056: FI Drawdown Strategies | Mark Seed

In this episode, friend of the show Mark Seed finally joins us for an interview! We’re excited to tackle a topic that’s not discussed enough in the Canadian FI community: drawdown (aka decumulation).

Mark shares his extensive expertise to help us answer these questions (and more): How do you drawdown your assets? Which accounts should you tap first? Are there ways to minimize taxes?

As you’ll hear in the episode, asset decumulation requires a lot of complex planning. We hope you’ll come away with helpful info and tactics to incorporate into your own FI drawdown plan.

Click to view transcript

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Money Mechanic
Hello, listeners. Welcome to Explore FI Canada, where we sit at the roundtable with Canadians, and share their thoughts, ideas and personal journeys to financial independence.

Thanks to Matt McKeever for sponsoring Explore FI Canada. Matt is a Canadian investor, CPA, entrepreneur, and real estate expert who achieved FIRE at age 31. Do us a favour and check out his YouTube channel by searching Matt McKeever or using the link in our show notes.

Alrighty, Explore FI Canada, Here we are Chrissy we’re back again, it’s Money Mechanic with you. How’s things on the continent this week?

Chrissy
They are great. It’s nice weather. I’m sorry. We’re not supposed to talk about weather.

Money Mechanic
I know, we’re not supposed to talk about weather anymore. But it is always nice when it is a nice weather day when we’re recording.

Chrissy
Yes, yeah, just had a walk with Mika enjoying the sunshine. And I’m excited to have our conversation today with our guest.

Money Mechanic
Me too. So we talk a lot in the FI community about accumulating assets. And it’s great that when we share these discussions with our guests that are at the beginning of their journey, we get to learn all sorts about the right ETFs to use, index funds, all the rest of it, what accounts to use. But Chrissy, you and I are getting closer towards the final destination. And so is our guest today. And the discussion we’re going to have is really, really important because it’s the the next puzzle of how you deaccumulate. All those assets you worked decades to build up to to get yourself to financial independence. So the best way to have this discussion was for us to import a air quotes, air quotes expert, Mark Seed is with us he has been writing for over a decade at myownadvisor.ca. He’s got a new project on the go, which is cashflowsandportfolios.com. He has got an absolute wealth of information on his website. And he’s definitely been more of the personal finance side of things, which gives us amazing amount of information. But he’s getting close to his work optional FI point. So welcome to the show, Mark. We’re really happy to have you join us today you’ve written lots about drawdown. That’s what we’re going to talk about. Welcome to the show.

Mark
Awesome. Yeah, thanks so much Mechanic and as well, Chrissy, it’s great to be here. And I must say I’m a fan of the Explore FI Canada podcast, I think you folks are doing great stuff. And it’s certainly a pleasure to be there. And whether we talk a little bit about the you know, asset accumulation easy path, which is save money and live below your means. And then the puzzle that’s decumulation or anything in between, happy to share what I know and and also what I don’t know what I’m still trying to figure out, can appreciate it. It’s not easy for people to navigate this stuff. And I’m trying to do my best through my blog and other things.

Chrissy
So this is a really big topic that we’re tackling today, the drawdown, the decumulation. And we’re just gonna see how the conversation goes. We have a lot of notes and some listener questions to tackle, but we’re gonna do our best with our expert, our in-house expert here, Mark.

Money Mechanic
Well, when you say a lot of notes, I got up this morning, and I opened up the, our outline, we sent an outline and it morphed into a 17-page, like manuscript for the novel that we’re gonna write about drawdown, this is impressive stuff here. And the thing is, is, Mark, you’ve already written a lot about this on your blog, because you’re at that point where you’ve been thinking about this for the last three years, right? So we have to start saying that this is going to be a super personal plan, every one of our listeners is going to have to attack this slightly differently, because there are just so many variables to take into account. So by no means what we’re talking about is going to be a one size fits all. But we want to kind of hit a broad strokes of what you’re going to do with your RRSP. What are you going to do with your TFSA? What are you going to do if you have other passive income, whether it’s dividends or interest from other sources, you know, just sort of broad strokes that kind of give us the framework. And we’ve got a few other little strategies people may not have heard of that we can introduce and then they’ll be able to go on your blog and other places and learn a little bit more about that. So let’s go wheels up here and talk in some broad strokes. What’s the first thing we’re thinking about when we’re going to pull that pin at FI? Where are we pulling the first money from? It’s a cash flow problem, how do we solve the cash flow problem? We need to cover our expenses. Thoughts, Mark?

Mark
Yeah, I mean, it’s a big question for people right. And I think you know, what my thinking Mechanic and Chrissy has been in the last, like, as a, like you mentioned two or three years is really identifying those income sources. Right. So you know, most of us are fortunate to have a part-time job, full-time job where we’re earning money we’re trying to provide for the family or provide for ourselves for that matter. And so that’s kind of just one income source. Maybe a few of us had, you know, side hobbies, side gigs. Maybe that’s a couple income sources. When we think about retirement planning, you can have six or seven different income sources. So you can have RRSPs, to your point you may have TFSA is tax free savings account, which I know you’re both huge fans of, you may have taxable income, you could have CPP Canada Pension Plan, you could have OAS, you may still be working part-time or full-time, you may have RRIFs or LIRAs. So that’s locked-in retirement accounts. It’s a it’s an alphabet soup of accounts that you need to be thinking about. So I think the first thing you need to think about, instead of just kind of jumping in and really thinking, Okay, well, maybe I should draw from my RRSP, or, I got to learn everything I need to know about RRIFs today. No, really just sit back and think about what are those potential income sources in retirement? And I know we’ll talk about some of the my strategies and some things for people to think about a little bit later on. But I would really encourage people to think about what are those income sources that you think you were going to draw on, or what you’ll what you potentially have in your, in your toolbox, if you will, to draw it. And I think once you start identifying those sources, whatever they may be, it’s really going to start allowing you to think more holistically about this big portfolio that you have in terms of these income streams. And then you can start designing your life around. Well, when should I start drawing on these income streams? And how much do I need for each to be ideally tax efficient? But it is a big puzzle, and I can appreciate it is personal, that’s different, but there are some basic concepts I think people should should consider.

Chrissy
So we came up with a list of considerations. And maybe it’s it’s kind of linked to the sources of income that you mentioned. But I think that there’s no easy way to tackle this topic. So we’re just going to do our best. I think we’re just going to go through one consideration at a time and sort of tease out the details and what you might want to think about with each of them. So should we get started with the first one?

Money Mechanic
Yeah, no, I’m, I’m nodding here on the video. Yes, let’s do it. One thing that I didn’t mention that Mark caught, which is absolutely critical to this planning stage is we’ve been trying to minimize our taxes on accumulation all the years, but really the decumulation stage, a big part of that is smoothing out your tax impact on the way down down as well. So that’s part of what all these strategies are about.

Chrissy
Yeah. And the other hard thing about these strategies is that you’re not just looking at one snapshot in time, you have to look at the entire lifetime. And what you do now can affect you 20 years, 30 years down the line. So it’s a lot of very complicated planning that you need to do to figure this out.

