A dividend paying ETF portfolio to last a lifetime

Retired investor June Haist has a six-figure inheritance and a low-cost portfolio she started managing herself three years ago. She’s now wondering whether her money will last her to 95

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From the December 2014 issue of the magazine.

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June Haist Dorset, Ont. 59 (Photograph by Anya Chibis)

June Haist, 59, of Dorset, Ont. (Photograph by Anya Chibis)

June Haist beforeTHE PROBLEM

For years, June worked sporadically and earned little. But when her mother passed away three years ago, she received a large six-figure inheritance and retired. On her own, June selected 28 dividend-paying stocks and three fixed-income ETFs for the non-registered portion of her portfolio. Equity ETFs went into her RRSP and TFSA (she could put only a small amount in those tax-sheltered accounts due to limited contribution room). “I want a simple portfolio with low fees,” says June. But she’s worried it may not last to age 95. She’ll need to withdraw $18,000 annually to live comfortably and be able to travel.

THE FIX

Certified financial planner Ayana Forward, of Ryan Lamontagne Inc. in Ottawa, says June needs to optimize her tax efficiency and maintain a 60-40 split between her equity and fixed-income investments if she wants her money to last. Simplifying her holdings will make budgeting easier, too. “She doesn’t need 28 different dividend-paying stocks,” says Forward. “She should invest entirely in ETFs, with the largest portion going to an ETF that will pay dividends out monthly into her savings account.”

For maximum tax efficiency June should hold fixed-income ETFs inside her RRSP and TFSA, since income from these investments is taxed more heavily than dividends. But only half of June’s fixed-income asset allocation will fit in her registered accounts because she’s maxed out her contribution room, so the rest will have to go in a regular account, along with the equity-based ETFs that make up the stock portion of her portfolio. Forward notes that 4% average annual returns are all June needs to make her funds last, and this portfolio will provide that to her. She adds that June should transition to the new portfolio over two years, to minimize the capital gains tax she’ll have to pay when she sells her current stocks.

Finally, Forward suggests $10,000 should be left in a savings account to be used for emergencies or travel. “She should replenish that cash annually as she uses it up.” Rebalancing once a year and reducing her withdrawals at age 65, when Old Age Security and CPP ramp up, will keep June on track.
June Haist fix

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5 comments on “A dividend paying ETF portfolio to last a lifetime

  1. Hello, I find this situation very similar to mine. If I was on the verge of investing my inheritance and realigning my portfolio today, March 8th 2015 , would you still recommend this strategy?

    Thank you

    Reply

    • Me too! Phil

      Reply

  2. What I would really like to know in detail. How does this lady live on 18 K a year and still travel?

    Reply

    • her home is paid for.

      Reply

  3. Myself and my wife are in the age range of 70-75. Our home worth 600K is fully paid. Between two of us we have RRSP/RIF portfolio close to 700K. Presently we are fully invested in self managed equity portfolio’s utilizing TD-Discount Brokerage and BMO investor line accounts. We have need to withdraw 50K (Gross) annually from these folio’s. We want money to last till we are 90-95 years old. Do you have any advice to rebalance our investment outlook. Hope to hear from you.

    Reply

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