When I envisioned my retirement years, I dreamed of being so unbelievably wealthy – so fabulously rich – that I’d happily live off the income generated from my multi-million dollar investment portfolio. As I began my investing journey, the idea of living off dividends had tremendous appeal. After all, what retiree wouldn’t love the thought of collecting a steady stream of dividend cheques while their principal investment remains intact?

Why Living Off Dividends No Longer Appeals To Me

There were also some crazy assumptions about what it would take to generate the kind of income I’d need to maintain my lifestyle in retirement. Looking back, it was foolish to assume that a $1,200,000 portfolio can produce up to $90,000 in income each year, when less than half that amount is more realistic (assuming a 3.5% yield).

Related: Financial independence – Why I pushed it back five years

Living Off Dividends No Longer Appeals To Me

The trouble with the “living off dividends” approach is that I’d have to save too much in order to create my desired retirement income. For example, I’d need to save between $2.5M and $3M in order to generate $90,000 per year in dividend income. Alternatively, I could get the same $90,000 per year by simply withdrawing from a portfolio of $1.45M (assuming 5% annual growth and the portfolio lasts 30 years).

At my current savings rate I could hope to reach $1.45M by the time I turn 57. To get to $3M I’d have to work and save for another decade, or else increase my savings rate by a factor of 2.25 for the next 22 years. Not ideal scenarios.

That’s why I’ve adopted more of a total-return approach to my investments now that I’ve shifted gears from dividend investing to my two-ETF solution. Rising dividend income is meaningless when I’m in my mid-30s and looking for growth from my investments.

Sure, there are many retirees in Canada who live off the dividend income produced by their investment portfolios and do just fine with that approach. Add in the dividend tax credit and there’s further incentive to create a dividend income stream in retirement.

But living off dividends no longer fits into my retirement plan. Unless the goal is to leave behind a million-dollar estate to your kids, there’s no need to save so much that you’ll never have to touch the capital.

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55 Comments

  1. Sebastien Benoit on April 19, 2015 at 12:52 pm

    That’s been my thinking lately too… I was dazed by the likes of Dividend Mantra and FT’s Smith Manoeuvre portfolio, but I came to the same conclusion you did. I want out of this rat race sooner, not later!

    That being said, if my portfolio grew enough post-retirement to reach that ideal size where dividend yield would be enough, I could see myself converting an index portfolio to a dividend one, for poops and giggles.

    I look at QCash going from 1.5M to 2.5M 8 years post-retirement and it encourages me that maybe the true growth years aren’t necessarily pre-findependence.

    Thanks for sharing your thoughts.

    • Echo on April 19, 2015 at 5:09 pm

      Hi Sebastien, I was also drawn to the magic of dividend income when I first started investing, reading lots of dividend blogs and following the work of Tom Connolly and John Heinzl. I slowly came around to indexing and taking a hands-off approach to my investments – which makes up just one piece of a larger retirement puzzle that includes a pension, CPP, OAS, and perhaps some sort of self-employment income in retirement.

      Sure, it would be ideal to live off the dividends of a much larger portfolio, but I just don’t plan on working longer or saving more than I have to in order to achieve my goals.

      • Kyle @ Young and Thrifty on April 25, 2015 at 9:07 am

        Glad to see we’ve finally brought you fully over to the dark side Robb!

        • Concerned Reader on April 27, 2015 at 7:18 am

          I believe the real issue is that B&E does not know how to stick to a strategy.

          B&E is correct that dividend investing is not for people like him who have unrealistic assumptions. ( a 6% withdrawal rate on 100% stock portfolio has a 40% chance of failure over a 30 year period)

          It is also not for people who cannot make apples-apples comparisons.

          I think the real reason you ignored dividend investing is because you do not have enough money.

          Given the fact that you change goals and objectives frequently, and you change strategies as frequently, I think you will never be able to retire. To reach your goals, you need to stick to a strategy. Too much investment activity will lead to inferior results.

    • Andrew on January 3, 2019 at 3:53 pm

      How did you calculate the 1.45M value for early retirement at 57?

  2. Grant on April 19, 2015 at 3:02 pm

    I completely with with the total return approach, but I think the retirement research indicates that the safe withdrawal rate is 4%, and the $ amount can increased by the inflation rate each each year. You need to take into account sequence of return risk – the risk that a market crash occurs just after you retire. If there are normal rising markets for awhile after you retire, you may get away with a higher withdrawal rate, but I wouldn’t want to take that risk. To safely with draw $90,000 a year you would need more like $2.25M.

