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A Change Is As Good As A Rest

Updated: Mar 12

It’s been very long while (again) since I published anything in here, even though I have a dozen or so outdated articles in draft dating back a couple years. The truth is I was starting to feel a bit negative and bit bored with it all; partly because the markets have been constantly reposturing and somewhat unpredictable and pundits have been spinning in circles on the news, partly because I was getting spammy-foreign-fraudster-type sign-ups to my BLOG page (still am) and I just got tired of deleting these sign-ups, partly because I wasn’t getting much feedback, and partly because things have been changing for us (A LOT!) over the last couple years. I started to feel like I had little to offer in terms of confident or stable financial advice as I was still trying to figure it all out myself. In the last year we had pretty much unwound our retirement plans in the areas of investment, income, benefits, and general lifestyle. Hopefully it’s all for the best, though I have to admit I went through an anxiety bout while going through all these changes!

   Just to catch everyone up, we had done some spring travelling post-covid. We travelled to the UK, Scotland, and Ireland for 6 weeks in the spring of 2022, and then in the spring of 2023 we travelled through 14 European countries over 6 weeks, starting and ending in Amsterdam, and going all the way down to Italy/Spain and back up through Swtizerland/France. Both these trips were amazing, and both started filling our post-retirement, travel, bucket list. We saw a lot of history, famous landmarks, experienced many different cuisines and cultures, and we filled our iphones up with pictures and videos. There is too much to cover in this post, and really, other than the fact that it is part of our own personal retirement plans to travel to these places, the details are not really important. Next on our radar is Greece and Croatia in the spring 2024.

    In the summer of 2022 we decided we’d had enough of our initial downsizing plans to a condo, and maybe we went too small, too old (demographic), too restrictive, too early. Living in a senior’s condo complex during the covid lockdown was a challenge in it’s own right, as visitors were not allowed at all during the peak of the pandemic. After covid, family and friends were coming to visit in waves during the summer, and we found entertaining more than a couple visitors at a time was a hassle, … and we didn’t want to say no to visitors! Plus, if we wanted to have a group of friends over, it was very confined for both space and the noise. We were just too young and active for this change. In the condo we also lived a good distance from the action; beaches, restaurants, nightlife, and sports and concert venues, … which wasn’t optimal. We discovered we had little privacy in the condo, and we were bound by the restrictive rules and annoyances, e.g. parking, noise rules, nozy neighbours, and the odd condo-cop citing strata rules, common in an apartment strata. I had joined the strata council for the last year we were there, and found it frustrating as the council bias was towards being cheap and not fixing the root cause of various issues. The fact that the condos were approaching a 30 year lifecycle various things were breaking down regularily like plugged sewer systems, garage doors, elevators, and AC systems. One of the towers had water leaking into the walls from the top floor window seals for over a year. There was an unengineered, under-designed, and poorly-maintained weeping tile drain tank in one of the buildings that flooded regularily into the garage during heavy rains. If you want to preserve your investment, you need to do the right things to avoid reactive maintenance, and I just wasn’t seeing this despite my efforts on council to change minds. Another reason is we had very recently moved my Mom out of the same condo we lived in to a senior’s independent-living complex, causing us to lose more attraction towards living there. So …in Aug 2022 we sold our 7th floor, 1250 sq. ft. condo with 2 bedrooms/baths in post-covid peak prices, and in Sept 2022 we bought a newly-constructed, 3 level, 2200 sq. ft. half-duplex with 3 bedrooms/3.5baths/office and a large garage right downtown and only a block from the beaches. It’s really nice to have the extra space for entertaining and accomodating guests, and the location is super-appealing too because you can walk to shopping and everything fun in our city with very few exceptions. The pandemic and it’s challenges also taught us that it is good to have some peace of mind that we have a home base for our kids if required, somewhere they can fall back on if needed, and the condo did not provide this. The new duplex has lots of stairs, but it keeps us in good shape!

   So despite all my rhetoric in the past about our downsizing to a condo and getting our household expenses down as low as possible going into retirement, we stepped backwards a bit. It wasn’t wrong to downsize to this extent (to a small condo), but we found it was too early for this change to condo living for us. We didn’t have to downsize to this extent, and possibly we never do it? Who knows? The only thing we kept from condo living was the community garden we are members in, as we now have a zero-scape yard and want to keep our water costs in check. In the community garden water is fully subsidized by the city. Right now we are happy with our home changes. The three retirement years we took to get to this decision made us realize we needed this change and that we really could afford it. Long story short, you should think hard about the location you want to be in and about rightsizing your home in retirement versus downsizing it, providing you can afford the extra expense. The fact that we didn’t need to carry a high interest rate mortgage to make this change obviously made our transition easier. In the end we found our overall home expenses aren’t very much different when you factor condo strata fees into the calculations. Of course, it was a significant cost to fund our home upsizing and new furniture in the last year, and we’re not done yet, but it was all a calculated and affordable move on our part. One difference now is we do the yardwork e.g. shovelling snow, mowing lawn, etc. but this only amounts to an hour or less a week and keeps me moving. Plus we share in this effort with our neighbours. I even purchased a gas-free, push mower to make it a bit more exercise and do our part for the environment. The lawn is quite small, maybe 24’x24’, shared with our neighbours, and only in front of our properties. The manual mower also eliminated the need for to store stinky, dangerous gas in the garage. Determining the location you want to live in plus rightsizing keeps you from being in potentially bored and going too far with reducing your home living space in the early stages of retirement when you are still very active and sociable. There’s a lot of other benefits to our relocation too, like reducing our dependency on vehicles.

