accumulate Canadian dividends paid as cash in our registered accounts to prepare for the next step. Towards the end of the year, we make another small in-kind RRIF withdrawal. But instead of simply paying the required withholding tax for this withdrawal, we request to pay enough tax to almost cover our entire tax burden from all of our income sources (i.e. LIF and RRIF withdrawals, dividend income from our non-registered account and any capital gains incurred). We use the <a href="http://retiredat48book.blogspot.com/2014/04/studiotax-2013-integrates-netfile-to-cra.html" target="_blank">free tax program StudioTax</a> from the <b>previous year</b> to approximate what that tax burden would be and to make sure that our total income would not bump us into too high of a tax bracket. The result of this is that by the time our income tax is due in 2021, we will have paid most of what we owe and further reduced the size of our RRIFs by paying the tax burden from within these accounts, rather than needing to dip into our savings. It means that we pay our taxes a few months earlier than required, but the opportunity cost is inconsequential, and again, I would like to think that we are helping the economy in some way.</p><p>Based on the estimate from the 2019 StudioTax program, I paid enough withholding tax to cover all but a few hundred dollars of my projected 2020 tax burden. When I plugged the same income and withholding tax numbers into the 2020 version at the beginning of this year, I was pleasantly surprised to see that instead of needing to pay a small amount of remaining income tax, I am now expecting a small refund! This is partly due to the personal exemption and climate change rebate amounts, which increase each year since they are indexed to inflation. Additionally, the marginal tax ranges have changed so that a higher amount of income is taxed at a lower rate. For example, in 2019 the first $47,630 is taxed at 15% while in 2020, the first $48,535 fall under this initial tax bracket. The same trend continues for the rest of the brackets.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIDdZjRJ-Ep-1_lsJ4tj1OPOwlOYkgl67TmcGyYQivj58nhAG2O1J95o2yUfr3hbq8zyoOGDb4TixzlUhlJ-2mi9YWPO_ZQpyLK8_GYZpRU9_uevwvATtDI2lT7WVkOG2ssP2pjyzn70w/s1146/Stay+Home.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="509" data-original-width="1146" height="178" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIDdZjRJ-Ep-1_lsJ4tj1OPOwlOYkgl67TmcGyYQivj58nhAG2O1J95o2yUfr3hbq8zyoOGDb4TixzlUhlJ-2mi9YWPO_ZQpyLK8_GYZpRU9_uevwvATtDI2lT7WVkOG2ssP2pjyzn70w/w400-h178/Stay+Home.jpg" width="400" /></a></div>That sums up the financial aspects of our COVID-influenced 2020. Through a year of social distancing including two periods of full lockdown in Toronto without the ability to travel, dine out, go to live theatre, movies, or exercise at indoor gyms and tennis bubbles, we had to find creative ways to entertain ourselves and keep physically fit. All in all, it has not been so bad and there have even been some benefits to our new routines.<p></p><p>Other than the few blissful months in the summer when COVID numbers were relatively low and we could do more outside due to the nice weather, our main source of <b>exercise</b> has been walking. Looking for variety in our daily walks, we have covered every nook and cranny of streets and neighbourhoods within a 10-12km radius around our condo. In doing so, we have come across new discoveries in terms of cool architecture, outdoor public art, colourful graffiti in hidden laneways, interesting lawn ornaments and sculptures in front of private homes, parks and ravines and many more sights that we never took the time to notice before. Instead of going to the gym, I do exercises by following various Youtube videos. Not being able to play tennis indoors, we suddenly have drastically lowered our acceptable temperature threshold for playing tennis (and ping pong!) outdoors, even with limited mobility while laden with heavy coats, hats and mitts.</p><p>Although we could not dine out at restaurants, we still wanted to support the local eateries and try to get <b>take-out</b> at least once a week. We soon discovered that many of the high-end restaurants that we have wanted to try are offering 2-5 course set meals for pickup or delivery, usually at discounted prices compared to dining in, and without the hefty liquor bill that a night out would typically include. Ordering is easy through the <a href="https://www.exploretock.com/" target="_blank">online Tock application</a> that consolidates dining opportunities into one website. We always pick up our order rather than having it delivered since we want the restaurant to get all the profits. One restaurant that had been extremely difficult to get a reservation for prior to the pandemic is Alo. By contrast, it has been fairly easy to order their take-out set meal and we have dined on their delicious offerings twice now.</p><p>As a replacement for the loss of live theatre, we have taken full advantage of all the<b> free online theatre</b> that was offered at the beginning of the pandemic. This included previously filmed plays and musicals from U.K.'s National Theatre Live, Andrew Lloyd Webber's "The Show Must Go On" series, New York's Lincoln Theatre, Stratford Festival and more. The free offerings seem to have dried up now, but there are still paid online theatre opportunities for relatively nominal prices compared to the cost of a live theatre ticket. Most recently we have signed up with <b>Musical Stage Company</b> to stream<a href="https://musicalstagecompany.ticketspice.com/musical-theatre-passport" target="_blank"> 3 musicals for $90 CDN</a> which each include a pre and post show talk. The price is for the household so the cost for the two of us comes to $15 each per show. Had we more people in our household, it would have been even cheaper per head. While the online experience is not the same as being live in a theatre, it has been a great substitute in the interim.</p><p>We belong to the <b>TIFF Secret Movie Club</b> where we would go down to the Bell Lightbox once a month between October to April to watch a movie and then have a Q&A with the director or actor. Similarly we regularly sign up for <b>interest courses</b> taught over 6-week periods at the Hot Docs Theatre. During the pandemic, both of these events have gone online and I actually enjoy this format more than attending in person. Rather than requiring to attend the movie or lecture at a fixed time, I can stream the event repeatedly at any time over a fixed period of days, in the comfort of my own home, and in my jammies if I so choose. In each case, the cost per household is also significantly less than the cost per person of the live version. I would love for this to continue even after the pandemic is over.</p><p>It is not easy to replicate the experience of traveling abroad. Rich and I both like visiting vibrant cities with interesting art cultures, so we were delighted to find that so many <b>art museums</b> have increased their online presence by offering video talks about works within their collections. The <a href="https://www.frick.org/" target="_blank">Frick Museum</a> in Manhattan produces some of the best series that we have found so far. In particular, in each episode of their "<a href="https://www.youtube.com/channel/UCjx-NLdfwSepWIkDuED_TRA" target="_blank">Cocktails With a Curator</a>" series on Youtube, a curator takes a single work in the Frick Collection and describes it in great detail, providing historical context regarding the artist and time period of the work, as well as analyzing the piece in terms of style, technique and subject matter. The curator also pairs the talk with a cocktail, somehow related (sometimes extremely tenuously) to the work. This adds to the fun of watching the video. They have another series called "Travels With A Curator" that describes a remote, often exotic location that has some sort of link to a work within the Frick Collection.</p><p>When we were initially put into lockdown for the first wave of the COVID and forced to stay just within our own household, Rich and I jumped with both feet onto the "<b>Zoom Video Chat</b>" band wagon. I signed up for premium Zoom which allows me unlimited meeting durations for groups of more than 2 Zoom windows. We proceeded to hold social chats with friends and family across the country, Zoom dinners and pizza parties, book club meetings, games nights, art discussions and more. In those first few months where everyone we knew was stuck at home with little to do, we probably had more contact with some people (albeit virtually) than we ever would have normally.</p><p>
So as we head into 2021 with the pandemic still raging, we will continue to try to make the best of things and look forward to the day when mass vaccination will free us to go out and socialize again. With both pent up energy and extra savings, we will be ready to party and splurge.<br />
<br />
<u><b>References: </b></u><br />
<a href="http://retiredat48book.blogspot.com/2020/01/2019-year-end-review-after-seven-full.html" target="_blank">2019 Year in Review </a><br />
<a href="http://retiredat48book.blogspot.com/2019/01/year-end-review-2018-after-six-full.html" target="_blank">2018 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.com/2018/01/year-end-review-2017-after-five-full.html">2017 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2017/01/year-end-review-2016-after-four-full.html">2016 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2016/01/after-third-full-year-of-retirement.html" target="_blank">2015 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2015/01/after-second-full-year-of-retirement.html" target="_blank">2014 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2014/01/after-first-full-year-of-retirement.html" target="_blank">2013 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/p/blog-page.html" target="_blank">Get our Retirement Planning Spreadsheets </a><br />
<a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement</a></p></div></div>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com3tag:blogger.com,1999:blog-8074558494642517660.post-72525761455871777762020-10-18T15:58:00.001-04:002020-10-18T15:58:23.318-04:00LIF Withdrawal Maximum - The 2nd Rule / CRA Installment Payments<p>I wrote most of this blog entry at the beginning of the year before COVID hit, which now seems like a life-time ago. I lost track of it in midst of the pandemic, kept busy with assessing the economic impact of business closures on our investment portfolio and dividend income (more on that in my annual Year-End in Review to be posted in January). Much of the content of this posting may not be relevant for the foreseeable future, since it was predicated on an exceptionally strong year for the stock market (i.e. 2019 - as I said, a life-time ago!). Since 2020 is coming to a close, I decided to publish this anyways in hopes that one day, we will see good times again.</p><p>========================================================================= <br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3RH9LbfsX_CugdfsoWzK7DpkAK7zclAh7Vs51HgJqNDwtro7bGB8xu6I_I8t1fXKTlVbBtyXW7Va5qwRPL6e7rapgNQXm6LL72j_IxDnqBiM2GwJURPE0_mU5gLpUWBKusS3_KMdGGrY/s1202/Free+Me.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="623" data-original-width="1202" height="332" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3RH9LbfsX_CugdfsoWzK7DpkAK7zclAh7Vs51HgJqNDwtro7bGB8xu6I_I8t1fXKTlVbBtyXW7Va5qwRPL6e7rapgNQXm6LL72j_IxDnqBiM2GwJURPE0_mU5gLpUWBKusS3_KMdGGrY/w640-h332/Free+Me.jpg" width="640" /></a></div><p>I have long complained about how unfair and paternalistic the rules
are for a Life Income Fund (LIF), which places restrictions on the
maximum that you can withdraw from it each year. These rules are based
on the premise that, left unchecked, an individual would blow through his
retirement savings and have nothing left towards the end of his life.
As someone who is very good at managing money and planning for the
future, I feel unnecessarily constrained by these restrictions and have
looked for every opportunity to increase the rate at which I can "free my
money" into my own control.<br />
<br />
At the beginning of 2020,
which marked my second full year of making LIF withdrawals, I was
surprised by the calculation for my LIF maximum. Up until now, I was
only aware of the rule that calculates my expected LIF maximum for the
year based
on <b>my age on January 1, my LIF balance at the end of December 31 of the
previous year, and the posted annuity factor</b>. This slowly increasing factor is meant to make your money last until age 90. I even have a spreadsheet listing the annuity factor and projected LIF maximum for each year. Accordingly at age 56, I was
expecting to only be able to withdraw around <b>6.57%</b> of the value of my LIF.<br />
<br />
Imagine my surprise when my LIF maximum for 2020 came to about <b>27% </b>of
the value of my account! I thought this was a mistake and tried to get an explanation from my
discount broker Scotia iTrade. Unfortunately the agent on the phone did not know
the answer and I did not get a response from the question that I posted on
the Communications page of their website until three weeks later (by which time, I had already figured it out - Thank You Google!). Left on my own to find the
answer, I read up in more detail about <b>LIF Maximum Withdrawal Rules</b> on the <a href="https://www.fsrao.ca/industry/pension-sector/guidance/2020-life-income-fund-lif-and-locked-retirement-income-fund-lrif-maximum-annual-income-payment-amount-table" target="_blank">Financial Services Regulatory Authority of Ontario (FSRA) website</a>
which controls my locked in company pension (converted into a Locked-In
Income Fund in 2018) and clarified the rules for Ontario. This is what I discovered:<br />
</p><div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRP6TO9JLs8msENTlzpNDv8jF3Vje57YQ8xz1nVwCHdi8tGUVYITmbGN4mJHxoYPrGNhcUyTHt0P5T55MSa7vaKviW54rLz1yAeKMPj9hU590Jw2tuuT4mYZZCJw0XvrOOmwmOsU9thzY/s1600/LIF+Max+Rules.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="424" data-original-width="1357" height="198" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRP6TO9JLs8msENTlzpNDv8jF3Vje57YQ8xz1nVwCHdi8tGUVYITmbGN4mJHxoYPrGNhcUyTHt0P5T55MSa7vaKviW54rLz1yAeKMPj9hU590Jw2tuuT4mYZZCJw0XvrOOmwmOsU9thzY/s640/LIF+Max+Rules.jpg" width="640" /></a></div>
I was not aware of the second rule which allows you to take out the <b>investment gains</b> from the previous year. I had collapsed my LIRA into a LIF at the end of 2018 and immediately moved 50% to my RRIF under the <a href="https://www.fsco.gov.on.ca/en/pensions/Forms/Documents/C-1204E.2.pdf" target="_blank">one-time FSRA provision</a>.
Accordingly there were no investment gains when my maximum was
calculated for 2019 and I fell under the first rule. Given the great
year for the TSX in 2019 and the good dividends generated from the stocks held
in my LIF, the account actually grew by over <b>27%</b> by the end of the year. This meant that in 2020, my LIF maximum was significantly higher than anticipated!<br />
<br />
When I finally received an official response from Scotia iTrade, it clarified the second rule even further. This value is calculated as:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcP2W1w7i4PHVa7IioMuRKB1IObXQCJ6epbcx0_6UMWMU4fTe69xVwLK1c5ybRykcIjXnDSk0R1PyESDl30xLgw9aiRGqDDTbXIJHug4UmlA4gk2_LirUd_pmM3tU_ZHcmb0Si9U24lRs/s1600/LIF+Max+Rules1.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="255" data-original-width="1151" height="140" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcP2W1w7i4PHVa7IioMuRKB1IObXQCJ6epbcx0_6UMWMU4fTe69xVwLK1c5ybRykcIjXnDSk0R1PyESDl30xLgw9aiRGqDDTbXIJHug4UmlA4gk2_LirUd_pmM3tU_ZHcmb0Si9U24lRs/s640/LIF+Max+Rules1.jpg" width="640" /></a></div>
In my case, since I did not have any net transfers in or out, this calculation for my <b>2020 LIF Maximum</b> consisted of the following: <br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: 10pt; mso-layout-grid-align: none; mso-pagination: none; text-autospace: none;">
<span style="color: red;"><b><span lang="EN" style="mso-ansi-language: EN; mso-ascii-font-family: Calibri; mso-bidi-font-family: Calibri; mso-hansi-font-family: Calibri;">LIF Value Y/E 2019 – LIF Value Y/E 2018 + (LIF
Withdrawal incl. Withholding Tax 2018)</span></b></span></div><p>
With this new knowledge and understanding, I will be able to better predict and plan for my LIF withdrawal going forward.
<br />
<br />
Then came the quandary. Should I take advantage of what could
potentially be a one-time opportunity to take an unexpectedly large sum
of value out of my LIF? If markets are not as strong in 2020, I may not
have this same opportunity and would fall back to the first rule of
the calculated percentage which will come to 6.63% in 2021 when I will be 57. The forgone
opportunity to withdraw 27% from my LIF cannot be rolled over to the
following year and would be lost forever. </p><p>But taking out this unplanned
maximum would push my 2020 income significantly higher than expected, increasing my income tax burden. I also had not saved enough cash within my LIF to pay the withholding tax and would need to sell some stock in the account to generate it. Additionally, I would
need to scale back the larger withdrawal that I had planned for
within my RRIF, where I did have the extra cash to cover the withholding
tax. My overall goal is to drastically reduce the value of my
registered accounts by the time I am age 71, so that I will not be
subjected to as much claw-back of Old Age Security (OAS) payments, which are indexed for inflation. For the past few years, I have
concentrated on my RRIF but now came an opportunity to deal with my
LIF. <br />
<br />
After some thought, I decided that I could not pass up this opportunity. Instead, I would withdraw the <b>allowed maximum</b>
from my LIF and take the one-time hit to my net income level. As
has been my strategy for the past few years, I would take a portion of this withdrawal as
stock-in-kind to move to my non-registered account where it will
continue to generate dividend income at a better tax rate. The rest of the withdrawal would be taken in cash and paid up front as withholding tax. Rather than paying the minimum required withholding tax, I would pay enough to cover my projected overall tax burden generated not just from this LIF but from all of my registered and non-registered accounts. I am able to obtain a fairly close estimate of this future 2020 tax burden by entering anticipated income figures into my 2019 tax software. </p><p>To generate the cash to cover the withholding tax, I put in a "limit-sell" for some shares of one of my stocks and was able to sell at a decent price while locking in some tax-free capital gain. By voluntarily paying extra withholding tax as part of my<span style="color: red;"> <span style="color: black;">LIF withdra</span></span>wal, I avoid the need for the government to put me on a mandated tax installment payment plan in future years. CRA installment payments are required when insufficient tax is deducted at source. The requirement for installment payments is as follows: <br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpx5sUWT8ofMsC4cICr5UNGMaQ4d6K100MJT-GaDYuNtFGcc78HC3DqQYl0p3RBKfgjFMtw5znHIwInVhsxvvivKaH8_JfRJnvtOnBMzjybCXBxCFQXIk95LeLU8SYTC5k_ODKZLeN8nU/s1096/CRA+Installments.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="330" data-original-width="1096" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgpx5sUWT8ofMsC4cICr5UNGMaQ4d6K100MJT-GaDYuNtFGcc78HC3DqQYl0p3RBKfgjFMtw5znHIwInVhsxvvivKaH8_JfRJnvtOnBMzjybCXBxCFQXIk95LeLU8SYTC5k_ODKZLeN8nU/w640-h192/CRA+Installments.jpg" width="640" /></a></div><p></p><p>No tax is deducted for any of the dividend payments that my husband Rich and I receive and split as income
from our jointly held non-registered account. The minimum withholding tax charged
on my registered account withdrawals would not be enough to put me under the "net tax owed" threshold to avoid the requirement for installment payments. Rather than needing to adhere to a fixed schedule (usually quarterly) for paying taxes throughout the year and having to make sure that I have the funds available for each period, I would rather be in control of when I pay and prefer to do it in one or two lump sums. This way I can sell stock at an opportune time in order to fund the payment(s) and I can pay amounts closer to what I actually owe, as opposed to the CRA estimates that are based on previous years' net taxes owed.<br /></p><p>My initial motivation for paying more withholding tax up front was a means to help the economy during the COVID crisis by paying my income tax debt to the government ahead of the regular due date. Now with the possibility of being imposed installment payments, I would not be paying that far in advance anyway.<br /></p><p>Taking advantage of the second rule of LIF
Withdrawal limits was probably a good decision since it may be a while
before these conditions present themselves again. A similar situation happened for Rich, but
since the size of his LIF is much smaller, withdrawing the maximum
would not have the same effect on his annual income as it did for me,
and he actually had enough cash saved up to cover the withholding tax.