    • Echo on April 19, 2015 at 5:28 pm

      Hi Grant, you’re right of course. My example was a bit too simplistic, but the general idea is that an investor would need to save far more if he or she never plans on touching their capital.

    • Denis on July 9, 2016 at 6:48 am

      Grant

      1. Dividend investing is great in that with the credit, you can make 50K tax free which is enough for many in retirement plus good dividend paying stocks tend to increase as well = juiced up dividends on the original stock price.

      2. Dividends for me are nice to have and come in play for many of my strategies but my main focus is for price appreciation to get capital gains which are taxed at 50%. Since retirement at 54, my net worth as increased which paying my living expenses as a result. I have been making 70-90K each year but taxed at 35-45K meaning I keep more of it.

      ps. Love retirement, wish my spouse would join me, but for another topic, eh?

  3. Grant on April 19, 2015 at 6:43 pm

    OK. Here’s an “analogy” that makes the point from the other end of things – if you are a 95 year old man with a life expectancy of 3 years, living off the dividends of your portfolio, does it make any sense to not spend any of the capital?

  4. Jeff on April 20, 2015 at 6:44 am

    You’re painting this as an one or the other situation when you could reach your goal and begin your retirement with the same dollar amount by either method. If $1.45 million is the target amount you could make the argument that higher growth stocks will get you there quicker or that, at the very least, you wouldn’t be ‘prevented’ from buying a stock because it didn’t pay a dividend. On the other hand, dividend paying stock portfolios have proven to do very well versus the index. Without generalizing too much, dividends can help to support the value of the stocks and, of course, dividends are adding to your return every year, helping you get closer to your goal.
    As to that lovely day when your balance ticks over to $1.45 million, you would be further ahead, in my opinion, if your portfolio was made up of dividend stocks. Using your conservative (given your window of time) yield of 3.5%, a dividend portfolio of this size would generate $50,750 in the first year. Since you want $90,000 you’d have to sell $40,000 worth of your dividend stocks leaving you with $1.41 million to begin the second year. That would generate $49,350 and you’d need to sell another $41,000 in stocks, and so on. However, assuming your portfolio of dividend stocks is also increasing in value at 4% each year, the balance of your $1.45 million would stay the same and possibly grow in size.
    That is in a perfect world, of course. Still, even with major corrections, and a crash or two, a dividend portfolio would likely get you through the decades of your retirement more smoothly than a portfolio of growth stocks. Especially since you’re already prepared to draw down your $1.45 million balance over the course of your retirement.
    If you want to invest in ETFs for other reasons, that’s fine, but you obviously don’t need to have an ETF portfolio in order to draw it down and spend it during retirement. You can do the same with a dividend portfolio with the added bonus that you should be able to drawn it down half as fast as a portfolio that does not pay dividends.

    • Sebastien Benoit on April 20, 2015 at 6:46 am

      “On the other hand, dividend paying stock portfolios have proven to do very well versus the index.”

      A statement as bold as that should be backed up with a link, haha.

    • Echo on April 20, 2015 at 7:35 am

      Hi Jeff, thanks for your comment. A few things I disagree with: The 3.5% yield is not conservative given my time frame. If anything, it’s probably on the high side (2.5 to 3% might be more realistic). You might be confusing personal yield (yield on cost) with the true yield of the portfolio (using the market value, not book value).

      Second, it’s not a fair comparison to say that the dividend portfolio will beat the ETF portfolio when you’re using different assumptions (i.e. that the dividend portfolio will produce 3.5% yield AND 4% growth – 7.5% total – when I’m using 5% total annual return in my ETF example). You have to use similar returns.

  5. Grant on April 20, 2015 at 7:39 am

    Jeff, the problem is $90k is 6.2% of a $1.45M portfolio, too much to take from this portfolio and expect it to last 30 years. The search shows 4% is the safe withdrawal rate. You can’t assume stocks will increase at 4% every year. What if the market crashed 50 the year after you retired?. This is called sequence of return risk. It doesn’t matter if you have all dividend stocks or growth stocks, you just can’t take more 4% (adjusted for inflation each year) including dividends.

  6. Barry @ Moneywehave on April 20, 2015 at 8:21 am

    I started off as an index investor and always dreamed about owning some individual dividend paying stocks. Of course I then realized my index held most of those same dividend paying stocks so there was no point.