Mark
Yeah. 100%. And, and, you know, we’ll talk about in a little bit, but it’s hard to forecast 20 years, right, right. Like, even if your asset accumulation years, you’re like, wow, I don’t know what my life’s gonna be. Next year, nobody saw the pandemic coming, except for maybe Bill Gates in 2016, when he was doing his TED talk at UBC or whatever, right. But you know, the reality is, is that you can only plan so much and some of the concepts that I would like to impart to your, your listeners, it’s really about the process of planning and replanning, that’s important, you can’t, you can’t predict what the next year or two years or five years is going to be very accurately. So don’t beat yourself up over it. What I would encourage people to do is come up with some sort of game plan, and then revisit that game plan every year and see, you know, am I spending too much? Am I spending too little, can I draw it down a little bit more? Can I draw down, should I draw down a little less? So it gets into the concepts of, you know, having, you know, a huge amount of financial flexibility. And I think that’s really key for a lot of people to adopt it. And it’s not easy, especially when you’ve been programmed for 20 or 30 years to save, save, save. And now you got to think about, well, maybe I need to enjoy it a little bit more or smooth out the taxes or smooth out the ride on the way down to your point.

Money Mechanic
Yeah, and for the majority of our listeners, they’re targeting early retirement, and whether that looks like in their 30s, their 40s, or the 50s. It’s all technically early. And so you’re gonna have a lot more runway that you need to think about. And we had an interview with Peter Gallant, who did the risks of FIRE, and he talked a lot about revisiting your retirement plan every year, just like you said, Mark. And that’s a good way to do it, retire again every year and adjust accordingly to meet your expenses and market conditions. And you know, this is the problem is we can just start getting into everything because you’re going to be worried about sequence of return risks, and longevity risks and all the rest of it. So let’s get into something that we can all relate to a little bit because we’re similar type ages, we’re all probably going to be starting a drawdown early 50s, at least type things. So we’re all probably people are going to have similar-looking accounts at that point, fairly big RRSPs, full TFSA is probably a margin account. We’ll leave pensions out of it for now, because that’s a that’s a tough one. Some are gonna have, some aren’t. So what’s sort of one of the first steps we’re thinking about for a 15 year to quote unquote CPP or those kind of means-tested or income-tested benefits that we may or may not get from the government, right, like what’s our first sort of stage here?

Mark
Yeah, I mean, for me, I’ve done some You know noodling on CPP just quickly and OAS benefits. But to your point, Mechanic, I haven’t really thought about that income stream too much. It’s kind of a big bond, if you will, that’s sitting in the future. So what I’m really trying to look at is, is, first of all, what do I need? And that’s a big question to answer. But what you know, what is my spend in retirement, if I want to have a, you know, low six-figure retirement spend, you know, a, I got to save a lot of money, and have quite a bit of money. And be, I really need to think about, okay, well, if if I’m going to rely on RRSPs, and RRIFs, and CPP, and OAS, in my financial future, do I need it all at the same time, and if I don’t, I’m going to probably have to draw down a lot of my RRSP to meet that 100k spend, which is quite lofty. Don’t get me wrong, it’s a huge, lofty goal in retirement, but some people you know, want to spend that. They want to travel post-pandemic, they have big plans to maybe have a, you know, a secondary cottage or other types of things. Second properties. So for some people, that really is the the dream and the plan for retirement. They’ve put off consumption for decades and raising a family and now they want to enjoy it. So you know, if we’re going to start drawing down your RRSP a lot early, you better have the the assets to do that. And then to replace that RRSP, because it’s not going to last forever based on what you’ve got in your bank account, then you need to think about are you going to have enough from CPP and OAS and other income sources to cover that off. So I would encourage people to definitely spend some time thinking about their income needs first, in retirement, and I’ve started to do that. And I think just to give people a number, it’s probably in the range of maybe, you know, 50 to 70k, a year for us in retirement. So now I’m starting to work backwards and think, Okay, well, what do I need, from my RRSP to draw down the next 10 or 15 years without knowing I’m not going to touch CPP until I’m 60, 65. And there’s advantages of me even delaying till 70 as well, for the reasons we can talk about. And so how much do I have in my bank account? That allows me to draw that down? And if I don’t have enough, then I’d have to think about some other income sources. Maybe it’s the TFSA is I have to tap, maybe it’s the taxable account to your point, maybe I you know, I’ll start working or continue to work part time a little bit longer. But that’s the thought exercise I go through personally, as I think about what are my needs, just like today, but what are my income needs today to satisfy basic needs, and maybe some wants or some discretionary things? And then I start looking at, okay, well, what accounts can I tap, that would give me some of that income stream. And I’m purposely thinking that keeping some of those government benefits, you know, later on in life, just because I see, for all the reasons we’ll probably talk about, but there’s some built in inflation in there. And I think that’s a great thing for someone in their 60s and 70s, because they don’t need to worry about their personal portfolios, much. These things have inflation built in, which I think is huge.

Chrissy
And there’s something that I think, in these discussions that is often forgotten is that people also have to take into account the taxes owing on the income that they’re drawing. It’s not just your spending, you also have to remember which tax bracket you fall into and how much you owe in taxes. And if you’re a couple, you’re lucky that you can get more income at a lower tax rate, because you can split the income between you. So keep that in mind when you’re planning your numbers that you do need to add that and sometimes it can be quite a significant chunk that tax bill.

Mark
Absolutely. I mean, income splitting is a huge advantage, especially when you’re in your 60s. And you know, you’ve got CPP and other types of income, you can split, you know, RRIF income and the like. But if you’re an early retiree, and you’re, you know, you’re thinking about drawing down things in your 50s, it’s not quite as easy. And so you do need to think about the tax considerations. You know, certainly if you withdraw from your RRSP, there’s some withholding taxes, because basically, the government wants their money back, they give you a loan, right? It’s always been kind of tax-deferred loan. So the government wants their money back. And so you need to think about, like we talked about earlier, potentially smoothing out withdrawals from your RRSP. Maybe you’re not taking huge lump sums, but maybe you’re taking 10 grand, 15 grand a year, and you’re slowly drawing that down because of other income sources that you have. In our case, if we’re getting to that 50 to 70k range, I got to be thinking about, well, what do I do with my taxable account? And how does that factor into my tax equation?

Chrissy
Yeah, I’d also like to point out that there’s a huge advantage for early retirees in that you have this window of time when you can control your income a little better than when you’re older. And so it gives you an opportunity to draw down some of your assets while you’re in a lower tax bracket. And I encourage people to really look at that and use it to their advantage because I’m helping my in laws and my dad with their drawdowns. Now they’re in their 70s. And there’s no wiggle room. Once you’re at that age, you’re forced to take this income and it really can bump you up into the higher tax brackets without you even… you don’t need that income a lot of time. But you have to take it because it’s mandatory.