So this was an easy decision for him to take advantage of this year's
extraordinary maximum withdrawal allowance. This large withdrawal followed by the initial market crash incurred after the start of the pandemic caused the value of his LIF to drop below the "Small Amount Rule" which allowed him to collapse his LIF all together and move the money into his RRIF. I discussed this in a <a href="http://retiredat48book.blogspot.com/2020/03/looking-for-silver-linings-in-face-of.html">previous blog entry</a>.<br /></p>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-38263726527549524722020-07-09T20:45:00.000-04:002020-07-09T20:45:01.130-04:003.5 Months Into the Pandemic ...<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjP_ioDRbIvoFcA0iGJxGSenhFU3CPziT35e_X19oUpE_mrka5Ad_hDg-DTLCn9Sym0JyGi4EDMEHRk8iujCz1re5k4WWq6XDms8fwim_sVgtZLZy-QfnqrVq6jLps79MMvsRsXKvWlMu8/s1600/Covid+vs+Economy.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="332" data-original-width="654" height="202" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjP_ioDRbIvoFcA0iGJxGSenhFU3CPziT35e_X19oUpE_mrka5Ad_hDg-DTLCn9Sym0JyGi4EDMEHRk8iujCz1re5k4WWq6XDms8fwim_sVgtZLZy-QfnqrVq6jLps79MMvsRsXKvWlMu8/s400/Covid+vs+Economy.jpg" width="400" /></a></div><div>
It has been over three months since everything first shut down due to the pandemic. We have now gone through an entire "COVID-impacted" quarter of dividend payouts (or lack thereof) since the depth of the market crash in mid March. This seems like a good time to reflect upon the economic fallout of COVID 19 and its financial impact on our portfolio. <br /></div><div><br /></div><div>My husband Rich and I have been through market downturns before, including the financial crisis of 2008. That situation was less stressful for us since we were both still working and had time to wait for a recovery. In fact, that recession was a great time for us to buy stock at a discount and probably hastened our ability to retire when we did. We saw it as a successful test of our retirement strategy of basing our income on dividends as opposed to the value of the stock. Although stock prices plummeted, our dividends held strong. It helped that only limited sectors were affected and for the most part, these were not sectors that we were heavily invested in. Also since we limit the size of our holdings in any one company, we would be only slightly impacted by any company that did cut or eliminate its dividend. In addition, it proved that we had the risk-tolerance and fortitude to concentrate on the dividends and not panic even while the total value of our portfolio fell drastically. We were tested again in 2015 when the markets fell 11% from the previous year for various reasons including worry over China's economy and its impact on the rest of the world. That time we were 3 years into retirement. But once again we stood pat, our dividends held, and by 2016 we had recovered all of our "paper" losses and were on the rise again.<br /></div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4IGN5Pc1oosuCAVwGHRVh0P_B5M2YWsbaL4VwbVkc6o-1hC7QjQboU0FC_dWE-snEv634Ej2oMOkcnhv2HOoIY66g30gERpPyf4q1G5zxgji3KBIxETr-cg2rpnr0otDq9RN9GJeGkWA/s1554/3+Mths+After+Pandemic+Start.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="883" data-original-width="1554" height="356" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4IGN5Pc1oosuCAVwGHRVh0P_B5M2YWsbaL4VwbVkc6o-1hC7QjQboU0FC_dWE-snEv634Ej2oMOkcnhv2HOoIY66g30gERpPyf4q1G5zxgji3KBIxETr-cg2rpnr0otDq9RN9GJeGkWA/w625-h356/3+Mths+After+Pandemic+Start.jpg" width="625" /></a></div>Those two experiences helped to prepare us for the unprecedented decimation of the markets that resulted when COVID 19 led to the closure of all businesses except for "essential services". This time all sectors across the board were affected in a major fashion. Granted that stock values were probably inflated at their height back in mid February. But at the bottom of the crash in March, the TSX/S&P index had fallen by over 37%! At one point, the 1-year returns of every one of our stock holdings were in the red by double digits, some having lost over 50% of their value. Once again, we ignore the value of our portfolio and look only at the impact to our dividends.<br /></div>
<br />
<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCW3EezhUNCCnQwhrcUICQqhmf2ogxtV72E4aPuSbLUh1lJmghlig9XsfbttQZdKz1YkvDctke_Fm29l9ZIpX9Rq7L1fRUBxTFWzVb7RZoYPFrNPn_6tDOhU5ElT8xRfLyWfuvh2cG56Y/s801/2Q2020+Div+Cuts.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="311" data-original-width="801" height="194" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCW3EezhUNCCnQwhrcUICQqhmf2ogxtV72E4aPuSbLUh1lJmghlig9XsfbttQZdKz1YkvDctke_Fm29l9ZIpX9Rq7L1fRUBxTFWzVb7RZoYPFrNPn_6tDOhU5ElT8xRfLyWfuvh2cG56Y/w500-h194/2Q2020+Div+Cuts.jpg" width="500" /></a></div><div>This time we did not escape unscathed. Six of the companies that we own have either slashed or totally eliminated their dividend payouts. We already knew about a couple of these from the last quarter. They included <b>Cineplex</b> (<b>CGX</b> - more on this later) who understandably stopped payments since they were not making any revenue with their theatres closed, and <b>Chemtrade (CHE.UN)</b>, an already struggling company who cut their dividend by 50%. <b>Husky Oil (HSE)</b> was another troubled company that was on our radar for the potential of a dividend reduction. Rather than totally eliminating it, Husky cut their dividend by 90%, now paying out just 10% of what it used to for the past 1.5 years. In my opinion, leaving just 10% of your previous payout is a weak attempt at being able to claim that you are still a dividend-paying stock. I closely track our dividend payouts each month and this measly amount is almost not worth my time to log. However Rich thinks that it is an indication that the company hopes to resurrect a healthier dividend once their finances improve. <b>Methanex (MX)</b>, a producer of Methanol which has been affected by weak oil prices, used the same tactic by cutting their dividend by 90%. <b><br /></b></div><div><b><br /></b></div><div><b>A&W Revenue Royalty Income Fund (AW.UN)</b> took the opposite approach by totally eliminating their dividend payout, but declaring up front that this is a "temporary measure" while its restaurant chains closed at the start of the pandemic. Now that the restaurants are starting to reopen again, hopefully this means that eventually the dividend will return. <b>Suncor</b> <b>(SU)</b> was the most interesting case, since they actually raised their dividend by 10% back in the first quarter and then clawed it back before cutting its dividend by 50%. So the net result is that Suncor has cut its dividend by the unusual amount of 55% since their previous payout.</div><div><br /></div><div>The impact of these dividend reductions was tempered by the fact that 5/6 of them were situated in our registered accounts. Having already made the bulk of our annual LIF and RRIF withdrawals at the beginning of this year, we can now defer next year's mandatory withdrawals up to the end of 2021, which gives us over a year and a half to wait for these companies to recover both in value and dividend payouts. For the past few years, we have been making our RRIF/LIF withdrawals by moving stock-in-kind into our non-registered account, from which we withdraw the dividends to spend as income. We usually move the more stable stocks, leaving companies in riskier or more cyclical sectors in the registered accounts. This worked out especially well this year, since none of the stock that we withdrew cut their dividends. Because of our strategy of moving stock-in-kind as opposed to selling stock and withdrawing cash, it would have actually been better had we made the withdrawals during the lowest point of the market. For the same amount of taxable income generated from the withdrawal, we could have moved more dividend-paying shares to the non-registered account at a lower share price. But who could have predicted this latest market downturn?</div><div><br /></div><div>The one dividend cut that directly impacted our annual income was <b>Cineplex</b>, which we hold both in our registered and non-registered account. Cineplex had been a solid dividend-paying company that increased their payout annually since 2011, even though their share price had declined since we first bought it. Things looked bright for this stock when it was announced at the end of 2019 that the company would be bought out by British company Cineworld for the price of $34 per share. With that announcement, the market price of Cineplex shot up by over $10 to match and even momentarily slightly exceed the buyout price. At that point, we considered cashing out our Cineplex shares in advance of the sale. But inertia and the desire to continue reaping the seemingly solid dividend payout for a few more months led to us hanging on to the shares until the sale. Then COVID 19 hit, Cineplex closed all their theatres, their share price plummeted, they eliminated their dividend payment and now Cineworld has backed out of the buyout deal. The lost opportunity of selling our Cineplex shares and the loss of dividend income that those shares provided is regrettable, but our diverse portfolio is structured so that no one company's misfortunes will hurt us too badly. There is no point to sell now at these depressed prices, especially since theatres are starting to reopen. We will just continue to hold our Cineplex shares and hope for a rebound, while we watch the unfolding drama as the company sues Cineworld for breach of contract.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwbTKhq7OekIk8D6-QW0qyVZUSLP_0AzK6dkI4lRUxgvbXhvBxKK8blk3VTmOqVEctMdW6BkPFsSbTWcitVxfgq0oSjg0PJaE5J4F1_PS8vRRAzhUCFHIq7cBRlYYUr2a9F8_Mvb3F7I0/s922/2Q2020+Div+Holds-Raises.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="342" data-original-width="922" height="186" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwbTKhq7OekIk8D6-QW0qyVZUSLP_0AzK6dkI4lRUxgvbXhvBxKK8blk3VTmOqVEctMdW6BkPFsSbTWcitVxfgq0oSjg0PJaE5J4F1_PS8vRRAzhUCFHIq7cBRlYYUr2a9F8_Mvb3F7I0/w500-h186/2Q2020+Div+Holds-Raises.jpg" width="500" /></a></div>The news was not all bad in this second quarter. Two more of our stock, <b>Finning International (FTT)</b> and <b>Sunlife Financial (SLF)</b>, decided to not raise their dividend payouts, joining Bank of Nova Scotia (BNS) and Canadian Apartments (CAR.UN) who did the same in the first quarter. Despite having raised their dividends annually for multiple years, given the state of the economy, we considered this a win. Three of our stock, <b>Algonquin Power (AQN), Hydro One (H) </b>and<b> Power Corporation (POW)</b>, actually raised their dividends. Not surprisingly, all three of these companies are in the Utilities sector which did not suffer as much from the pandemic-induced shutdowns.</div><div><br /></div><div>During all this, there were two anomalies that made it look like two solid companies had reduced their dividends, but did not. First <b>Telus</b> (<b>T</b>) initiated a 2-for-1 stock split, making it seem on the surface as if their dividend was cut in half. In reality, we ended up with twice the number of shares at half the dividend rate and came out even. <b>Brookfield Infrastructure Partners (BIP.UN)</b> made an even more complicated move when they split off a small portion of their company to create <b>Brookfield Infrastructure Corp (BIPC)</b>. For every 9 shares of BIP.UN, we received 1 share of BIPC and the dividend for both companies adjusted accordingly. It took a bit of math to prove to myself that we came out with the same payouts between the two companies that we originally had with just BIP.UN, but we did. One interesting thing to note is that unlike BIP.UN, BIPC is not an income trust, so eventually we could move shares of this company from our registered to our non-registered account without generating tax complications that come with holding income trusts in non-registered accounts. <br /></div><div><br /></div><div>So what has been the net effect on our portfolio and our dividend income after 3.5 months of the pandemic? As indicated in my previous blog post, 19 of our 46 companies had raised their dividends in the first quarter, with Suncor being the only one that subsequently cut it in the second quarter. This means that despite the cuts that we received, so far our overall annual dividend income is higher than it was at the end of last year. The pandemic is far from over yet, but the worst of the market roil seems to hopefully be over? If that turns out to be the case, then we will have survived the "mother of all" market downturns and it feels like if we can make it through this with our income relatively intact, then we can survive anything. With stock prices still depressed relative to before COVID 19 struck, we continue to use Dividend Reinvestment Plan (DRIP) in our registered accounts to purchase more stock from the companies whose holdings we wish to grow.<br /></div><div><br /></div><div>Because so many activities have been inaccessible or undesirable to us over the past three months, our spending continues to be concentrated mainly on mandatory costs such as condo fees, utilities, household supplies and groceries. During this period, we totally eliminated our usual spending on transit, hair cuts, dental appointments, discretionary shopping trips, and entertainment activities such as going to the theatre or movies and dining out at restaurants. We have no plans for vacation spending for the rest of the year and have drastically reduced our driving costs. For the first time since we retired, we have actually been able to add regularly to our emergency kitty funds stored in our high-interest savings accounts. In the months of April and May, our average spending was almost 50% less than in previous years. Now part of that was because we were also not charged property tax for two months and are paying a temporarily reduced utility rate on our hydro usage. In June, as the property tax bills restarted and more restaurants opened up for takeout, our relative savings dropped by around 25% which is probably a more realistic rate going forward.</div><div><br /></div><div>As described in my book <a href="https://www.amazon.ca/Retired-48-Couples-Pensionless-Retirement/dp/1927403456/ref=sr_1_1?dchild=1&keywords=retired+at+48&qid=1594327974&sr=8-1" target="_blank">Retired At 48 - One Couple's Journey to a Pensionless Retirement</a>, we use <b>Quicken </b>both to accurately categorize our spending for ease of running reports, but also to predict up-coming spending needs to ensure that we always have enough cash flow, either coming from our dividends or augmented from our short or long term kitties. So when our monthly property tax was deferred for two months, I post-dated the expenses in Quicken to remind myself that this money would come due eventually.<br /></div>
<div><br /></div><div>All in all, Rich and I have been quite fortunate throughout the pandemic since we were already retired and did not have jobs to lose or stress over, and our retirement income has so far held up quite well. I read an <a href="https://www.theglobeandmail.com/investing/personal-finance/household-finances/article-27-ways-for-the-financially-fortunate-to-help-out/" target="_blank">article in the Globe and Mail</a> back in March about ways that people who were financially secure could help out the economy. We have implemented some of these ideas including regularly ordering takeout from our local restaurants and going to pick up the food so that delivery services do not eat into the profits, buying gift cards for future spending, donating to charities including the Red Cross, and accepting credits from theatres for future shows instead of getting refunds for cancelled performances. One interesting suggestion that helps the economy in general is to file and pay your income taxes early. We did this for our 2019 tax filings, paying at the beginning of May instead of taking advantage of the deferred payment deadline of September 1. Since Rich needs to make another small RRIF withdrawal to reach his annual RRIF minimum, he may opt to pay more withholding tax than would normally be required, as a way to reduce the tax owed in 2020 and also continue to help replenish the government coffers. I realize that our small contributions won't do much if anything to address the overwhelming deficit that is being racked up during the pandemic, but hopefully every little bit helps?<br /></div><br />A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-57274081191891324132020-03-23T21:32:00.000-04:002020-03-23T22:59:38.868-04:00Looking for Silver Linings in the Face of Economic Turmoil and Other Musings<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitRQuq0X_3WvuNZckUn-oG0F_799reoUME9OVSNEtrKJsTJKwJEyyseKp41Dm7vu0wJUEmE39WXXITSatA7ZPHvXUHC2Dn3XJMA2P2mJy3E9tdlRRIi80K6JJmopSD0Gr_x5wh3CMaIGM/s1600/TSX-S%2526P+YTD+as+of+Mar+17.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="587" data-original-width="976" height="384" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEitRQuq0X_3WvuNZckUn-oG0F_799reoUME9OVSNEtrKJsTJKwJEyyseKp41Dm7vu0wJUEmE39WXXITSatA7ZPHvXUHC2Dn3XJMA2P2mJy3E9tdlRRIi80K6JJmopSD0Gr_x5wh3CMaIGM/s640/TSX-S%2526P+YTD+as+of+Mar+17.jpg" width="640" /></a></div>
Things are dire in the markets right now. The TSX/S&P index is down over 28% since the beginning of the year with our investments following suit. While we have a fairly diversified stock portfolio, that helps little in situations like this where all sectors are down across the board. Our strategy of relying on dividends rather than the value of our stock will buffer us to a large degree. We are always at risk of dividend cuts but since we hold shares in so many different companies, no one company's dividend cut would substantially hurt our income situation. Most of our companies are large cap, blue chip organizations that should
be able to withstand what hopefully will be a temporary setback, but it is something that we will need to keep an eye on. While a few of these companies may consider temporarily suspending any regularly scheduled
dividend increases, most will be hesitant to cut dividends since this
will be admitting weakness. The same premise held true for the Financial crash of 2008, although those were different circumstances.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlk_FF-O8xZLba5e-IrgH34UorU6BktB2g-RkmhoHqXtTArqAFefSubAqpphTpHOD7Bohow3dlMIxcgg7udNw2yJMNJWay6k-8o9fcukgOwX9LVoRt28YE5lpfrfa7I7cjkef0qmtjq6c/s1600/Dividends+Raised+1Q2020.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="901" data-original-width="1600" height="360" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhlk_FF-O8xZLba5e-IrgH34UorU6BktB2g-RkmhoHqXtTArqAFefSubAqpphTpHOD7Bohow3dlMIxcgg7udNw2yJMNJWay6k-8o9fcukgOwX9LVoRt28YE5lpfrfa7I7cjkef0qmtjq6c/s640/Dividends+Raised+1Q2020.jpg" width="640" /></a></div>
Using <a href="https://www.tmxmoney.com/en/index.html" target="_blank">TMX Money</a> and <a href="https://www.morningstar.ca/ca/" target="_blank">Morningstar</a> websites as information sources, I took inventory of our holdings to see where we stood in terms of upcoming dividend payments. We are lucky that many of the companies whose stock we own have already declared their dividends earlier in 1Q2020 and are therefore obliged (legally?) to pay out at least through April. A significant number of them even declared increases in dividend, right on schedule at the same time that they have for the past 3-5+ years. It is interesting to note though that most of these declarations occurred <b>before</b> the MAJOR market free-fall that started around the beginning of March. The only stock that still committed to a dividend increase <b>after</b> the beginning of March is Premium Brands (PBH) which declared mid March. I wonder if they regret it now?<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYnzuyAmnFQ2szzu45aIIUwP15zEIKpWhJo1FNB15faXZ5ujMnq_tlzEQLZlsALuIcJEzSpvhk1SBapm8PaYGFWzqQXrbBPQ1M0PXl-Pxn47nWKgy_vlU-U4LRaWtRfNG3hz-wfst49i8/s1600/Dividends+Not+Raised+1Q2020.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="190" data-original-width="1600" height="74" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYnzuyAmnFQ2szzu45aIIUwP15zEIKpWhJo1FNB15faXZ5ujMnq_tlzEQLZlsALuIcJEzSpvhk1SBapm8PaYGFWzqQXrbBPQ1M0PXl-Pxn47nWKgy_vlU-U4LRaWtRfNG3hz-wfst49i8/s640/Dividends+Not+Raised+1Q2020.jpg" width="640" /></a></div>
By contrast, Canadian Apartment Properties (CAR.UN) also declared in mid March but did not raise its dividend as per schedule for the first time since 2012. Bank of Nova Scotia (BNS) typically declares a dividend raise twice a year, payable in April and October. There was no dividend raise for April 2020, even though the dividend was declared back in mid February, prior to the crash. I wonder if the bank could foresee what was coming?<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpu7eQMloOGivL-Fk7VEf0643q_dsX6DmzkpPuVgz4VYPIcCpp6qWFJ2NjNBVMKPDVJQ4YKdQrZ8uzlUW5x7YKQiUD7EplFO79RlrytnPUNNhFVMYSi3iu4fNFHOmvJYjMS4d_rc_dipk/s1600/Dividends+Cut+1Q20202.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="245" data-original-width="1600" height="98" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhpu7eQMloOGivL-Fk7VEf0643q_dsX6DmzkpPuVgz4VYPIcCpp6qWFJ2NjNBVMKPDVJQ4YKdQrZ8uzlUW5x7YKQiUD7EplFO79RlrytnPUNNhFVMYSi3iu4fNFHOmvJYjMS4d_rc_dipk/s640/Dividends+Cut+1Q20202.jpg" width="640" /></a></div>
We hold stock in a few financially fragile companies who might not be able to withstand the downturn, especially those in industries directly hit by the reduction in business caused by self-quarantine and social distancing measures. Already Cineplex (CGX) has missed its monthly scheduled dividend declaration date, which leads to the reasonable assumption that they will not be paying any dividends while their theatres remain closed. Chemtrade Logistics (CHE.UN) has already declared that it will slash its April dividend in half. Whether this is temporary or permanent is to be determined since Chemtrade has been struggling for a while now. The companies that pay out monthly, like CGX and CHE.UN, have less time to ride out the storm than those that pay quarterly. Corus Entertainment (CJR.B) and Husky Oil (HSE) already declared their 1st quarter dividend and do not need to decide on their next declaration until mid April and mid May respectively. So these companies have a bit of time to wait and see if there will be a miraculous market recovery in the interim. In the meantime, their share prices have plummeted to the point that their dividend yields are dangerously in the double digit range.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipZq_rQwVuu6KB_RJBAeLO7Xtnl6u7tO6mjoRZYiMkbpFD3pFWL6FdXIOWZxUHdhQW30PzA9lm0T73L5LKhPvXkXqvhd3MKLw96C5TrSQn2PoRFyJ7HRrFzBORrr6c1gdh2RDzszhAShs/s1600/Dividends+Maybe+Raised+2Q2020.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="329" data-original-width="1600" height="130" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipZq_rQwVuu6KB_RJBAeLO7Xtnl6u7tO6mjoRZYiMkbpFD3pFWL6FdXIOWZxUHdhQW30PzA9lm0T73L5LKhPvXkXqvhd3MKLw96C5TrSQn2PoRFyJ7HRrFzBORrr6c1gdh2RDzszhAShs/s640/Dividends+Maybe+Raised+2Q2020.jpg" width="640" /></a></div>