    • Sebastien Benoit on April 20, 2015 at 8:29 am

      Haha, good point!

      I’m beginning to think my OCD was probably the biggest driver of wanting a nice fat dividend portfolio, for the simplicity and beauty of it. A bunch of stocks that pay out only clean Canadian dividends. I’ve learned to curb my OCD in other areas of my life when it doesn’t serve me well, and I should here too.

    • Dan @ Our Big Fat Wallet on April 20, 2015 at 8:41 am

      As a dividend investor this is something I try to be careful of. Canada’s biggest funds seem to focus on two sectors – finance (big banks) and oil & gas, so I need to make sure I don’t buy an individual bank stock if it’s part of an ETF I also own

  7. Anne - Money Propeller on April 20, 2015 at 9:11 am

    I’m aiming for a mix of revenue sources, myself… and a HEFTY capital amount. Saving, saving, saving away. I want $5M in the bank and it’s going to take awhile to get there. We figure we can weather some storms if we hit that target.

  8. Robert on April 20, 2015 at 9:24 am

    $90,000 is a huge retirement income. As of December the average Canadian employment wage was around $50,000, and that is people that are working! According to HRSDC, in 2011, the median income for senior women was $20,200, compared to $30,100 for men – and that includes all sources (in 2011). http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=27(http://www4.hrsdc.gc.ca/.3ndic.1t.4r@-eng.jsp?iid=27)

    I don’t begrudge your ambitions Robb, but the premise of this article places you in a rare strata of the population, and I think that needs to be used to balance this article. It is strictly an elite discussion. A $1.45M portfolio would put you well above the median, especially when you will be adding CPP, OAS and possibly a private pension to that.

    I would think your aspirations put you close to a Canadian 1 percenter in retirement.

    I think average people would be flying with a million. This article suggests you are beyond upper middle class if you hold more than $800,000. http://www.canadianbusiness.com/investing/how-much-do-you-need-to-retire-well/ (there is a nice little summary graphic there)

    • Echo on April 20, 2015 at 9:53 am

      Hi Robert, don’t get too caught up in the number (I used $90k based on my dream scenario that I wrote about 5 years ago. My expectations have tempered since then).

      That said, a million-dollar portfolio is not out of the question when you consider that I’ve already saved $120k by age 35. Adding $10k per year for the next 30 years at a 5 percent annual return would grow to $1.2M by the time I’m 65.

    • Grant on April 20, 2015 at 1:17 pm

      Robert, what someone wants or needs for retirement income is a very personal decision. If someone wants to travel 6 times a year, fly business class and stay in hotel suites, maybe they need $200k a year, for which they will need a nest egg of $5M, leaving out CPP etc.
      That being said there is an interesting concept called the marginal utility of wealth. From the point of view of happiness, people’s happiness increases with increasing income, but levels off around an income of $75k. In other works happiness doesn’t increase much above an income of $75k. To quote Charles Kingsley, a well known English writer. “We act as though comfort and luxury were the chief requirements of life, when all that we need to make us really happy is something to be enthusiastic about.”

      • Robert on April 21, 2015 at 5:49 am

        It makes no difference to me what someone aspires to financially. I merely thought it useful to point out that the level being discussed was statistically elite.

  9. david on April 20, 2015 at 12:27 pm

    So..you don’t have enough time and you don’t have enough money to achieve your goals. And you think the solution is to chase money somewhere “easier” to make up for that “inconvenient” situation.

    Sorry….epic fail.

    This game isn’t easy…that’s why people aren’t all rich. If you think ETFs do not require you taking a risk/reward compromise, you just don’t get how this works. There is no free lunch. There are no shortcuts.

    • Echo on April 20, 2015 at 1:15 pm

      Hi David, I don’t see how I’m chasing money somewhere “easier”. I’m playing the percentages – buying a piece of thousands of companies across the globe rather than fooling myself into thinking I can pick the 20-30 best ones.

      It’s funny you mention free lunch, as many investors equate dividends with a free lunch instead of as part of their overall return.

    • Grant on April 20, 2015 at 1:24 pm

      David, passive indexing is not chasing money somewhere easier. It is following the evidence in the financial literature which shows that is it the most efficient way, both in terms of money and time, to reach your financial goals.