Mark
It’s mandatory. You’re forced It’s again, it’s, it’s a government provision where, you know, the government does want part of their money back, and they’re forcing you to take the money, right. And so, you know, traditional retirement planning, you know, when I was growing up still growing up, if you will, and, and looking at things I, you know, I heard a lot of folks keeping everything intact to their 60s and 70s, I think that the conventional thinking has totally changed on its head with the TFSA. And just more knowledge about how more efficient and flexible you can be with multiple income streams or accounts. And so you can take an opportunity to smooth out taxes in terms of getting hit, and instead of getting hit by five or, five and change percent, when you’re in the end of the year, you turn age 71, you’re forced to take that money, you’re gonna get taxed on it, obviously, there’s things you can do with it, to move it into a TFSA. Maybe put it into tax-efficient investments in terms of your taxable account. But yeah, you’re right, Chrissy, you’re forced to take the money, and you got to do something with it. And I think Canadians would be better served and thinking about how to potentially draw down their RRSP sooner than end of the year, age 71. To give them that financial flexibility. And also, like we alluded to earlier, potentially delay some government benefits that when they’re in their 70s, or even beyond, maybe they don’t want to manage their portfolio. So then it becomes an estate planning issue as well, in terms of how much hands-on or financial management do you really need in your 70s and 80s? And, and that can be something that, you know, Canadians can think about as well.

Money Mechanic
Yeah, well, just some back of the napkin math, if a couple enters financial independence with 500k, in their RRSP, which is a lot of money. And that’s impressive, but it’s probably not unreasonable if they’ve been good savers, and they’ve been invested for 20 or 25 years. Well, even by if we just use the 4% withdrawal rate there, they need to pull 20 grand off that for 25 years. Right. So you, that’s a serious consideration to start hacking into that RRSP sooner than later. Because all things being equal, and the market continued to go up at a pace over time and all the rest of it. But that’s a large chunk of money that you want to try and be in control of tax, as we’ve just talked about. So that’s I think that we kind of all agree here, that’s one of the first considerations is extracting that the most efficient as possible.

Mark
Yeah, I’ve actually done my own projections on this, to your point. And I think I played around with something like for us 55 year old couple. Future couple, of course. But yeah, if we are able to save that much money, which is quite a bit, but if we’re able to be diligent and save that much in your RRSP, you can actually withdraw about $30,000 per year at 6%, withdrawal rate. 6% not 4%. 6%. So forget 4% rules, you’re actually blowing that out of the water. Yeah. And even if you earn even, but if if you assume a conservative rate of return of, you know, a predominance stock and bond portfolio, 5% you actually don’t run out of money until I think you’re late 70s. Now, that seems very concerning to a lot of people. Gosh, you you’re gonna run out of money in your late 70s. But that’s that’s a long time. Assuming conservatively 5% return drawing 6% it’s gonna last you 20, 25 years. Yeah. And then you have other income sources potentially draw and you may, you may want to, you know, jettison the primary residence or something like that, and rent, you know, the world’s your oyster in terms of things. So really thinking about these accounts and and how you want to draw down the income that you’ve worked so hard to build, but not tying yourself to the government legislation or rules, I think, is a really smart way of thinking about personal finance planning for for retirement.

Money Mechanic
Yeah, I don’t want to get sidetracked too much here. But I know, Mark, that you’ve written at least one article that I read maybe more about, you know, can you save too much in your RRSP? And the short answer is yes. Because depending on how you structure and want to plan this, there may be a point where you are, it’s more advantageous for you in the future, from a tax point of view, to start using your non-registered account. So I know that’s a whole nother discussion. Some people will be like, yeah, the RRSP is horrible. I’ll just go and straight into non-registered and all the rest is let’s not just go there. But it is an interesting point to note. And I’ve done a little bit of the math on that myself, too. And I’ve kind of looked and said, Well, I’m only going to have so many years to pull down an RRSP considering what age I’m at and where my check the time is to start pulling it down. And if I want to make it the most tax efficient, I only want to be pulling 20k as a couple out of it. So I only want that 20k to last for 15 maybe 20 years. So those are kind of like, like you said at the beginning of that forward-looking math, it’s really hard to do.

Chrissy
So I think we’ve exhausted the RRSP topic for now.

Money Mechanic
Not even close!

Chrissy
That’s as deep as we want to go, let’s just say that! Because we should go a lot deeper.

Money Mechanic
Consideration number one.

Chrissy
Yeah, yeah. So try to get, try to figure out how you can draw that down when you’re in a low tax margin year or in the years when you can do that. The next thing we can consider I think is your non-registered accounts. Because our big goal, I think most of us would like to try to preserve our TFSA for last because there are a lot of benefits to doing that. So the next type of account that we might go to is the non-registered account because those are more lightly-taxed than RRSPs. Because you’re taxed just on the capital gains rather than on the whole amount. So can you talk a little bit about strategies with withdrawing from non-registered?

Mark
Yeah, I mean, you’ve brought up some great points, Chrissy, in terms of depending on how you invest in your taxable account, you can be just focused on growth only and capital gains is a very efficient way of of investing in terms of just deferring. Realizing those those those gains until the year you want to sell those assets, it also comes down to maybe a bit of a timing issue, of course, because you don’t know if you’re in selling right now at market all-time highs, as of you know, the time of this recording, or maybe later this year, things are going to go up as well. Right. So there is a bit of, you know, personal forecasting, if you will, to say, Well, am I selling my taxable assets at the best time? But of course, nobody knows that. We only know that in hindsight. So certainly investing in capital gains-oriented, growth-oriented products in a taxable account is great. My personal approach, if we want to talk about that is is certainly I have a affinity to Canadian dividend paying stocks, and they tend to be quite tax-efficient as well. Certainly in the lower income, you make, they’re a very efficient form of tax, I think when you add an employment income, Canadian dividend paying stocks, and the dividends you receive are taxed less favorably than capital gains. And there’s lots of great articles and sites about that information. I’ve probably written one or two myself. But I would say generally speaking, yeah, you want to be able to smooth out the taxes, like we said in the RRSP. And you may want to start topping up some of your income streams via the taxable account. So it’s absolutely a great strategy to do maybe making periodic cells of growth-oriented stuff or winding down those beloved dividend paying stocks that a lot of people have in their Canadian taxable account. Knowing that that’s probably a great thing to wean yourself off. Because even if you keep your RRSP and RRIF intact for many years to come, that money is compounding away. And there’s massive power, I’ve run a few projections actually for for a few folks recently, where it’s amazing to see how much power there is in the TFSA and RRSP, to have that money compound and actually drawing down your taxable account. You know, I would say fairly quickly, but just making sure you you understand how to get rid of that sooner than later. Because why pay taxes on things when you don’t have to, per se so. But absolutely a taxable account is a great way to have that other income stream in retirement, whether it’s been dividends, whether it’s from growth, or other vehicles.

Chrissy
And I would like to point out a sort of unique tactic that people might not have considered is also when you’re in your low tax, low income years, it may be a good time to crystallize some of the capital gains in your non-registered accounts, because you bring up the adjusted cost base so that later on when you do need to sell them in your higher income years, you’ll be taxed a lot less lightly at that time.

Mark
Yeah, absolutely a great strategy. And I don’t know if I’ve written about it in detail yet on my site, I’m sure I’ve touched on a little bit, but at some point, I will, I will capture that. And there’s there’s lots of ways to really think about tax mitigation strategies with the taxable account. That’s an excellent one to call it.

