This "Cash Wedge" that Adam is describing is what my adviser and I have set up for our RRIF withdrawals and we use 2 years plus current (basically the 3 years Adam is talking about). My wife and I are 10 years retired and it's working great for us. I think once or twice in those 10 years we had to skip a "cash wedge replenish" year due to adverse market conditions but we were able to make it up the following year.
Retirement planning feels overwhelming these days. My 401(k) isn’t growing as I expected, and I don’t want to rely solely on Social Security. How are people managing to retire comfortably without running out of money?
Exceptional video Adam, this is such a critical step for those of us already in the go-go phase. I've been doing exactly this according to my plan. ''The plan'' really is a retirement road map that is, as far as I'm concerend, 100% essential. The larger the cash wedge, the lesser return from those funds. There's simply no free lunch; risk or piece of mind?
We have set up this type of system, except that we add a trigger point when the market drops, say 30%, we can modify our investments heavily into equities again and ride the increase in the market as we spend on retirement. We also have a large HELOC we can use if market drops hard. Not too concerned about interest payments if market drops 30%.
Thanks for putting this video together Adam. Definitely helped clarify this part of the withdrawal strategy. One question about this strategy that I'm curious about is taking guaranteed interest into account. If using a 3 year wedge at 25K a year like video example would it be beneficial to have 1 year of that in cash and rest in, as an example, 1 and 2 year GICs? Using 3.4% GICs as example below as that is current rate in calculator from EQ I am looking at. Each year, if markets up, get another 2 year GIC. If down wait. Initial sell from investments is 72,600, not 75,000, leaving 2400 in, hopefully, better performing investments. 1. 25,000 in cash/high interest savings for first year cash flow. 2. 24,200 in 1 year GIC. Gives 25,022 for 2nd years cash flow 3. 23,400 in 2 year GIC. Gives 25,018 for 3rd years cash flow
Can’t imagine that locking funds in for such a small amount of interest would be worthwhile. Better to put in a high interest savings account in my view.
@@Spp235. Why? That cash wedge example is a 3 year cash flow plan. Year 1, have the 25K in HISA. Year 2, cash in GIC and have 25022 in HISA. Year 3, cash in next GIC and have 25018 in HISA. May as well get as much interest as possible with the Year 2 and 3 money until it is needed
@@colinmagee5155 In my view, the amount of potential extra interest (still a maybe) is insignificant. And “stuff happens” so you may need to draw on those funds earlier than planned. So why lock it in for little more than a couple of hundred per year (less than 20 bucks/mos)?
@@colinmagee5155 You need to adjust for inflation, so that when (for example) the 1-yr GIC matures, its value is 'real' (adjusted for inflation), not nominal. Assuming inflation is 3% and the GIC earns 3%, you'd need to put 25K into your first GIC to maintain real value, 1-yr later.
The $25,000 is meant to increase with inflation, so whether you choose a HISA or GICs, I would take the whole $25,000 for each of the three years ($75,000 in total) and deposit it and assume the interest proceeds will accommodate inflation. At first I liked your concept but then observed that you don’t keep pace with inflation that way.
The good thing about Steadyhand is that the bulk of employee's own money has to be invested along side you. And employees pay the EXACT same fee as their clients. So they eat their own cooking essentially.
We won’t save a cash wedge or sell equities to build one but we will turn off the DRIP on our (mostly) blue chip dividend payers around 6-12 months ahead of retirement. I’d rather be fully invested 100% of the time. 6-12 months of cash is about as far as I’ll go. We expect not to sell stocks in our TFSAs or our non-registered accounts in any market ( up or down) but we will spend the dividends. The RSPs/RIFs will be depleted faster than dividends received so I could see us taking a more active cash management approach with those accounts. We do have to be mindful of situations like AQN and maybe BCE in the future. A dividend reduction or lack of a dividend hike may require alterations to our plan (probably in the non-essential spending category)
I planned on putting my SASK PEPP into two groups. STEPS program for growth and money-market fund for 2 years of withdrawls, then re-visiting every two years. Kind of like two "buckets" for pension.
