Hey Uncle! I'm facing retirement. Any suggestions?

Retirement can be tough. Facing a life without a job is not something many of us can easily handle. What can we do to ease ourselves into retirement with a modicum of personal turmoil? Do a little planning. Take some simple actions to prepare for the inevitable -- like relax with a good book.

Hopefully, your retirement planning started decades ealier. You have opened an RRSP and possibly a TFSA, right? If you don't keep a household and personal budget, start. You must know, really know, how much you (and your partner) make and how much you (and your partner) spend.

Shortly before retiring, prepare a retirement budget. List all sources of income and all anticipated expenses. This is easier than you may think. There are lots of examples of budgets posted online. Here is a link to but one source: Get Organized (TD Canada Trust) Click on orange rectangle in top right corner.

 

Income sources:

• company pension(s)
• CPP payments
• OAS payments
  

Expenses

• income taxes
• housing related costs
  
• transportation (automobile) charges
  
• personal living expenses
  
• and more
  

If the calculations show a positive balance, you can breathe easier. If, on the other hand, the result is in the negative, this is the amount that must come from your savings that you have earmarked for retirement. It is that simple

Options:

• buy an annuity with your retirement savings
  
• work with a financial advisor
• open one or more* self-directed portfolio accounts

I believe any other options can be folded into one of the above categories. If I'm wrong, let me know. I'll correct my list.

Annuities were once the option of choice for many. Today, with interest rates so low and the risk of inflation always present, annuities are no longer the clear favourite. I will put off buying an annuity until I am between 75 and 80. At that point, I fear the risk of my losing my mental smarts is too great to ignore. An annuity supplies some insurance against future mismanagement of the wealth needed for future income.

I hate financial advisors. I was badly burned by Freedom Fifty-five and London Life. I suffered through decades of incompetence. While my personal investments were growing by leaps and bounds, my Freedom Fifty-five investments were wilting. When I retired I had to wait about a decade for London Life to release the funds and when they did they only returned 75% of my original investment. My Freedom Fifty-five RRSP investment lost money in the four digits! I'd have done better just putting the money under my mattress. That's crazy.

My favourite option is opening one or more self-directed investing accounts. An average couple in which both partners had jobs could find they need six accounts. Sounds complicated but it isn't. In fact, my investing rule is KISS (Keep It Simple Stupid). 

The easiest answer is to invest in some good, high dividend paying stocks and put the remainder in an All-in-One ETF. There are a number of these complete portfolio ETFs. Do your research and take your pick. The three ETFs listed below all exhibit low bond content. For more bond exposure, look for the BAL rather than GRO ending. (Note: The TD ETFs do not follow this pattern.)

• TOCA
• VGRO
• XGRO
• ZGRO

If skipping all investment in bonds is your goal, do not despair. There are pure equity All-in-One ETFs. The iShares offering is XEQT. It delivers lots of exposure to U.S. equities and Canadian plus lots of international exposure as well and no bonds. None. XEQT yields 2.14% today. This changes daily.

• United States 45.97%
• Canada 23.15%
• Japan 5.99%
• United Kingdom 3.17%
• Switzerland 2.25%
• France 2.23%
• China 2.19%
• Germany 2.00%
• Australia 1.95%
• Netherlands 1.24%
• Cash and/or Derivatives 0.72%
• Other 9.11%
  

I could not live on a yield of three percent, as suggested to me by a number of financial advisors. I must have a minimum of 3-4% to balance my books in retirement. And getting by on 3-4% is just that--getting by. I'd have go cut my expenses to the bone. It would be painful. I aim to withdraw at least four percent annually from my retirement savings and have done so for the past 12 years. And despite the withdrawals, my principal has almost doubled during my retirement. 

The recent exceedingly high stock prices are driving down dividend yields when expressed as a percentage yield. This is putting lie to my claim of insisting on a 4% yield. The cash payments have gone up a little, not much, but a little. If these payments were adequate in 2020, these payments will be fine in 2021 as well and falling percentage yield be damned.

If I were just starting out and I wanted a true KISS portfolio, I'd mix XEQT, or something like it, with a good mix of the highest dividend paying stocks on the Morningstar Canada Income Pick List. Always use the most up-to-date list. There is a new list released every month. 

I'd keep at least 10% in cash, maybe more today, in anticipation of a correction. I would then buckle my seat-belt and prepare for the ride of my life. And never ever forget that oh-so-applicable advice from The Hitchhiker's Guide to the Galaxy: "Don't Panic!"

 

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* It is not difficult for a husband and wife to find themselves with six self-directed accounts.

1. Husband's RIF account. An RRSP becomes a RIF (Retirement Income Fund) at age 71.
   
2. Wife's RIF account.
3. Husband's TFSA.
4. Wife's TFSA.
5. Husband's non-registered account. Called cash accounts.
6. Wife's non-registered account. 

And be aware that a company pension plan may convert into an LRIF at retirement. An LRIF is a Locked-in Retirement Income Fund. That LRIF could become a seventh self-directed portfolio.