A brochure from Fisher Investments Canada started me thinking about my retirement portfolio.
My wife and I have been withdrawing more than Fisher claims is wise from our retirement funds for more than a decade. Could we be on the road to financial ruin?
Today, despite the annual withdrawals, our portfolio is much larger than when I retired. Are we just lucky or is it possible Fisher Investments Canada is wrong?
The brochure I was sent examines the different outcomes resulting from a range of withdrawal rates applied to a million dollar portfolio. I decided I'd create a million dollar demo portfolio. I wouldn't try to time the market. I would simply created a portfolio, track its performance and every month withdraw $3,330 to emulate the cash withdrawals one must make in retirement.
My withdrawal system works on the assumption that the retirement portfolio generates at least 4% annually in dividend income. With the portfolio growing so large so quickly, portfolio growth has outpaced dividend growth. For this reason, I rejigged my million dollar portfolio, adding a high dividend yielding ETF from the Bank of Montreal called ZPAY. Nevertheless, it is still necessary to withdraw some funds from cash to meet the 4% withdrawal demand.
Why did I add ZPAY? I did some research, ran some demo portfolios and checked historical returns. In each case, ZPAY performed as advertised. I even created a demo portfolio holding only ZPAY. The starting balance of the ZPAY portfolio equalled the value of the original portfolio at the time minus all expenses.
The ZPAY portfolio is easily delivering more than 4% annually and today it is worth way more than a million dollars. Like my original portfolio, I make a monthly withdrawal of $3330 from the ZPAY portfolio. Still, the ZPAY portfolio is not growing at the same rate as the original portfolio. Owning a good mix of dividend paying stocks seems to be the way to go. Let's see what happens in 2022.
The big problem with a portfolio composed of only one ETF is just that; it is only one ETF. No one is going to invest like this even if it works. It sounds too risky. So, I created a three ETF portfolio that uses enough ZPAY to boost the dividend income to almost the full 4% yield.
Next, I put 10% of the portfolio opening balance in the Vanguard Canadian High Dividend ETF VDY for exposure to Canadian equities while maintaining a high dividend yield.
Lastly, I used the iShares ETF XEQT to give the portfolio global exposure. XEQT is weighted toward the U.S. but holds more than 9000 stocks from markets around the world including some from Canada. I named my three ETFs portfolio after its holdings and for the date it was created: XEQT VDY ZPAY 7 12 21.
I withdraw $1665 monthly form my 3-ETF portfolio as this portfolio was created with a $500,000 investment. This equates to an annual 4% withdrawal rate.
Lastly, a fellow, who runs an excellent blog on investing, suggests one could simply invest in the iShares total portfolio ETF XGRO. XGRO is similar to XEQT but XGRO holds about 20% in bonds. This makes XGRO a very traditional portfolio. I'm using the $500,000 XGRO portfolio as a benchmark. Can my three ETF portfolio do as well or maybe even better than the Couch Potato suggestion? Time will tell.
Because XGRO only makes four dividend payments annually, the 4% withdrawal will be done at the end of December.
Have I learned anything? Yes. I am more confident in my investing. Every portfolio I have created has done well. And I have created more than just the ones listed here. Don't be greedy. Invest for the long haul and be prepared to weather any downturns. I've gone through a number of large retreats in the market since retiring but I have not been left permanently damaged financially. Markets may go down but this is often followed by a very strong bull market.When it comes to my dividend income, it has remained rock solid through thick and thin.
If my wife agrees, we will soon be investing some of our funds in ZPAY. We don't hold any bonds. Admittedly, bonds add a little stability to a portfolio making it a little less volatility. This is often a good thing. Most of us handle the roller coaster ride of investing very poorly. When the market is up we are delighted but when the market is down many of us panic. Some of us even sell at a loss.
Tracking Portfolio Values and Total Withdrawals (Jan. 14th Balances)
Date Portfolio Value Today Withdrawals*
Jan. 28, 2021 $1,000,000 Original Portfolio $1,300,069 $46,770
Jan. 28, 2021 $1,000,000 ZPAY Portfolio $1,256,130 $46,770
Jan. 28, 2021 XEQT VDY ZPAY 7 12 21 $502,848 $10,115
Jan. 28, 2021 XGRO 7 12 21 No longer following.