  10. Paul N on April 20, 2015 at 1:57 pm

    This post and some of the comments reminds me of the old joke when two people met in heaven… One person, who was already there was giving the new person a tour. They come to a big solid wall and the new person says, “who is behind that wall”? The answer – “The dividend investors”. They like to think there the only ones here. (a little variation on the original joke) 🙂

    I just find people are very close minded to all forms of investing. I feel the brightest ones are the ones that have a diversified variety of income streams. A small business, investment properties, collectables even Gold + silver, a blog that makes money… Maybe even a real decent paying job that one might actually even enjoy. Must get boring at times looking for free wifi with your laptop day in day out to type up your latest post. Indexing starts to look pretty good but definitely not a sexy topic to discuss.

    You have to invest in a way that makes you comfortable. Also for Jeff above – I believe the illusion of the dividend is lost on some people. If you have $100,000 in a divided stock and on the payout date it pays you 4% in a cash dividend, you do do not have $104,000.00. You have $96,000.00 and $4000.00 in cash in your cash account (or more shares). So if you are living off that dividend, it is really no different then selling 4% of an index fund with the same starting value. You wind up in the same place anyway. I guess it just seems “cleaner” when its a dividend?

    • Grant on April 20, 2015 at 2:22 pm

      Great comment, Paul! And you are right, people do get passionate about their investing strategy! Remember, though, that years ago buying dividend stocks directly, was the only way that individuals could access the stock markets in a low cost manner. And the strategy does work very well. Then along comes passive indexing, and low cost ETFs and the data shows now that that strategy is more efficient. But people don’t like change and prefer to stick with what they have been doing for years. Investing isn’t supposed to entertaining. Indexing is about as sexy as watching paint dry. If you are expecting entertainment from investing, you should probably find a less expensive form of entertainment. You comment about dividends is exactly right – the illusion of free money.

    • Echo on April 20, 2015 at 2:22 pm

      Hi Paul, I know that indexing isn’t the sexiest subject and so that’s why I try and focus on the behavioural aspects of investing, along with my own struggles and triumphs, to hopefully help others reflect on their own biases. We’ve all been beaten over the head with the “overwhelming academic research” from indexing proponents, but if that’s not convincing then maybe a different approach will help investors connect the dots.

      BTW, no issues getting free wifi here 🙂

    • Don G on April 20, 2015 at 3:36 pm

      Hey Paul

      I absolutely, totally, unequivocally disagree with your comment on the dividend illusion. The share price will adjust for the dividend payment on the ex-div date but in almost all cases, it will recover that amount plus way more. I’ve collected thousands of dividend dollars from the likes of ALA, AQN, BCE, BNS, EMA, FTS, IPL, etc, etc without ever having to sell a single share. They are all way higher than when I bought them and in quite a few cases by around 2 times as high.

      This is so NOT the same as trying to figure out when to sell 4% of your shares to get your income as you have stated. I guarantee the dividend approach is cheaper (no trading fees) and SO less stressful with not having to think about timing a sell and deciding what to sell!!

      As I stated in a post below, there are lots of different investing approaches and I am more than fine with that. I just don’t like it when people do this dividend illusion BS and say it like anyone who thinks otherwise must be a fool.

      Ciao

      • Sebastien Benoit on April 20, 2015 at 3:46 pm

        We can all appreciate the simplicity of dividend investing, there’s no question there. We’d all be so lucky to have a 2M portfolio kicking out $50k a year in trade-free, brain-free dividends, but life isn’t always so simple. Sometimes we need to make due with using a smaller portfolio, but taking into account the total return.

        And a statement like “They are all way higher than when I bought them and in quite a few cases by around 2 times as high.” means absolutely nothing without being benchmarked against a similar index, sorry.

      • Paul N on April 20, 2015 at 3:55 pm

        Hi Don,

        It is not BS. This is exactly why I made the comment. Believe me I used to think that way years ago too. Stocks that don’t have a dividend simply have the value already incorporated in the share price. This subject is discussed to death on the internet. (Lets use Berkshire Hathaway as a great example here. Do you think if it paid a dividend it would be worth more today?)

        “Share prices fall when dividends are paid out because the paid dividend (cash out) actually reduces the value of the company. Usually the share price falls by the amount of the dividend payment.”

        Agreed, the price a few days later or even on the same day could almost even out, but that is usually accredited to the normal fluctuation that day or week anyway. A dividend is not a bonus.