It will be telling to see what happens for our next set of companies who usually make their 2nd quarter dividend
declarations around the end of April
to mid May for payout between June to July. While all of these companies have taken hits to their share prices, hopefully most of them will be able to ride it out and wait for a recovery. It would not be surprising if they skip their annual dividend raises, but we just hope that they don't reduce their dividend payouts, temporarily or otherwise.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhv_5XCzcVqas47dBDRy9YVfw4l4YDOTiMSFex0mT2bA8yRf7eLQzKSs551nt7edTtpEPDaeoUeOsZ2RAaCY5A-vFUcc5FOGo8wjFrHuDcM6NKBILkY2ccHutatozpVTmglHdbzNK3KH_8/s1600/lemonade.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="571" data-original-width="1600" height="228" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhv_5XCzcVqas47dBDRy9YVfw4l4YDOTiMSFex0mT2bA8yRf7eLQzKSs551nt7edTtpEPDaeoUeOsZ2RAaCY5A-vFUcc5FOGo8wjFrHuDcM6NKBILkY2ccHutatozpVTmglHdbzNK3KH_8/s640/lemonade.jpg" width="640" /></a></div>
As with the last financial crisis in 2008, the secret is to stick to our "buy and hold" strategy and not succumb to the frenzy of panic selling that is currently sweeping the markets. This would only lock in what is otherwise just transient losses on paper. We can withstand minor cuts to our dividend income while we wait out the end of the pandemic. In fact, there are various ways to benefit from the downturn, just as there were in 2008, although this time the situation is a bit more dire, extreme and unpredictable.<br />
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As of right now, all <b>stocks</b> across the board are "<b>on sale</b>". It is a fine time for those waiting to get into the market, although it is difficult to know when prices have bottomed out. Since we are in retirement spending mode as opposed to retirement savings mode, we do not have much spare cash available to take advantage of the depressed market. However we are able to DRIP (Dividend Reinvestment Plan) in our registered accounts (RRSP, RRIF, TFSA) in order to buy small amounts of stock at relatively lower prices each time we are paid a dividend from various companies. <br />
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Since COVID-19 has forced the cancellation or closure of most of the social activities that constitute our "discretionary" spending, we actually have significantly <b>less spending</b> and <b>more cash flow</b> for the month of March. We have received refunds for pre-paid travel expenses, theatre tickets, movie events, tennis fees, gym memberships and more. Social distancing and the mandated closure of all non-essential shops, services and entertainment options means that discretionary spending has been reduced to just about zero. We can no longer dine at restaurants and the need to take transit or fill up gas to drive anywhere has trickled to a halt since there is nowhere to go. We are left with only "mandatory" expenses to pay for. Our monthly credit card bill for March is the lowest that it has been in years and this trend should continue until the crisis is over. This should help any dividend hit that we incur.<br />
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Part of the contingency factored into our early retirement plan was the ability to scale back discretionary spending if we ever fell behind in our annual retirement projections. To date, this has not been required since we went through so many great years in the stock market that we are now way ahead of plan. But this enforced reduction in our spending opportunities has provided a good chance to reassess the cost of the bare-bones minimum monthly expenditures in our budget. At this point, we are down to condo fees, property tax, hydro bills, utilities (cell phones, internet, cable), food, medicine, sundries (like toilet paper!?!) and NETFLIX (in order to survive the boredom!!). I doubt that anyone stuck at home for such extended periods of time would debate that internet access and TV/Streaming services have become mandatory expenses.<br />
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One unexpected side-effect resulted from the massive loss in value in all of our accounts. My husband Rich's locked-in Life Income Fund (LIF) is governed by strict rules that limit the maximum that you can withdraw each year, with the goal of making the funds last until age 90. One of the few exceptions is the <b>"Small Amount" Rule</b> for Ontario which states:<br />
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<b><span style="font-family: sans-serif; font-size: 15px; left: 69.8px; top: 445.2px; transform: scalex(1.114);">If you are at least 55 years old and the t</span><span style="font-family: sans-serif; font-size: 15px; left: 351.605px; top: 445.2px; transform: scalex(1.13136);">otal value of all money</span><span style="font-family: sans-serif; font-size: 15px; left: 512.6px; top: 445.2px; transform: scalex(1.12627);"> held in every Ontario </span><span style="font-family: sans-serif; font-size: 15px; left: 671.39px; top: 445.2px; transform: scalex(1.13393);">locked</span><span style="font-family: sans-serif; font-size: 15px; left: 718.985px; top: 445.2px; transform: scalex(1.11438);">-in account</span><span style="font-family: sans-serif; font-size: 15px; left: 798.98px; top: 445.2px; transform: scalex(1.11154);"> you own is less than </span><span style="font-family: sans-serif; font-size: 15px; left: 69.785px; top: 462.405px; transform: scalex(1.0459);">$22,960 </span><span style="font-family: sans-serif; font-size: 15px; left: 128.39px; top: 462.405px; transform: scalex(1.13217);"><<i>amt recalculated each year</i>></span><span style="font-family: sans-serif; font-size: 15px; left: 363.2px; top: 462.4px; transform: scalex(1.03332);">, you can apply to withdraw all the money in your Ontario locked-</span><span style="font-family: sans-serif; font-size: 15px; left: 865.205px; top: 462.4px; transform: scalex(1.02134);">in account or transfer it to a RRSP or RRIF.</span></b><span style="font-family: sans-serif; font-size: 15px; left: 933.605px; top: 462.4px; transform: scalex(1.09476);"></span><br />
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Prior to the big crash at the beginning of March, the value of Rich's LIF came nowhere near qualifying for the small amount rule. Within a week, the value had plunged to the point that it qualified easily. He filled out <b><a href="https://www.fsco.gov.on.ca/en/pensions/Forms/Documents/1167E.pdf" target="_blank">Form 5</a></b> from the <b>Financial Services Commission of Ontario website</b> and requested that all the stock and cash sitting in his LIF be transferred to his Spousal RRSP. It took about 5 business days for our discount broker Scotia iTrade to execute the request and in that interim, we were concerned that the stock would rebound and no longer qualify. No worries there, since the share price fell even further over these days. So now he has successfully broken free from the strict rules of the LIF and he no longer needs to trigger annual withdrawals from that account. Because the stock was transferred in-kind from registered account to registered account, there was no sale to lock in the losses and hopefully this will not count as LIF income. The shares can now sit in his RRSP collecting dividends, allowing time for the share price to eventually bounce back.<br />
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We had already made our mandatory annual RRIF and LIF withdrawals at the beginning of the year before the stock crash. I gave some thought as to what we could do if this was not the case. First I would defer the withdrawals until the end of the year to allow maximum chance for the markets to recover. If that does not happen, then I would make my RRIF/LIF withdrawals as stock-in-kind into my non-registered account so that there is no actual sale of stock to lock in the loss values. I would then keep the stock there and let the prices rebound. As a side benefit, the dividends generated by the new stock in the non-registered account would be taxed at a much more favourable rate. If I needed the value of those withdrawals to live on, instead of selling stock at a steep loss to generate cash, I would initially raid our long-term emergency kitties, hoping to replenish them once the market rebounded. Finally I would withdraw the minimum allowable amount for the year, which the Federal government has provided a one-time reduction of 25%.<br />
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These are trying times for all of us. It is important to stay calm and not panic. A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-44545160850377561722020-03-12T22:31:00.000-04:002020-03-12T22:31:20.416-04:00Beware of "Ghosting" Your Spouse Credit-wise<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqQYmr5Opgc1o8-VZWVl7lbWy7q03v2DwEhyWW_PwNQ6NuwbxbMSCCVYakpeYZ-5zMh4xPFMO1uG7wgnb1N5lll-AwzHK5a3CN4kwwWgvTg5BckMiZCP9oZHGof60LiWiPFH589o2rg_0/s1600/Credit-Score-Pie-Chart.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="615" data-original-width="1600" height="244" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqQYmr5Opgc1o8-VZWVl7lbWy7q03v2DwEhyWW_PwNQ6NuwbxbMSCCVYakpeYZ-5zMh4xPFMO1uG7wgnb1N5lll-AwzHK5a3CN4kwwWgvTg5BckMiZCP9oZHGof60LiWiPFH589o2rg_0/s640/Credit-Score-Pie-Chart.jpg" width="640" /></a></div>
Being the more detail oriented, organized and proactive person in our marriage, I have been the one to apply for any credit cards, making my husband Rich a secondary card holder. I am also the registered owner for utility bills such as phone, cable, internet and cell phones. All of our bank accounts are joint and the only accounts actually in his name alone are his RRIF and TFSA. There is an unfortunate side effect of this which did not become apparent until the day Rich tried to open his own EQ Bank savings account.<br />
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We found out that Rich now has an extended period with no "credit history" even though he has been spending regularly on his credit cards, for which I pay off the entire balance every month. He does not even have an easily accepted secondary "proof of identity" since his name is not on any of our utility bills, which seems to be the defacto identification criteria requested by many institutions. After providing his driver's license, we realized that he could not produce any of the requested additional bills or statements that had just his name on it. Even our property tax statement lists both of our names with mine is listed first. Eventually he was able to use his T4RIF statement to confirm his identity and was able to successfully open the bank account.<br />
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However, this did not help with Rich's lack of credit history, which is defined as "<span class="ILfuVd NA6bn"><span class="e24Kjd"><i>A consumer's ability to repay debts and demonstrated responsibility in repaying debts</i>.</span></span>" Your credit score is calculated by totaling points assigned based on:<br />
<ul>
<li>Payment history - how promptly and completely you pay off your credit debts</li>
<li>Debt level - the amount of available credit that is used up each month</li>
<li>Credit history - the amount of time you have held each type of credit</li>
<li>Types of credit - whether you have credit cards, line of credit, mortgage, car loans, etc.</li>
<li>Requests for new credit - each new request decreases your credit score</li>
</ul>
Other than our credit cards, which are all in my name, we have no debt. We paid off the mortgage on our home over 15 years ago and do not have any outstanding loans or even a line of credit. This leaves Rich with a low credit score, since he has no types of credit to generate payment history, credit history or debt levels. Despite not being over-extended with debt and my always paying off the little debt that we owe on our credit cards, Rich gets no credit (pun intended) for being a good loan risk. It probably does not help either that we have been retired for over 7 years now,
and therefore do not have recent employment history or income.<br />
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It has become a bit of a catch-22. Rich has tried to rectify the situation by applying for one of the higher-end credit cards under his own name, but was rejected even though he can prove that he (as well as we as our household) have more than sufficient funds to support such a card. Most recently we wanted to get a BMO World Elite Mastercard which has many perks including 4 free airport lounge passes per year and is currently under promo for 1 year no service charge. As expected, Rich was declined by the automatic online assessment, but this time we made an appointment to speak to a BMO Personal Banking rep at our local branch. We went armed with proof of income in the form of several years of income tax statements, along with an explanation as to his lack of credit history.<br />
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It took several days involving communications with more senior loan officers who wanted to see further proof of liquid assets, but Rich finally qualified for this credit card. Now he needs to establish a better credit score by retaining the card for more than a few months, spending on average less than 35% of his available credit limit, and paying off the full amount owed every month. Let this be a lesson learned for couples who allow one partner to generate all the credit history while the other partner has none. All the bank representatives that we spoke to commented on how often they encountered this issue. Once this happens, it becomes a big pain to try to resolve the situation.A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-4821365331914934122020-02-06T06:29:00.001-05:002020-02-06T06:29:53.156-05:00Withdrawing US Cash from TFSA<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg394LFY5ZywcjQp9BdmViArn0CwgoW0oiwP2UXMN9XtXPlNhqt5edDuXXLiaANQL72oghtnkVxNgS35TAVFdJTQ6zOkbd6G-k8SXIjfLv-eFovJY1fhJtGsqUrmRiWvPiESW3eaPf87KE/s1600/TFSA+US+Cash+WD-Recontribution.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="518" data-original-width="1566" height="210" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg394LFY5ZywcjQp9BdmViArn0CwgoW0oiwP2UXMN9XtXPlNhqt5edDuXXLiaANQL72oghtnkVxNgS35TAVFdJTQ6zOkbd6G-k8SXIjfLv-eFovJY1fhJtGsqUrmRiWvPiESW3eaPf87KE/s640/TFSA+US+Cash+WD-Recontribution.jpg" width="640" /></a></div>
Throughout 2019, I withdrew the US cash dividends generated from my shares of Algonquin Power (AQN.T) that I held in my Tax Free Savings Account (TFSA) and moved the cash directly to my US bank account without incurring currency exchange fees. Since the money came out of the TFSA, there was also no income tax generated. This seemed like an excellent way to accumulate more US cash that I could use to spend on vacation in the States. It was also an easy transaction to trigger since I could make the request on my own from my online account on the website of my discount broker Scotia ITrade (as opposed to lengthy waits on the phone to request an agent to do it for me!).<br />
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It was unclear how the withdrawal of <b>US cash</b> would affect my TFSA contribution limit for the following year, which is calculated in Canadian dollars. I assumed that each of my withdrawals (approximately $195USD and $254USD) would be converted to Canadian dollars based on the exchange rate at the time of the withdrawal, and that amount would be added to my contribution limit. I would not know for sure what exchange rate was used until I received notice of my new contribution limit in 2020. I was also not entirely sure that I would not need to re-contribute the withdrawal in US funds, but that seemed unlikely.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4cCPIn5-8098JY8i_mNMLNzzk756v_uGAQG3PR_tmBoqK3APJCkj_Hjku5Lm8x5qKVEAIsyWwXmF-ukAqr3oCdirRaUekCPG5xGeLAmWbKHP1LJtM4vQ57OpLmgUUJOYYNIda2fb5Czg/s1600/TFSA+US+Cash+2019+%25281%2529.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="435" data-original-width="1331" height="208" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4cCPIn5-8098JY8i_mNMLNzzk756v_uGAQG3PR_tmBoqK3APJCkj_Hjku5Lm8x5qKVEAIsyWwXmF-ukAqr3oCdirRaUekCPG5xGeLAmWbKHP1LJtM4vQ57OpLmgUUJOYYNIda2fb5Czg/s640/TFSA+US+Cash+2019+%25281%2529.jpg" width="640" /></a></div>
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Because the Canadian Revenue Agency (CRA) does not receive all the information regarding contributions and withdrawals from a TFSA account for a given year until the start of the <b>next year</b>, it does not update your contribution limit until end of January or beginning of February of that new year. Even though I had made my 2019 TFSA contribution of $6000 in January 2019, and made withdrawals in April and October, none of these transactions were recognized on my CRA account until January 26, 2020. It is important to understand this and not take at face value what the CRA account says that your contribution limit is during the year or else you may be led to mistakenly over-contribute.<br />
<br />
When I finally did receive details on my 2020 contribution limit, it was as I assumed it would be. Each of my USD withdrawals was converted to Canadian dollars at the given exchange rate at the time of withdrawal, and these Canadian values were added back to my contribution limit. So this finishes my experiment of removing dividends in US dollars from my TFSA and replacing the equivalent value the following year in Canadian dollars, all without incurring any fees or taxes. This is a strategy that I will continue to employ in the future. Note though that the Algonquin Power stock that I hold in my TFSA is a <b>Canadian stock</b>, even though it pays its dividends in US dollars. I do not hold US stocks in my TFSA since (unlike for the RRSP/RRIF) the IRS would take 15% withholding tax on dividends generated in this type of account.A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-82323543159319160712020-01-04T10:47:00.001-05:002020-01-04T10:47:54.092-05:002019 Year End Review: After Seven Full Years of Retirement<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDETpM0JVn6AGg_9a8TaFbyMjYqmt704mroKlf0igPqTM5rZ_xT4r1IP7S6mFkiyxKJXNbCK0it2LDAb0TudwIkP5lCefMn4-dDJAL6ea7CddJj_tRWzzttEJZeGevDP4qiuQ0dxUN_Bw/s1600/TSXSP_2019+as+of+Dec+31+4pm.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="780" data-original-width="1038" height="480" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgDETpM0JVn6AGg_9a8TaFbyMjYqmt704mroKlf0igPqTM5rZ_xT4r1IP7S6mFkiyxKJXNbCK0it2LDAb0TudwIkP5lCefMn4-dDJAL6ea7CddJj_tRWzzttEJZeGevDP4qiuQ0dxUN_Bw/s640/TSXSP_2019+as+of+Dec+31+4pm.jpg" width="640" /></a></div>
At the end of 2018, the value of our portfolio had dropped by almost 10% from its year beginning value. Yet by February 2019, we had pretty much recovered to our opening position from January 2018. By the end of 2019, stocks had reached a new all-time high, surpassing 17000 for the first time ever. In the span of one year, the TSX/S&P Index rose from 14347 to 17063, up almost 19%. Anyone who panicked and sold their stock at the end of 2018 would have missed out on the recovery. We basically ignore the value of our stock, concentrating on the dividend payout of our portfolio which continues to increase year after year. It is through the regular increase in dividend payments that we have been able to keep pace with, if not out-pace inflation. This is a luxury that those with non-indexed defined benefit pensions do not have. What would seem like an extremely generous fixed pension payout upon retirement might not seem so great 20-30 years later.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCAALwQgpaIITRxAgp-MgSe0LPc7laICb7giCS1bZ043YhIjqyZccuBJxPeYtF0KQ8e7GKyL0IV2jcaTRC6M3c4IT4iMUMIGeDUXbQb2nK6aXoJqPpzHjhA4y7hlBQQWFIO4UEvR_0J3A/s1600/Market+Cap-Sector+Comparison+2018-19.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="633" data-original-width="1391" height="290" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhCAALwQgpaIITRxAgp-MgSe0LPc7laICb7giCS1bZ043YhIjqyZccuBJxPeYtF0KQ8e7GKyL0IV2jcaTRC6M3c4IT4iMUMIGeDUXbQb2nK6aXoJqPpzHjhA4y7hlBQQWFIO4UEvR_0J3A/s640/Market+Cap-Sector+Comparison+2018-19.jpg" width="640" /></a></div>
Following the same trend as the TSX, our portfolio was up 23.7% this year while our dividends rose by 9.5%. As I do every year, I reviewed our portfolio mix in terms of market capitalization and sector diversity. While we did buy and sell a few stocks in order to improve our dividend flow (described in more detail below), over all there was not that much change from 2018 for either of these criteria. <br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOWTmavhqCrwUlmpBFwmwOUDGvrBQ9H4ntEG480z2c_xzKfsq8KV-LESYkhD6XxzwLA5tYwa8q_gBJTGSuHAO-v6eZyvBUEm3HCYGTx5tvrNpt01ZEGLp79AT71O2-M6GhZbEGsH5fjks/s1600/Rebalancing.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="893" data-original-width="1600" height="222" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOWTmavhqCrwUlmpBFwmwOUDGvrBQ9H4ntEG480z2c_xzKfsq8KV-LESYkhD6XxzwLA5tYwa8q_gBJTGSuHAO-v6eZyvBUEm3HCYGTx5tvrNpt01ZEGLp79AT71O2-M6GhZbEGsH5fjks/s400/Rebalancing.jpg" width="400" /></a></div>
At the beginning of 2019 we took stock (pun intended) of the holdings in our portfolio, looking specifically at which of our holdings have not raised their dividend payout over the past 5 years. We wanted to see if we could dump any of these "dividend duds" and replace them with companies that had a better history of raising their dividends regularly. We were limited by a few factors:<br />
<ul>
<li>We had a minimum yield threshold of 2.5-3% annually that we did not want to fall below</li>
<li>We wanted to maintain a good level of diversification in terms of sector and market capitalization.</li>
<li>Within our Non-Registered account: </li>
<ul>
<li> We wanted to stay away from income trusts that cause accounting and taxation issues</li>
<li>We did not want to sell any stocks that might unnecessarily trigger capital gains.</li>
</ul>
</ul>
The first stock that we sold was <b>Firm Capital (FC.T)</b>, a Real Estate Income Trust (REIT) which has paid the same dividend of $0.94 per share annually since 2008. It does pay out a variable "special" dividend at the end of each year but that does not compare to the cumulative effect of companies that raise their dividend payouts annually. Rich sold the shares of FC in his RRIF and purchased <b>Great West Life (GWO.T)</b> which has raised its dividend every year since 2014 and did so again at the end of 1Q2019. He also sold FC from his TFSA and bought <b>Finning International (FTT.T)</b>, a mining equipment company which has raised its dividend every year since 2000 and did so again in 2Q2019. I sold my shares of FC in my TFSA and bought <b>Algonquin Power (AQN.T)</b> which has raised its dividend annually since 2014. Algonquin has the added benefit of paying its dividend in US currency so I was able to withdraw US Cash for spending (more on this later). <br />