Money Mechanic
Yeah, I don’t know if it goes by some other names. But it’s basically like harvesting your capital gains when you can control the taxes as much as possible. So for the listener here, is if you’ve had a ETF or a stock sitting in there that has grown and you’ve now got a $10,000 gain on it. Well, if you can sell that in a very low income tax year, you’re going to pay taxes on half of that gain, which is the $5,000. And you’re going to pay taxes at that year’s marginal rate. So if you’ve just started your quote unquote, early retirement and you have zero income year, that’s going to look really tax efficient. Now you don’t have to take that money out. You could then after your 30 days, you could then rebuy that same ETF…

Chrissy
You don’t have to wait. You don’t have to wait 30 days when it’s capital gains harvesting. Capital loss…

Money Mechanic
Losses you do?

Chrissy
Losses you have to. That becomes… it’s not a loss… wash sale. In the States, it’s called a wash sale.

Money Mechanic
No, it’s it I thought for some reason was on gains as well. But no…

Chrissy
No, no only on losses.

Money Mechanic
Now I’m gonna now I’m gonna be stuck thinking about what the name of that is. I’ll come up with it before the end of the show. But anyway, not to get too sidetracked. But yeah, super interesting strategy because most of us in accumulation, we never want to take gains. We want to see that stuff growing and compounding. And if you get a sizable taxable account in there with huge big, you know, book cost versus your market value, it’s like it’s nice to be able to exit some of those And, and like I said, you can just re enter that that trade or that position, but you can control that taxes. So super important. Good point there.

Chrissy
I know what it’s called. Superficial loss.

Mark
Superficial loss rule.

Chrissy
Yes.

Money Mechanic
Thanks, guys. I think better with beer on my other show.

Chrissy
Okay, should we move on to the next point that we want to cover?

Mark
For sure.

Chrissy
That’s TFSAs, the wonderful TFSAs.

Money Mechanic
Yay.

Chrissy
So generally, like I mentioned, we want to try to save those for last. So can you talk about that, Mark, about why that might be a good strategy to consider?

Mark
Yeah, I, again, speaking from the personal and personal finance, I know when I’ve ran my own projections, our own projections, it seems to make sense that from an income stream, so to meet our needs, but at the same time to potentially defer the benefits from CPP and OAS. Because the TFSA assets, when you withdraw those assets, they’re not income tested, there’s no means test in terms of actually counting as income, it will be great because if we keep those to the end, we can draw down the RRSPs. In our 50s and 60s, we can potentially draw down the taxable dividend income that we have. And if we keep those TFSA assets till the end, there’s potentially that time that we’ve got invested already in the last 10 or 11 years it will compound and continue to grow. And then we can start drawing that out maybe in our in our more senior years, without really any income reporting requirements, right. It’s it’s tax free income, so we can take the money out, it doesn’t affect the income that we have to report come tax filing time, obviously, we’ll have the CPP and the OAS at the time. But if those are only income streams, our tax rate would be quite low in our 70s, and 80s, which is great. But at the same time throughout our 50s, 60s, and 70s. We’ve actually smoothed out taxes by using that approach. So that’s something that we’re thinking about in terms of keeping the TFSAs until the end, obviously, it doesn’t work for everybody. There’s other types of approaches where you can actually draw your TFSAs quite early in retirement, and take advantage of other government programs and the like. So that doesn’t necessarily work for everybody. But it really depends on your personal income needs. And then again, those income sources that you can draw on. And I think what’s really important, which we haven’t talked about too much, but terms of beneficiaries, and estate planning and all these other things, one of the concepts that I keep thinking about is certainly if you have a successor holder, and then maybe not maybe a lot of your listeners are aware of this, but if you do have the opportunity to sign your paperwork or talk to your banker, your financial institution, but the TFSA is you have, make sure you look at the fine print and think about a successor holder. Essentially, what a TFSA successor holder will allow you do is you become the holder in the unfortunate incident that your common law partner or your spouse passes away, and you own that those TFSA assets outright, there’s no probate, there’s no, there’s no really other hoops to jump through. And so at a time where it could be very sensitive, very emotional, very stressful by losing your partner or spouse, especially as you get older or otherwise, having the TFSA for each of your partners or common law, you know, spouses and what have you, as a successor holder is really a way where all the assets remain sheltered. And so from an estate planning perspective, it makes a lot of sense, whereas RRIFs and RRSPs, and definitely taxable accounts, they have much more complex beneficiary consideration. So like I said, it’s not maybe for everybody, but I would look at the fine print in terms of the legalese that you’ve signed, and really follow up on the TFSA successor designations and make sure you read through that. I don’t know if that’s something that you both have thought about. But I think it’s a big thing to think about.

Chrissy
Yeah, I tell everyone, I know, make sure you have that designation on your TFSA to have that successor instead of beneficiary for your spouse, because it basically they get your TFSA like, it’s not just the assets, they get that room and the whole account and everything and it becomes theirs. So it’s almost like doubling your TFSA at that time. That’s magic. Yeah. And you get to keep it for the rest of your life. You can’t grow it like there’s not going to grow contribution room in that account, other than the growth of the investments, but you don’t get the extra $6,000 per year in that portion. But you get that whole amount, staying tax-free until you die. So it’s it’s pretty powerful.

Money Mechanic
Well, you get the whole amount, but you actually get all the holdings, it basically just all goes to you. If it’s full of ETFs or stocks, you get all of those as they are in kind, it’s yours. Yeah, that’s very powerful. I think, for sure, we’ve mentioned that a few times on the show before but it’s a great thing to keep bringing up and it’s one of those things that we all need that little reminder frequently to make sure we go and take care of that, especially with some of us that have multiple brokerage accounts. And that might be me. You know, checking that paperwork and making sure everything’s in the where you want it to be. Chrissy, should we take a quick break for the show sponsor and we’ll come back and I want to ask Mark a little about his bucket strategy when we come back?


Chrissy
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Money Mechanic
Okay, we’re back. And we have Mark Seed from myownadvisor.ca. And now more recently, cashflowsandportfolios.com. Mark’s joining us talking about drawdown strategies today. And we are at the point of the show where I would like to dig into the quote unquote, bucket strategy that our listeners may or may not have heard about before. And Mark’s got an interesting variation on the strategy and the way I understand it. And please jump in Chrissy or Mark if I’ve got this wrong. But my understanding from the traditional personal finance retirement bucket strategy is you have three buckets. The first bucket is a cash bucket. It’s for immediate spending, and it might hold a year, perhaps even two years of your cash spending. And your second bucket that’s going to hold sort of three to five years of safer assets. And I’m kind of doing, hold safer assets. It might be a GIC ladder, it you know, it’s something that is protected from market risks that you can use as your sort of backup. If you’re sort of dwindling on your cash side, then you can use that middle bucket and your third bucket because you’re still a long-term investor. Even if you’re drawing down your portfolio, you want to have some aggressive assets there, you might still have a 70/30 equity/bond mix, you might have 90/10, who knows what you have in there, but that’s going to be your market assets that need to generate some returns to maintain your overall drawdown strategy. So this is my basic understanding of it. And it’s interesting because I’ve read some things that say, Well, yes, it’s kind of designed to prevent or to help you if there’s sequence of return risks, but at the same time as if you’re the the theory is that bucket three fills up bucket two and bucket two fills up bucket one, but what happens if you are in a prolonged downturn and bucket three is like you don’t want to pull anything out of bucket three, because that’s the worst possible time to take out a bucket three, you should be putting stuff from bucket two into bucket three, you know, so it gets a little nuanced gets a little complicated, but the general outline is as I described, but Mark on your on your blog, there, you’ve got a slightly different bucket strategy. So correct me if I’ve missed anything, and then give us kind of an outline of how you think of yours.

