Investing For Retirement With He 65 She 58

FULLTIMEWANABE · December 6, 2021

Really enjoyed reading your recent topics and responses from others, on investing Kirk you started at various ages over 70, and know there are a lot of escapee members here that have a sound amount of investment experience either self directed or through using financial advisors.

To that end if you can imagine you are just retiring fully today in current market conditions at age 65 & 58, and you have a lump sum to invest of in excess of 7 figures, what would you do today with that money to secure your future as safely as possible. We are a group of 5 couples that meet up monthly and have been self directing using the Canadian Couch Potato approach, odd individual stocks, baskets of ETFs and Indexes etc. Lately we are discussing what are best options less hands on, and I thought it would be good to get your experienced input as what you would do if it were you in today's situation planning for the future 30+/- years ahead. In other words you have trodden the path we are about to take for the highlight of our twilight so to speak.

Assume being the eldest you will receive around $500 OAS (Old Age Security), not classified as taxable income - clawback occurs between income of $72,000 to $118,000. If there is no other earned income/investment returns source, that person would get GIS of around $900/month and possible Seniors Benefit of $400. All per month amounts. When she hits 65, combined per couple, it would total with all benefits around $2600ish +/- per month. There is an allowance for her at 60 but if she claims it they reduce it off his basically. Some have CPP (Canada Pension Plan), but that is classified as income whereas previous mentioned benefits aren't income taxable benefits in their own right.

In Canada we have access to a TFSA (Tax Free Savings Account) per person with up to $81,500 allowable contributions by Jan 2022 = any profits/interest made within this can be withdrawn tax free and not counted as income as current rules now. Therefore wouldn't affect entitlements to OAS, GIS or Seniors Benefits if eligible. Any withdrawal amounts can be reinvested the following year or onwards, just not in the same year of withdrawal.

The RRSPs (Registered Retirement Savings accounts) have nominal amounts in them of under $20K each for all but one couple. They have to be converted to RRIFs (Registered Retirement Investment Funds) by age 71 with a set withdrawal amount annually afterwards.

Of course everyone has varying degrees of risk and so on and so forth but what would you invest in if it were you today in late 50's/mid 60's, in which type of account and what percentages of the lump sum? ie; 10% or higher in cash? 80% in S&P500 index or feel it too high today to risk correction being older? Bulk in Dividend Stocks and if so Aristocrat Dividends or others or what mix of equities? None of us are into mutual funds with high MER's so would love to have some feedback on indexes, ETFs or otherwise with low MER's.

Thanks to all that share what they would do based on being late 50's to mid 60's retiring today, so when we get together again end December we can discuss amongst ourselves and have ideas on moving forwards for 2022.

FTW

steiny93 · December 6, 2021

to this question "what they would do based on being late 50's to mid 60's retiring today?" the answer to that question will depend upon two things:

1) how much money is needed during retirement

2) acceptable risk

For example, if the needed income is low is relation to the nest egg one could leverage a 'fixed income annuity' and be guaranteed income regardless of market downturn. But, those returns are typically low.

Alternatively one could risk it all on a specific stock and enjoy a windfall if correct, or eat pork and beans if not correct.

I don't believe a one size fits all approach should be taken as a 50 year old could easily have 40 years of retirement yet to fund. I believe you will need to continue a similarly aggressive (as compared to today) investment strategy for part of the current retirement dollars due to the duration of retirement needed.

NDBirdman · December 6, 2021

I believe the older a person becomes, the less risk they should take. We dove in a lot of areas when young, now as mid 60s, everything risky, ie high risk return investments, have been cashed in and placed in low risk investments. Real-estate, will always be worth something (we have enough if chit hit the fan we could grow/raise what we need to survive), I like some precious metals, a couple low risk retirement accounts, some in a money market, some cash and some in fire-arms/ammo. Big thing to do is pay down/off everything. Having good medical so something catastrophic does not drain you, long term care plan, etc. Don't place all your eggs in one basket. Another thing I tell people, don't gamble, or invest any $$ you can't do without. If investments become worthless for what-ever reason, will you/they have what they need to live the same level standard you now live at? Investing is fun, but don't cut your own throat doing so.

For specific investment advice, I won't give any more than what I said. Every individual needs to research themselves, not what has worked for others. What worked for me, won't work for you, that I will guarantee you. I average $9k/mo without touching anything saved.

IMHO

FULLTIMEWANABE · December 6, 2021

Birdman and Steiny93 really appreciate your taking the time to reply alas, I was hoping for this to be a generic exercise for a discussion and eye opener on what different things folks do for what reasons.

We are very conscious and aware of risk tolerance and needed income or having to cut our cloth to suit our pocket (managing on less than we'd like to, in order to stretch $'s out), but think it would make a great discussion to see what folks would do today with a potential 30 to 45 years ahead of them.