Great video as usual. Should you ever put your cash wedge to work as in use it to buy stocks in an oversold market? My portfolio falls into the category of “Retirement Possible, But Not Optimal”. I am one of those, “One More Year” guys. No up to date resume. If I do lose my job, I am retired so to speak.
I enjoy your videos Adam… thank-you! Does this also apply to a balanced mutual fund portfolio that is already partially “income-based” in anticipation of an imminent retirement?
Thanks for another great video Adam. Good information. I will be honest, at 4+ minute of advertising (steady hand) I was getting close to just skip it... Cheers, a.
Would replacing your cash wedge from just dividends if possible be a way to withdraw in a down market as apposed to reinvesting those dividends when stock are down/ on sale?
I changed my pre-retirement balance of my overall portfolio from 75% stock market investments/25% GICs to 33% stock market/66% market linked GICs (guaranteed not to lose a penny) To date, the market linked GICs have been returning 7-8%, and I'm good with that considering no risk to original investment. Beats the lousy return in a "high interest" savings account. (and now being in a RRIF, the GIC money is accessible anytime.)
The incompetence and corruption that runs through this administration are getting more ridiculous. I feel for people with disabilities not getting the help they deserve. Thank you June Renae Matthysse, imagine investing $1.5k and receiving $9k in 20 days
read to watch RRSP withdrawl as they charge a $50 fee, and anything Canadian right now is in the low end now, exchange rate at 48% I read also to buy, Ouch
Canada doesn't need to be great again, we are already great. That doesn't mean we don't need some improvements. In the past we worked together and found several improvements ourselves and I'm confident we will find them in the future :)
Andrea has 275k and takes out 25 a year for expenses. Say 10%. If the market goes down 30% she will still take 25k which is now 14%. So all this playing is around 4% in worst case scenario. However! Markets average around 10% up a year, so her 3 year cash pile will actually cost her opportunity cost of 10% x 3 tenths of her investment. soooo.. if you put it on paper, and you know your math.. all of it is for nothing. In fact, this cash strategy may be inferior to 100% invested. Not practical so, I’d guess a year of expenses in cash, topped up every 6 months and do nothing else.
If Andrea has a 275k portfolio and needs 25k a year for expenses then she needs a portfolio that returns a set dividend per share per year. That way she doesn't give a rat's arse if the market fluctuates up or down since she has no intention of selling her underlying investments, maybe only adding to them if the market drops and she has available cash.
@@petervaneverdink448 I agree, to some extent as that is my plan, but dividends are not guaranteed, and especially dividend raises are not guaranteed (looking at you BNS) so, my intention is to stop DRIPing my dividends 6-12 months in advance of retirement and use that as a revolving cash wedge. Also, planning to start retirement with more dividend income than necessary to make up for possible dividend reductions.
This "Cash Wedge" that Adam is describing is what my adviser and I have set up for our RRIF withdrawals and we use 2 years plus current (basically the 3 years Adam is talking about). My wife and I are 10 years retired and it's working great for us. I think once or twice in those 10 years we had to skip a "cash wedge replenish" year due to adverse market conditions but we were able to make it up the following year.
Thank you for the experienced perspective.
We teach...fail to plan, plan to fail - so you are bang on!! Congrats
Retirement planning feels overwhelming these days. My 401(k) isn’t growing as I expected, and I don’t want to rely solely on Social Security. How are people managing to retire comfortably without running out of money?
Exceptional video Adam, this is such a critical step for those of us already in the go-go phase. I've been doing exactly this according to my plan. ''The plan'' really is a retirement road map that is, as far as I'm concerend, 100% essential. The larger the cash wedge, the lesser return from those funds. There's simply no free lunch; risk or piece of mind?
We have set up this type of system, except that we add a trigger point when the market drops, say 30%, we can modify our investments heavily into equities again and ride the increase in the market as we spend on retirement.
We also have a large HELOC we can use if market drops hard. Not too concerned about interest payments if market drops 30%.
Great insights! This is exactly what I needed for my retirement planning.