Mark
Yeah, great introduction, Money Mechanic. I, I I’m aligned with your thinking on the kind of, I’m using air quotes, the traditional bucket strategy, right. So cash saving sits there. Bucket one, you renew GIC ladders in bucket two or fixed income or bonds or whatever. And then that fills bucket one. And then from bucket three to bucket two to get to the GIC stage you you’re basically in equities, right. So think of cash income, and then basically equities. My approach is very different. Not very different but but slightly different. So I have a couple articles on my site, a site about, you know, how much cash you keep in retirement, and I think I’ve got one entitled Our Bucket Approach to Earning Income in Retirement, in particular. And folks can check those out. I’ve taken a modified version, because the way I see bonds, there’s a couple reasons why you own bonds. Bonds are usually fixed income in general bonds are for short-term expenses where you don’t want the market go down. You don’t want the market risk, you have no idea what’s going to happen. So bonds are helpful for that. Bonds are also helpful for basically saving yourself from yourself, if you will. So when you need to have money that’s available to put in the stock market and or you want to rebalance your portfolio or the stock market is obviously tanking like it did in March 2020. And we didn’t know when the bottom was going to be the bonds or stabilizers for your portfolio. I’ve taken a different approach in my buckets. So my bucket is basically a years of cash ideally and as I start semi-retirement, so that’s bucket one for me. Bucket two for me is living off some dividends, if you will, in terms of my taxable account, and we’re drawing the distributions from my stocks or dividends, from my RRSP, namely, and then I would say bucket three, for me is really my growth-oriented stuff for that classical, you know, passive ETF approach. So my approach is a little bit different, I’m going to keep a year’s worth of cash in bucket one, that’s going to be basically an emergency fund, I’m going to use the income derived from my RRSP that we talked about earlier, through distributions or dividends from the RRSP and taxable, leaving TFSA is probably till the end. And then bucket three is, you know, low-cost ETFs, that are going to spin off distributions, but they’re also going to get some growth. And so should I have a bad market or a bad decade of markets like happened in 2000s, where things were not booming at all, and we kind of had a, you know, air quotes lost decade, my ability to keep the cash is going to be good to ride out that year or so. Then the income coming from my RRSP, and the dividends from my taxable account will be allowing me in a tax-efficient way to have that for living income. And if I really need to tap bucket number three and sell some assets, I can, but I’m thinking I’m buying myself a couple years worth of bad markets, with the ability to live off dividends or distributions per se. And also having that cash sitting there as an emergency fund. So whether that’s things for the condo, whether that’s, you know, ratcheting down our spending, because it’s a it’s a horrible year in terms of the you know, the economy and the environment or whatever, I feel my approach is a little bit more robust, it’s obviously a little bit more risky, because I’m taking more risk on with equities. But I think that approach works for me, and it works for what I envisioned, but where I’m going to get my income from a mix of dividends and and ETFs that pay distributions and not necessarily hoping for capital gains. So it is much more conservative probably means I need to save a little bit more. But I’m much more comfortable with that cash wedge and then a bias to equities and really not a lot of bonds or fixed income at all. Thoughts on that?

Money Mechanic
Chrissy does that sound a little bit about the yield shield?

Chrissy
It does it for me, it brings up the question of some people don’t invest for dividends. And I’m I’m one of those types. And that makes that bucket two a little bit trickier to keep filled up. And also, like you I don’t really like bonds. So I guess that leaves GICs. GICs, they’re really the best option for that bucket two.

Money Mechanic
No, I disagree with that. Because just because you don’t have dividend-specific investments, it doesn’t mean you can’t create your own dividends because we don’t even want to get into the total return or dividend plus return argument because the return’s the return. And just because you’re holding a broadly-diversified portfolio, you can make your own dividends, which will provide for bucket two.

Chrissy
Yes. And that’s something that Ed Rempel talks about on his blog. He calls them self-made dividends, it’s when you sell a little bit of your investments, and you just pay the capital gains on it. So it’s, it’s a more controlled way to have the dividends.

Money Mechanic
Mark, and I just don’t like that. We like the dividends.

Mark
I’m laughing and I’m smiling because I like getting paid. Yeah, I mean, and I know you can make your own dividends. And I know you can sell your stock strategically, like we talked about in your taxable account or your RRSP or TFSA, wherever you want to hold them, whether they’re Canadian or US or international, I, there’s a psychological benefit that… and I write about this all the time on my site for years, there’s a psychological benefit for me that I know, from some of the companies historically, at least, I’m going to get paid. Now whether or not I always get paid by the same companies in the future or whether or not they raise their dividends. That’s a different story. Because we know, even last year, some companies have been very challenged to sustain their dividends, and rightly so. But I, I have that bias. And I think it really helps me stay invested in in a lot of cases, it’s really allowed me to stay more in equities and take advantage of more gains over the last 10 years in a bull run. So absolutely, there’s the total return, it’s always important to get that dividends or a slice of that total return. But I feel there’s a whether you call it a yield shield or, or other types of tactics. I personally like getting paid. And I hope I always get paid from the companies that I own or even if I don’t, there’s nothing wrong with with buying, you know, potentially a dividend ETF as long as it’s low cost, it’s diversified and you can still get paid, paid through the ETF distributions. And those may fluctuate too. But you can still get paid that way. So I think there are lots of products out there for investors and or securities for investors to consider but that does come with a little bit more risk and and hence the cash wedge for me as a year’s worth of saving.

Money Mechanic
Yeah, I think to kind of extract a little bit from your bucket strategy here because these are concepts that are for me definitely are best viewed on a piece of paper on the screen so I can kind of you know, get my head around it. I’m a visual learner. And we’ll definitely have these in the show notes for listeners, but is we’ve we’ve discussed how to execute the usage of your different accounts. And this bucket strategy isn’t changing that at all. It’s just using those parts that come together to form those buckets of the way you’ve designed it. So just wanted to make that apparent that this, this isn’t different from what we’ve already talked about. It’s using what we talked about at the beginning, and then creating a little bit more of a structure that you can sort of work within 100%.

Chrissy
So maybe while we’re on this topic of the bucket strategy, we can talk a bit about your cash wedge. You mentioned that as part of your strategy with this. So can you tell us a little more about that?

Mark
Yeah. I mean, figuring out how much cash you should keep in retirement, I think is a really it’s a difficult question for a lot of people to answer because we know what’s interest rate savings, like high interest savings rate, it’s a bit of a farce, right? Like, is it 1.2%? The highest in Canada? Right?

Money Mechanic
Yeah.

Chrissy
1.25, at EQ right now.

Mark
Yeah. And there’s a few other companies, right, that are doing…

Chrissy
Yeah, they’re all around the same.