<br />
We bought <b>Morneau Shepell (MSI.T)</b> in a registered account in 2017 as a way to diversify into a new industry. Its share price increased significantly since our purchase, but the stock has not raised its dividend since 2010! Since we care mainly about the dividend and not the value of the stock, we decided to sell it, take the profits and look for a better paying stock. With the proceeds, we bought <b>Manulife Financial (MFC.T)</b>, which had raised its dividend at least once per year since 2013. It was a good time to buy, since the share price had dropped almost $9 since the beginning of 2018 and we picked up the stock for a good price. MFC did not end up raising their dividend in 2019 but as the analysts predicted, their price did rebound over $6 so hopefully the company will feel comfortable enough to start raising its dividend again in 2020.<br />
<br />
There were a few stocks that we wanted to dump in our <b>non-registered account</b>, but decided against doing so. We held <b>First Canadian Realty (FCR.T) </b>and <b>Sienna Senior Living (SIA.T)</b>, neither of which have a raised their dividend in years. But selling either of these holdings would trigger capital gains. SIA gave us another sector for diversification while FCR was one of the few real estate firms that was not a REIT. This allowed us to hold a stock from the Real Estate sector in the non-registered account without tax and accounting implications. So we decided to hang onto these two stocks since they still produced a decent yield despite not having increased their dividends for a while.<br />
<br />
Things changed in late November when we were notified that <b>FCR.T</b> would convert to a REIT by the end of the year. A quick internet search showed that they had actually been planning this since the February, but w<span style="background-color: white;">e did not hear about this until now when it was pretty much a done deal. This would not be good for us in the long run since part of the REIT income is not eligible for the dividend tax credit and would be taxed as full income. Even worse, if return of capital is involved, keeping track of the adjusted cost base in a non-registered account would be quite onerous. We decided to dump all of this stock and would sell enough shares of our deadbeat <b>Corus</b> stock (the perpetu</span>al loss that keeps on giving) to offset the capital gain. We would use the unexpected proceeds from these sales to purchase more Canadian eligible dividend stock, this time with a better history of regularly raising dividends. We decided on ATCO (<b>ACO-X.T</b>) a gas/electricity utility which has raised its dividend payout regularly since 1995.<br />
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In March, we were given an offer to voluntarily sell our holdings in <b>Power Corp (POW.T) </b>and its subsidiaries<b> Power Financial (PWF.T) and Great West Life Co (GWO.T)</b> as part of a <b>stock buy-back</b>
effort by the parent company. Given that these stocks have paid healthy dividends and each raised their payout consistently over the past
5 years, we had no interest in selling. We were happy that this was
not a "forced sale" like we encountered in 2018, since shares of two of
these companies sit in our non-registered account and we would have been
hit with more unplanned capital gains had we been forced to sell.<br />
<br />
In midst of all this buying and selling, I made a trading
error. I sold MSI in a registered account and wanted to make a purchase with the proceeds. But I had not waited long enough for the trade to settle and the discount broker had not taken its $9.99 commission yet. I put in a limit buy request which included the extra $10 and surprisingly, the trade fulfilled immediately. Once all the commissions were deducted for the sale and purchase, I ended up with a negative trade cash
balance of <span style="color: red;">$-6.45</span>. I was afraid that my discount broker would force me sell something that
I didn't intend to (at another $9.99) just to cover this. But when I
phoned, I found out that I could carry a negative balance of up to $200
and no action would be taken. Since the amount would be covered at the end of
the month by our next dividend payout, all was well. But I will be
more careful next time to either wait for my sell trade to settle before
making a new purchase, or at least make sure that I take into account both the sell and the buy
fees of $9.99.<br />
<br />
Finally in mid December it was announced that <b>Cineplex (CGX.T)</b> would be bought out by the British company Cineworld in 2020. We own Cineplex in our non-registered account so I was concerned about being forced into another unexpected capital gain while losing the good steady dividend that Cineplex has provided over the years. Luckily it turns out that we had been carrying an unrealized (paper) loss in our non-registered account and that the $34 buyout price would bring us just about back to par. We also own CGX in one of our registered accounts and in this case, we will receive a nice tax-free gain, so this will all work out. <span style="color: red;"> </span>Once we receive the cash from the forced sale we will need to find a replacement stock that can replace the lost dividend income.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNFL_qzqq2YNjLFcXxFZmSmxTMKRiqBuMHWimILh_eVcEXz3Vu-muvikLAoguIhaofRVyvsZNNYBh-FD6_Ifm9FZ3Y13eUNzYwjr96urFpZwx3IDUzTeu6hXKWkG0jnGUpCCes9rAOS2M/s1600/Dividend+Raises.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="358" data-original-width="1600" height="142" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjNFL_qzqq2YNjLFcXxFZmSmxTMKRiqBuMHWimILh_eVcEXz3Vu-muvikLAoguIhaofRVyvsZNNYBh-FD6_Ifm9FZ3Y13eUNzYwjr96urFpZwx3IDUzTeu6hXKWkG0jnGUpCCes9rAOS2M/s640/Dividend+Raises.jpg" width="640" /></a></div>
<span style="color: black;">I have tracked the dividend increase (or lack thereof) of each of our stock for many years now and periodically take action to dump and replace companies who stop raising their dividend payout regularly, or worse yet, lower their dividend payout. What I did not keep track of was <b>when</b> a company usually raised their dividend. I just found out after the declaration and accepted it as a happy "surprise". This year I decided to keep track of the month when each company tends to announce a dividend increase, so that I can determine when to look for it and be quickly warned if it does not happen as typically scheduled. While some companies that regularly raise their dividends do not follow a fixed schedule, many others raise at the same time like clock work. </span><br />
<br />
<span style="color: black;">Had I started this tracking earlier, I would have realized that <b>Plaza Retail REIT (PLZ.UN)</b> usually raises its dividend (at least it did between 2016-2018) in January but it did not do so in January 2019. As it turns out, it did not raise its dividend at all in 2019 and has not done so in its January declaration for 2020 either! But it took me the entire 2019 to figure this out since I did not know when to expect the increase. Accordingly I used the website <a href="https://www.morningstar.ca/ca/" target="_blank"><b>Morningstar.ca</b></a> and looked at the dividend trends for each of our companies, tracking if and when they usually raised their dividends. In the future, I will be more actively aware if an expected increase is missed and be more vigilant in case some action/re-balancing needs to happen in our portfolio because if it. I don't think I would pull the trigger immediately, since occasionally a dividend increase could miss its regular payment period but still occur by the next period or the one after. But if like PLZ.UN, the increase is missing over a couple of years, then maybe it is time to look around for something better. After the New Year, Rich sold a bunch of PLZ.UN from his TFSA and will look to buy a new stock once he adds his TFSA contribution for 2020.</span><br />
<span style="color: red;"><br /></span>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3yYed8n1Efo6LQSL8uaa4E8BemQLl3Q5_CQmL_ILprwoimEMMN0Gxi2ptlTzQemxeTJkPJv_a5FaEWy4fO5hz-cRIdrmhFjOqtZMi1yuJwogN43EZ-s9Wyl9JKLuPxmPzLzfvdof8-AM/s1600/RRIF+InKind+Withdrawal+Grossup.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="520" data-original-width="1600" height="206" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg3yYed8n1Efo6LQSL8uaa4E8BemQLl3Q5_CQmL_ILprwoimEMMN0Gxi2ptlTzQemxeTJkPJv_a5FaEWy4fO5hz-cRIdrmhFjOqtZMi1yuJwogN43EZ-s9Wyl9JKLuPxmPzLzfvdof8-AM/s640/RRIF+InKind+Withdrawal+Grossup.jpg" width="640" /></a></div>
<span style="color: red;"><span style="color: black;">At the beginning of 2018, my husband Rich and I switched our strategy for RRIF withdrawal, requesting to withdraw stock "in-kind" as opposed to cash. I wrote about our reasons for this in the </span><a href="http://retiredat48book.blogspot.com/2018/01/year-end-review-2017-after-five-full.html" target="_blank">2017 year end in review</a>. </span><span style="color: red;"><span style="color: red;"><span style="color: red;"><span style="color: black;">While we could withdraw our annual minimum without being taxed until the following year, any
amounts in excess of the minimum would be subject to an immediate withholding tax at the time of the withdrawal.</span></span></span> <span style="color: black;"> Because it was our first year attempting this, we wanted to ease into the concept of paying withholding tax. For each of our RRIFs, we requested the transfer of stock whose value came to a few thousand dollars over our minimum withdrawal amount, making sure to save up enough cash to cover the 10% withholding tax. These amounts showed up in our 2018 T4RIF statements as tax already paid, reducing our total income tax still owed for the year.</span></span><br />
<span style="color: red;"><br /></span>
<span style="color: red;"><span style="color: black;">Emboldened by this initial attempt, in 2019 I wanted to <b>increase</b> the amount withdrawn over the minimum, in order to speed up the process of shrinking our RRIFs and to increase the amount of dividend income that would be generated by our non-registered account, which is taxed at a much lower rate. This meant paying a larger withholding tax, so I diligently saved dividend cash throughout the previous year to cover the amounts. </span> </span>Unfortunately I misunderstood how the withholding tax works. The phrasing of the <a href="https://www.taxtips.ca/rrsp/withholdingtax.htm" target="_blank">wording on various websites</a> made me think think that the withholding tax was incremental, like the marginal income tax rate where you are subjected to a higher tax rate only on the extra portion of income earned beyond the first rate.<br />
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<table border="0" cellspacing="1"><tbody>
<tr><td align="left" valign="bottom"><span style="font-family: "arial" , "arial" , "helvetica";"><u><b>Withdrawal Amount</b></u></span></td>
<td align="center" valign="bottom"><span style="font-family: "arial" , "arial" , "helvetica";"><u><b>% Federal Tax Withheld</b></u></span></td>
</tr>
<tr>
<td align="left" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";">From $0 to $5,000</span></td>
<td align="right" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";"> 10% (5% in
Quebec)</span></td>
</tr>
<tr>
<td align="left" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";">From $5,001 to $15,000</span></td>
<td align="right" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";"> 20% (10% in
Quebec)</span></td>
</tr>
<tr>
<td align="left" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";">Greater than $15,000</span></td>
<td align="right" nowrap="nowrap"><span style="font-family: "arial" , "arial" , "helvetica";"> 30% (15% in Quebec)</span></td><td align="right" nowrap="nowrap"></td><td align="right" nowrap="nowrap"></td><td align="right" nowrap="nowrap"></td><td align="right" nowrap="nowrap"></td><td align="right" nowrap="nowrap"></td><td align="right" nowrap="nowrap"></td></tr>
</tbody></table>
<br />
I thought we would be taxed 10% on the first $5000 over the minimum, then 20% on the <b>next</b> $10,000 (from $5001-15000) and finally 30% on anything beyond that. In actuality, the rule is that depending on whether the <b>entire value</b> of my overage beyond the minimum is within $5000, or between 5000-15,000 or over 15,000, that I would be taxed at 10%, 20% or 30% on that whole amount. Luckily I had saved an excess of cash in our accounts, so even with this new understanding of the rule, we should have had money to cover the withholding tax. But the plot thickens! Because we are taking out stock in-kind instead of cash, there is also a <b>gross-up</b> to the amount being withdrawn before the withholding tax is calculated. Factoring in the gross-up, Rich no longer had enough cash to cover the tax for the shares that he wanted to withdraw and had to scale back his withdrawal request. Not wanting this to happen again in the future, I tried to find information about how the gross-up is calculated. After multiple fruitless searches on the internet, the most I could find was an <a href="https://www.theglobeandmail.com/globe-investor/retirement/more-riffing-on-rrifs-and-rrsps/article19473343/" target="_blank">article by the Globe and Mail</a> referring to the gross-up, but not explaining the calculation. I then posed the question to the customer service line of my discount broker Scotia iTrade, and after several false starts, finally got the information that I was looking for.<br />
<br />
The withholding tax including gross-up for an in-kind stock withdrawal is calculated as follows:<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPWN6W2d5zeRcOZ_MtuioqlxmIQVC7pqx8wwfDLiimvOL-sk2HUzn2Pl7IhacvfupxJHJTFrixA-i-dN-n5jEdsOcYnGhVQzlzIWn1XB1PiQpTrdZtUZYlIaqoWJJaBWQ543te3SRf__M/s1600/WHTax+Rules.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="324" data-original-width="1600" height="128" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPWN6W2d5zeRcOZ_MtuioqlxmIQVC7pqx8wwfDLiimvOL-sk2HUzn2Pl7IhacvfupxJHJTFrixA-i-dN-n5jEdsOcYnGhVQzlzIWn1XB1PiQpTrdZtUZYlIaqoWJJaBWQ543te3SRf__M/s640/WHTax+Rules.jpg" width="640" /></a></div>
<br />
<div style="text-align: left;">
The following chart provides an example. Now that we understand how it works, we can save the correct amount of funds to cover the withholding tax for our next RRIF withdrawals.</div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4c4QAWXKdFc0LI-TcCyP0msNRzXFPuLTm8GZufvJgCFV5GwhQ3ztU1ZKX_c_z45EZYC5PEUPCvKWFTukHy7i_PG_Y9bsn1B0E2rqLiIKPm45PBXDp-JMpvj_ylGoHaJfWAZdolLbQqBA/s1600/WHTax+Grossup.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="507" data-original-width="1056" height="191" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4c4QAWXKdFc0LI-TcCyP0msNRzXFPuLTm8GZufvJgCFV5GwhQ3ztU1ZKX_c_z45EZYC5PEUPCvKWFTukHy7i_PG_Y9bsn1B0E2rqLiIKPm45PBXDp-JMpvj_ylGoHaJfWAZdolLbQqBA/s400/WHTax+Grossup.jpg" width="400" /></a></div>
<br />
In fact, we could go one step further towards reducing the sizes of our RRIFs. While you are mandated to pay a certain amount of withholding tax when you exceed the minimum withdrawal, there is nothing that prevents you from paying <b>MORE</b> than the required withholding tax for your current transaction. Towards the end of 2019, one of my Strip Bonds came due in my RRIF, leaving me with an unusually large sum of cash. I decided to make one extra withdrawal from my RRIF, but rather than just paying the withholding tax on this transaction, I estimated how much income tax I might owe for 2019 and requested to pay enough withholding tax to almost cover that entire amount. While it did mean that I was paying tax that was not due until April 2020, this allowed me fund this tax from within the RRIF in order to further reduce its size, rather than sourcing the tax money from outside of the registered account, shrinking our short term or long term savings "kitties".<br />
<br />
It was important that we carefully checked the results of our RRIF withdrawal requisitions. Rich requested a given number shares of Enbridge (ENB) to be moved from his RRIF to our non-registered account, using the lowest price of the day. Instead, the shares of the REIT Canadian Apartments (CAR.UN) was moved. We caught the mistake immediately after the transaction was processed (a few days after the request), but since the request was made over
the phone and there was no paper trail or email confirmation, we did not have any definitive proof that an error was made. Then I realized that the shares of CAR.UN were moved using ENB's lowest price, making it clear that this was a clerical error. Luckily we reported the issue prior to the transaction being officially "booked" and so it took a mere phone call and a couple more days delay for the problem to be corrected. Left uncorrected, having the REIT in our non-registered account would have proved detrimental and problematic from a tax accounting perspective. Only part of the payments <span class="ILfuVd NA6bn">made by a <b>REIT</b> are considered dividends that qualify for the dividend tax credit. The rest may be capital gain or "return of capital" taxed at higher rates. The component of "return of capital" makes the adjusted cost base calculations on the units to be much more difficult, since it changes with each payout. For these reasons, we try to keep all of our REITs and other income trusts within our registered accounts and it was why we sold our FCR stock from our non-registered account once the </span><br />
company decided to convert to a REIT.<br />
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At the end of 2018, I turned 55 and was able to convert my LIRA into a LIF while transferring 50% of the value to my unlocked RRIF as stock in-kind. This was quite the experience that I documented in the <a href="http://retiredat48book.blogspot.com/2019/01/year-end-review-2018-after-six-full.html" target="_blank">2018 Year in Review</a>. In 2019, I made my first LIF withdrawal, again taking stock in-kind. Since I was already taking out more and dealing with withholding tax in my RRIF, I decided to keep things simple and just take out the minimum from my LIF. I chose a number of shares that would come just under the minimum amount and kept enough cash on hand to top up to the required number. No withholding tax was required in this case.<br />
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But thinking more about this, I changed my mind and decided that I should always try to take the <b>maximum from my LIF. </b> This will free up locked-in capital from my LIF more quickly and provide
me with more flexibility, since I can take out any amount from my RRIF
at any time, but if I forgo taking out the maximum from my LIF in one
year, I don't get to make up for it in the next year. So after waiting several quarters in order to save up enough dividends to pay withholding tax, I made a second LIF withdrawal in mid May. When calculating how much I could withdraw, I did not realize (although I should have) that the withholding tax would count towards my maximum. I took my annual (<i>LIF maximum - LIF minimum</i>), which came to around $5900 and requested to withdraw enough stock in-kind to cover this difference, thinking that I could pay withholding tax on top of that. I had discussed with the iTrade agent that the withholding tax would be 20% plus grossup (or 25%) and he put in the request. Within a few minutes, the agent called back to inform me that my request was rejected since with the withholding tax, I had exceeded the maximum. So I had to reduce the amount of stock that I transferred in-kind and ended up moving stock worth $4728 but I was still charged the same 20% + gross up withholding tax, even though my extra withdrawal was now down to the 10% + gross up (or 11%) range. I didn't care enough to argue about this since this was tax I probably would be required to pay next year anyways. But it is obvious to me that some of the representatives from my discount broker do not understand how the CRA withholding tax works.<br />
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Rich converted his LIRA into a LIF when he turned 55 this year and also went through the process of requesting 50% of the sum be transferred tax-free to his RRIF. Because the initial value of his LIRA was so small, we were hoping that he would qualify for the "small amount" rule that allows you to unlock the entire amount if the value falls below a given rate ($22,960 in 2019). His LIF did not meet the small amount limit and given the legislated rate of annual withdrawal even when taking out the maximum allowed, it will still take years before it reaches that level.<br />
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In a <a href="http://retiredat48book.blogspot.com/2019/06/the-quest-for-us-dividendscash.html">previous article</a>, I wrote about my quest for more US cash dividends that we could withdraw from our investment portfolio and and transfer directly to our US bank account without incurring currency exchange. I tried to <b>withdraw US cash from my RRIF while paying withholding tax in Canadian dollars</b>. This turned into such a big headache that required three attempts before almost achieving what I wanted. I will not try this ever again! Going forward I will make an initial RRIF withdrawal including any US stock, Canadian stock journaled on the US side of my account (e.g. AQN), or US cash that I want to extract, but making sure to stay under the legislated minimum and then top up with Canadian cash to reach that minimum. Subsequently if I want to make a further withdrawal once I am in withholding tax territory, I will only do so with Canadian stock and Canadian cash. <br />
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By contrast, <b>withdrawing US dividends from the TFSA</b> accounts turned out to be trouble-free. The money could be deposited directly into our US bank account without first requiring to transfer to our US non-registered account. What is still not clear is how much extra room I will have in Canadian dollars in 2020 to re-contribute the withdrawn US cash. <span style="background-color: white;"> I will not know this until Revenue Canada updates my allocation on my <b>CRA account</b>, which usually does not happen until some time in February. For now, my account says that my limit is $12,000 since it <b>still</b> does not know about the $6000 contribution that I made in January of 2019, let alone the withdrawals of US cash made throughout the year! Rather than waiting for the results before submitting this already overly lengthy blog entry, I will write a new one in February/March with my findings.</span> <br />