To that end as an individual based on being 65 years yourself with a 58 year old spouse today, lump sum of hypothetically say $1m or $2m or whatever amount you state. What accounts would you use, what would you hold in those accounts and in what percentages, and if kind enough to share your why's and reasonings in doing so 😊

Out of our group gathering (over 15 years meeting up quarterly/monthly), we are all at a little different stage on the amount but all are over 7 figures ($1.2m to $3.6m). Clearly some will have more income than others due to higher CPP contributions or length of time in Canada for OAS, and amount of lump sum to invest but....... Today at aged 65 with a spouse around 58 years old what would you do with a lump sum to make it last and why if you'd be so kind to share your thoughts in that regards.

1) What percentage of say your $1 million dollars would you have in a cash account earning less than half percent in today's age? Why this amount?

2) What type of equities or otherwise would you hold in what percentages and in what type of accounts and your reasonings on that?

3) If retaining real estate for ongoing income (all but 2 couples have sold our revenues now) what type, why and how do you feel about the ongoing management of this real estate, considering travel would be a big part of your retirement?

4) If you intend to be more hands on with your investments than more of a set it and forget it as what we have been doing mixed somewhat over the years, would you be buying Aristocrat Dividend type stocks for income, Dogs of the Dow, hold S&P500 index/ETF and if so which one, or just accept a return that doesn't keep up with inflation and draw down quicker/less amount such as cash account or bonds, GICs, CDs etc?

Like I said initially this is purely a thought provoking exercise as to how we all think differently based on if we were 65/58 retiring today with a smallish only government pension/benefits, and a 7 figure lump sum as to what we as an individual would do today right now.

Looking forward to all those that are kind enough to share their thoughts walking in these shoes hypothetically in today's climate.

FTW.

Barbaraok · December 6, 2021

The old adage of being more conservative as one ages doesn’t work anymore. That includes even some funds in small cap stocks with potential for large gains. We’ve done quite well with Vanguard Funds. Unlike a lot of people, we took our SS at 62 so we wouldn’t have to touch our IRAs. That meant they kept on working for us. We have taken out ALL that we put in and they still are worth more than the amount we put in, earning more each year than our RMDs! And our other investments are also doing well, so that we are able to roll the RMDs into taxable accounts that keep growing.

Randyretired · December 7, 2021

With bonds paying what typically amounts to negative returns we don't have any. We are more aggressive than that but tend not to hold individual stocks either. Years ago we made a 500 index fund our core and mostly hold other index funds. We try to keep a couple of years of expenses in a cash fund. This is just the basics needed. As for the market including the S&P500, the gains of late have been over average and this market has been positive for many years. Certainly a correction or more is coming but when? How long? Most of our funds are not in tax sheltered accounts so selling is a major tax event for us. In any case we just hold what we have and ride the highs and lows. That has been our methods for several years. I am comfortable with our funds but that isn't a recommendation. It just fits us. In the past I tried some options and individual stocks. Some recommended and some I just liked. However, the index funds have returned a nearly equal amount, the index funds are less volatile and tax friendly. Again this is just my experience. Others are more or less aggressive with various results.

Kirk W · December 7, 2021

FTW, you do pose a very interesting question. It used to be that many financial advisors believed that one should use 100 - your age to determine what percentage of your funds should be invested in stocks. At 30 you would invest 70% in stocks and at 70 only 30%. More recently most of shifted to using 120 or more to subtract your age from, thus advising a 70 year old to put 50% into the stock market. No matter what numbers you use, it is an over simplification to just give some amount into stocks as there is a wide degree of risk from one stock to another. Rather than just looking at the stock market as a whole, I consider it is sections, or types of stock.

Common stock.
Preferred stock.
Large-cap stocks.
Mid-cap stocks.
Small-cap stocks.
Domestic stock.
International stocks.
Growth stocks.

I also look at the more established companies stocks as far less risk, while the newer companies are more likely to show rapid growth but the risk is also much greater. In my personal situation, the majority of my assets were in a 401k, an IRA(both tax sheltered) and in my home which was nearly debt free. Part of our retirement planning was to be debt free at retirement which was nearly true. We did have loan on our motorhome whose payments were made from the return on our house sale proceeds that were invested in a bond fund that returned more than the monthly payments. As the economy changed that bond fund began to return less than the needed monthly amount so we sold it and payed off the motorhome loan with part of the proceeds and moved the remainder into other investments. Since retiring we have maintained at least 3 months of expenses in liquid assets, either interest bearing accounts or easily sold CDs.

Another consideration is how much of your time do you wish to spend in managing your investments? To self manage well requires significant investment of your time to study funds, stocks, and market trends. We chose to roll our 401k funds which are tied to an employer and usually have limited choices of investing into my IRA which is also tax sheltered but can have far more owner direction. After we began traveling fulltime we realized that staying on top of the management was more of a challenge and more work than we really wanted to do. As a result we moved the majority of our investments into a managed investment account, while retaining about 20% in funds that were not in a tax sheltered account under our direct control and some of that in individual stocks.