Mark
They’re all around the same ballpark. So it’s tough. Do you need $5,000 in retirement? Do you need $5,000 today? Do you need $50,000 in retirement, you know, some people need $100,000, or more like, it’s really a risk tolerance question. And I know for us, we feel quite comfortable with having, you know, that money tucked aside if you will, eventually we don’t have that now by any stretch. But we’ll be working towards that in the coming year such that that wedge is a bit of a buffer for us for the unforeseen. So while we plan, as Money Mechanic says, and as you alluded to, as well, Chrissy thought all the approaches in terms of Well, you’re going to draw down your RRSP. And you’re probably going to spend some dividends and sell some stuff along the way. And then sounds like you’re going to spend your dividends and draw down your taxable along the way. And then you’re going to keep the TFSA. As for the future, when OAS and CPP kick in, that sounds like a reasonable risk management approach to getting rid of the personal risk, but transferring that risk to the government and then smoothing out taxes in between. I just feel that having that cash wedge that little buffer there should dividends get cut, or distributions get cut, or if we have a reserve fund study in the condo, or the car breaks down whatever it may be, I just I feel I can sleep better at night, having a little bit of money set aside in the I’ll say, a moderate interest savings account if they want to change the name.

Money Mechanic
So it’s a MISA now. And I think I think everybody thinks we call it what it is, we should just call it a LISA. Don’t call it a low interest savings account.

Mark
Yeah, don’t call. Don’t use my name in vain. And I think it’s an exercise that everyone has to go to through in terms of assessing their personal risk, and it will be different for everybody. But I know for us, we feel much better about having a eventually year’s worth and you know what if we don’t use it, that’s fine. Or if the stock market tanks and then one year and we have some money, we want to invest more power to us. But I’d rather sleep at night kind of factor that’s really hard to quantify when it comes to personal finance. And you could argue, is it better to pay off your mortgage versus investing and yet but you know, some of these decisions just aren’t about math. They’re about emotions, and how will you best manage your your, your personal figures and, and what’s best for you and your family. So I totally get that.

Money Mechanic
Definitely. I have a question for Chrissy.

Chrissy
Uh oh! Are you gonna be hard on me?

Money Mechanic
No, I’m just curious what your thoughts are on this. Because you are have always said that you’ve been equity heavier and aggressive investor, you’ve got some leveraged assets as well. Going forward with your drawdown plan, what do you think you might use as cash wedge?

Chrissy
I don’t want a cash wedge?

Money Mechanic
That’s why I wanted to ask.

Chrissy
No, I, I like to be invested. I like my money working for me at all times. And so I acknowledge that there is that psychological need. And for me, I find comfort in the math, like the general math that says that in general, equities will do better than than cash. And so I take comfort in that and I build in, you know, safeguards, I will have to reassess my emergency plan because I say instead of having an emergency fund, you have an emergency plan. So you think of all the issues that could come up that could create a financial emergency for you. And so I think I have to revisit that. When we reach FI and start withdrawing our money. I need to look at what could happen and what I could need to cover and I have to figure out, maybe I will have to have somewhat of a cash wedge at that point because we won’t have work income coming in from my husband’s job. And so I think things will change at that point.

Money Mechanic
Stay tuned listeners.

Chrissy
Yes.

Money Mechanic
Stay tuned, the final volume!

Chrissy
Exactly.

Money Mechanic
Yeah, I think one comment I want to add in here too, because I I feel the same way. Like, I really see the value of having that cash wage, psychologically, but then I can also, you know, justify and going well, it’s just it’s not optimized. It’s sitting there, it’s, you know, so but I also think that as you’re getting further down the road, asset protection is really important. And you don’t necessarily need to take on a ton of risk, take the risk that you need. But if you don’t need to take on more risk to meet your goals or your income for your projected plan, then why do it right, it’s okay that you’ve got a year’s worth of cash in there, you don’t need to optimize that. You don’t need to take market risk with it. So that I think is an important consideration here, too.

Mark
Yeah.

Chrissy
Yeah. I think for someone like me, it’s important to have that “enough” number, right? Because I, I am someone who strives for the best and the top, I could keep going, right? I could keep leveraging my way to the top. But what for, right? What is the goal? You have to kind of realize when enough is enough, and you need to stop and put the brakes on at some point.

Mark
It’s like the one year one more year syndrome, right? It’s, it’s, you know, do you need it? And, you know, it’s different for everybody. So, you know, best answer in personal finance is always It depends, right? But it depends what your comfort level is. I just, people just, you know, do need to think about what is their enough, right. And, and for people that are, you know, hopefully healthy, and they’ve they’ve got good family and good friends around them, and they got a bit of money in the bank. That’s, that’s, that’s a, that’s enough in my book. So yeah, for sure. Consider your options after that.

Money Mechanic
Alright, where are we going to next Chrissy?

Chrissy
Okay, so we’ve talked about having enough money, but there is one strategy that I would like to cover, because it’s kind of unique, and it’s not very well known. And it’s something that could give you a little bit of a bump in income, if you are strategic, and you really plan for it. And it’s something that especially early retirees can take advantage of, because they have the time to roll up to this date, and really optimize things so that they can take advantage of the strategy. So what I want to talk about is something that Ed Rempel came up with, or he named it. I don’t know if other people have talked about the strategy previously, but he calls it his 8-Year GIS Strategy. So GIS is the Guaranteed Income Supplement. And it’s tied to the OAS. It’s meant for lower income seniors. So Mark, you you know about the strategy. And you’ve mentioned that it’s something that you’ve written about as well. So tell us more about the strategy and why it might be worth considering.

Mark
Yeah, so there’s actually, Chrissy, a case study on my site that your listeners can check out, I think it was like, I did this with a fee only planner that done a few case studies on my site, the title of the post is called, They want to spend $50,000 per year in retirement, and did they save enough? And the, the premise of that post is walking through a case study with, you know, they’ve saved quite a bit of money. This couple, they don’t have quite a million, but they’ve saved quite a bit, there’s no doubt. But you know, certainly if they’re early retirees mid-50s, there, they potentially need a lot of money to last to 100. And so instead of drawing down all of their RRSPs, and all of their TFSAs, and they had no government pension, that’s something else to highlight. So you know, their income streams were a little bit more limited, maybe. So how do they make their money last? So one of the concepts of the fee-only planner and I talked about was this GIS strategy. And this is where really, is it a loophole? Or is it you know, more of a of a twist on on how to get the GIS, which is really designed for guaranteed income supplement, so low income seniors, right. And so the idea here is to be to apply and take advantage of the GIS supplement that income stream, you would be withdrawing from your taxable tax free savings account, sorry, where it’s not means tested. And it’s not any sort of income that would be accounted against those. And then what you would allow yourself to do is because you’re drawing down your, your TFSA. And doing this for multiple years on end, you could actually get about $100,000. I think in the case study when we factored in, you know, compounding and other factors, I think was around $120 or $130,000. In terms of income from the GIS program, for a couple that had quite a bit of money in the bank, because they were leveraging their TFSA withdraws. It wasn’t counting for income. They were getting the government supplement, they were allowing themselves to defer CPP, which I know you’ve talked about quite a bit on the podcast later on in life, as always, yes. And so you know, in this case, they could spend quite a bit. Close, if not higher than their, you know, desired $50,000 per year by just leveraging the government benefits in a different way. So Lots more details in the post that I know you talked to Ed Rempel about it as well, and have some content on your site about that. But really interesting strategy in terms of, you know, optimizing the way the accounts, and the benefits are structured today, at least.

