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My custom portfolio: Steady income without a pension
How to design a portfolio for steady income when you don’t have a company pension to fall back on.
Arlene Maxwell of Kelowna, B.C., is 60 and recently retired. Neither she nor her husband, Steve, has a company pension so they’re looking to their personal savings to fund their lifestyle. They want to focus on Canadian dividend-paying stocks (including preferred shares) in their taxable accounts, while keeping most of their bonds and cash in their tax- sheltered accounts. Here’s our recommendation:
MoneySense Magazine, December/January 2013
It is not very hard to calculate the return… for GIC the best rate you would get is 2.5% for 5 years and for fixed income I have calculated the return considering "Weighted Average Yield to Maturity" and not the "Distribution Yield". The "Distribution Yield" is bigger but when a bond is sold at maturity the etf fund will have a capital loss…You will also have to subtract the MER from yield. My calculations are:
GIC: 2.5*0.2=0.5
XDV: (3.65-0.55)*0.1=0.31
CDZ: (3.01-0.67)*0.1=0.234
VUS: (2.88-0.18)*0.1=0.27
TDB911: (2.6-0.51)*0.05=0.1045
ZRE: (5.4-0.55)*0.05=0.2425
CPD: (4.17 – 0.5)*0.15=0.5505
XRB: (0.31 – 0.39)*0.05=-0.004
XCB: (2.85 – 0.55)*0.1=0.23
XGB: (2.14 – 0.39)*0.1=0.175
The return is 2.6125 and in order to live off such portfolio has to be pretty big due to its structure(income portfolio where the growth is limited vs growth portofolio)… You could not do too much about it but if it were me I would replace all etf bonds (XRB, XCB, XGB) with a GIC ladder… at least you will not have a capital a capital loss when the interest rate increases… also if the RRSP is not too big I would eliminate it by age 65… it would open the door for some GIS…
Why would the advisors go along just because they 'want' "Canadian dividend-paying stocks (including preferred shares) in their taxable accounts". Why put bonds and cash in a shelter when they generate so little income to shelter and next to no taxes payable on that little income?
Even Cdn dividends stocks are likely to generate taxes far greater than low-yielding debt. See comparison of benefit and how to calculate at http://www.retailinvestor.org/RRSPmodel.html#taxf...
what amount of return can the expect with this prtfolio?
Go to your local library and take out the book ''Pensionize Your Nest Egg'' by Moshe A. Milevsky and Alexandra Macqueen, many great ideas in this book.
Finally an article for those without company pension plans! Thank You! Other recent 'Moneysense' articles depicting those with defined benefit plans as still not being able to make it through retirement years were a bit tough to digest
What kind of income would this portfolio produce?