Retirement Porfolio Portfolio At $997,693.50

In late June I posted a retirement portfolio for a Canadian retiree with $1 million to invest. I put all the retirement savings into stock and it immediately took off. I soon had more than $50,000 in unrealized gains. Then the market went into a tailspin. My imaginary portfolio dropped to less than $970,000. Ouch!

Even though the portfolio was losing money, it continued pumping out dividend income. I was able to withdraw $3,333.33 at the first of each month starting in August. At this point I have withdrawn a total of $13,333.32 and the portfolio itself has almost recovered all the value it had lost. 

My retirement portfolio now has a value of $997,693.60. If you want to see the portfolio I posted, please click the following link: My latest crack at a retirement portfolio.

Stay tuned. This portfolio and its management will get interesting come income tax time. There is an interesting wrinkle on the horizon. Hint: I meet the government minimum withdrawal demands with in-kind withdrawals rather than cash.

Retirement Porfolio Has Shrunk to $970,985.

Look above the date at the top left of each of my money blog posts and you will see this link: My latest crack at a "Retirement Portfolio". Click on the link to see a retirement portfolio created at the end of June in 2023. If this were a real, functioning, million dollar retirement portfolio, a total of  $13,333.32 would have already been removed to provide the mythological retiree with a monthly income of $3,333.33. The first payment was made in early August and will be increased annually to meet RIF withdrawal rules.

Note, 30% of each withdrawal is withheld to meet future tax demands. The retiree only sees 70% of the withdrawal for meeting living expenses. Although, one could argue that 100% of the withdrawal goes to living expenses as taxes are certainly a living expense.

Today the million dollar retirement portfolio is worth only $970,985.98. The market is in decline at the moment but the dividend income will continues undiminished. I imagine it will grow a little in 2024. Dividends often increase but cuts are not unknown.

At the age of 65 the government mandates 4% of the a RIF or LIF portfolio must be withdrawn. This mandated percentage jumps to 4.17% in the year one turns 66. It continues to jump each year until one reaches the age of 95. At 95 the withdrawal rate hits 20% and remains there. The goal of the government is clearly to bleed the retirement portfolio dry. For more info on the withdrawal rules, click this link.

If you come back in the new year, you will find that I make my mandated withdrawals in-kind. This is the way I operate in reality and I am going do the same online with this test account. I will transfer stock from my imaginary RIF to an imaginary TFSA. 

The cumulative maximum contribution space in a new 2024 TFSA is $95,000. This means all the dividend income from this year's withdrawal can be protected and not only for this year. Dividends earned in a TFSA are sheltered from the ravages of income tax. It is called a tax free savings account, after all.

Although I will not have to pay tax immediately on the transferred amount, I will have to pay the tax next year. To avoid the future shock of a spring income tax bill, I will withhold 30% from each monthly payment to cover future tax costs.

I often catch the falling knife.

I have often caught the falling knife. The falling knife is a stock which is falling in price and one makes the mistake of buying long before it has hit bottom. Why does someone buy such a stock? The answer is easy: it looked like a great deal when compared to its recent highs.

For instance, a little over a year ago Bank of Montreal was selling for about $155. Then, it started falling. When it got down to about $117, I bought a couple of hundred shares. Recently, it sold for as little as $102.67. Yesterday it closed at $104.53. I am down about $2500 on my recent buy.

Guided by history, I believe BMO stock will revisit its old highs within three years and most likely in far less time than that. I may well be up $8000 in three years and I will have collect approximately $900 in dividends in those three years. I may make approximately 12.9% annually despite having caught a "falling knife."

For another example, let's look at my recent purchase of TC Energy (TRP). I paid $45.89 for my shares. I pulled the trigger early but the stock recovered quickly. The price is now at $47.24. I am up $270. The icing on the cake is the dividend. I have already collected $186.

The lesson I am trying to impart here is buy good companies at good prices and you will do just fine. Don't worry about calling the bottom. That is something that is almost impossible to do.  Don't berate yourself when you buy early. It happens. In the scheme of things, it is not important. If the spread grows grossly large, you can always average down if you still have confidence in the stock.

______________________________________________________________________

By market close Friday, TRP was at $49.92. I was now up $806 in unrealized gains plus $186 in dividends. 

Sometimes, "catching the falling knife" is not the right metaphor. Sometimes, one "dodges the bullet."