        However I do see a benefit where certain companies give you a small discount when repurchasing shares like a 2% discount. That is obviously a benefit. I am not the best to explain this but others a lot sharper then I am have already.

        • Don G on April 20, 2015 at 4:08 pm

          Hey Paul

          As I said, I understand the ex-div date adjustment. My main point is that I get the cash without having to sell anything and thus avoid the stress of figuring out what to sell and when.

          Also, as long as there is no dividend cut, the dividend income keeps rolling in no matter what the market is doing.

          I also think that in many cases, the companies paying a dividend are more careful with their cash.

          Bottom line is that I am living off my dividends and continuing to accumulate without any stress and without having to make any sell decisions.

          Ciao

    • Robert on April 21, 2015 at 5:55 am

      The appeal for dividend-paying stocks is not in the arithmetic, as you point out. However, for many it is in the discipline that it imposes on the executives of dividend-paying companies. When you run a company with or without dividend payments, your style varies.

    • Jeff on April 26, 2015 at 6:48 am

      Sorry, Paul, your illusion of how a dividend stock(I assume that’s what you meant) works makes no sense. If I buy $100,000 worth of a dividend stock (say, 1,000 shares at $100 each) and, for argument’s sake, it pays a 4% dividend annually, then, when the payout date rolls around, I will indeed have $104,000 ($100,000 in stock, assuming its value has remained constant, and $4,000 in cash or more shares). The stock may indeed dip, perhaps to $96 per share as the ex-dividend date passes but news of a new market or a new product the following week might also drive the share price up to $110. To somehow imply the price of the share is predicated only on the dividend is ridiculous. Would your logic drive the share price down every year over a decade as I continued to receive dividends if I continued to hold it that long?

      I only posted to say that I thought Robb could likely retire with the same size nest egg regardless of whether it was all in ETFs or in dividend stocks, that he appeared to be treating the two differently: he was willing to draw the ETFs down and spend his last grand the week he died, so to speak, but the dividend fund had to be the Rock of Gibralter and retain its principal. I just said that he could have a similar amount in dividend stocks, whether $1.2 or $1.45 million, and draw it down, too.

      That’s it. Otherwise, I think his ETF strategy is sound and safer than putting all his eggs into 20 stocks rather than the hundreds or thousands in his ETFs. I am not passionate about my investing strategy. I try to be as dispassionate as possible when investing (and I don’t have a dividend stock only strategy) and that’s why the ETF method does appeal to me. Like Robb before he switched, I spend more time than I had planned to on my portfolio, and that’s the main reason I think about switching to ETFs.

      • Grant on April 26, 2015 at 8:36 am

        Jeff, I think what Paul is saying that, in his example, the moment a $4 dividend is payed the stock price drops to $96. It must do, just by simple arithmetic. Then market forces take over and the stock price will go up, down or stay the same. Whatever the stock closes at that day will be $4 less than what it would have closed at had the dividend not been paid out that day.

  11. Paul N on April 20, 2015 at 2:59 pm

    LoL 🙂

    It wasn’t you I was referring to with the free wifi. (But I think you know that).

    You have a great website with a lot of interesting topics, and a lot of good commenters. You also allow commenters to comment with posts that may not agree with your views. To me, a diverse number of points of view make the discussion interesting. (and you might actually learn something new) Try that on most “Dividend Dude” websites, see what happens.

    BTW If anyone has a crystal ball and can tell me today what stock I should buy now that is the infancy version of Exxon Mobile or P&G – please hit me up with an e-mail. Thanks! 🙂

  12. Don G on April 20, 2015 at 3:03 pm

    There are many different investment styles and each person has to decide what works for them. It is also very dependent upon age. I’m 62 and have been retired for 2 years. Just before retirement, I switched from an accumulation approach to an income approach. I now only hold 25 Canadian dividend paying stocks/REITs and a couple ETFs and mutual funds. I don’t hold any regular bonds, just a single high yield bond mutual fund.

    I don’t have a company pension and my wife was a stay at home mother so our only income is CPP and from our investments.

    I made a decent but not huge salary. We have a pretty simple lifestyle with lots of outdoor and family stuff as our main activities so we saved quite well. A big chunk of our saving was done in the last 4 years before retirement. Our investments have almost tripled since the Mar 2009 low point.

    Our investment income is quite a bit larger than our expenses so we are still increasing our net worth. Also, most of the stocks have increased their dividends in each of the last few years so I think the trend will continue. I don’t plan on touching our capital (assuming no major medical problems).