Thanks for putting this video together Adam. Definitely helped clarify this part of the withdrawal strategy. One question about this strategy that I'm curious about is taking guaranteed interest into account. If using a 3 year wedge at 25K a year like video example would it be beneficial to have 1 year of that in cash and rest in, as an example, 1 and 2 year GICs? Using 3.4% GICs as example below as that is current rate in calculator from EQ I am looking at. Each year, if markets up, get another 2 year GIC. If down wait. Initial sell from investments is 72,600, not 75,000, leaving 2400 in, hopefully, better performing investments.
1. 25,000 in cash/high interest savings for first year cash flow.
2. 24,200 in 1 year GIC. Gives 25,022 for 2nd years cash flow
3. 23,400 in 2 year GIC. Gives 25,018 for 3rd years cash flow
Can’t imagine that locking funds in for such a small amount of interest would be worthwhile. Better to put in a high interest savings account in my view.
@@Spp235. Why? That cash wedge example is a 3 year cash flow plan. Year 1, have the 25K in HISA. Year 2, cash in GIC and have 25022 in HISA. Year 3, cash in next GIC and have 25018 in HISA. May as well get as much interest as possible with the Year 2 and 3 money until it is needed
@@colinmagee5155 In my view, the amount of potential extra interest (still a maybe) is insignificant. And “stuff happens” so you may need to draw on those funds earlier than planned. So why lock it in for little more than a couple of hundred per year (less than 20 bucks/mos)?
@@colinmagee5155 You need to adjust for inflation, so that when (for example) the 1-yr GIC matures, its value is 'real' (adjusted for inflation), not nominal. Assuming inflation is 3% and the GIC earns 3%, you'd need to put 25K into your first GIC to maintain real value, 1-yr later.
The $25,000 is meant to increase with inflation, so whether you choose a HISA or GICs, I would take the whole $25,000 for each of the three years ($75,000 in total) and deposit it and assume the interest proceeds will accommodate inflation. At first I liked your concept but then observed that you don’t keep pace with inflation that way.
The good thing about Steadyhand is that the bulk of employee's own money has to be invested along side you. And employees pay the EXACT same fee as their clients. So they eat their own cooking essentially.
💯 correct
We won’t save a cash wedge or sell equities to build one but we will turn off the DRIP on our (mostly) blue chip dividend payers around 6-12 months ahead of retirement. I’d rather be fully invested 100% of the time. 6-12 months of cash is about as far as I’ll go. We expect not to sell stocks in our TFSAs or our non-registered accounts in any market ( up or down) but we will spend the dividends. The RSPs/RIFs will be depleted faster than dividends received so I could see us taking a more active cash management approach with those accounts. We do have to be mindful of situations like AQN and maybe BCE in the future. A dividend reduction or lack of a dividend hike may require alterations to our plan (probably in the non-essential spending category)
I planned on putting my SASK PEPP into two groups. STEPS program for growth and money-market fund for 2 years of withdrawls, then re-visiting every two years. Kind of like two "buckets" for pension.
Thank you so much for this video. Full of very important info.
I’ve always referred to the cash wedge as a “reservoir fund” where safe assets are pooled in high interest savings accounts and laddered GICs
Great information Adam, cash wedge. Can use the strategy to offset an USA holiday costs. Thanks.
Great video as usual. Should you ever put your cash wedge to work as in use it to buy stocks in an oversold market? My portfolio falls into the category of “Retirement Possible, But Not Optimal”. I am one of those, “One More Year” guys. No up to date resume. If I do lose my job, I am retired so to speak.
I enjoy your videos Adam… thank-you! Does this also apply to a balanced mutual fund portfolio that is already partially “income-based” in anticipation of an imminent retirement?
Thanks for another great video Adam. Good information.
I will be honest, at 4+ minute of advertising (steady hand) I was getting close to just skip it...
Cheers,
a.
Agreed. The ad promo was way too long.
I did just that- skipped it.
Would replacing your cash wedge from just dividends if possible be a way to withdraw in a down market as apposed to reinvesting those dividends when stock are down/ on sale?
Not sure about replacing, but heavily complementing would be a great idea.
@ thanks. I guess that is what I meant. Would need a fair bit of money in stocks to be able to refund the cash with dividends alone I suppose
You suppose correctly.