    We’ve also learned a few things about taxes in the last few years. While there are ways to strategically reduce your income taxes in retirement by how you allocate your investments and how you withdraw them, you cannot avoid paying them. Initially we had set up all our retirement accounts to pay us monthly at the younger spouse’s age minimums. When you set withdrawals up at the minimums the income tax is deferred, but not avoided. When you file your first tax return, the CRA will assess your prior years’ income and taxes and will adjust or set you up for higher quarterly tax instalments in the following year based on the prior years’ return, if you owed them more than $3k in that year. The CRA does not like it when you defer tax above their thresholds over the year, and they make sure they get it back earlier than your filing date in following years, so there is no real advantage in deferring tax in your income plan. Failure to pay these calculated, quarterly instalments can result in accrued interest payable to the CRA, unless you know something they don’t know and can ensure you stay below the $3k tax-owing threshold at tax filing time. Large quarterly instalments is what is likely going to happen if you set up on the minimum withdrawals and have a good amount of registered retirement income and no other sources of income set up to pay tax e.g. CPP or OAS. This tax instalment amount can be significant, especially if you have an income windfall or large capital gains in the year you start retirement or any of the following years. These quarterly tax instalments can add some stress to your annual budget in that you must plan and ensure you have that money set aside and/or available to pay them. Because this scenario happened to us over the last few years, we’ve set up our registered account withdrawals in 2024 to pay some tax all year long versus deferring it and taking out large lump sums from our RIFs in December to compensate. To do this, you have to regularly withdraw more than the age minimums in your RIFs and the age maximums allowed in your LIFs (commuted company pensions). Any amounts above the set age minimums are taxed at source in your registered accounts upon withdrawal according to the three CRA tiered tax rates for RIF withdrawals. The financial firm that holds your registered accounts will withhold these taxes and remand them annually to the CRA on your behalf. We’ve set these up in 2024 as monthly payments, but you can take them on whatever schedule you want e.g. quarterly, biannually, etc.. We chose to take monthly payments because the monthly payments are more than covered by the monthly dividend structure in our accounts, plus I like to have the regular, monthly paycheques to plan and budget with. The new, higher income plan provides more than enough income to service our home bills, tax, and other retirement budget plans, and allows for additional savings for other things through the year. It also cuts in half the amount we need to withdraw at the end of the year in December as lump sums from our RIFs to meet our income targets, which is essentially a transfer of registered cash into our TFSAs.

   Further to the new income plan, we changed up our retirement investments a little bit for 2024. I have come to realize that chasing capital appreciation in retirement is not as important to us as it was when we were working and in a savings and growth mode. Now that we are in a spending and preservation mode in retirement, investments with lower price volatility, higher and reliable monthly income in the form of dividends, and modest to zero capital appreciation are equally attractive in our registered retirement portfolio. While I still believe you need a balance of global index funds and blue-chip, sovereign stocks for diversity and to offset inflationary pressures, I’ve also ventured away from some past judgment towards actively-managed products. To this end, we’ve added a CAD financial sector, low-fee, actively-managed (yeah … I said actively-managed … “eye roll”!), covered-call fund to boost our retirement income streams and offset the higher withdrawal rates we’ve set for 2024 in our registered accounts. Due to the higher income yields, these types of fund products have been growing exponentially in both market cap and popularity over the last several few years with investors and retirees. This new fund, in combination with the global retirement income index fund we already had, will provide sufficient dividends to pay the higher, monthly withdrawal rates we’ve set this year and for the next few years, while maintaining some inflation-fighting qualities via the global retirement income index fund. We are currently set up 60/30 with the indexed retirement income ETF/covered-call fund to meet these goals. The higher withdrawal rates we’ve set in our RIFs now pay half our annual tax burden at source through CRA’s withholding tax rules, and our planned RIF lump sum withdrawals in December pay the rest through their withholding tax. By my calculation, at tax time, we should be close to net zero tax owing, and this will allow us to reduce the high quarterly tax instalments and potentially eliminate them altogether in the future, as we wean ourselves off the associated large capital gain hits we’ve had from selling stocks in our non-registered investment account for big purchases. Right now, and still, we intend to defer our CPP and OAS payments til we are 65-70 years old, and intend to ramp up our registered account withdrawals through our 60’s to get the money out when we can control our taxation and income-splitting benefits better, in order to avoid potential future clawbacks from the government programs.