    Anyway, I think I am an example of a successful dividend income investor and so I think this approach can work.

    • Echo on April 20, 2015 at 3:31 pm

      Hi Don, thanks for your comment – you’re right that age plays a big factor. 30 years ago you couldn’t access cheap, broadly diversified ETFs (and foreign content restrictions limited what you could own outside of Canada). No TFSA until recently either, and so young investors today have many more options to consider.

      Also your unique situation – no pension, stay-at-home spouse – makes a huge difference as well.

      Interestingly enough, stories like yours are what inspired me to start investing in dividend stocks in the first place. I loved the idea of this basket of blue-chip stocks paying out ever-rising dividend income in retirement – and hearing from successful investors who were making it work just reaffirmed my conviction that this was the right thing to do.

      But if 32-year-old Don G was around today, which path would he take?

      • Don G on April 20, 2015 at 3:51 pm

        Hey Robb

        Thanks for the quick and very nice feedback.

        There is absolutely no doubt in my mind that 32 year old Don G would be a full ETF indexer for a few reasons.

        First off, I was way busier back then with work and a young family so didn’t have time and didn’t want to do the research required to select individual securities.

        Secondly, at 32, a person is still in the accumulation phase so it’s all about total return and I think the index ETF approach is better for that. In my current income phase, I actually don’t worry about the total capital (other than for pride). It’s all about avoiding dividend cuts.

        Lastly, I think the index approach is way less stressful during the accumulation phase. In the long run, a person can feel quite confident that the market will go up.

        Ciao

    • Robert on April 21, 2015 at 6:03 am

      I too am 62 and retired for about 2 years. My holdings are more like than unlike yours, except that I have a few US stocks. I have neither wife nor pension and just applied for CPP.

      I’m not sure that I consider my success since 2009 to be due to my wisdom – everyone tripled if they stayed invested. Moreover, things can correct. A buffer is a nice thing to have.

      Like you, my last few years of work were big for savings. Lucky timing on that for us, given the bull market.

      • Echo on April 21, 2015 at 9:19 am

        Robert brings up a point that can’t be emphasized enough: we’ve been in a bull market since early 2009 and pretty much everyone’s strategy – as long as they’ve stayed invested – has produced exceptional returns.

        It will be interesting to see how we all handle a major correction. I know I wasn’t a big fan of seeing my oil and gas stocks plunge and dividends get cut.

  13. My Own Advisor on April 20, 2015 at 4:27 pm

    Well, I’ll continue the dream for you Robb 🙂

    A million-dollar portfolio is what we are striving for by our mid-50s excluding any pension.

    Living off the money the investments make, is smart IMO. If it’s not individual stocks, it can be a collection of stocks using ETFs and as other commenters have said, you don’t need to watch the market or worry about selling assets as much.

    I will be interested to see what type of investor is stressed out more in retirement:

    -the investor who lives off the cash flow from his/her investments, or
    -the investor who must sell assets to generate cash flow.

    Anyhow, I’m a hybrid investor so I’m getting the best of both worlds – indexing and dividends. I can argue with myself 🙂
    Mark

    • Echo on April 21, 2015 at 9:28 am

      Hi Mark, no doubt that the investor who lives off his/her investment income will be less stressed in retirement. But I think the point of the article is to say that this investor would be more stressed in the accumulation phase due to having to save so much/work so long to reach that goal.

