Q:<\/b> I\u2019m a 65-year-old independent contractor with no company pension and plan to retire in two years. I have a self-managed, direct investing account made up of TFSAs and registered savings plans holding a mix of ETFs and stocks that has a current balance of $980,000. In three years, my wife will get a small amount from the Canada Pension Plan and I will receive close to the CPP max, and we will both apply for Old Age Security. I plan to sell my individual stocks and purchase ETFs. With this in mind, I am intrigued to learn more about the \u201cpaycheque-style portfolio,\u201d and wonder if we could live off the dividends combined with our CPP and OAS income.<\/p>\n
We asked Linda Shick, partner and portfolio manager at Family Wealth Counsel, part of Raymond James Ltd., to answer this one.<\/b><\/p>\n
This is a great question, as it gets to the heart of retirement planning: cash flow, she said. \u201cBefore building a \u2018paycheque portfolio,\u2019 the most important step is estimating your monthly income needs,\u201d Ms. Shick said. \u201cThe common rule of spending 75 per cent of your preretirement income often falls short \u2013 many people actually spend the same or more in the early years of retirement, with more time for travel, hobbies and family.\u201d<\/p>\n
According to Ms. Shick, the next step is determining where that income will come from. Alongside sources such as CPP, OAS or a company pension, your investment portfolio can be structured to deliver a steady stream of income, referred to here as a \u201cpaycheque-style portfolio.\u201d The idea, she explained, is to live off the income generated from your assets and possibly drawing some of your capital. \u201cThe important last step is to create what we call a \u2018stress test\u2019 to ensure you don\u2019t outlive your capital.\u201d<\/p>\n
A lot of retirees face emotional difficulties transitioning from capital accumulation to capital drawdown, \u201cbut it\u2019s important to remember that one reason for creating capital is to use it in retirement as long as it lasts your lifetime, which is why a retirement plan is necessary,\u201d Ms. Shick said.<\/p>\n