My withdrawal method: an answer inspired by Wayne

 

I've been posting and tweeting about my approach to managing my savings in retirement. I've been hoping a curious financial pages reporter would contact me and take an in-depth look at my approach. No interest. I've also hoped someone might read my tweets and posts and help me polish my approach. Here, I have had some luck.

 

Wayne asks an excellent question which recalls an issue raised by Frederick Vettese in Retirement Income for Life. As we age, many of us will lose mental acumen - the ability to make good judgments and quick, well-thought out decisions.

His answer? An annuity at age 75 or 80. But Vettese warns, do not put the purchase off too long. To learn more, read his book. It is a good read.

Now, to answer Wayne's question. A self-directed investment account is not as difficult to direct as one might think. But, he's right to worry. I'm going to act on his question and have a serious talk with both my youngest daughter and my wife. I think my daughter could manage my self-directed account if I were unable and I know my wife could but won't. (And as I write this response, I am beginning to appreciate how very right Wayne was.)

The rest of this post is what I will have to address in the meeting with daughter and wife: 

I use TD WebBroker but there are lots of choices. I'll tell them to spend some time looking around if they don't like WebBroker. They might find something they like better. They can take their time. They can google it.

Originally, my portfolio was my own design. Today, it is almost a mirror image of the Morningstar Canadian Income Portfolio. Morningstar updates its recommendations monthly. TD, BMO and others carry the Morningstar suggested portfolio report.

If Morningstar were to halt its monthly updates, then a dividend weighted ETF would be a good alternative. I'd buy a Canadian one, an American one and one ex-North America one. Vanguard, iShares and some Canadian banks offer suitable ETFs. Again, I'd sayGoogle it. And I'd check out the Canadian Couch Potato.

TD will post the mandatory SD RIF withdrawal early every January. This is the amount I transfer in-kind, as equities and not cash, to my TFSA. If there is not enough contribution room in the TFSA, the remaining balance is transferred, again in-kind, to my non-registered account.

TD also posts the Projected Income for each SD account. This is the amount to be withdrawn in cash annually to live. With any luck, this should be more than four percent of the SD account. I always withhold 30 percent for possible income tax charges. Why so much. Because the mandatory withdrawal does not have income tax withheld. This charge comes due in the following hear. The 30 percent withholding cushions future financial shocks. I transfer the dividend income from my RIF to my bank account annually in early January. (Note: the Projected Income is the income expected to be realized in the coming year. It is a future looking number. But, if there have not been a lot of changes in the portfolio, I find the amount shown works just fine. I usually have the cash available.)

I find I must call TD and deal with a WebBroker rep. directly in order to make the equity transfers from my RIF to my TFSA. My wife was at my side this year as I did this. I hope she learned a little.

When talking with the TD rep, I keep my computer handy and a spreadsheet on the screen. I tell the TD rep what equity I want to transfer, they tell me the value of the shares at the moment and I key this value into my spreadsheet. They tell me how many shares they are transferring and how much cash and my spreadsheet confirms their calculations. With both of us in agreement, the transfers are made. (If this blog ever takes off, I'll find a way of posting my spreadsheet for all to download.)

When it comes to the cash withdrawals, no assistance is needed. This can easily be done online. Making a cash withdrawal is very straight forward. Neither my daughter nor my wife would find this difficult.

 Here are instuctions in bullet form:

• Open an SD RIF account.
• Buy stock or ETFs. I follow the Morningstar Canadian Income Portfolio plan. Aim for an investment mix that yields more than four percent.
• In early January annually, find the posted mandatory SD RIF withdrawal.
• Find and/or calculate you TFSA contribution headroom. Go to My CRA for this information.
• Call TD WebBroker and transfer in-kind an amount equal to your RIF mandatory withdrawal or TFSA contribution headroom from your RIF to your TFSA. Use whichever amount is less. You do not want to over-contribute to your TFSA.
• Any remaining mandatory withdrawal balance is transferred in-kind to an SD Non-registered account.
• Finally withdraw an amount equal to the annual dividend income. If it is too much more than four percent, don't feel pressured to remove the maximum if it is not necessary. Transfer the cash from the RIF to a bank account. This can be done without assistance. The TD WebBroker site makes this very easy.

Please read this carefully. I am only a retired photojournalist trying to share my thoughts on living in retirement. This is how I am my retirement savings and it has worked for me for almost twelve full years. Will it continue to work? That is a good question and I am hoping others may find my posts interesting and comment. We all might learn something.