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.
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
inflation 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.
For years, Canada’s inflation rate was steady at around 2% and this is the rate we used in our Retirement Plan that tracks how our portfolio is doing. At the beginning of 2022, I adjusted our plan 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.
Inflation, supply chain issues and global uncertainty took its toll on the stock market, as the
TSX/S&P Composite Index 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,
Algonquin Power (AQN.T) 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.
Things looked dire for Algonquin Power 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 non-registered account 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.
Despite the dismal year for the value of our portfolio, 2022 was a good year for
dividends, 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.
Another benefit of the pandemic subsiding is that
savings account interest rates started to rise again. For years now, we have used
EQ Bank 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.
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.
Even more exciting than EQ Bank’s Canadian savings account interest rate is the 2% that it pays for US dollar savings accounts, 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.
I have always wanted a US credit card 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 TD Borderless US Dollar 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 TD US Dollar VISA card. 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.
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,
CIBC issued a 2 for 1 stock split. 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,
BIP.UN and BIPC.T had a 3 for 2 stock split 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!
At the beginning of 2021,
Cenovous Energy 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
wrote about earlier, 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
CVE.WT 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.
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
extra withholding tax from cash within our RRIFs 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.
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.
Because we filed so early, I did not realize that I qualified for the Digital Subscription Credit, 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 REFILE and got the extra refund a week later. I now know to claim this on my tax return going forward.
We took multiple overnight trips within Ontario during 2022 in order to take advantage of the Ontario Staycation tax credit, 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.
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 medical expenses 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.
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
Nova Scotia and Cape Breton Island. 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
Pickleball craze, purchasing racquets and playing both outdoors in the summer and indoors at community centres through the colder months.