Chrissy
Yeah, and again, this is one of the strategies… We talked about this in the episode with Réjean about his, how you can take advantage of the Canada Child Benefit, because FIRE people when they retire early tend to be in a lower tax bracket. And so they can take advantage of these benefits that are not necessarily meant for wealthy people, like people in the FIRE community. So some people I acknowledge, will say this is slightly unethical, maybe. But it’s the way it’s set up, and you’re not doing anything wrong by taking advantage of it. And it’s there. That’s just the way it is.

Mark
Yeah, I mean, I, I admit, I struggle with it a little bit, just because I think of GIS as that guaranteed income for people that really need it. And these are the programs that are designed for it now whether you can say it’s optimal, optimally designed the program amongst other maybe government programs. That’s that’s a that’s a whole podcast or set of podcasts for another day, you could argue OAS do do seniors making over $100,000 a year, need any sort of old age security income, even though it’s clawed back, again, lots of conversations to have for another day, but I struggle with it a little bit. But it is a legitimate strategy between the ages of you know, late 50s, early 60s, in terms of drawing down your TFSA is and reducing that taxable income, to the extent possible where it’s next to nil, in some cases.

Money Mechanic
So one thing I think about from hearing this strategy is, there’s definitely gonna be a couple different thoughts here where people are designing their ephi plans or their FIRE plans, with no government programs on the horizon, or the expectation, they might not even be there 20 or 30 years from now. And that’s the smart way to do it, if you’re at the beginning of your journey, definitely don’t build this in as part of your plan. But for people like in our age group, the likelihood that these plans are there in 15, or 20 years is higher, it’s just a higher likelihood. And I’m not saying that we should plan to use them as such in that strategy. But it’s certainly nice to have that option that if things go really sideways, and your portfolio takes a big hit. And you maybe you don’t need to do it for eight years, maybe you need to restructure for five years. It’s just something that is very smart to be aware of these options that you can use in planning. And again, like we said at the beginning is replanning. Right, so it’s just it’s it’s an education and awareness thing and say, oh, okay, things didn’t quite work out. And now I’m 60. Let’s employ that strategy for a few years and let that RRSP grow. So then at 71, when we convert it, then I can start using it because that’s one of the big points of this is that you actually let your RRSP sit and don’t withdraw from it so that it can grow and compound in those eight years. So that then you can rip it and start pulling off it again. So it’s just a good strategy to to understand. Add it to your planning toolbox.

Chrissy
For sure. So we have this huge list of topics I want to cover, but I can’t cover them all. So we’re just going to start winding down. But there is one one topic that Money Mechanic wanted to cover. And that’s the variable variable percentage…

Money Mechanic
Withdrawal. I struggled with that before. Okay, the problem with this is this is like a part two episode as well, because if we even touched the 4% rule, there’s going to be people shouting out their headphones to their podcasts, right? We don’t want to go down this but the point of this is Mark, you’ve written about it and you can just talk quickly about it is that you don’t need to rely on that 4% rule, you can use a variable percentage withdrawal. So highlight that for us. Give us your two-minute elevator on it.

Mark
Yeah, perfect. So correct. So think of this like you’re spending today and your asset accumulation years is dynamic, you may not spend exactly the same on groceries, or other things every month and so your spending tends to be dynamic, it changes right, month to month, year to year. VPWs, a variable percentage withdrawal, works the same in in asset decumulation. The the essence is instead of setting in stone, this magical 4% rule I’m going to draw this every year, increase to inflation for the next 30 years, and I shouldn’t run out of a lot of money etc, etc. What you’ll do is you’ll use the calculator and there’s a couple articles on my site I think I certainly leverage the the fine work of super smart people on Bogleheads and and other websites where you can get this for free. So it’s a very simple Excel tool. And basically what you do is you plug in your age and you plug in you know the end date of your retirement portal, you know, age 100 or what have you. And based on the assets that you have, so whatever asset value you have the day the portfolio The calculator is gonna adapt to your your, it’s going to give you a percentage of what you can draw down in terms of a max spend to make sure you don’t run out of money. So you don’t run over your money too quickly, and you don’t leave a huge, you know, estate to manage. So it kind of uses the concept of you, you spend a little bit more. Variable percentage withdrawal, you spend a little bit more and take a little bit more from your portfolio in good times. And in bad times, maybe when the market’s gone down and your portfolio is sunk a little bit, because maybe you’re heavy in equities, what have you, it’s gonna say, you know, maybe you shouldn’t be focusing on a 4.9% withdrawal this year at age 50, whatever the calculator says, maybe you need to think about 4.3. Because we want your money to last. So it’s really just taking advantage of dynamic spending in your retirement years. That’s really all it’s trying to do based on the value you have left, what’s going to be air quotes, fairly safe for you to withdraw, assuming that this is your portfolio value. And again, it’s something you can play with every year or even more frequently than that to see, you know, you basically don’t run out of money at the end or again, you don’t have massive estate value that you have to manage at the end, depending on your personal plan, of course, because some people do.

Chrissy
Yeah. And someone who writes a lot about this is Michael Kitces. He has done a ton of research and I think he may call it the guardrail strategy there. There are different names for this kind of withdrawal strategy.

Mark
I’ve heard that. That’s he kind of uses this as as guardrails, you can start with the 4% rule or the 3.5% rule, the 4.5% rule, but maybe your guardrails are 5.5. And maybe at the low end, it’s 3.5, if you’re starting at 4.5, so it’s really just a guard rail kind of concept. And exactly, that’s what the Excel tool does. And there’s folks on various forums in Canada that talk about it. And again, I got a couple articles on my site through a quick search that people can check it out. And I try to redirect them to those forms. So it’s really cool approach. It’s a free tool, it just gives you a different way of thinking about things beyond this magical 4%.

Chrissy
Okay. And speaking of tools, I think maybe that’s a good way to end the show, because this is complicated stuff. It’s not easy. And even my financial planner, Ed Rempel, he tells me he uses software to figure this out, because I asked him, you know, when do I take this? When will I take that? And it’s very difficult to figure it out in your head or even on paper, you, you need the help of tools to really optimize this to the max. So maybe I think what we’ll do is just list some of the calculators that Mark’s listed on the site, as well as a couple of other tools that listeners have mentioned, and that we’ve discovered our on our own, we’ll just list those in the show notes.

Money Mechanic
Yeah, I think that’s the best way we could rattle through them all. But that’ll be that’ll add another half an hour into this. Telling everybody how good some of these calculators that our fellow Canadians have made for us. I’ve got one more question before we sort of let Mark wrap up with his projects and his new project. Is, Mark, you’re a really smart guy, you’ve put a lot of thought into this, you’ve got a lot of experience in personal finance, you’ve You seem to have a pretty solid plan in place for yourself. For listeners out there, as Chrissy said, this is complicated and overwhelming. For myself, personally, I feel fairly comfortable with what I’m building up. But I definitely feel like I need to go and talk this through and maybe check that I don’t have biases and blind spots. What are your thoughts on that?