I changed my pre-retirement balance of my overall portfolio from 75% stock market investments/25% GICs to 33% stock market/66% market linked GICs (guaranteed not to lose a penny)
To date, the market linked GICs have been returning 7-8%, and I'm good with that considering no risk to original investment. Beats the lousy return in a "high interest" savings account. (and now being in a RRIF, the GIC money is accessible anytime.)
Can I consider liquid funds in my TFSA part of that cash wedge? Like HISA, short term GIC’s, etc
I'm 54 and thinking of selling out in Calgary as my older property is worth big buck$. Like to get ideas of investing properly thanks.
Very good video Adam can you please recommend some one in Vaughan Ontario thanks
They do plans from across the country. He is not going to recommend a competitor.
Does this assume outside of the cash wedge the rest of the portfolio is still in stocks?
Doesn't have to be stocks per se, but working towards your overall return and asset allocation goals
Do you consider future dividends as part of your cash wedge?
Switching from BCV to Steadyhand ???
NOPE! We recommend BCV for clients above $750k still. Steadyhand under that threshold. Both utilize the 'cash wedge' very well for clients.
I also thought they were ditching BCV
Thanks for sharing. Like #67
Sounds like the Bucket Strategy/
The incompetence and corruption that runs through this administration are getting more ridiculous. I feel for people with disabilities not getting the help they deserve. Thank you June Renae Matthysse, imagine investing $1.5k and receiving $9k in 20 days
That woman totally changed my life for good. I have come across individuals but none is as honest as June. So surprised you know her too
I've seen different people talking about this June, she must be very amazing for people to talk this good about her
👍
😊
read to watch RRSP withdrawl as they charge a $50 fee, and anything Canadian right now is in the low end now, exchange rate at 48% I read also to buy, Ouch
You can do a partial conversion of a small portion of your RSP to a RIF (which avoids an early RSP withdrawal fee)
My bank does not charge any fee for my RRSP withdrawals.
My investment company doesn't charge for RRSP withdrawals
@Spp235. There is no such thing as an Early RSP withdrawal fee
If we become the 51st, will we keep our RRSP, or will that money be expropriated by the government, we will have CPP, OAS? It is scary 😢
Don’t fall for Trumps rhetorical ideas.
Were you scared while Trudeau was Prime Minister?
He is a bigger threat than Trump is with his bully tactics.
Canada doesn't need to be great again, we are already great.
That doesn't mean we don't need some improvements. In the past we worked together and found several improvements ourselves and I'm confident we will find them in the future :)
It’s not scary … it’s not an actual thing.
Don't worry. All we need to do is stop selling them potash and wait.
Andrea has 275k and takes out 25 a year for expenses. Say 10%. If the market goes down 30% she will still take 25k which is now 14%. So all this playing is around 4% in worst case scenario. However! Markets average around 10% up a year, so her 3 year cash pile will actually cost her opportunity cost of 10% x 3 tenths of her investment. soooo.. if you put it on paper, and you know your math.. all of it is for nothing. In fact, this cash strategy may be inferior to 100% invested. Not practical so, I’d guess a year of expenses in cash, topped up every 6 months and do nothing else.
If Andrea has a 275k portfolio and needs 25k a year for expenses then she needs a portfolio that returns a set dividend per share per year. That way she doesn't give a rat's arse if the market fluctuates up or down since she has no intention of selling her underlying investments, maybe only adding to them if the market drops and she has available cash.
@@petervaneverdink448 I agree, to some extent as that is my plan, but dividends are not guaranteed, and especially dividend raises are not guaranteed (looking at you BNS) so, my intention is to stop DRIPing my dividends 6-12 months in advance of retirement and use that as a revolving cash wedge. Also, planning to start retirement with more dividend income than necessary to make up for possible dividend reductions.
Always enjoy your videos but this paid promotion was awfully long.
First time trying it. Thanks for the feedback.
@@ParallelWealth stick to your 10-15 second plug of your company.
Ouff … a cash wedge is money doing nothing and losing purchasing power over time.
Nice to have though, I will pay a bit more for the peace of mind