The transition to retirement can be hard enough without having to deal with a mess of individual stocks, mutual funds, and/or ETFs held across several accounts and institutions. Indeed, one of the most sophisticated moves you can make is to simplify your investment portfolio as you head into retirement.

Consider Chris and Liza, a couple in their early 60s who intend to fully retire this year. In fact, Liza (63) retired at the end of last year and Chris (62) will retire this summer. They have combined savings and investments of just under $800,000 across their RRSPs, TFSAs, a LIRA, and a small joint non-registered account. Liza also has a modest pension of $12,000 that began in January this year.

Their desired after-tax spending in retirement is about $60,000 per year. They plan to start their RRSP withdrawals next year and delay taking CPP until at least age 65. That means making some fairly aggressive RRSP withdrawals for a couple of years while they delay their government benefits.

Meanwhile, they’ll have enough income from RRSP and non-registered withdrawals to meet their spending needs, so their TFSAs will stay intact and invested for the long-term (though they no longer plan to contribute to their TFSAs annually).

Two-Fund Retirement Solution

How do they structure their investments to generate the income they need while keeping costs low and the portfolio easy to manage?

Enter the two fund solution for investing in retirement.

You know that I’m a big fan of asset allocation ETFs and believe that many investors can and should simply hold a risk appropriate all-in-one ETF in each of their investment accounts (and reach out to a fee-only advisor as needed for financial planning advice) during their working years.

Not much needs to change in retirement. That’s right – simply carve out 10-15% of your portfolio and use those funds to purchase a high interest savings ETF. Examples include:

• CI High-Interest Savings ETF (CSAV)
  
• Horizons High-Interest Savings ETF (CASH)
  
• Purpose High-Interest Savings ETF (PSA)
  
• Horizons Cash Maximizer ETF (HSAV)

The cash held in a high interest savings ETF should represent approximately 18-24 months in expected annual withdrawals. Note, you’d need to do this in each account type that you’d expect to withdraw from in retirement. In Chris and Liza’s case, that would include their RRSPs, Chris’s LIRA, and their non-registered investments.

Let’s take a look at the couple’s current account balances and holdings:

Chris

• RRSP – $268,000 (VBAL)
• LIRA – $121,000 (VBAL)
• TFSA – $80,000 (VGRO)
• Non-registered – $22,000 (VBAL)

Liza

• RRSP – $203,000 (XBAL)
• TFSA – $80,000 (XGRO)
• Non-registered – $22,000 (XBAL)

Chris expects to withdraw $20,000 per year from his RRSP (RRIF), $6,000 per year from his LIRA (LIF), and $6,000 per year from non-registered investments until his CPP and OAS kicks-in at 65.

Liza will draw $16,000 per year from her RRSP and $6,000 per year from non-registered investments until her government benefits kick-in at 65. 

With Liza’s $12,000 pension, this covers the couple’s annual spending needs, plus taxes.

They both like the idea of the two fund retirement solution and want to queue-up their “cash bucket” this year so it’s ready for withdrawals to begin next January. They also want to be conservative, given their higher than normal first few years of withdrawals, so they opt to hold 15% in cash in their RRSPs and Chris’s LIRA, and 50% in cash in their non-registered investments.

Chris and Liza sell off units of VBAL and XBAL (respectively) so their accounts now look like this:

Chris

• RRSP – $40,200 (CASH) / $227,800 (VBAL)
• LIRA – $18,150 (CASH) / $102,850 (VBAL)
• TFSA – $80,000 (VGRO – no change)
• Non-registered – $11,000 (CASH) / $11,000 (VBAL)

Liza

• RRSP – $30,450 (PSA) / $172,550 (XBAL)
• TFSA – $80,000 (XGRO – no change)
• Non-registered – $11,000 (PSA) / $11,000 (XBAL)

The couple will also turn off automatic dividend reinvestment so that the quarterly distributions from VBAL and XBAL will now just land in the cash portion of their respective accounts (and help refill the cash bucket).

Using a RRIF and LIF for Withdrawals

They each decide to open a RRIF account and transfer the high interest savings ETF into the newly opened RRIF. Again, the goal is to queue-up next year’s withdrawals and to reduce any fees they might incur by withdrawing directly from their RRSP.

RRIF minimum mandatory withdrawals won’t begin until the calendar year after the account is opened. Chris also opens a LIF, as that’s the only way to begin withdrawals from his LIRA next year.

Fast forward to next January. Chris starts withdrawing $5,000 per quarter (January, April, July, and October) from his RRIF – literally selling off units of CASH.TO to meet his withdrawal needs. He also starts withdrawing $500 per month from his LIF account, again selling off units of CASH.TO as needed.

Liza also withdraws from her RRIF quarterly, taking $4,000 every January, April, July, and October. 

The couple dips into their non-registered account to top-up spending as needed, and earmark the remaining cash for taxes the following year.