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By the end of 2018, the "discount" that we had previously negotiated for our <b>Rogers cable</b> <b>and internet bill </b>had expired, and our bill had increased by over $30/month from $140 to $171. It was time for the annual ritual of complaining and threatening to go to the competition unless we could get a better rate. I started these negotiations with Rogers via an online chat because I hate talking on the phone, and also, I wanted an online transcript of our conversation and the ultimate agreement so that there would be no misunderstanding. Upon making my complaint, I was immediately offered the currently advertised package for $152, which was about $20 less than what I was currently paying, but would provide me with new Ignite technology and a significantly higher internet speed that was more than two times faster than our current speed. This was not a promotional offer but rather what any new Rogers customer would be offered. However as an existing customer, we were not made aware of this and would not have been switched over without the complaint. I also requested that the $150 installation/setup fee be waived and so we lowered our bill slightly and have much better service. What a pain to be required to do this every year, just to ensure you continue to get a competitive rate!!<br />
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In the meantime, <b>Bell</b> was aggressively trying to make inroads into our condo and spent weeks in 2018 wiring individual fiber connections to each suite so that the speed would be extra fast. For 5 days at the end of October 2019, Bell launched an on-site blitz where they tried to convert as many residents as they could from Rogers to Bell. They offered a two-year deal for $124 after tax which included the <b>Fibe Internet</b> (1.5GB per second download), a TV channel package that included many more channels than we were getting at Rogers, including multiple extra sports stations and the Turner Classic Movie channel (TCM) that Rich has always wanted. The deal also included free installation services (usually $210) and a free Home Hub 3000 modem (usually $200) and two months free access to Crave/HBO Max (usually $20/month).<br />
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In previous years we had not been able to switch providers since our TV connectivity wires were enclosed behind a built-in wall unit and we did not have an easy way to connect these wires to the closest Bell phone jack. Luckily in the interim, Bell's technology changed so that their wireless modem can be connected remotely to the TV over WIFI. We jumped on this deal which was too good to pass up. But more importantly, we now have options again. Once our two year deal with Bell is up, we can use the threat of returning to Rogers in order to either extend or get another deal from Bell. Or if Rogers comes up with something better, we can consider switching again, which would not be that painful since we kept all of our Rogers connections on hand. While Bell, Rogers and Telus still form an oligopoly for the most part, having the fierce competition between these companies opens up opportunities for savings.<br />
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Our retirement income strategy has been to transfer all the monthly dividends that we make from our non-registered account to our bank's chequing account in order to pay our regular monthly bills. In support of this, we have maintained both a short term and a long term "kitty", in order to ensure that we have enough liquid assets to cover both minor and major unexpected expenses that may arise on top of our usual expenses. Our <b>short term kitty</b> is a savings account in <b>Simplii Financial</b>, the discount subsidiary of CIBC that also holds the chequing account that funds our bill payments. In this savings account from which we can transfer money to chequing within 1 business day, we try to keep up enough funds to cover up to one month's typical expenses. Our <b>long term kitty</b> is used save up for major unexpected expenses, such as the day when we will need to replace our appliances, or worse yet, our car which is 15 years old this year. We use <b>EQ Bank</b> as our <b>long term kitty</b>, since it pays an amazing 2.3% as its ongoing regular savings account rate (as opposed to 3 month teaser rates offered by banks when you open a new account). Considering that this savings account is totally liquid and CDIC protected, the payout is better than most short term GICs that lock in your money for an extended period of time.<br />
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In 2019 we decided to set up a <b>second EQ Bank account</b>, in order to separate the kitty where we save money for mandatory expenses like the eventual car replacement, as opposed to major discretionary expenses like our annual vacation fund. Since the first EQ Bank account was set up in my name, we decided to set the second one up in Rich's name so that we continue to balance our personal incomes for tax purposes. This became an issue when part of the application process required my husband to produce an "official" online PDF document that indicated his full name and address to verify his identity. They accepted Utility bill ( Water, Hydro, Gas bill), Internet Service Provider statement, Mobile Phone statement and Cable Provider statement. Unfortunately we had signed up all the bills under my name and not his, as well as our credit cards for which I was the primary card holder. His name was on the paper form of our property tax bill, but EQ Bank would not accept any scanned or photocopied versions. It had to be an online PDF generated by the issuing company. Finally they agreed to accept a T4RIF slip generated by our discount broker and my husband was able to successfully set up his account. But we have learned our lesson and the next thing that we sign up for will be under his name, in order to give him a proper online presence.<br />
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<u><b>References:</b></u><br />
<a href="http://retiredat48book.blogspot.com/2019/01/year-end-review-2018-after-six-full.html" target="_blank">2018 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.com/2018/01/year-end-review-2017-after-five-full.html">2017 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2017/01/year-end-review-2016-after-four-full.html">2016 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2016/01/after-third-full-year-of-retirement.html" target="_blank">2015 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2015/01/after-second-full-year-of-retirement.html" target="_blank">2014 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2014/01/after-first-full-year-of-retirement.html" target="_blank">2013 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/p/blog-page.html" target="_blank">Get our Retirement Planning Spreadsheets </a><br />
<a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement</a>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-25577010253450297352019-10-17T13:23:00.000-04:002019-10-17T13:23:08.668-04:00Generating a Steady Retirement Income Stream - Do You Have a Plan?<div class="separator" style="clear: both; text-align: center;">
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While we were planning our strategy leading up to our early retirement in 2012, my husband Rich and I were not too concerned with how to determine whether we had saved enough to last the duration of what we hoped would be a lengthy retirement. My <a href="http://retiredat48book.blogspot.com/p/blog-page.html" target="_blank">detailed retirement calculator </a>spreadsheet allowed us to model various scenarios that would address that question, based on varying parameters including how much we had saved, at what age we could retire and how much we wanted to spend in retirement.<br />
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The bigger, more complicated, and much less discussed issue was how we would structure our savings into an investment portfolio that would easily generate a steady flow of post-retirement income. We were much too young (by multiple decades) to consider an annuity and the traditional strategy of creating a bond ladder (having a series of bonds with staggered maturity dates that freed up cash each year) would not fly given the prolonged and still on-going cycle of dismal bond and GIC rates that pay less than the rate of inflation. Without a company pension or any other source of regular payments such as rental properties, we would need to structure our investment holdings to generate a reliable income stream, which would take some time to set up. More importantly, the payment flow would need to be completed and ready to go before we retired, since we would need to make use of it as soon as we stopped working.<br />
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As described in greater detail in our book <a href="http://retiredat48book.blogspot.com/p/where-to-buy.html" target="_blank">"Retired at 48 - One Couple's Journey to a Pensionless Retirement"</a>, our strategy was to load up on Canadian dividend paying stock, focusing for the most part on blue chip companies with histories of regularly raising their dividends. Our goal was to acquire enough stock to allow us to live off the dividends as our income stream. This defied the common wisdom at the time which advocated to reduce our
equity holdings and acquire a larger percentage of fixed income. We felt less risk in holding stock since we did not care about share price which fluctuates often, but rather the dividend payout which is usually more stable, especially if you select solid companies. Our second decision, that also flouted conventional practices at the time, was to collapse our RRSPs into RRIFs immediately after retirement. This enabled us to spread the source of our retirement income across both registered and non-registered accounts, making all of them last longer. It also helped to reduce the size of our registered accounts slowly over a longer period of time, optimizing our overall tax burden. These days this strategy is regularly recommended by financial advisors and analysts, but at the time when we decided to do it back in 2012, we were definitely going against the tide. Our two strategies have served us well. Over the past 7.5 years since our
retirement, our steady stream of dividend income acts like a bi-weekly pay cheque and has continued to grow at a rate that so far has outpaced the rate of inflation.<br />
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It took many years for us to accumulate a stock portfolio large enough to live off our dividends. I started to consider what our strategy would be like if instead we needed to <b>sell capital annually</b> from our investments in order to fund our retirement. In reading investment columns like the ones in the Globe and Mail, I noticed that the advice given usually went as far as to discuss the order which various money sources (RRIFs, TFSAs, non-registered, cash balances) should be tapped, but did not go into detail on how this actually would work. Giving it some thought, this is what I think I would do:<br />
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I started with the assumption that we had still amassed a portfolio consisting of mainly Canadian dividend-paying stocks during our retirement savings period, but that it did not generate enough dividends to support our income needs. Until the returns in the fixed income market improve significantly, we
would still want to hold stock, but
we would need to take steps to reduce risk since now we do care about fluctuating
stock value. Luckily we happen to have a high risk tolerance that allows us to stay calm during large
swings in the market. This is not so for everyone.<br />
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With our current strategy of living off our dividends, our investment portfolio is diversified across all of our accounts but not within any particular account. This is because we are not regularly selling stock. We initially withdrew the annual minimum from our RRIF accounts, requesting an equal cash payments monthly. Recently we switched to requesting withdrawal of stock-in-kind from our RRIFs to our shared non-registered account, in order for future dividend income from this stock to be taxed at a more favourable rate.<br />
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If instead we were required to sell part of our investment portfolio each year, this would
change how we structured our holdings and withdrawal strategy. In each of our
RRIF accounts, we would re-balance our holdings to increase the number of different stocks that we owned there, covering different sectors in order to have good diversification.
This would
allow us the flexibility each year to pick which stock to sell or not,
depending on whether one sector is performing better than another, or if a
specific company is having an unusually bad year. We would also
consider buying US or Foreign market ETFs in order to maximize
diversification, but I prefer holding Canadian stock as opposed to a
Canadian ETF since we have more control of what we are selling. In choosing which stock to sell, we might pick one that had increased
in value, locking in the capital gain while allowing lesser performing
stock time to recover. Alternately we might cut our losses on a dud
stock that doesn't seem like it would recover any time soon, if ever.
If we had to decide between two equally qualifying stocks, we would keep
the one that had more dividend growth history and potential.<br />
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Unless we were in midst of a prolonged market downturn, each year we would sell some stock in each of our RRIF accounts (ensuring to sell enough to cover any withholding tax owed) and make a single withdrawal. The cash from this sale would be supplemented with any dividend income paid from our non-registered accounts, and eventually CPP and OAS payments, to make up our annual income requirements for that year. We would open a special <b>high interest savings account</b> to receive this money so that it continues to earn interest as we spend it throughout the year. We would set up automatic monthly transfers to our bill-paying chequing account to cover the upcoming month's estimated expenses. We use the CDIC-protected <b>EQ Bank</b> which has been paying
2.3 percent annually on its savings accounts for several years now.
This rate currently beats most fixed income offerings as well as the
estimated rate of inflation, and our money is totally liquid as opposed
to being tied up for the specified terms of bonds and GICs. We also get 5 free Interac transactions per month, but that's <a href="http://retiredat48book.blogspot.com/2016/11/eq-bank-and-free-interac-email-transfers.html">another story</a>.<br />
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In order to have maximum control over when we sell our stock, we would
set standing default instructions with our discount broker to withdraw
the minimum from our RRIFs at the <b>END</b> of the year. These
instructions can be overridden at any time during the year, and allows
an entire year to choose the right time to sell our stock. This means though that our "annual income" savings account needs to have enough cash to support waiting until the end of the year to sell, or else we need to borrow from our long-term emergency funds. Since we would
not be selling all of our shares in any year, we would set up Dividend
Reinvestment Plans (DRIPS) and Dividend Purchase Plans (DPP) for all of the
stock in our RRIF accounts, so that the ones we don't sell for the year
will continue to grow on a compound basis. <br />
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We would hold much larger cash balances than we currently do within our long-term emergency fund accounts (currently also at EQ Bank), with enough money to cover at least 2+ years worth of retirement income. This money could be used to temporarily tide us over if we needed to wait out downturns in the stock market and would act as our secure "fixed income" buffer until bond and GIC rates recover enough to be worth purchasing again. At that point, we could once more consider creating a bond or GIC ladder.<br />
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At the end of each year, I would analyze the rate of depletion of our investment portfolio against our initial retirement plan to make sure that we were on track and adjust our spending accordingly the following year if we were not. I do this now even with our dividend strategy but it would be so much more important than ever to do if we needed to sell capital annually.<br />
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Just thinking through this academic and theoretical situation has been a lot of work and quite stressful since it is clear that the risk involved is much higher than our strategy of living off our dividends while retaining our capital for as long as possible. I'm not sure how viable this plan would be since we are not implementing it, but at least it is a comprehensive plan whereas I fear many people retire with no plan and I wonder what they do then? I am not in any way recommending my hypothetical plan for others, but I guess the message is that you should think about how to generate retirement income ahead of time and implement a plan that suits your needs and risk tolerance (or have your financial advisor do it for you, but hopefully it is more detailed than "You should take $X out of your RRIF each year").A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-47135259746566209532019-06-05T09:25:00.001-04:002019-06-05T09:25:21.364-04:00The Quest for US Dividends/CashMost of our US stock holdings are kept in our RRIF accounts where dividends are not subject to withholding tax from the IRS. We do have a few shares of <b>AT&T</b> in the US side of our non-registered account and use the dividends paid from this stock to generate US cash that we then withdraw and transfer to our TD Bank US bank account. This is a way for us to accumulate US cash without having to incur currency conversion fees to acquire it. Since we don't own much of the AT&T stock, it takes a while to accumulate enough US cash to cover our expenses while on a vacation in the States. I have often wished that we could generate the US cash at a faster rate.<br />
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One step that we took in this endeavour was to move our shares of <b>Algonquin Power (AQN.T)</b> to the US side of our non-registered account, once we realized that this Canadian company actually pays its dividend in US currency. In fact, we were losing money by keeping this stock journaled on the Canadian side, since the US dividends had to be converted back to Canadian currency, for which our discount broker took a fee. So now we have two sources of income from our non-registered account that generates US cash.<br />
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<span style="color: red;"><span style="color: black;">Another avenue opened up in
2018 when our discount broker <b>Scotia iTrade</b> finally started to support <b>US fund Registered accounts</b>. In the past within our TFSAs, RRSPs and RRIFs, our stock that paid dividends in US dollars could only be held in our "Canadian" accounts and each of USD payment would be
converted back to Canadian dollars by iTrade at a service charge of about
1.5%. Now we can transfer this stock to the US side of our registered accounts and accumulate US cash without incurring conversion fees, just like we did with the AT&T stock in our non-registered account. Accordingly in each of our registered accounts, we moved our US stock plus any Canadian stock that <b>reportedly</b> paid in US dollars. This included Algonquin Power (AQN.T) and Brookfield companies (BIP.UN, BEP.UN). Unfortunately it turns out that Brookfield pays US cash <a href="http://retiredat48book.blogspot.com/2019/04/brookfield-pays-us-dividends-but-not.html" target="_blank">only to US residents</a>, so it did not turn out to be a good source of US currency. However we also held AQN as well as other US stock in our registered accounts, so these were viable sources to generate US cash without incurring currency exchange fees.</span></span><br />
<br />
<span style="color: red;"><span style="color: black;">But what is involved in withdrawing US cash from a TFSA or RRSP/RRIF account to the US side of the non-registered account? Given that there are rules and limits regarding withdrawing Canadian funds from registered accounts to begin with, what extra complexities are there when trying to withdraw US funds? Would there be any conversion or currency exchange fees? How would any withholding tax be calculated if applicable, and would it be taken from the Canadian or the US side? I decided to make two relatively small experimental withdrawals, one from my TFSA and one from my husband Rich's RRIF to see what happens.</span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh53tjJk4lCyysuq7shUUAWR0PPrFRIWyq1vTFxyIces3qleMT46_HOBcwsX1H9pBnkjzNFa8NBcNITO-tadm-7jYe0nwaWHz0jwLKVmSOZQsfVVDzObLIVUKBlcYLB2xaSd_wRukjXYAc/s1600/My-TFSA-fail.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="559" data-original-width="886" height="251" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh53tjJk4lCyysuq7shUUAWR0PPrFRIWyq1vTFxyIces3qleMT46_HOBcwsX1H9pBnkjzNFa8NBcNITO-tadm-7jYe0nwaWHz0jwLKVmSOZQsfVVDzObLIVUKBlcYLB2xaSd_wRukjXYAc/s400/My-TFSA-fail.jpg" width="400" /></a></div>
<span style="color: red;"><span style="color: black;">I withdrew $195.02USD that had accumulated in my <b>TFSA </b>and received the full amount in the US side of my non-registered account. There was no conversion charge or any other fees (or taxes as per the feature of the TFSA). This was a relatively easy transaction but a question still remains. When you remove money from your TFSA, you should be able to re-contribute that amount in the next calendar year. But how much will I be able to re-contribute and would this amount be calculated in Canadian? Hopefully the contribution room I generate will not be in US or this will defeat the purpose of trying to extract US cash from my TFSA if I can only replace it with US cash the next year. I am hoping that if for example I withdrew $100 USD when the exchange rate was 1.35, that next year I could re-contribute $135 Canadian. </span></span><br />
<br />
<span style="color: red;"><span style="color: black;">In preparation for this test, </span></span><span style="color: red;"><span style="color: black;"><span style="color: red;"><span style="color: black;">as a baseline</span></span> I checked my<b> <a href="https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html" target="_blank">CRA account</a></b>
at the beginning of Jan 2019 prior to making my annual contribution. I
expected it to say that my available contribution room is $6000 (the
new contribution amount for 2019), since I have
maxed out my contributions every year since TFSA started. Instead, it
said in large bold characters that I had room to contribute $11,500!