Tracking Portfolio Values and Total Withdrawals (Jan. 14th Balances)
Date Portfolio Value Today Withdrawals*
Jan. 14, 2021 $1,000,000 Original Portfolio $1,324,223 $46,770
Jan. 14, 2021 $1,000,000 ZPAY Portfolio $1,256,532 $46,770
Jan. 14, 2021 XEQT VDY ZPAY 7 12 21 $509,250 $10,115
Jan. 14, 2021 XGRO 7 12 21 No longer following.
* The new monthly withdrawal amount for 2022 is $3480 for the million dollar portfolio and $1790 for the $500,000 portfolio.
END OF YEAR
Tracking Portfolio Values and Total Withdrawals (Dec. 31st Balances)
Date Portfolio Value Today Withdrawals*
Dec. 31, 2021 $1,000,000 Original Portfolio $1,319,325 $43,290
Dec. 31, 2021 $1,000,000 ZPAY Portfolio $1,285,814 $43,290
Dec. 31, 2021 XEQT VDY ZPAY 7 12 21 $518,612 $8325
Dec. 31, 2021 XGRO 7 12 21 $514,964* $8325*
* The 4% withdrawal for XGRO was be done at the end of December, 2021. With actual retirement portfolios it is not uncommon to wait until December to remove the funds that have accumulated during the preceding year.
Tracking Portfolio Values and Total Withdrawals (Dec. 17th Balances)
Date Portfolio Value Today Withdrawals*
Dec. 17, 2021 $1,000,000 Original Portfolio $1,300,825 $43,290
Dec. 17, 2021 $1,000,000 ZPAY Portfolio $1,293,070 $43,290
Dec. 17, 2021 XEQT VDY ZPAY 7 12 21 $517,196 $8325
Dec. 17, 2021 XGRO 7 12 21 $516,851* $0*
* The 4% withdrawal for XGRO will be done at the end of December, 2021. With actual retirement portfolios it is not uncommon to wait until December to remove the funds that have accumulated during the preceding year.
Tracking Portfolio Values and Total Withdrawals (Dec. 12th Balances)
Date Portfolio Value Today Withdrawals*
Dec. 12, 2021 $1,000,000 Original Portfolio $1,295,431 $43,290
Dec. 12, 2021 $1,000,000 ZPAY Portfolio $1,276,945 $43,290
Dec. 12, 2021 XEQT VDY ZPAY 7 12 21 $514,450 $8325
Dec. 12, 2021 XGRO 7 12 21 $518,625* $0*
* The 4% withdrawal for XGRO will be done at the end of December, 2021. With actual retirement portfolios it is not uncommon to wait until December to remove the funds that have accumulated during the preceding year.
Tracking Portfolio Values and Total Withdrawals (Nov. 12th Balances)
Date Portfolio Value Today Withdrawals*
Nov. 12, 2021 $1,000,000 Original Portfolio $1,296,685 $39,960
Nov. 12, 2021 $1,000,000 ZPAY Portfolio $1,261,730 $39,960
Nov. 12, 2021 XEQT VDY ZPAY 7 12 21 $513,521 $6660
Nov. 12, 2021 XGRO 7 12 21 $523,555* $0*
*
The 4% withdrawal for XGRO will be done in December, 2021. With actual
retirement portfolios it is not uncommon to wait until December to
remove the funds that have accumulated during the preceding year.
Tracking Portfolio Values and Total Withdrawals (Nov. 5th Balances)
Date Portfolio Value Today Withdrawals*
Nov. 5, 2021 $1,000,000 Original Portfolio $1,295,053 $39,960**
Nov. 5, 2021 $1,000,000 ZPAY Portfolio $1,252,861 $39,960
Nov. 5, 2021 XEQT VDY ZPAY 7 12 21 $509,857 $6660
Nov. 5, 2021 XGRO 7 12 21 $520,795* $0*
** Sold all the remaing IGM shares and bought 300 shares of QSR
* The 4% withdrawal for XGRO will be done in December, 2021. With actual retirement portfolios it is not uncommon to wait until December to remove the funds that have accumulated during the preceding year.
