tag:blogger.com,1999:blog-4751610667110065763.post8268118750144478899..comments2023-10-13T14:07:08.908-04:00Comments on HowtoInvestOnline: Liability-Driven Investing during Retirement for the IndividualCanadianInvestorhttp://www.blogger.com/profile/05645767559302303541noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-4751610667110065763.post-74496681280893163662014-12-19T21:14:58.469-05:002014-12-19T21:14:58.469-05:00Andrew,
Thanks for the comment.
Re the 4% rule, ...Andrew,<br />Thanks for the comment. <br /><br />Re the 4% rule, if we take the 4% as what can be spent safely, then the additional portion of the forced withdrawal would need to be reinvested. Of the 3.38% extra difference, or $33,800, some 70% of that might be left after taxes, of which $5500 a year could be put into a TFSA to grow tax-free while the rest could only be kept in a regular annually-taxable account. <br /><br />It does get more complicated from age 71 onwards since now the tax efficiency of different types of returns (divs, interest, cap gains) needs to be managed in the taxable account but with still sizeable amounts in RRIFs or LIRAs the total asset allocation should not need much bending for many years.<br /><br />Exploring the best timing and market conditions of the annuity purchase may well be worthy of another post. It is true as you say that mortality credits (the benefit of getting other people's money if they die before you) rises with age. And it is also true that current low interest rates mean lower annuity payouts ... but if you are going to fund the annuity with bond holdings, when interest rates rise, the value of those bond holdings will fall too, so you may not be able to buy as large an annuity. It's an interesting topic.CanadianInvestorhttps://www.blogger.com/profile/05645767559302303541noreply@blogger.comtag:blogger.com,1999:blog-4751610667110065763.post-12707605075782091962014-12-17T10:38:50.908-05:002014-12-17T10:38:50.908-05:00Since the Test Case subject is now 65 years old, a...Since the Test Case subject is now 65 years old, and will have to convert his RRSP to a RRIF in only about six years (if he has not already done so), consideration of the "4% rule" seems to be largely pointless. The subject will have to default to a 7.38% withdrawal on conversion. That annual withdrawal requirement will relentlessly increase every year to a maximum of 20%.<br /><br />The only real options seem to be to either buy the annuity, or construct a portfolio which throws off as much reasonably safe income as possible (to slow the inevitable encroachment on capital).<br /><br />The two can be combined, but in today's interest environment the annuity option is best left until at least age 75 when mortality expectations outweigh the interest element.Andrewnoreply@blogger.com