Final Thoughts

We often end up with a tangled mess of investment accounts and investment products by the time we get to retirement. It’s common to have accounts at multiple institutions, group savings plans from previous employers, and a mix of stocks and funds from dabbling in different investment strategies over time.

Fight for simplicity as you enter retirement. Consolidate accounts into one institution – ideally at the brokerage arm of your main bank, but an online broker like Questrade is fine. Consolidate your investments from a messy mix of stocks and funds to a low cost, risk appropriate, globally diversified all-in-one ETF and then carve out 10-15% of expected cash withdrawals to hold inside a high interest savings ETF.

This creates a subtly sophisticated, dare I say elegant, investing solution that you can hold throughout retirement.

As investors we face a constant barrage of information every day that triggers our urgency instinct. The urgency instinct makes us want to take immediate action in the face of a perceived imminent danger.

This instinct must have served us well in the distant past. If we thought there might be a lion in the grass, it wasn’t sensible to stop and analyze the probabilities. We needed to act quickly with the information we had.

Urgency instinct is still useful today when we need to take evasive action, but it can backfire when it comes to making complex decisions.

In his book Factfulness: Ten Reasons We’re Wrong About the World–and Why Things Are Better Than You Think, author Hans Rosling shared a painful yet important story about controlling our urgency instinct.

Working as the only doctor in Nacala, a district of more than 200,000 extremely poor people in Mozambique, Rosling diagnosed hundreds of patients with a terrible, unexplained disease that had completely paralyzed their legs within minutes of onset and, in severe cases, made them blind.

Not 100% sure the disease wasn’t contagious, Rosling met with the mayor to discuss their options. “If you think it could be contagious,” the mayor said, “then I must avoid catastrophe and stop the disease from reaching the city.”

The mayor was a man of action. He stood up and said, “Should I tell the military to set up a roadblock and stop the buses from the north?”

“Yes,” said Rosling. “I think it’s a good idea. You have to do something.”

The mayor disappeared to make some calls. The next morning, some 20 women and their youngest children were already up, waiting for the morning bus to take them to the market in Nacala to sell their goods. When they learned the bus had been cancelled, they walked down to the beach and asked the fishermen to take them by the sea route instead.

The fishermen made room for everyone in their small boats and sailed south along the coast. Tragically, nobody could swim and when the boats capsized in the waves, all of the passengers drowned.

That afternoon Rosling headed north again, past the roadblocks, to investigate the strange disease. Along the way he came across a group of people pulling bodies out of the sea. He ran down the beach to help, but it was too late. He asked one of the villagers, “Why were all these children and mothers out in those fragile boats?”

“There was no bus this morning,” he said. Several minutes later Rosling could barely understand what he had done, and 35 years later still never forgave himself.

Why did he have to say to the mayor, “You must do something?”

Rosling writes,

When we are afraid and under time pressure and thinking of worse-case scenarios, we tend to make really stupid decisions. Our ability to think analytically can be overwhelmed by an urge to make quick decisions and take immediate action.

Recognize when a decision feels urgent and remember that it rarely is. To control the urgency instinct, take small steps:

• Take a breath. When your urgency instinct is triggered, your other instincts kick in and your analysis shuts down. Ask for more time and more information. It’s rarely now or never, and it’s rarely either/or.
• Insist on the data. If something is urgent and important, it should also be measured. Beware of data that is relevant but inaccurate, or accurate but irrelevant. Only relevant and accurate data is useful.
• Beware of fortune-tellers. Any prediction about the future is uncertain. Be wary of predictions that fail to acknowledge that. Insist on a full range of scenarios, never just the best or worst case. Ask how often such predictions have been right before.
• Be wary of drastic action. Ask what the side effects will be. Ask how the idea has been tested. Step-by-step practical improvements, and evaluation of their impact, are less dramatic but usually more effective.

As investors our instincts are constantly put to the test. Like during the last quarter of 2018 – when the market bottomed out on Christmas Eve after nearly a 20% decline. Or during the onset of the pandemic, when markets crashed 34% in March 2020. Or in 2022, when stocks and bonds crashed after Russia invaded Ukraine and central banks began hiking interest rates to curb inflation.

Gloomy headlines often proclaim the worst days ever for the stock market, while market pundits almost gleefully predict more pain in the future.

Did you act on your urgency instinct and make changes to your portfolio during any of those periods? Cut your losses and move to cash? Or did you control the urge and stick to your plan?

Patient investors have always been rewarded handsomely for staying the course. Despite the volatility and some doom and gloom, a global stock portfolio would have earned an annualized return of 10.13% over the past 10 years.

Final thoughts

“Back in Nacala in 1981, I spent several days carefully investigating the disease but less than a minute thinking about the consequences of closing the road. Urgency, fear, and a single-minded focus on the risks of a pandemic shut down my ability to think things through. In the rush to do something, I did something terrible.”