Despite having made my 2018 TFSA contribution of $5500 seven months earlier
in June of that year, this CRA account was still not up to date. While
there is a little icon which when clicked on indicates that all prior
contributions may not have been recognized yet, given the lengthy time
lag, I find this extremely misleading and wonder what is the point of
this account? Someone who is not as cognizant of the limits or kept track of all their deposits and withdrawals through the years may be
tricked into over-contributing for the year and then be penalized for
it! I continued to check and it was not until late February 2019 that my
account reflected my 2018 contribution. This is good to know that there
could be almost a full year's lag. <span style="color: red;"><span style="color: black;">So I will not know the answer to how much of the $195.02USD I can re-contribute next year until CRA calculates my contribution room for 2020. I will write about the results in my 2019 Year-End in Review at the beginning of next year.</span></span></span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieYULFonyPkKJjpw5XccpTXmFJ0aqCR6SwxMOMYl-H_HQarPZh1AhCzmWILnewnzcElHtnZfwNEH8_Yl49L3G-_27wKbCciKgwrSNvrKi4abHYBGn6IhKCt1ffmvnakq3SrknDgoJvEyc/s1600/OAM-RRIF.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="335" data-original-width="620" height="215" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieYULFonyPkKJjpw5XccpTXmFJ0aqCR6SwxMOMYl-H_HQarPZh1AhCzmWILnewnzcElHtnZfwNEH8_Yl49L3G-_27wKbCciKgwrSNvrKi4abHYBGn6IhKCt1ffmvnakq3SrknDgoJvEyc/s400/OAM-RRIF.jpg" width="400" /></a></div>
<span style="color: red;"><span style="color: black;"><span style="color: red;"><span style="color: black;">The second experiment was more complicated since it involved trying to withdraw $284.75USD sitting in my husband Rich's <b>RRIF</b> account. He had already previously made his annual withdrawal, exceeding the minimum by around $11,000 and paid the 20% withholding tax. We have both started to take out more than the minimum in our RRIF accounts to try to actively reduce the size of the accounts before we reach age 71. By moving stock in-kind to our non-registered account, we are also increasing the regular dividend income that we use to pay our bills. We were hoping that the $284.75 cash could be transferred to the US side of our non-registered account and that the withholding tax could be paid from the excess Canadian cash that he had available. </span></span></span></span><br />
<br />
<span style="color: red;"><span style="color: black;"><span style="color: red;"><span style="color: black;">Admittedly, this was an unusual request, but it took three phone calls to Scotia iTrade to try to get this done, and in the end it still was not correct but the result was close enough to what we wanted. In each case, they transferred some US cash to our non-registered account and charged the withholding tax in Canadian dollars, but each time the calculation was incorrect. The first time, they charged insufficient withholding tax, taking only around 11% when Rich was already in the 20% range for the year and left $28.48 USD in the RRIF. The second time they charged the correct 20% withholding tax in Canadian dollars ($76.83), but again only transferred a portion of the US cash, leaving $56.95USD, or the equivalent of the withholding tax in US dollars in the RRIF! Finally after the third call, we were able to get the entire $284.75 USD to be transferred to the non-registered account but now they took around 27% withholding tax ($96.04). This is when we decided that the result was close enough to what we wanted. We were able to extract all of the US cash from our RRIF without any conversion fees, and paid just a bit more than what was required in withholding tax, so we would not be in trouble with CRA. The good news is that there was no currency conversion fee for the transaction. While this was an interesting experiment, the lesson I learned is that this wasn't worth all the trouble. </span></span></span></span><br />
<br />
<span style="color: red;"><span style="color: black;"><span style="color: red;"><span style="color: black;">Next year if we want to withdraw US cash or US stock from a RRIF account, we will be sure to do so while we are still under the yearly minimum limit so that there is no withholding tax in play. After that, we can make further withdrawals in Canadian funds to reduce all the confusion about currency conversion and withholding tax. </span></span></span></span><br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirl0IDvB6MXt4g1ISVjMoegj_amqwFbU5l-Qh7M2rfLITTG24KGumOxPE9hE1dyEOq1MrQ1vznPQDv55ObkX8e0F7WDPSi174vs7N_wxwRpnZ19t5cASot6DMy5gWt2z45ER-O9gIdGoI/s1600/Royal+Bank+US+Acct.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="582" data-original-width="1600" height="232" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEirl0IDvB6MXt4g1ISVjMoegj_amqwFbU5l-Qh7M2rfLITTG24KGumOxPE9hE1dyEOq1MrQ1vznPQDv55ObkX8e0F7WDPSi174vs7N_wxwRpnZ19t5cASot6DMy5gWt2z45ER-O9gIdGoI/s640/Royal+Bank+US+Acct.jpg" width="640" /></a></div>
<span style="color: red;"><span style="color: black;">Now that we will be accumulating more US currency per quarter from all the additional sources described above, I investigated
whether there was a better option for our US bank account </span></span><span style="color: red;"><span style="color: black;"><span style="color: red;"><span style="color: black;">in terms of fees, </span></span>as
well as the possibility of getting a no-fee US credit card whose
balance could be paid off by that account. Currently we have <b>TD Bank's </b></span></span><b>US $ Daily Interest Chequing Account
</b><span style="color: red;"><span style="color: black;">
which has no monthly fees but charges $1.25 per withdrawal if the
monthly balance is less than $1500. TD's associated US credit card
costs $3.95 US per month. We do not make enough US purchases in a year
to make this fee worthwhile for us.</span></span><br />
<br />
<span style="color: red;"><span style="color: black;">I looked into moving to <b>Royal Bank's US High Interest e-Savings</b>
account which has no monthly fees and allows one free debit per month. That in itself would not make it worth our effort to move, since we
usually make at most 1-2 withdrawals of US cash per year in order to go
on vacation, so the new account would save us at most $1.25-$2.50 on the
entire year, and would actually cost more if we ever needed to make two
withdrawals in the same month, since RBC's fee for subsequent
withdrawals is $3.00. I would also have to go through the hassle of
tying my discount broker to this new account and transferring the cash
that I already have in TD (at a cost of $1.25). So it would only be
worthwhile if I could also obtain <b>RBC's no-fee Visa Signature Black U.S. Credit Card</b>.
As it turns out these two products do not go together. In order to get
the US Credit Card, I would have to also get a Direct Chequing US Bank
Account, which costs $39.50US per year. So we decided to stay with TD
US bank account and forgo having a US credit card, which was more of a
whim than an necessity anyways. </span></span>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-19967387906566487382019-04-03T14:22:00.000-04:002019-04-29T10:15:07.051-04:00Brookfield Pays US Dividends (But Not for Canadians!)When my discount broker Scotia iTrade finally added registered US accounts to their repertoire of offerings, I looked to see which of my stocks I could/should move over the US side of my RRIFs and TFSAs. The goal was to receive US cash directly from the companies that paid US dividends without incurring any currency conversion fees. This would apply for stock of companies based on US stock exchanges such as NYSE, as well as for Canadian companies listed on the TSX who happened to pay their dividends in US currency. This would be a great way to accumulate US cash for spending purposes without paying currency exchange rates.<br />
<br />
Multiple sources on the internet including a <a href="https://www.theglobeandmail.com/globe-investor/inside-the-market/the-allure-of-us-denominated-dividends-for-canadian-listed-firms/article32733063/" target="_blank">Globe and Mail Investor column</a>, <a href="https://www.myownadvisor.ca/get-u-s-dollars-from-canadian-dividend-paying-stocks/" target="_blank">MyOwnAdvisor.ca</a>, <a href="http://www.canadiancapitalist.com/canadian-stocks-paying-us-dollar-dividends/" target="_blank">CanadianCapitalist.com</a> and <a href="https://www.dividendearner.com/get-us-dividends-from-canadian-stocks/" target="_blank">DividendEarner.com</a> have listed Canadian companies who pay their dividends in US currency. I happened to own several of them including two Brookfield Asset Management listings (BIP.UN and BEP.UN) and Algonquin Power (AQN.T). Accordingly I requested my discount broker to move the shares of these stocks to the US side of my accounts, thinking that I was saving money on currency conversion. As it turns out, this was only partially correct. Algonquin Power does actually pay its dividends in US dollars and each quarter, I have been receiving the exact amount of US cash that I expected to, based on their posted rate multiplied by the number of shares that I held.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIQTLwSOUC0GMU6iEEynJBjZM6C3zHUNhdfPp1-r7PsOQVGpja7M249GAgy-3dfySVKE-NK5pkkyCJQELBEq7l8I04czaRV6YLY7zFTDFSEnak5nTrXakLbV0w3lXa-0QEUbMsLwCqipc/s1600/Brookfield+Dividend.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="767" data-original-width="1600" height="306" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhIQTLwSOUC0GMU6iEEynJBjZM6C3zHUNhdfPp1-r7PsOQVGpja7M249GAgy-3dfySVKE-NK5pkkyCJQELBEq7l8I04czaRV6YLY7zFTDFSEnak5nTrXakLbV0w3lXa-0QEUbMsLwCqipc/s640/Brookfield+Dividend.jpg" width="640" /></a></div>
As it turns out, this is <b>NOT </b>the case for Brookfield. Just recently, one of my blog readers kindly pointed out to me that people who had moved their Brookfield shares to the US side of their account were complaining that they were actually losing money! This is because the declared "US dividends" were actually being converted to Canadian when paid to the discount brokers, who then convert them back to US in order to allocate to the US side of their accounts. In all, they were losing 2.5+ percent per transaction! I guess I should have verified this myself when I made the switch, but who knew that so many sources could be wrong? This seemed very confusing to me, so I set out to investigate.<br />
<br />
First I confirmed that the assertion was true by finding the latest published quarterly yield for my stock which I then multiplied by the number of shares that I held. For example, I have 353 shares of BEP.UN in the US side of my TFSA account and the rate of payout for March was <b>USD 0.515</b>. Accordingly I expected to be paid $181.80 USD. Instead I was only paid $176.82 with the difference being attributed to conversion fees. The net difference was even larger in my husband's RRIF account where he held significantly more shares of BIP.UN. Next I wanted to understand why this was happening and where the double conversion was taking place.<br />
<br />
I looked on the Brookfield Dividend Page and found this disclaimer at the bottom. The first sentence is what probably led to the widespread misunderstanding.<br />
<br />
<div style="text-align: left;">
<span style="color: red;"><i>Please note that the quarterly dividend payable on Brookfield's Class A
Limited Voting Shares is <b>declared in U.S. dollars</b>. Registered
shareholders who are U.S. residents receive their dividends in U.S.
dollars, unless they request the Cdn. dollar equivalent. Registered
shareholders who are <b>Canadian residents</b> receive their <b>dividends in the
Cdn. dollar equivalent</b>, unless they request to receive dividends in U.S.
dollars.</i></span></div>
<br />
I phoned Scotia iTrade to find out whether it would be possible for me to request Brookfield to pay my dividends in US dollars. What I was told was that Brookfield was not paying me (or any other investor directly). They were paying the discount broker, which is a Canadian corporation and therefore the payouts from Brookfield are in Canadian dollars. So it makes absolutely no sense for me to hold these stocks in the US side of my account, incurring a conversion fee each time a dividend is paid. I asked iTrade to move my Brookfield stock back to the Canadian side of my account, but I worry about all the misinformation that is still out there about Brookfield. I will try to contact some of these websites to make them aware of the situation and ask that Brookfield be removed from the list of "Canadian companies paying US dividends", or at least clarify that they do not pay this to Canadians!<br />
<br />
On the other hand, Algonquin Power does pay its dividends in US dollars regardless of whether they are paying a Canadian or American resident. I will now count on it to generate US cash dividends that I can use to spend.<br />
<br />
Note: Since posting this blog entry, I have received comments from several people who indicate that they do receive the full US dividend from Brookfield on the US side of their account. BMO Investorline seems to pay out in full and one person even indicated TD Direct Investing, even though I heard that others from TD were charged a currency conversion fee. I haven't figured out what the deciding factor is. I guess the take-away from all this is that you should double-check with your own discount broker. I plan to ask mine why we are being charged a fee at Scotia ITrade while other discount brokers do not. A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com5tag:blogger.com,1999:blog-8074558494642517660.post-55575477686122226992019-03-13T18:48:00.000-04:002019-03-13T18:48:06.019-04:00CRA 2018 - Climate Action Incentive and Studio Tax<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvzLGi7b_-kAdd2EZ-SB5JinUxvqFaIIYHtHK_3lko2DPWaA0eAgWC8ugzy3FKtDpwv49JHDcwupXxQMlTNAtvX5EXQSimUNju6sjS0VdF7D4KdQZKOtUaP2-tv07TqW8q-35BXDi22pE/s1600/Climate+Incentive+1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="721" data-original-width="1600" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvzLGi7b_-kAdd2EZ-SB5JinUxvqFaIIYHtHK_3lko2DPWaA0eAgWC8ugzy3FKtDpwv49JHDcwupXxQMlTNAtvX5EXQSimUNju6sjS0VdF7D4KdQZKOtUaP2-tv07TqW8q-35BXDi22pE/s640/Climate+Incentive+1.jpg" width="640" /></a></div>
For provinces including Ontario, Saskatchewan, Manitoba and New Brunswick who chose not to implement their own carbon tax plans, the Federal government intends to levy its own taxes on fuel purchased in those locales. To offset the impact of this, the 2018 CRA tax form has included a <b>Climate Action Incentive</b>, which gives Canadians in these provinces a tax deduction which directly reduces the amount of income tax owed. There seem to be no income claw-back implications so each household is eligible to receive some amount, depending on the family size. An extra amount is provided for small or rural communities. Note that only one taxpayer can claim this incentive on behalf of the household and it probably makes sense for the one with the higher income to do so.<br />
<br />
The incentive is supposed to be revenue neutral for the Federal government and compensates for the impending higher fuel charges. This is meant as an appeasement to those against a carbon tax, and the incentive has been offered in advance of that tax being applied. However so far, there has not been much publicity highlighting this incentive, and even less information about how you actually go about claiming it on your tax form. As an appeasement tactic for the Federal government, not touting this far and wide seems counterproductive?<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTKUJEWtOAduT_MF6vbfN6PeuGC4SEMoyGNVEz9zvYZ0duFIXnynQbxSsuojkPFcDG0F986YghFClxLrAiuzbs3JoId5lhu7SEVfkmMbpEcwfkdNECEzADIBqP00GIJc0kNr57B_j_1Zg/s1600/Climate+Incentive.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="591" data-original-width="1600" height="236" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTKUJEWtOAduT_MF6vbfN6PeuGC4SEMoyGNVEz9zvYZ0duFIXnynQbxSsuojkPFcDG0F986YghFClxLrAiuzbs3JoId5lhu7SEVfkmMbpEcwfkdNECEzADIBqP00GIJc0kNr57B_j_1Zg/s640/Climate+Incentive.jpg" width="640" /></a></div>
After some searching on the internet, my husband and I found that you need to fill out <b>Schedule 14</b> and the resultant deduction will appear on <b>Line 449</b> of the Credits section (page 4) of your income tax form. I chose to apply the deduction to my taxes. For years now, we have used the free income tax program <b><a href="http://retiredat48book.blogspot.com/2014/04/studiotax-2013-integrates-netfile-to-cra.html" target="_blank">StudioTax</a></b> in order to enter our tax information and to NETFILE. Once we figured out which schedule to fill out, it was a simple matter of finding that form on StudioTax and filling out the few fields relevant to us.<br />
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho0lj0el6Hk4xUDc54JikV12dEiJgdibgF7NLYGOVp70zlnc_PQDUgOxKJ2UpmuI0ehVYG5an-A4qG9KnGDKQm67nooX7e53KnJdWmvt_JxGXVC0wPrAnZMQZ8nMqE2Kq658dzH4rUHqI/s1600/Climate+Incentive+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="659" data-original-width="1600" height="262" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEho0lj0el6Hk4xUDc54JikV12dEiJgdibgF7NLYGOVp70zlnc_PQDUgOxKJ2UpmuI0ehVYG5an-A4qG9KnGDKQm67nooX7e53KnJdWmvt_JxGXVC0wPrAnZMQZ8nMqE2Kq658dzH4rUHqI/s640/Climate+Incentive+2.jpg" width="640" /></a></div>
The program automatically applied the applicable deduction to line 449 and the amount of my taxes owed was reduced accordingly. I assume that anyone filling out a paper form would need to fill out Schedule 14 as well as enter the result in line 449.<br />
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More information can be found here:<br />
<a href="https://www.blogger.com/goog_203619486"><br /></a>
<a href="https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/5006-s14/5006-s14-18e.pdf">https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/5006-s14/5006-s14-18e.pdf</a>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-80385434935501858062019-01-05T13:00:00.000-05:002019-01-05T20:57:58.334-05:00Year End Review 2018: After Six Full Years of Retirement<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPxxVfHwDe327unPMpWxTwxy3m8bhfXUbFRK76hd4xsEmdpCxUCbMWUFVaaP4VUy0KiWwNqvqnxE7ex9pBEauejWDYYy-GVEl4LI3g-J6JXuFLBZ27omk6BTfVEf_ORMhqEsbi7noDnEs/s1600/TSX+2018.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="824" data-original-width="1600" height="328" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgPxxVfHwDe327unPMpWxTwxy3m8bhfXUbFRK76hd4xsEmdpCxUCbMWUFVaaP4VUy0KiWwNqvqnxE7ex9pBEauejWDYYy-GVEl4LI3g-J6JXuFLBZ27omk6BTfVEf_ORMhqEsbi7noDnEs/s640/TSX+2018.jpg" width="640" /></a></div>
It has been 6.5 years since my husband Rich and I retired together at age 48 and the time seems to have gone by in a flash. Reflecting on this past year, 2018 certainly was a wild and turbulent time for the stock market. The S&P/TSX Composite Index went through a roller coaster ride, starting off at a 10-year high with a value of just under <b>16413</b>. After such a long bull run and with all the economic and social-political turmoil happening around the world, it is not surprising that the markets were due for a fall. By the second week of February, the index fell 8% to <b>15034</b> but surprisingly by mid July, it had rallied to be even slightly higher than its year-beginning value. Unfortunately it was pretty much downhill from there, as the index went on a downward spiral, falling to its lowest point on Christmas Eve with an index of <b>13780. </b>The index was16% below its starting value before rallying slightly and closing the year with a final value of almost <b>14323</b>, down 12.7%. It is too bad there is not a way to predict the timing of the rise and fall of the stock market, in order to take advantage of the adage to buy low and sell high. In early February, as part of an effort to re-balance our portfolio, I decided to sell some of the shares of <b>Premium Brand (PBH)</b> in my LIRA for $106/share. This would reduce the total value of that holding and lock in some of the profits made. The shares had risen rapidly in price since I first bought them in October 2016 for $60/share. I regretted the sale when the stock price continued to rise to over $120 through April, but then unexpectedly, the price started to plummet. By the end of 2018, PBH was going for around $75/share and my earlier transaction seemed prescient, when it was actually just dumb luck.<br />
<br />
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.<br />
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As part of our annual year-end review, I took a look at the distribution of our various stock holdings and the dividends that they generate in terms of market capitalization and market sectors. We want to ensure that our holdings are skewed more towards the stability of large and mid cap stocks as opposed to small cap, and that we are well diversified across multiple sectors. This year, our small cap percentage increased, not so much because we bought more stock from smaller companies, but because some of our mid cap stocks lost so much in value that they became small cap.<br />
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Despite our goal to buy and hold most of our stock, 2018 marked an unusually active trading year where we lost our holdings in some companies through forced buy-backs, mergers and acquisitions. In some cases, it was a welcome and beneficial change while in others, it was not what we would have preferred to have happened since it led to a loss of a steady dividend income stream that we would now need to find a replacement for. The CEO of <b>HNZ Group</b> bought back all of the shares of his company at a price of $18.70/share, which left us with a capital loss of around $7K but gave us a much higher share price than the market price. <b>Enbridge (ENB)</b> merged with its subsidiary <b>Enbridge Income Fund (ENF)</b>, providing Enbridge shares to replace the ENF shares. <b>Royal Bank (RY)</b> called back its preferred shares <b>RY.PR.D </b>and paid out its value in cash. This was actually a blessing for us since we regretted buying the preferred shares but there was not much of a market to sell them. The preferred shares gave us a good yield of 4.5% at the time of purchase and promised a more stable share price. But the dividend was fixed while Royal Bank raised its yield twice annually over the same period. We would have been better off to just buy and hold more Royal Bank. In each case where we received cash for the buybacks, we purchased more dividend paying stock. I chose Emera (EMA) and Bank of Montreal (BMO), both with long-standing histories of raising dividends.<br />
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An interesting situation arose when it was announced that <b>Brookfield Infrastructure (BIP.UN) </b>would purchase <b>Enercare Inc. (ECI)</b> in a friendly takeover. We own both of these stocks, holding Enercare in both a registered and a non-registered account and Brookfield only in a registered account. Our first decision was whether to accept cash or Brookfield shares for the transaction. While I would want more BIP.UN in my registered account, I do not want it in our non-registered account because it is a limited partnership that pays return of capital instead of dividends, which leads to accounting and tax complications if not sheltered in a registered account. By the time I made my decision to take shares in the registered account, it was too late to make the request, so I ended up with cash in both cases.<br />
<br />
The next issue to deal with was the <b>$18,000 capital gain</b> 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 <b>Corus (CJR.B) </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.<br />
<br />
Like Corus, I had a similar decision to make with my <b>Cominar REIT (CUF.UN)</b> 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.<br />
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In <a href="http://retiredat48book.blogspot.com/2018/01/year-end-review-2017-after-five-full.html" target="_blank">last year's blog</a>, 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.<br />
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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.<br />
<br />
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.<br />
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Most significantly, turning
55 meant I could finally start collecting income from my locked-in
defined contribution work pension plan, which I moved into a self-directed locked-in
retirement account (LIRA) at the time of my retirement at age 48. While we were able to convert our RRSPs into RRIFs immediately after retiring and have been
receiving annual income from these accounts ever since, our LIRAs were not available for conversion into Life Income Funds (LIFs) until age 55. In addition to the age requirement, the LIF is much more restrictive than a RRIF in that you are required to withdraw an annual amount that falls between both a minimum and <b>a maximum</b>. The limit on how much you can withdraw each year is designed so that the income in the LIF lasts until age 90. These paternalistic controls on my hard-earned employment retirement savings felt galling to me, so I was happy to learn about a relatively obscure rule that allows me to request that 50% of my LIF be freed either as cash or as a one time tax-free deposit into my RRIF account. The catch is that you must submit the form <b>within 60 days</b> of the LIF account becoming active, or else you lose this right forever after!! Information about this rule can be found on the <a href="https://www.fsco.gov.on.ca/en/pensions/lockedin/lif/Pages/default.aspx" target="_blank">Financial Services Commission of Ontario website </a>and the request form can be found at<a href="https://www.fsco.gov.on.ca/en/pensions/Forms/Documents/C-1204E.2.pdf" target="_blank"> https://www.fsco.gov.on.ca/en/pensions/Forms/Documents/C-1204E.2.pdf</a>.<br />
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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.<br />
<br />
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.<br />
<br />
I requested to transfer 50% of the value of my LIF into my RRIF as <b>stock in kind</b>. 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 <a href="https://www.fsco.gov.on.ca/en/pensions/lockedin/faq/Pages/li-account2009qanda.aspx" target="_blank">Question 9 of the LIF FAQs</a>.<br />
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Several years after RBC and TD Banks first introduced them, my discount broker <b>Scotia iTrade</b> has finally followed suit and now offers <b>U.S. registered accounts</b>
for RRSPs, RRIFs, LIRAs, LIFs and TFSAs. Within these accounts, you
can hold American stocks or Canadian stocks such as Algonquin Power
(AQN.T) and Brookfield (e.g. BIP.UN, BEP.UN) that pay dividends in U.S.
