Briefly---Both retired early(Wife 52-self 53).No debt.How--had a business that generated fantastic income with almost no overhead.Result---large amt. of money to invest and DO NOT want to stay in Mutuals or use "fp experts"Needs---$5000-$8000 per monthProblem-all funds are in Mutual Funds.We have transferred all funds to Money Market until we get it togeather in how to use other investment avenues.Exit fees will be high but we are willing to bite the bullet.Our thinking---place some in dividend paying investments and use that revenue for ongoing needs.Invest the rest for long term growth.We live in Ontario so have to consider tax consequences.The first problem we have is trying to figure out how to change our current situation.We are considering using Canada Trust where we would open self-directed RRSP'S,using the current RRSP money(wife $208000.00 and self $254000.00) that is in CI Money Market.We then need to take the "Joint Open Acct"($1,500,000.00) and move it to a Canada Trust Easy Line account,where from we can proceed to place the funds for drawing monthly and investing for the long term.Again I'm not sure if our thinking is soundSo,its back to the heading--Where to Start??Any suggestions /thoughts from other retired folks would be appreciated.The biggest decision has been made-"we want to paddle our own canoe".Now we have to find the right stream to follow
If you haven't sold all your mutual funds, I would suggest no one 'bail out' of mutual funds and put the money in a money market, unless all of them are in tax sheltered accounts. Otherwise, you write the tax man a big check for all the accummulated capital gains, which could take nearly 20% of your nest egg away. Secondly, I wouldn't be in a hurry to change asset allocation the year you retire - wait until a year where you have little 'income' to the tax bite is less when you generate taxable income from selling stocks/funds. If you have more than a 10 year time frame (ie, intend for one or both to live 15-20+ years), then you should plan on having equity exposure to protect against inflation. Being 100% in fixed income, with a long time frame, will result in gradual and significant loss of buying power with your money.
lotomony,I know nothing about Canadian tax laws, but here is a general approach.1) Estimate your cash requirements as you've already done.2) Subtract any annuities from your cash needs (Social Security in the USA).3) Is the remainder more than 4% of your liquid capital? If so either find another source of income or re-budget.4) Set up a 5 year bond ladder with about 13% or your capital. That is, with $1,000,000 in liquid investments, put $130,000 into bonds. 5 yr: 27,821 (that's a 3% inflator per year) 4 yr: 26,224 3 yr: 25,461 2 yr: 24,720 1 yr: 24,000 Total 128,226Annual dividend on this ladder would be $7,693 (at 6%)5) Invest the remaining 87% or 870,000 in stocks. That will yield a dividend of about 1.0% (S&P500 index fund like VFINX) or $8,700. 6) Add up $24,000 $7,693 and $8,700 and you get relatively certain cashflow of $40,393 in the first year.7) As your bonds mature, replace them with new 5 year ones, selling stock as required. Add on 3% each year.(next year buy $28,655 worth of bonds.)8) If the market is low for a year or three, don't replace the bonds until it recovers. Unless we suffer a 5+ year depression, that should do it for you. The numbers of course are overprecise, round off to the nearest thousand when you buy your bonds and don't sweat it.Cheers,GW
5 yr: 27,821 (that's a 3% inflator per year) 4 yr: 26,224 3 yr: 25,461 2 yr: 24,720 1 yr: 24,000 Total 128,226
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