We spend years carefully crafting our investment strategy, saving diligently, and promising ourselves we’ll stick to our plan through thick and thin. But all of that planning can be wiped away when something triggers our urgency instinct and forces us to act irrationally.

Maybe you heard about an investment opportunity and had to ‘act now or lose the chance forever.’ Or, the slightest market correction triggers financial crisis flashbacks and you panic.

Relax. Take a breath. Things are almost never that urgent – especially when it comes to investing.

As the late Jack Bogle once said, “don’t just do something, stand there.”

In his best selling book, The 4-Hour Workweek, author Tim Ferriss explains how outsourcing your to-do list can result in a more ideal work-life balance. Instead of being glued to your phone and email like most busy professionals and entrepreneurs, Ferris recommends delegating the time-consuming, unpleasant, or simply boring tasks in both your professional and personal life.

“Just as one example, if you can find someone, let’s say, to compile Excel spreadsheets for you for $12.50 an hour, if you make $25 an hour, that’s an immediate 100% return on investment – not to mention what you were able to do with the time you free for yourself.”

Ferriss would hire virtual assistants from India or the Philippines to handle repetitive tasks like scheduling interviews, doing research on prospective clients, and managing his calendar of appointments. It freed up his time to focus on the things he was best at or that he enjoyed.

Today it’s more and more common to outsource household tasks such as cleaning, laundry, car maintenance, lawn care, and even meal preparation. Yes, hiring a maid is no longer just for the wealthy. Many busy families pay for a cleaner to come in every week or two to vacuum, do laundry, clean bathrooms, and tidy the house.

Outsourcing your way to happiness

New York Times columnist Carl Richards broached the subject of outsourcing in this article titled, “Happiness = Hiring a Maid. Really?”

Richards quoted research which found that paying someone else to complete unenjoyable daily tasks could result in greater life satisfaction, and that outsourcing housework you dislike could even save your marriage.

But when Richards shared these findings with his friends and colleagues the idea was met with anger and hostility. His tax lawyer friend who charges $300 per hour still changes the oil in his car. Another friend who earned $50 per hour still bakes his own bread that he could easily buy with a $5 bill.

What was missing in the study is the satisfaction that comes from doing basic things well yourself. Why does everything have to fit into an economic model?

My experience with outsourcing

For about two years my wife and I hired a cleaner to come in bi-weekly and tackle the big cleaning jobs like vacuuming and cleaning the bathrooms. This was when our kids were younger and we just didn’t have the time (or energy) to stay on top of the household cleaning. It cost around $150 to $175 per month.

We stopped outsourcing household cleaning once both of our kids were in school. Besides the fact that we had more time to do it ourselves, we also found it stressful on the nights before the cleaner came. We’d frantically pick up everything off the floor and tidy so the cleaner didn’t think we were animals (We weren’t. We just had toddlers). It was too much.

I’ve outsourced lawn care on-and-off over the years. I don’t have the greenest thumb, for one, plus I often use my weekends to write and work on financial plans. In this case it’s a clear economic decision. Pay $75 per month for lawn care so I can earn many times that by writing an article or completing a financial plan.

Last summer I didn’t arrange the lawn care soon enough and our usual company was booked. I thought it would be easy to do the work myself but by August the grass was patchy and brown. Epic fail!

My wife makes her own sourdough bread. Yes, we know we can easily afford to buy bread at the store. But there’s something oddly satisfying about making something from scratch and knowing exactly what goes into it.

Finally, many online entrepreneurs I know have embraced the virtual assistant to handle various tasks such as scheduling, email, research, and graphic design. Aside from web design and maintenance I haven’t ventured down that path as my wife and I handle the day-to-day operations of our business. So when you send me an email you can rest assured it’s actually me (or my wife) replying to it!

Final thoughts

Outsourcing makes a lot of sense from an economic perspective. If you earn $60 an hour then why not pay someone $15 an hour to do an unpleasant or time-consuming task?

But where do we draw the line? Is your time still worth $60 an hour when you’re off the clock and home watching Netflix?

On the other hand, you shouldn’t feel bad about outsourcing things you generally dislike or don’t have the skillset to perform. I’ve never changed the oil in my car and will gladly pay $60 for someone else to do it.

Related: Worthwhile fees to pay

That said, some people take outsourcing to the extreme – to the point of outsourcing the reading of bedtime stories (<—father of the year!). But, hey, who am I to judge?

Is outsourcing the key to happiness? I think in many cases outsourcing some things not only makes economic sense but can lead to a happier lifestyle. It all depends on what you do with the time saved.

In some cases, like when I outsource lawn care to spend time writing, there’s a clear and direct economic trade-off. In other cases, like hiring a cleaner so you can spend more time with your family, it might be more of a lifestyle decision.

What tasks do you outsource? What do you insist on doing yourself? Let me know in the comments.