Dollars and keep the U.S. cash rather than having the dividends
converted to Canadian and incurring currency exchange and extra fees charged by the brokerage. It has been
estimated that the savings on these fees could amount to as much as
1.5% of the value of the dividends for each payout. I have now moved the applicable stocks in our portfolio to the US side in both our registered and non-registered accounts. For our non-registered account, I have been transferring any US cash dividends to my US bank account, thus generating a source of US funds to spend on our trips to the United States without having to pay currency conversion rates. I am not sure yet whether I can withdraw US cash from the US side of my TFSA account directly to the US side of my non-registered account without the money being converted to/from Canadian. If this is possible, then I assume that I can then re-contribute the Canadian value of that withdrawal amount the next calendar year? I will try this with a small amount later on in the year. Similarly I have not tried to withdraw US stocks in kind as part of my annual RRIF withdrawal. This might be an experiment for a future year. <br />
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In 2018, we made some major changes to our utility expenses. Finally deciding to get with the times, we purchased a second cell phone so that we each had one and cancelled our phone land line. In addition to the cost savings of the phone line, we had the extra intangible advantage of getting rid of the telemarketers and donation seekers who were basically the only ones calling our land line. We now obsessively protect our cell phone numbers and only provide them to companies or institutions that we actually want or need to call us. We were lucky enough to be able to take advantage of the brief price war that the major Tel-coms waged this year and snagged the deal of 10GB of data for $60/month from Bell Canada. In fact, my husband signed up for the cell service deal before we even bought the second phone. We renegotiated a cheaper price with Rogers for our internet and cable bill after our previous discounted deal expired but it was only for one year so I think we will need to try and do so again this year.<br />
<br />
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 "<a href="http://arenglishtravels.blogspot.com/2018/04/london-2018-off-beaten-path-tour.html" target="_blank">Off The Beaten Path" trip to London, England</a> 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 <a href="http://arenglishtravels.blogspot.com/2018/07/biking-at-meaford-thornbury-ontario.html" target="_blank">cycling vacation to Meaford, Ontario</a> (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<a href="https://www.coursera.org/learn/mythology" target="_blank"> free online course on Greek Mythology</a> 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.<br />
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<br />
<u><b>References:</b></u><br />
<a href="http://retiredat48book.blogspot.com/2018/01/year-end-review-2017-after-five-full.html">2017 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2017/01/year-end-review-2016-after-four-full.html">2016 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2016/01/after-third-full-year-of-retirement.html" target="_blank">2015 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2015/01/after-second-full-year-of-retirement.html" target="_blank">2014 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2014/01/after-first-full-year-of-retirement.html" target="_blank">2013 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/p/blog-page.html" target="_blank">Get our Retirement Planning Spreadsheets </a><br />
<a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement</a></div>
A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-79278241828707445092018-01-09T20:29:00.000-05:002018-01-09T20:29:52.848-05:00Year End Review 2017 : After Five Full Years of Retirement<div class="separator" style="clear: both; text-align: center;">
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It has been 5.5 years since my husband Rich and I retired at age 48. With 2017 coming to a close, it is time once again to analyze how we did on the year. Where the TSX lost 11% in 2015, then soared 22% in 2016, 2017 ended in between with modest gains of <b>6%</b>. It was not as clear cut in determining how our portfolio performed in 2017, due to an unexpected influx of funds arising from the receipt of a modest inheritance. We used part of these funds to add more dividend-paying stock to our portfolio in order to increase our dividend payments that we use as our source of retirement income (more on this later). In order to have an "apples to apples" comparison to the previous year, I worked out our performance excluding the new investment funds. Based on this calculation, we had a 14.9% increase in value over 2016 when including the dividends that we withdrew as income, and a <b>10.2%</b> increase excluding them. While it is nice to see the value of our portfolio grow in excess of the TSX, what we really care about is the amount of dividends that we generate. Back in 2013/14, dividends were growing in double digits, but the growth has progressively slowed down since then. In 2015/2016, our dividends grew between 6-8% but in 2017, they only grew by 4% (again, excluding our new investments). I use the term "only" since this seems low relative to previous years. But compared to the salary increases (or lack thereof) that I used to get while working, having an annual 4% raise is still pretty good.<br />
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I checked on the mix of our portfolio in terms of market capitalization and sector to ensure that we were still sufficiently diversified. Since our strategy is to buy and hold for the dividends as opposed to buy and sell for value gains, we more or less held the same stock between 2016 and 2017 with a few minor additions and subtractions. Therefore it is not surprising that the numbers are quite similar year to year. Our relative percentage in large cap stock has grown a bit, mostly because some of the mid cap stocks that we owned in 2016 have grown in size and now are classified as large cap. We are happy to see that our dividends continue to come from a variety of sectors and that we are limiting our exposure to riskier small companies. <br />
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When you come into <b>unexpected funds</b> that fall outside of your annual budgeted income, the tendency is to indulge a bit on discretionary extravagances that you would normally not consider. We definitely did this, each selecting a few items that we have always wanted, but could not normally justify. Before doing this, we made sure to first allocate money to rebuild our short and long term emergency funds, which had been decimated the previous year by major<a href="http://retiredat48book.blogspot.ca/2015/08/handling-unexpected-expenses-after.html"> unexpected home repair expenses</a>. One of the extravagances that I wanted in particular was a TIFF Patron's Circle Gold membership, that would allow us to attend <a href="http://torontohappenings.blogspot.ca/2017/09/tiff-2017-advanced-screenings.html">press and industry screenings</a> of movies during the annual Toronto International Film Festival. While our other purchases were one-time expenses covered by the one-time influx of extra funds, the membership would be a new major expense that would need to be added to our annual budget. We continue to live by the adage that "if we can't afford it, we can't have it", so in order to support this ongoing expense, we needed to add enough new stock to pay out dividends to cover the amount each year. This was all taken into consideration before determining how much we had left to spend on fun purchases.<br />
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I had an extra goal that I wanted to achieve when deciding which stocks to purchase in order to add dividends to our non-registered account. As previously mentioned, we withdraw some or all of the dividends that we receive each month to use as income to pay our monthly bills. Up until 2017, the dividends that we were paid in the first and third months of each quarter (e.g. January/March) far exceeded the ones we received in the second month (e.g. February). While we made more than enough dividends in the first and third months to cover our average monthly expenses, the second month always fell short, thus requiring some planning to save up extra money for those months. In 2017, we finally had additional funds to invest and so I was able to tackle this issue. While making the payout of the three months equal is not reasonably achievable, I wanted to get to the point where the second month could at least cover a normal month's expenses. I therefore focused on purchasing stock that I was interested in anyways, but which happened to pay in the second month, or at least monthly.<br />
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It has been our strategy since we retired to try to slowly reduce the value of our RRSPs so that we would not be hit with a huge tax bill when we turn 71. In that pursuit, we converted our RRSPs into RRIFs right after retirement in 2012 and started withdrawing the legal minimum in cash each year. As it turned out, the annual dividends generated from our RRIFs exceeded the minimums. So despite these withdrawals and because of long term upward trend of stock prices, the value of our RRIFs continued to rise since we never reduced the capital. Going forward from the 2018 RRIF withdrawal, we have implemented a new strategy. Instead of saving up our dividends and withdrawing cash, we will <b>move dividend stock "in-kind"</b> from our RRIFs to our non-registered account at the beginning of each year. This strategy achieved multiple purposes. It effectively reduces the value of our RRIFs by reducing the amount of stock held there, and eliminates the dividends paid out by those shares. In addition, by again selecting stock from our RRIFs that paid in the second month, I furthered my goal of smoothing out our monthly income flow. Finally I no longer have to worry about maintaining enough cash flow to support the entire annual RRIF withdrawal. I only need enough cash to cover any excess amount triggered if my stock transfer exceeded the minimum withdrawal amount, since we would be charged a withholding tax on that amount. If we continue this strategy for multiple years, we should eventually generate a noticeable reduction in the value of our RRIFs and successfully move more of our income from being taxed at 100% (from the RRIF withdrawals) to the much more tax efficient dividend payouts from a non-registered account.<br />
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I had several reasons for choosing to move stock in-kind as opposed to selling in the RRIF, making a cash withdrawal and re-purchasing the same stock in the non-registered account. I saved the two $9.99 transaction fees for the sale and purchase, but that was inconsequential. More importantly, it was an easy process, taking a simple phone call to my discount broker Scotia iTrade to make the in-kind transfer happen. If I had sold stock and then purchased, I would have to wait 5 days for each of the transactions for the trades to settle and could have missed out on a dividend payout in the interim. And there was always the chance that after selling a stock, the price might soar and I would lose money trying to buy it back. With the in-kind transfer, I controlled the price that was used for the transfer, being able to pick between the low and the high price that the stock reached that day, up to the point that I requested the transfer. I chose the low price, so that I could transfer out more stock while still maintaining close to the minimum RRIF withdrawal. The only thing I would do differently next year is to wait until later in the day to make the transfer, since it would give me a longer period of time from which to choose a price. I also found out that I could transfer more than one stock as part of my RRIF withdrawal, but the stocks had to be Canadian. I could not transfer a US stock from my RRIF into my US non-registered account.<br />
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We had one more unplanned investment opportunity in our non-registered account which arose towards the end of 2017. In 2016, HNZ Group (HNZ.A) cut their dividend payout and as a result, the value of our stock plummeted and we lost the income generated by those dividends. We thought about selling the stock, but since we had lost over 50% the value of this holding, we were not going to be able to buy much with the proceeds anyways. So rather than lock down the loss, we decided to hold onto the stock for a while to see if it rebounded. Towards the end of 2017, we were notified that the president of HNZ Group was offering to buy up all of his company's stock at a much higher price than had reached for over a year. Because of this forced sale, we recouped about 85% of our original value. Now we had a new chunk of money to invest in dividend paying stocks, as well as a small loss that we could carry forward to a future tax year to offset a future capital gain. With the inheritance investment, the RRIF transfers and the investment from the HNZ sale, I am happy to report that our second month dividend payout now is large enough to sustain itself for a normal expense month, without the need to borrow funds from a previous month. Mission accomplished.<br />
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All in all, we continue to be in good position and ahead in terms of our retirement plan. In 2018, I will turn 55 and will be eligible to collapse my Locked in Retirement Account (LIRA) and turn it into a Locked-in Income Fund (LIF). Given that my birthday is at the end of the year, I will probably wait until the beginning of 2019 to do so, rather than add a new income stream so late in the year. This will probably become a topic of discussion for next year's Year In Review blog.<br />
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From a social aspect, we are still busy as ever, with no plans to slow down. We still have
not had the time to tackle many of the hobbies and activities on the original to-do
list that we made when we first retired. In 2017, we continued to be
lucky in securing another home swap that allowed us to vacation abroad
economically, this time spending 3 weeks in the spring in Belgium, including a 9 day <a href="http://arenglishtravels.blogspot.ca/2017/04/belgium-2017-antwerp-home-swap-and.html">home swap in Antwerp</a>.