    • Dunny on January 31, 2018 at 3:07 pm

      Echo, this is a good point. The TFSA is a gold mine. Even though I am 69 years old I am maximizing mine and investing for growth ($105,000 so far, not bad as I have already emptied it once to build a rental property). I intend to withdraw my RRSP quickly between age 72 and 80 (yes, paying the highest tax rate and losing OA), but then I will be drawing on the TFSA tax-free and get back my OA.
      The younger people also have enjoyed incredible low interest rates which allow greater leverage, cash flow, bigger house, investment, etc. in their early years.
      Also, they have the ability to invest in the stock market through discount brokerages and ETFs, rather than super expensive mutual funds and investment advisors, which we did not in the early days.
      Like Don G, my investment portfolio is still growing , even though I am withdrawing funds from my taxable account for travel. I am easily outperforming my benchmarks of the TSX and DJI. It is not difficult and very little work.
      I only started managing my own financial assets in 2011 and have done extremely well averaging over 20% compounded annually. If only I had done this years ago.
      I started with dividend income approach but soon realized this was a trap as the stocks and REITs are correlated with the growth market, i.e. capital is not preserved. I switched to more growthy stocks. The dividends I collect are nice but not enough to live on.
      ETF’s go against my philosophy of investing in high quality. I would not invest in poor real estate just to be diversified in my real estate portfolio, so why would I do that with stocks.
      I realize that my experience is short-term but my portfolio has grown more than quadrupled while still allowing me substantial withdrawals. I did not suffer too much in the 2008-9 recession because the market rebounded quite quickly and turned into a fantastic bull market.
      Selling off shares is simple, and can be done with minimal stress. The taxes applicable to capital gains are incurred only when you sell, not annually like dividends taxable whether you spend then or not. With EFTs you still have to determine what to sell, when to sell, what the taxes will be, etc. The stress of managing my investments and selling off shares is minor compared to the stress of planning and booking all my travel.

  14. Grant on April 21, 2015 at 4:52 am

    Mark, the link that Rob provides in his post to the Moneysense article describes how to generate cash flow from an ETF portfolio. It’s a logical process that is not stressful at all. The best part about it is that you don’t need to save as much money in order to generate the same cash flow as an investor living off only income. Let us know who wins the argument between you and yourself!

  15. Nelson on April 21, 2015 at 6:44 am

    A couple of comments on dividend investing:

    1. Whenever I feel like I’m not smart enough to beat the market, I just read what dividend growth investors have to say. That’s usually enough to get me back to work.

    2. I started off as a real estate investor and was heavily drawn to dividends when I started investing in the market. The day I threw off the shackles and became dividend agnostic was probably the biggest turning point in my investing journey.

    As for “living off the dividends”, I think it has more to do with fear of running out of money than anything. That, combined with a bunch of bored retirees, leads to guys taking a very big interest in their portfolios who should really be in all ETFs.

    • John on April 24, 2015 at 7:43 pm

      I just have to disagree with you on this one. I have a real life example for you. My mother rejoined the workforce and started investing when she was forty. She has now been retired for 39 years. Not only has her portfolio provided between 60 and 70% of her post retirement income, she paid for the post secondary education of 7 of her grandchildren. Her portfolio is 100% stocks and REITS. I think her “secret” is the length of time invested. Basically she had a buy and hold strategy.

  16. RICARDO on April 23, 2015 at 2:25 pm

    All I have to say is I have a LIRA (Locked In) so I can not put any money in or take any out until I retire.
    It is all in dividend stocks. All dividends get re-invested – no drip – in whatever I fancy at that moment.
    In twelve years (March 2003) it has grown by slightly over 400% – capital gains and dividend re-nvestment. And there are duds in there as well. But out of the twelve stocks in there the good ones have outshone the duds.
    My objective is to increase dividend payout by 10% year to year. Nothing crazy but sometimes not all that easy either when you get a dud.

  17. Scott on April 24, 2015 at 6:12 pm

    Great site! Just started reading your site from a link on the Dividend Guy Blog.

    Just want to say that what you’re describing above is the beauty of investing. You have goals in mind and then invest to best meet (and beat) those goals. There’s no single way to go about it. I’m 31 and at the accumulation point in my career. Given the many years of growth and compounding ahead of me, I’ve taken a multi-prong approach:

    Dividend growth investing is definitely still at the forefront. In fact, I sold all my index ETFs to go into individual stocks. I’m investing not only in companies that pay a dividend but ones that raise it each year. Since I’m not needing the income now, I’m not focused only on higher yielding companies but also on the Disney’s and Visa’s of the world. The ultimate goal is total growth at this point, which I feel is best served by a combination of growth and dividends. If I need higher yields in the future I’ll just sell those appreciated stocks to purchase companies with higher yields.

    I’m also diversifying by selling calls and puts to generate income. Once my salary increases, I’ll also be able to sell puts not just to collect the premium but also to purchase shares at a price that I pick. I also hope to take a few risks at small small and micro-cap companies…attempting to invest in a few even before they go public.

    Lastly, for fun I’ve put $2000 into Lending Club. I’ve been going only for less than 2 months but the interest payments have been around 11%.

    Indexing is a great way to go. It sure beats actively managed funds that have high fees. I’m helping my brother with his investments and other than a few bluechip stocks plus Visa, I have him solely in index ETFs (Schwab’s varieties).