Mark
I have a lot of thoughts meaning, you know, get help get help when you need it. And I’m not just saying that for Money Mechanic or Chrissy, you folks are very well-versed in all this stuff. And I’d like to think I know enough to be slightly dangerous in terms of my own financial health, good or bad. No joking aside, get Get, Get help or seek help from a fee-only planner, where it makes sense for you. This is complicated stuff, from their perspective that there’s a lot to think about. And you could you could research stuff about CPP like we talked about. OAS and deferrals on blogs and forums and what have you. And you can look at my RRSP to RRIF strategy or you’ve talked to Ed Rempel, about the GIS strategy and so on so forth. But the reality is, is to put it all together, it’s it’s complex stuff, it takes time to think things through. And fee-only planners have the advantage of having access to commercial software or they’ve built their own through software designers. And they see clients’ needs every day and they have intake forms and questionnaires and they ask you follow up questions about do you want to take OAS at 65? Or do you want to defer it? Do you want to start drawing down your RRSP? What are your dreams and aspirations to spend the money they’re going to get into the emotional side of the the math if you will, and I’ll and try to figure out what makes sense for the life you want to live. And, and that’s really hard to do on your own. I find I think it takes a lot of navel gazing. It takes a lot of time to think things through it takes a lot of time to talk to your spouse or your family. And at the end of the day we’ve talked about it plans can change. So even if you’ve got the greatest plan now six months from now be turned upside down. The financial planner will allow you to go through that thought exercise of goals, objectives, spending needs, and they’re going to do it in an unbiased way. They’re not married to products, they’re not married to financial securities. And it’s a great way to have an excellent expert sounding board for someone that does this for a living, and they have their best interest, I think, have you in mind, certainly they, they are charging fees for some of their services. And I get that, but at the end of the day, they’re looking for your best interests. And I think without the bias of products, or funds, or stocks, or ETFs, or GICs company, they just want to be able to help you with your math. And I think that’s a great benefit that a lot of Canadians should start considering. And, you know, there are some, there are few and far between. But there are a few resources out there that people can tap into. And I can make sure you get them in the show notes where a couple bloggers keep a few directories of fee only planners as best they can. And it’s a great starting point for for a lot of Canadians to consider in this space.

Chrissy
Yeah, I think it’s something that’s important to mention in the FIRE community because we’re very fee-averse. Like we really don’t like paying financial fees of any kind. Even if it’s for good advice. It’s really hard for some people to part with that money. But at any point in the journey, this might be the most critical time where you should really get a plan and have a plan or even if it’s just a one-time engagement to look over your numbers, make sure you’re on the right path, even if it’s you already know it and you know your numbers are right just to get that reassurance that a pro has looked at it and you’re doing the right things with your money because it could make or break your retirement if you get it wrong.

Money Mechanic
I totally agree. Yeah, I totally agree. But um, well, this has been a fantastic talk. We’ve got some segues for some part twos and part threes, because you’ve been you’ve been holding out on us, Mark, it’s taken us two years to get you on the show. And you can’t use the your East Coast timezone thing. We’ve been talking to people all across Canada, Chrissy and I stay up all night if necessary to talk to our guests.

Mark
I’ve heard that because I listened to your show enough. And I know you do. But no, it’s it’s it’s awesome. I know we’re wrapping but I hope to be back sooner than two years. And it’s obviously great to talk to both of you and and really just provide another voice and vehicle for Canadians to ask some really good questions and try to get some really good answers.

Money Mechanic
Yeah, thanks a lot. So before you go, we definitely want to make sure all our listeners know where they can find you and find out more about you if they’ve never heard of you before. Because once they do, they’ll be down a rabbit hole on your blog as as I did at the beginning several years ago. So yeah, just give us that give us that pitch for us. And your new project. I want to know about the new project. I know what it is, but I haven’t dug into it enough yet.

Mark
Yeah. Okay. Well, we’ll come to that in part two. So Part one is My Own Advisor, as you kindly alluded to at the top, it’s my blog really about my personal journey for the last at least 10 or 11 years now that I’ve been running it. myownadvisor.ca. You can find me there, I answer reader questions every week, I have giveaways. Obviously I talk about my own journey. But I do share industry commentary in terms of new ETFs to consider low cost. Of course, I also talk about dividend-paying stocks on my site. There’s also interviews from you know, VPs, and CEOs from some of Canada’s biggest financial institutions when I can grab some time with them. So it’s a whole mix of my journey, but also hopefully rich information for Canadian investors. I’m also on the Twitter machine @myownadvisor. So hit me up there. That’s the main social channel I use. And then part two, the new project. So I’ve recently launched a new site with with a friend of mine called cashflowsandportfolios.com. And I know you’ve referenced it a little bit today. Really, it’s it’s not so much of a of a journey site, it’s really more of a how to or trying to make it into a little bit more of a technical how to site for Canadians, where if they don’t want to follow a particular personal narrative that’s fine, like this want to know everything that they should know about RRIFs, or everything they should know about TFSAs, or when should they even start investing and the consideration so it’s going to be more of a technical guide, which we think is helpful. It’s also allowing us to provide some coaching, or some cash flow projection services to Canadians as well. So through the professional software, we’re really trying to use our expertise and, and helping people understand the math behind, you know, their retirement plan. So it’s using all the assumptions, and all the inputs that that clients are Canadians may give us and, you know, again, our services are lined and they can contact us for that. But we’re really just trying to put, I guess, the wealth of information that they have plus, you know, going far beyond any free calculators and tools that have some biases and assumptions built in and really trying to help people understand the power of where they’re at, and also where they’re forecasted to be. So that’s the Cashflows and Portfolios site and we’re happy to offer those services but also, all the content is is 100% free and we’re happy to do it.

Chrissy
Yeah, you have some great blog articles on there and they’re worth reading. Very in-depth, very detailed and helpful info for people to take advantage of.

Money Mechanic
Okay, I’ve got it. It took us over an hour. But all we said was retirement planning is creating a cash flow to satisfy your expenses as tax efficiently as possible for the duration of your the remainder of your life. Any… is that… what do you think? Anything to add to that?

Chrissy
It’s so easy to say, but so hard to do, right?

Mark
It just rolls off the tongue.

Money Mechanic
Mark, it’s been a pleasure, buddy, thank you so much for joining us.

Mark
Happy to do it. And I can’t wait to come back.

Chrissy
Yes, thank you, Mark. I was so excited that we could finally get you on. So thank you for joining us.


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2 Replies to “056: FI Drawdown Strategies | Mark Seed”

  1. Great discussion. Very educational. Really enjoyed. Just one thing regarding TFSA. If you live in Quebec, you cannot name a successor holder or beneficiary on your plan documentation – you must do so in your Will. And I put that in my Will.

    1. Thanks for sharing this, Mr. Dreamer. I hope that everyone does their homework and gets their estate planning sorted long before they ever actually need it.

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