We did so much on this trip that it took me the rest of the year to blog about it. We also took some shorter trips to New York City, Ottawa, Stratford and
Cleveland that I have not written about yet, but pledge to complete before starting our 2018 vacations. In addition to the interest courses that we take at Innis
College as part of the Later Life Learning group, we have also
discovered some excellent courses at Hot Docs including ones on Film
Noir, Art Deco and the History of Design Styles. Rich has picked up a few new hobbies including meeting with a group who share his interest in vintage watches. In order to keep our minds sharp, we have taken to completing one or more crossword puzzles each day, taken from the free Metro paper, the Globe and Mail or the New York Times newspapers. We look forward to continue pursuing our many interests through 2018, and maybe we can even check off a few more new items from our original list.<br />
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<u><b>References:</b></u><br />
<a href="http://retiredat48book.blogspot.ca/2017/01/year-end-review-2016-after-four-full.html">2016 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2016/01/after-third-full-year-of-retirement.html" target="_blank">2015 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2015/01/after-second-full-year-of-retirement.html" target="_blank">2014 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2014/01/after-first-full-year-of-retirement.html" target="_blank">2013 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/p/blog-page.html" target="_blank">Get our Retirement Planning Spreadsheets </a><br />
<a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement</a>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com4tag:blogger.com,1999:blog-8074558494642517660.post-63506590618238585612017-12-25T09:09:00.001-05:002017-12-25T09:09:26.120-05:00Investors Group Podcast About Our Early Retirement<div class="separator" style="clear: both; text-align: center;">
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Around the end of August, we were contacted by a journalist requesting to talk to us for a podcast about <b>early retirement</b> that he was working on for Investors Group. The podcast is the 4th of a six part series about retirement, which also includes topics like "What Happens When You Are Forced To Retire", "Working Past Retirement Age", and "What Will My Retirement Look Like". In our case, the podcast would focus on why we wanted to retire early, how we achieved it and what we were doing now that we were into our sixth year of early retirement. It was not easy to schedule a time for the interview, since our retirement days are packed with activities. At that time, we were just gearing up for the <a href="http://torontohappenings.blogspot.ca/2017/09/tiff-2017-advanced-screenings.html">Toronto International Film Festival </a>and were in midst of watching early preview movies en route to a new annual record where we watched over 40 movies this year. Luckily we were able to squeeze time in for the podcast, which you can listen by following the link below:<br />
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<a href="https://www.investorsgroup.com/en/advice-and-stories/2017/10/episode-4--can-you-retire-early-">https://www.investorsgroup.com/en/advice-and-stories/2017/10/episode-4--can-you-retire-early-</a>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-67441084010164049312017-03-12T15:07:00.000-04:002017-03-12T15:22:33.254-04:00Retirement and Income Tax: Moving Beyond the RRSP<div class="separator" style="clear: both; text-align: center;">
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As retirement savings plans go, the difference between the <b>TFSA</b> versus the <b>RRSP</b> epitomizes the concept of "pay me now or pay me later". Sooner or later, the taxman gets you. The RRSP allows you to postpone paying income tax on any contributions made during your working years when your income is presumably higher. But once you retire, it is time to pay the piper. At that point, funds withdrawn from the plan are taxed at 100%. By contrast, you do not get a tax deduction for contributing to the TFSA, but any funds withdrawn from it, including growth in value or income earned via dividends or interest payments, are tax free.<br />
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The short term allure of paying less income tax or even getting a refund
as a result of making a RRSP contribution masks the long term
implications to your tax burden in the retirement years. This made sense when life expectancy post-retirement used to average around 10+ years compared to 40+ years of working. These days with people striving to retire earlier and commonly living to age 90 or more, it is quite possible and even likely for some people to have as many if not more retirement years compared to working years. For example, my husband and I retired at 48 after working for 26 years. We only need to reach age 74 before our retirement years start to outnumber our employment years. With so many potential retirement years ahead of us, it made sense to have a plan that balanced out the tax burden both before and after retirement. Given this new normal, I believe that it is unwise to have all your retirement
savings come solely from an RRSP, pushing off so much of the tax burden to the future. We chose instead to spread out the allocation of our retirement savings to include the TFSA and even a
non-registered account which receives extremely
favourable tax treatment for Canadian eligible dividends by means of a generous dividend tax credit.<br />
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Let's look at an example of how $50,000 of retirement income is taxed when it comes out of the various types of accounts. Not all of these cases are realistic options, but they highlight the differences between the tax owed from RRIF income vs. TFSA income vs income from a non-registered account that holds only Canadian eligible dividend paying stock. I pumped each of these income scenarios into a 2016 tax calculator to determine the estimated tax owed. Note the significant difference in tax burden for the income from the RRSP/RRIF (taxed at 100%) as opposed to shifting some of that income to a TFSA (0% on withdrawal) and/or a non-registered account holding dividend-paying stock (reduced average tax rate due to dividend tax credit). Imagine having to pay this tax differential throughout your retirement years.<br />
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The current conventional wisdom dictates that low income earners should choose the TFSA while mid income
earners should pick the RRSP as their first savings vehicle of choice, and high income earners that make enough money should max out on both. While this definitely makes sense if you are only looking at minimizing tax during the working years, there is more to the story when you look beyond that into the retirement years. I believe that the RRSP is over-used as a retirement savings platform and that a more balanced strategy would be more beneficial in the long term. In 2013, I wrote an article detailing my <a href="http://retiredat48book.blogspot.ca/2013/02/my-rule-of-thumb-for-rrsp-vs-tfsa.html">strategy for contributing to an RRSP vs a TFSA</a>. I suggested that RRSP contributions should only be made to the point where you no longer have to pay more income tax beyond the amount held at source by your employer. After that, all extra funds should be allocated to the TFSA or non-registered account in an effort to reduce your tax burden after retirement.<br />
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Implementing this plan of diversifying our retirement savings platforms during our working years gave us a good jump that we try to continue even after retirement. We continue to strive for the goal of moving income sources from registered to non-registered accounts. A tax strategy detailed in my book <a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html">Retired at 48, One Couple's Journey to a Pensionless Retirement</a> describes the advantages of collapsing our RRSP into a RRIF immediately after retirement and actively trying to reduce the size of the RRIF each year, or at least prevent it from growing too much. So far we have tried to accomplish this by withdrawing the dividends generated from the stocks within the RRIF, saving us from drawing down the equivalent amount of this money in our non-registered account and stopping the RRIF from growing by the value of these dividends. But since we did not touch the capital within the RRIF, the value of our RRIF has continued to grow, as the bull run of the TSX over the last 8 years have caused stock prices to continue to rise. This means we continually need to withdraw more income from our RRIF each year. And despite that income being generated as Canadian eligible dividends, it is still taxed at 100% when it comes out of the RRIF, since the dividend tax credit does not apply.<br />
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Next year we will try a new tactic aimed at slowly reducing the actual value of our RRIF by shifting the capital to our non-registered account. Rather than making our annual legislated minimum RRIF withdrawal in cash (i.e from paid dividends), we will transfer the equivalent value of stock shares "in kind". The tax on the withdrawal should be the same since we are taxed at 100% of the value regardless of whether we take it in cash or in stock. The shares that we transfer will start generating dividends in our non-registered account, while our RRIF will <b>decrease</b> both in<b> value</b> and in the amount of <b>new dividends</b> it is capable of producing. There is no capital gain tax in the transfer, which will be made at the end-of-day fair-market value p ice of the stock on the day of the transaction. The new adjusted cost base of the shares in the non-registered account will equal the price that it was transferred at. This strategy works for us as long as we generate sufficient income from our non-registered account and don't need to spend the income from the RRIF. If this turns out not to be the case, we can achieve the same result of reducing our RRIF capital and dividends by selling stock each year and withdrawing the cash.<br />
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In selecting which stock shares to transfer, we decided that we would not pick any of the income trusts that we have in our RRIF. The reason that we put the income trusts in the registered account in the first place was so that we would not have to keep track of complicated adjusted cost base issues rising from return of capital, which would be the case if these companies were held in our non-registered account. Next we determined that it would be more advantageous to transfer shares that have grown in value since we purchased them, as opposed to those that have decreased. Since the new adjusted cost base of the shares will be based on the deemed fair market share price used for the transaction, transfering stock that has increased in value means that if we decide to sell this stock in our non-registered account later on, we would owe less capital gain or would generate a larger capital loss.<br />
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We will contact our discount broker to find out what steps we need to take and how much advanced notice we need to give in order to change the instructions for calculating our 2018 RRIF withdrawal. Presumably we will need to provide exact details in writing as to which and how many shares we want transferred in-kind in order to come close to the minimum withdrawal amount and then make up the rest in cash. There should still be no extra withholding tax if we only take out the minimum. Hopefully if we follow this new strategy for some number of years, we will accomplish our goal of slowly moving capital and the source of future income from our RRIF to our non-registered account. Doing so will help keep our tax burden from steadily and dramatically rising as we are forced to withdraw a larger and larger percentage from our RRIF with each passing year, taxed at 100%.
A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com1tag:blogger.com,1999:blog-8074558494642517660.post-81544147402790132822017-01-05T08:46:00.000-05:002017-01-11T12:52:23.623-05:00Year End Review 2016: After Four Full Years of Retirement<div class="separator" style="clear: both; text-align: center;">
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This coming May 2017, it will be <b>five</b> full years since my husband Rich and I simultaneously retired at age 48. They say that time flies when you are having fun and that has certainly been true for us. We have had a blast in the past 4.5 years (other than during my brief period recovering from health issues) and we have never encountered a dull moment when we felt bored or wondered what we could do next. In fact, we have been so busy that we need to prioritize our interests. We have settled into a routine where our fall and winter days are filled with indoor tennis, interest courses at U of T's Innis College, attending live theatre including our annual subscription to Mirvish Productions, trips to the Art Gallery of Ontario and other museums, as well as visiting or entertaining friends and family. We are so busy during this period that we don't have time to travel, which works out fine for us since we are not keen on "sun vacations". Instead, we have been taking 4-7 weeks of vacation each year during the spring and summer, continuing to take advantage of the financial and cultural perks of home swapping. Each year I think that we may not find a new swap opportunity, when out of the blue, another great offer arises. Since retiring, we have traveled via home swap to the South of France, all around Ireland, Amsterdam, Venice and Paris. This coming spring, we will be doing a two week swap in Antwerp, Belgium with side trips to Bruges, Ghent and Brussels.<br />
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So from an emotional and social perspective, we have no regrets regarding our early retirement and cannot conceive of ever wanting to work again. We are just having too much fun enjoying our freedom and the luxury of time! Now for a review of how we are doing financially, to ensure that we will not be "forced economically" to go rejoin the workforce in the future.<br />
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<b>2015 </b>was a tough year for the TSX, which lost 11% of its value relative to the previous year. The value of our portfolio after dividend payouts ended the year at just about the same amount as the start of the year, which meant that excluding dividends, our portfolio was down just over 2%. This was actually a good result for us when compared to the performance of the market as a whole. More importantly, in spite of the across-the-board hit to stock prices, the total dividends paid from our stocks still increased by 8%. Since our retirement income strategy (as described in our book <a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Retired at 48 - One Couple's Journey to a Pensionless Retirement</a>) relies primarily on these dividends, in effect, we received a pay raise in 2015 despite the poor year.<br />
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By contrast, <b>2016</b> was a tremendous year for the TSX, resulting in a gain of over 22% from the previous year. Our portfolio matched this performance almost exactly, up 24.5% including dividends and 21.66% after removing our dividends for income. Just as we were not too concerned with the decline in value of our stocks in 2015, we are not overly excited in what might be a transient increase in 2016. As always, our focus is on the dividends which once again increased by 8% relative to the previous year. There are signs of concern though since for the first time since we started investing in equities, two of our stocks (Husky Energy/HSE.T and HNZ Group/HSZ.T) actually eliminated their dividend causing their share prices to plummet, while two other stocks (Enbridge Income Fund/ENF.T and Corus Entertainment/CJR.B) failed to raise their dividend for the first time in over 5 years. Is this a harbinger for a slow-down in the rate of dividend growth in Canadian stocks for the coming year(s?). That would fall in line with the forecasts from multiple US market sources throughout 2016 regarding dividend growth slow-down in US stocks due to a corresponding slow-down in earnings. Luckily our dividends have risen 34% since our retirement in 2012, so we are far enough ahead of the game to be able to withstand even an extended period of slower growth. It is interesting to note that the dividends did better in the bad TSX growth year in 2015 than the good one in 2016. Perhaps there is a time delay in reaction to the previous year's results?<br />
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While we withdraw just about all of the dividends from our non-registered account to use as income, we only withdraw the legislated minimum from our RRIFs. Until we reach age 71, the minimum is calculated by the formula <i><b>(1 / 90-age in current year) * Balance of RRIF on Dec 31 of previous year.</b></i> The government's intent is for the dollar amount of the minimum RRIF withdrawal to increase each year to provide an income amount that accounts for inflation. This did not happen in 2016, since our 2015 ending RRIF values were actually lower than the previous year. As a result, my RRIF minimum in 2016 was $28 less than 2015! This situation has reversed itself with the huge stock value gains of 2016, resulting in my 2017 RRIF minimum increasing by 14% over the previous year.<br />
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For the most part, our discretionary expenses (entertainment, travel, dining) came in around the same levels as last year. On the other hand, mandatory expenses climbed higher than the rate of inflation with electricity costs rising 23%, condo fees up 4%, and groceries up 9%. But all that was a drop in the bucket compared to the huge, <a href="http://retiredat48book.blogspot.ca/2015/08/handling-unexpected-expenses-after.html">one-time unexpected expense</a> that we learned about last year—this was the need to replace defective Kitec pipes in our condo. While we had over 6 months warning to save up some money, the $13,000+ final bill still put a dent in our long-term emergency kitty fund. We will need to slowly rebuild this kitty in 2017 and hope that no new major unexpected expenses arise this year. So far since our retirement, we have been able to live off of our annual dividends plus our emergency cash funds without requiring to dip into our capital. Having a healthy emergency kitty helps us prolong this goal.<br />
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All along, we have been monitoring the distributed value of our equities portfolio in terms of market capitalization and diversification of business sectors as a means of reducing risk. Our goal was to not have too large a percentage of our holdings in any one sector, or in small-cap companies. With this year's annual review, we have started keeping track of the same distributions in terms our dividends. We wanted to make sure that our dividends are not stacked towards one sector such as oil and gas, where the industry as a whole might go through a rough patch, increasing the potential of companies lowering or stopping their dividend payouts. We are fairly satisfied with the results of this exercise as we saw that most of our dividends come from large and mid cap companies and are reasonably spread out across the sectors. Our percentage of small-cap holdings have shrunk over the past year, as several former small-cap companies have grown to the point where they are now categorized as mid-cap.<br />
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For this year's review, I finally hunkered down and did the calculations to determine the answer to a question that I have been wondering about since we retired. It relates to when to start taking our CPP payments. The government has put a heavy penalty of 6% per year for taking CPP earlier than age 65. But the calculation of my annual CPP retirement benefit is also impacted by the number of years where I did not max out on CPP contributions, between age 18 and the year I start taking CPP. Obviously once I retired at age 48, I stopped making any CPP contributions since I no longer generated any earned income. So what would hurt me more, my growing number of years of zero CPP contribution or the penalty for taking CPP early? If I took my CPP at age 60, I would save myself 5 additional zero years, but would this be worth it to offset the penalty of starting CPP early?<br />
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It is a long, convoluted calculation to determine what my CPP retirement benefits would be if I started taking them at age 60 vs 65 vs 70. I followed the instructions of this <a href="https://retirehappy.ca/how-to-calculate-your-cpp-retirement-pension/">Retire Happy Blog</a> which walked me through the steps, creating a new spreadsheet (I love spreadsheets!) to guide me. I'm not sure I have all the details exactly correct, but I completed enough of the the exercise to answer my question. Although I would definitely receive less than the maximum possible CPP benefits due to my 17 extra years of retiring early and not contributing, I was still better off waiting until age 65 or later to take CPP, assuming I don't need the money earlier. The impact of my elevated number of years of zero CPP contributions became inconsequential relative to the massive penalty of taking CPP early. This is what I always suspected the results would be, but it was definitely interesting to definitively prove it.<br />
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Comparing our 2016 year end total against our original retirement plan, we continue to trend significantly ahead of plan and are well positioned to live out our retirement years without running out of money. Thank goodness, since I have no intention of ever going back to work. That would be no fun at all!<br />
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<u><b>References:</b></u><br />
<a href="http://retiredat48book.blogspot.ca/2016/01/after-third-full-year-of-retirement.html" target="_blank">2015 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2015/01/after-second-full-year-of-retirement.html" target="_blank">2014 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/2014/01/after-first-full-year-of-retirement.html" target="_blank">2013 Year End Review</a><br />
<a href="http://retiredat48book.blogspot.ca/p/blog-page.html" target="_blank">Get our Retirement Planning Spreadsheets </a><br />
<a href="http://retiredat48book.blogspot.ca/p/where-to-buy.html" target="_blank">Buy Retired at 48 - One Couple's Journey to a Pensionless Retirement</a>A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0tag:blogger.com,1999:blog-8074558494642517660.post-17425649495626510442016-11-21T18:40:00.000-05:002016-11-21T18:40:38.716-05:00Strategy for Cashing In on the Next Stock Crisis Blip<div class="separator" style="clear: both; text-align: center;">
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Stock investors as a whole are a curious group. There is the general tendency for investors to panic with each financial, economic, or socio-political event that causes uncertainty either nationally or internationally, resulting in a temporary drop in stock prices. Sometimes even just the anticipation of a situation can trigger a sell-off. Be it the falling price of oil, the American fiscal cliff, the threat of Grexit, the economic slowdown in China, or the vote for Brexit, news of each of these events have induced an adverse reaction from the stock market. Often an across-the-board dip does not last more than a few days and sometimes recovery happens even within the same stock trading day. There seems to be no shortage of candidates for the next crisis including the long-term fallout from the Trump presidential win in November, the upcoming Italian referendum on Senate reform in December and the proposed Brexit trigger of Article 50 in March. <br />
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With so many potential opportunities to pick up stocks on a temporary decline, it is a good time to build up excess cash in order to take advantage of the next mini-dip. Unfortunately since we are retired and only earn income through our investment portfolio, there is limited opportunity for us to accumulate cash. Our options are either to save up excess dividends or to sell stock shares in order to general a cash pool. With this in mind, a while ago I decided to stop reinvesting my excess stock dividends via the Dividend Reinvestment Program (DRIP). I also sold the shares of a stock in a registered account that hadn't increased much in value since purchase and didn't regularly increase its dividend. This provided me with a modest sum of cash to play with.<br />
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Yet predicting exactly when the next stock dip will occur is not as easy as it sounds, given that we are not monitoring the stock market every day, let alone every hour of each day. As well, stock prices do not always react as expected. After Donald Trump won the US Presidential election, we expected a fire sale in the worldwide stock markets. A temporary panic did occur overseas while the North American markets were closed, but stock prices rallied and even rose by the time the Canadian and US markets opened. It was not until several days later that the TSX experienced a mini decline.<br />
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In order not to totally miss the chance to "buy low" on the next stock decline, my husband and I use the following strategy when we have some extra cash to invest. First we decide which stocks we might be interested in buying, using target price, analyst recommendations, and other factors to guide us. In many cases, we look to just add more shares to stocks we already hold. Next we guess at a "low" price relative to the current share price and the predicted target price. I usually look at the performance of the stock over the last 3-6 months and pick a lower price somewhere along that spectrum. Finally I submit a "<a href="http://www.scotiabank.com/itrade/en/0,,3969,00.html">limit buy</a>" order for the stock at my selected price, choosing the longest allowable term (up to 90 days for my discount broker, Scotia iTrade). Then we sit back and wait to see if the price hits. Note that my chosen price is a total guess and the stock may never fall that far, or may fall significantly more. But at very least, if the buy order executes, I will have purchased stock at a price much lower than when I placed the order and if all goes well, the price will eventually revert to that original level once the market re-stabilizes.<br />
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This strategy worked extremely well recently. I put a $60 limit buy order for Premium Brand Holdings (PBH-T) when the share price was just over $64. I did not fully expect my price to hit but one day for no reason that I could ascertain, it did. The dip only lasted for a couple of hours and by the end of the day, the price had risen back to its original level and beyond. To this day, I still don't know what caused the stock to fall so dramatically for such a short period of time without any predictable event to point to as the cause. I'm glad that I had my bid in to take advantage of it or I would have missed it.<br />
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In preparation for the results of the US election, I put in a couple of limit bids in the various accounts were I was able to accumulate cash. When the stock prices surprisingly rose after the election, I just left my bids in place awaiting the next event. A few days later, my $40.40 limit buy order for Fortis (FTS-T) executed. The stock had fallen from almost $44 down to $39.58 before recovering a few days later at just over $40. As a result of the Trump victory and his intended inflationary policies, bond prices have fallen, driving up bond yields relative to stock yields. The Fortis stock succumbed to this pressure, falling over 5%. This time I did not successfully predict the "low", but I still picked up the stock at a relatively good price since the long term target price remains over $46.<br />
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My limit buy bids in a couple of other stocks have not executed so far because these stocks have not fallen to my desired price. I will just leave the buy orders in play until they expire, in hopes of catching a price drop with the next event, or unless I happen notice a better opportunity. It is too bad that Scotia iTrade does not provide the term option to leave my order open until I decide to cancel it. So if I want my bid to continue beyond the 90 days, I need to remember to update my order to extend the date before it expires.<br />
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The other issue I need to worry about on a limit buy bid is the partial fill of an order that is not completed by the end of the trading day. This occurs when there are not enough shares offered at my limit price to complete my order. For example, I recently tried to buy 102 shares of a stock but only 100 shares were available, leaving two shares unfilled. The next day, the final 2 shares were filled but because the trades occurred on two separate business days, I was charged the $9.99 commission on each day! This was pure carelessness on my part. I usually remember to cancel the remaining part of the order at the end of the day in order to avoid paying an extra commission on such a small purchase. This was a reminder to me to be more careful next time.A.R. Englishhttp://www.blogger.com/profile/01658604333506067829noreply@blogger.com0