Tracking Portfolio Values and Total Withdrawals (Oct. 22nd Balances)
Date Portfolio Value Today Withdrawals*
Oct. 22, 2021 $1,000,000 Original Portfolio $1,281,790 $36,630
Oct. 22, 2021 $1,000,000 ZPAY Portfolio $1,244,097 $36,630
Oct. 22, 2021 XEQT VDY ZPAY 7 12 21 $503,946 $4995
Oct. 22, 2021 XGRO 7 12 21 $509,160* $0*
Tracking Portfolio Values and Total Withdrawals (Oct. 15th Balances)
Date Portfolio Value Today Withdrawals*
Oct. 15, 2021 $1,000,000 Original Portfolio $1,269,755 $36,630
Oct. 15, 2021 $1,000,000 ZPAY Portfolio $1,238,050 $36,630
Oct. 15, 2021 XEQT VDY ZPAY 7 12 21 $500,276 $4995
Oct. 15, 2021 XGRO 7 12 21 $504,920* $0*
Tracking Portfolio Values and Total Withdrawals (Oct. 2nd Balances)
Date Portfolio Value Today Withdrawals*
Oct. 2, 2021 $1,000,000 Original Portfolio $1,244,204 $36,630
Oct. 2, 2021 $1,000,000 ZPAY Portfolio $1,252,160 $36,630
Oct. 2, 2021 XEQT VDY ZPAY 7 12 21 $500,989 $4995
Oct. 2, 2021 XGRO 7 12 21 $500,090* $0*
Tracking Portfolio Values and Total Withdrawals (Sept. 25th Balances)
Date Portfolio Value Today Withdrawals*
Sept. 25, 2021 $1,000,000 Original Portfolio $1,260,907 $33,300
Sept. 25, 2021 $1,000,000 ZPAY Portfolio $1,269,600 $33,300
Sept. 25, 2021 XEQT VDY ZPAY 7 12 21 $509,519 $3330
Sept. 25, 2021 XGRO 7 12 21 $508,963* $0*
Tracking Portfolio Values and Total Withdrawals (Sept. 18th Balances)
Date Portfolio Value Today Withdrawals*
Sept. 18, 2021 $1,000,000 Original Portfolio $1,263,289 $33,300
Sept. 18, 2021 $1,000,000 ZPAY Portfolio $1,272,018 $33,300
Sept. 18, 2021 XEQT VDY ZPAY 7 12 21 $510,951 $3330
Sept. 18, 2021 XGRO 7 12 21 $512,019* $0*
Tracking Portfolio Values and Total Withdrawals (Sept. 1st Balances)
Date Portfolio Value Today Withdrawals*
Sept. 1, 2021 $1,000,000 Original Portfolio $1,264,197 $33,300
Sept. 1, 2021 $1,000,000 ZPAY Portfolio $1,261,335 $33,300
Sept. 1, 2021 XEQT VDY ZPAY 7 12 21 $509,150 $3330
Sept. 1, 2021 XGRO 7 12 21 $515,076* $0*
* The 4% withdrawal for XGRO will be done in December, 2021. With actual retirement portfolios it is not uncommon to wait until December to remove the funds that have accumulated during the preceding year.
The cash withdrawal is in addition to the withdrawals stipulated by the government for RIFs and LIFs. I try to withdraw dividend cash to cover living expenses. To satisfy government withdrawal demands, I transfer ETF units or stock holdings (in-kind withdrawals) to either my TFSA or a non-registered account. I try to maximize my in-kind withdrawals without selling the dividend paying equities.
The value of the portfolios and the withdrawal amounts are updated at least once a month.
Background links:
3 ETF retirement portfolio allows 4% withdrawal annually
ZPAY vs original Million Dollar Portfolio
Does ZPAY act an an alternative investment?
Fisher Investments Canada 15-Minute Retirement Plan
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