I retired at the age of 57 (Pam 58) and we lived quite well with no money from our investments other than the motorhome payment mentioned before. We had a monthly income from my previous employer's retirement plan which was sufficient as long as we managed finances. We began or RV volunteer experiences mostly to help in stretching our budget by getting a free site & utilities in return for our help and while that did cut our expenses a lot, we soon discovered that we enjoyed the lifestyle and have continued to do that even after we began to receive social security payments and so wouldn't have needed to do so. The net result of that was that we traded towed vehicles for cash twice and accrued significant additional savings in our 12 years of fulltime. Like BarbOK, we took no money from our tax sheltered funds until required to do so, with the exception of $30k added to our savings to pay cash for the home we moved into when we left the road. That house was sold when we moved to our present community.

Today we maintain about a year's expenses in liquid and cash assets and we continue to have about 60% of our assets in a managed fund, managed by a very talented and successful broker. I have been taking required minimum distributions (RMD) now for 8 years and our total funds has increased steadily in that time with nearly 30% increase in those years, net of distributions.

It is difficult to say what I would do if it were today, and even more so to advise someone in Canada, where I have little knowledge of the tax laws. I am a big believer in taking full advantage of tax sheltered accounts as much as possible, but keeping in mind the fact that any major withdrawal will cost you in income taxes, as we learned the hard way when we left the road. I would never advise investing more than 10% in individual stocks, unless your other assets are sufficient to take care of your needs in the event of a major market reversal. Experience has taught me that there are no sure things. Eventually if things go well for you, the day will come that like myself you will be trying to determine if it is time to spend down and enjoy the proceeds of your past financial decisions. We are to a point in life where the probability of both of us being here for another 15 years is unlikely so we have begun to put our shared experiences ahead of increasing the amount of our assets. The question of how much you will need to have your funds last doesn't get any easier.

Edited December 7, 2021 by Kirk W
repair a typo

FULLTIMEWANABE · December 7, 2021

Thanks for the insights and looking forward to many others 😉 The goal is for us all to slowly move away from such hands on trading/management moving forwards and scenarios or thoughts help for future discussion options. As we say everyone is different in their risk and needs tolerance but with same ultimate goal moving into retirement.

Like you Barb, we concur that Vanguard funds with low MER's have been an overall excellent place to park some of our funds. Randy for sure the average of the S&P500 over the years (a bit lower since 1957 at 8%) being an average since I believe 1926 IIRC? of 10% and again all of us have a good percentage on and off in a mimic index. (Memory not as good as it once was so dates may be a little skewed here!) Because we use pretty widely placed Trailing Stop losses, during major pullbacks we've been stopped out and generally re-entered on a Fish hook turn back. Challenge always has been with the S&P in wondering after it's been on a tear for a long time, when the next correction might occur before a re-entry and for how long!! Now where's that crystal ball

So 1 year and 2 years expenses of cash access available is your comfort levels Kirk and Randy. We had been tossing around varying from 1 year to 5 years in case of a correction lasting longer (again different comfort levels for individuals).

Again we want to be more hands off on a preferable set it and forget it with just observing intermittently throughout the year, albeit a couple of us won't be able to help ourselves checking our portfolio's daily I'm sure LOL. Of course we are all cognisant of what can happen in the market and as we get older we have less years to ride out long term corrections. Remember Oct 19th 1987? The more recent 11 year bull market (2008 to early 202) that everyone kept saying after just 2 years it wouldn't last but went on for over a decade. March 2020 where oil was negative, yet look now. Remember the discussions here of the 2008 era and what occurred following that. Then when everyone was excited about the price at the pumps from September 2014 dropping below $1/litre here, and I said be careful what you wish for being in an energy province. It was like a falling knife (in the 80cents) until we went negative in Spring 2020 (over 5 half years!), and now look what's happened on the turn much much faster and up to over $1.40/litre.

These are all things that are playing on our minds collectively and some are thinking go all to cash and risk the erosion of inflation. Now that's what our parents did in the days of double digit interest rates which who knows if we'll ever see again in our life times. I have to admit I for one envisioned decades ago that we'd try and build our retirement accounts and by "Freedom 55" put it all into a savings account giving us 8% to 10% safe return or a ladder system on payouts. Alas that's not the same era we find ourselves in today. Hence why I thought I'd ask here what a "hypothetical you" at 58/65 would do into day's market. So Thank You to all those that have kindly commented thus far, it's really appreciated.

FTW.

Kirk W · December 7, 2021

18 minutes ago, FULLTIMEWANABE said:

These are all things that are playing on our minds collectively and some are thinking go all to cash and risk the erosion of inflation.

As much older than you as I am, I do very much understand the all cash thinking. There are times that I have been tempted by that approach but I have seen enough inflation in the 20 years since I retired to know that it is impossible to predict what our needs will be or how long we need to plan for. Vanguard fund and others like it have been good for many people, but there are other good options. A really good fund manager can be an excellent choice so spend some time researching those possibilities as well.