One other change we made this year is we cancelled our health and dental insurance plan. In the past I had said I had reservations about the benefit of having supplemental insurance in a country where basic health coverage is provided by a government plan. But, in early 2022 we purchased health and dental coverage none-the-less, and in 2023 I cancelled it after a reassessment of the costs versus the expenses. When I enrolled I thought, “this will be an experiment”, “I can afford it”, and I admittedly had a bit of “who knows, .. shit can happen (fear)?”. But it only took me just over a year to decide to leave the program. I did a bit of a deep dive into our existing dental and health costs since retiring, our family health history and potential need for future drugs and otherwise, and our travel insurance needs. I took a look at drug costs based on our parents needs and was surprised to learn that drug costs for common things like diabetes and blood pressure are not very expensive and more affordable than I originally thought. After looking at it all, I decided for the $3500/yr cost of our existing plan for the wife and I, we could just save the difference between the insurance provider charges and the actual expense, and build our own health and dental coffers. In this scenario we pay our own way in the supplemental benefits world and on an as-needed basis. So now, starting January, we have a $300/mo scheduled cash transfer into an investment account to cover any annual and build savings for potential future health and dental costs, and we’re likely just going to buy Sunlife and Manulife shares with it and drip the dividends back in. This way insurance companies can pay me instead of me paying them. This exercise just reinforced my original position that supplemental health and dental benefits are based mostly in fear, there is a ton of rolled-in costs on coverage you will never use, and it’s better to save, invest, manage, and pay as you go if don’t anticipate any huge health costs in the future. Almost all of the bad stuff that can happen to you and that you might benefit from having insurance coverage for is going to kill you quick anyways, and trust me, insurance companies know that! Sure there might be an expensive bill in one year like a $1000 crown or root canal, but insurance companies have factored that into your payment plans and hedged their losses. That’s why they won’t let you collect on these types of major expenses until you are ~3 years into their plans. You’ve already given them nearly $10k by then and they have likely doubled it with their own investment tactics. Another consideration is you typically don’t need these types of major procedures til you older, and even then they are one-offs. By then you’re psychologically hooked into these plans, and the more you invest into them the harder it is to drop them. The costs per individual also go up as you get older, as they are based on actuarials. Actuarials are studies insurance companies do about the actual risk of things happening to people. Insurance companies are very clever about making you willingly part with your money for health and dental insurance. In a normal year, we have ~$400 in dental which is two dental cleanings and xrays, no health costs (yet), and maybe ~$500 in travel insurance for a 6 week holiday. That’s a $2500/yr savings in a normal year, considering we’re now saving $3600/yr towards our own health and dental costs. As we age into our late 70’s we will likely travel less internationally, so that $500 is available for other things. In an unusual year we might incur another $500-1000 for fillings, crowns, or a root canal. Again, long story short, we’ll pay as we go, and will report back at some point how this is working. One last thing, to supplement this change, is we plan to make healthy choices in our retirement to stave off future heath care requirements. We have been on a plant-based, whole-food, no-oil diet for 3-4 years now, we exercise a couple hours daily, and this year have cut down on drinking alchohol by 95%. Not only has the reduced alchohol consumption improved our overall health, it has improved our savings! We should have made this last change 40 years ago…

    A change is as good as a rest my Dad always said, and I believe these recent changes will reduce our life and budget stressors in the upcoming years. The new home has improved our quality of life. We can walk everywhere and have access to downtown life and the beach areas where all the city’s entertainment, leisure,restaurants, markets, and shopping areas are located. We are in a modern duplex in an area of multiple, new, modern duplexes and single homes where neighbours share in the maintenance and look out for each other, so lock-and-leave for long periods is just as easy as it was in the condo. There is also a park across the street from us, and the waterfront and a quiet beach is only a 5 minute walk from our door step. Being it is a brand new build, no major maintenance costs are anticipated for +25 years and we have the benefit of the new home owners’s warranty for any major issues that come up.

   So in conclusion, the last few years have been a retirement learning curve for us, and the last year has been a major reset on our original retirement plan, applying what we’ve learned and hopefully setting up for a more relaxed, hands-off approach to 2024 in terms of life, income, and taxes. Our new home is open to all guests and last summer all the kids all came at once (first time!!) and enjoyed our new location and what it has to offer, .. and, .. they already have plans to return in 2024! They even brought friends last year! This is great news, as it keeps them all coming back every year to to visit us and enjoy our new home and location. They want to use their vacations to come here! So… mission accomplished on this point!

In fact, further to the comments about being able to entertain larger groups, we had a group of friends and family over here to ring in the New Year with us! I’m feeling pretty good about 2024, and if nothing more, thought I would hammer out an update.

Happy New Year to all, and I hope 2024 brings you all health, wealth, and happiness!!!

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