    I, on the other hand, truly have fun picking stocks and feel that I’ll be able to beat the market with this approach in the long run.

  18. HD on April 28, 2015 at 4:50 pm

    Echo,
    Interesting convo and thought provoking blog post.

    Sorry I’m late to the party but I just came across your article and it just so happens to touch on exactly what I am thinking about lately.

    I also don’t want to live on a 30k-40k income a year but more on a 60k-70k per year at retirement.

    I’d like you guys to give me some feedback on my personal/current situation:

    31 yrs old

    Portfolio value: $210K (I keep 10% of in CAN dividend stocks and 90% in index fund (ETFs) Couch Potato strategy))

    My goal is to hit $1 mil before my 40th birthday and eventually claim my FI status.

    When I reach that goal, I will most likely keep my day job and work part time. Work the minimum amount of hours in order to retain my benefits.

    I think I can do it with my government pension plan that I will keep contributing to during my part time employment and will pull the plug whenever I feel like I’ve had enough.

    Thoughts?

    HD

  19. Dividendlover on May 16, 2016 at 12:43 pm

    You mean you are not planning to live forever ?

  20. John on June 2, 2016 at 4:11 pm

    Why not look for growth companies that also pay a dividend? 5% growth would be great, but throw in a 3% dividend and make it 8% with the ability to add that extra 3% back into your portfolio. I do understand your point though, nice article!

  21. Jack on June 19, 2016 at 7:53 am

    I use a combination of growth and yields. In my RRSP, I put the U.S & Canadian stocks that have medium to high yields (3.5 to 13%), in TFSA Canadian stocks with high dividends (I have a few U.S ones too but I prefer to keep them in the RRSP).

    In the non-registered accounts (U.S/CAD) I have stocks that have less than 3.5% yield or no yield at all and Index ETF (U.S / Europe / Asia) that I plan to hold long term. ETF provide diversification, for stocks I like them to have activities in different economic fields for protection against the cyclical nature of one specific field and/or geographical areas for added protection on shifting currency values. If a stock in my watch list is below its moving average or below book value, is profitable and has low debt it gets extra consideration.

    For me the advantage of the yield in the RRSP / TFSA is that It pays me money that I can use to diversify in other stocks tax free. This lets me put my eggs in different baskets. Lower transaction costs with online discount brokers make this possible.

    The growth that you have and keep in one stock is nice but 20 years of growth can be taken away by the market if the leadership makes bad decisions or by a fearful population who dumps the stock in economic strife when the problems in the market have nothing to do with the company being dumped. If a company like Eaton’s or GM can go bankrupt so can any of today’s perceived blue chips.

    That’s just my take on it.

  22. Barry on August 16, 2016 at 1:00 pm

    I think it’s a balance of the two. I see it as the less i rely on capital for my annual income, the easier i sleep each night, but it will take me longer to get there. I know psychologically a market correction is no big deal but i would hate to feel the need to drastically change my lifestyle in a correction year because i don’t want to reduce my capital even more.

    The hardest thing i have with using capital drawdown and income against working longer and saving longer (during my best health years) is predicting when you will die or run out of money. The latter is easier to predict – the former – not so much.

  23. asdfas on November 16, 2016 at 7:30 am

    Interesting debate. I compared 2 scenarios over the last 20 years. Investing in the S&P 500 or in the Canadian big 5 banks.

    You would have gotten a return of 6.2x from 1996-2016 in the S&P.
    For the banks, RY, TD, CIBC returned about 10x. BMO, BNS about 6-7x.

    Your dividend yield for the banks would have been 3% or so. And taxed very favourable as a Canadian due to the credit.
    You would have paid capital gains tax on the dividend yield from the S&P.

    So dividend investing would have given you higher returns and more yield over 20 years. If your time frame is 40 yr + then it could be a different story.

    Just interesting to do the math.

  24. LauraH on September 1, 2017 at 7:49 am

    As a retired boomer I was trying to live off dividends but was struggling. Then I read about ARVA and the Actuarial Approach and saw a better way. It’s worth a look. Check out http://howmuchcaniaffordtospendinretirement.blogspot.ca and https://www.pwlcapital.com/pwl/media/pwl-media/PDF-files/White-Papers/2015-09-29-Wesmacott_The-Design-and-Depletion-of-Retirement-Portfolios_Hyperlinked.pdf?ext=.pdf

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