The Manual Part 3

16 February 2018



This Chapter was last updated on  Feb 16, 2018.

Unless they are good stock pickers, self-directed equity investors without a good fee-based or fee-only advisor should read the sub Chapters in Ch 5, to assist them in their equity strategy.

Chapter 5.3 Dividend Achievers/Aristocrats/REITs

Until the mid 2000s most equity strategies focussed on achieving double digit yearly gains, which were easy in the go-go 1990s. Then, 15 -30% annual returns were fairly common. The glory years were fuelled by the great demographic bulge of baby boomers both: creating demand for equities by shovelling money into their pensions,  U. S. 401ks and RRSPs, thereby bidding up equity prices;  and also by favourable world-wide economic growth, resulting in solid profit growth for all good companies. 

But sadly, the great demographic bulge of boomers are now starting to retire, and this has two bad effects: Firstly,  our Western World  work forces are shrinking, or at least not growing as much as when the baby boomers were getting jobs, and this makes it difficult for our economies to grow as rapidly as in the past. Our economies formerly averaged 3-4% growth per year, but now average 2%.  With our economies not growing as rapidly, most companies cannot grow their profits as readily, and this will probably result in lower profits and dividends, and thereby lower share price growth going forward.  Secondly, the great demographic bulge of boomers has now begun to spend their pensions, and to get more conservative (investing in Income investments), which creates less demand for equities, and tends to drive down prices. This will become aggravated over time unless the babybusters start to save a lot more for their retirements — but their saving rates are worse than the boomers, because most of their money is tied up in their homes, which are more expensive relative to their incomes, than ever before. Moreover, it seems that millenials, who have no understanding of the Great Depression, are poor savers, but great consumers and trip-takers.

So the “good old days” are probably over, but too many of our popular investing strategies refuse to acknowledge the new demographic reality. One very good investing philosophy, which is attuned to the new reality, is dividend investing.
Dividend investors invest in the dividend paying stocks of solid companies — often pipelines, telecoms, consumer products, drug companies, and banks and life insurers –  which have a solid history of increasing their dividend payments over time. Such dividend payers are often called  dividend “achievers” or “aristocrats”.  Over the last 10 years, dividend achievers have been the place to be, and they are generally less risky in a market melt-down. These companies hate to cut their dividends; and a solid dividend history is a good indicator that the company’s future will continue to be solid. Moreover, investors get paid a dividend to hold the stock, waiting for it to increase in value, often 4 or 5% per year. This strategy won’t hit too many home-runs, but won’t strike out too often either. Of course, like any stock, the dividend and price of the stock is not guaranteed.  Success depends upon picking the winners. For example, life insurance companies and Oil Sands Companies are now struggling and to be avoided, even though, in the past, they would normally form a significant part of most dividend portfolios.

My Newsletter at features Dividend Achievers (and often one or two REITs) as one half our equity recommendations. (The other half of our equities are made up of  momentum/ growth ETFs for the more aggressive (risky) part of our equity portfolio).

How do I choose which dividend paying stocks to recommend for investment, and which to sell?  

As a starting point, I subscribe to several publications from dividend analysts, who have more time  than me to spend analyzing financial statements from several dozens of dividend paying companies and REITs.  These guys are expert in reading financial statements from the corporations well known to attract attention to investors as good solid dividend payers over a long period of years. (That is, no marijuana companies because they don’t yet have a long-term track record, which distinguishes the future winners from the losers). I consider the data for the candidates the analysts recommend, and I try to use some common sense and wisdom from my 35 years in the market. I also read the financials myself before I make a recommendation.  I don’t just consider the dividend yield — (although my preferred sweet spot is 3-6%, which is the same wisdom used by many).  I also need to be convinced that the company can grow its dividend over the next few years, and also its share price, by not only analyzing the profit statements of the company over time, but also by considering recent developments within that company, and the industry in which they compete.  That is, I stay away from coal companies and tobacco companies, because those industries are dying, and lawsuits abound, even though some of the analysts like what they see in the financial statements, and the share price compared to the profits, and book value of a particular company’s assets. I also like companies with a recent history of price gains because many others do too, and more buyers typically means higher prices.

Our collective crystal ball isn’t perfect, and we will lose money with some of  our choices. The idea is to win more often than we lose, and never concentrate our eggs in too few baskets, so we don’t scramble too many eggs in a single losing company or industry that catches us by surprise. That is, we diversify amongst companies and industries. Lately, we have added some US cos for investments within RRSPs, RRIFs and RESPs because inside these registered plans, the Canadian dividend tax credit is irrelevant.

I also follow some Dividend Investing Sub-Rules and Answers to Important Questions as set out below. Some of these come from studying Profit Statements, and some come from common sense and the wisdom of many years in the market.

1   High dividend yield (the dollar amount per share that we collect every 3 months) doesn’t necessarily equal high total returns, including future share price appreciation. In fact, many times a really high yield means that the share price has fallen, and the fixed dividend is likely to be cut or eliminated. The sweet spot for most knowledgeable investors is 3 – 6%.

2   I focus on dividend growth and profitability growth over the last few years. That is, recent increases in dividend payments and/or profit growth typically means that the company’s profits and dividends can be expected to keep increasing. There are exceptions, but overall this is a good indicator.

3   Does the business model ensure future growth? Are there barriers to new competitors? ( Is there an economic moat like there often is for a pipeline or utility?).  Or is this a company in a dying industry?  I stay away from Underwood Typewriter Co,  Yellow Pages, Coal and Tobacco..

4  Are pension managers buying or selling?  They have lots of staff analyzing companies full time, and they might know something that I don’t. Moreover, if they are selling, the price is likely to fall because they are big and can affect supply and demand.

5    No matter how good the company’s products, can I buy at the right price? Many popular companies with exciting new products are over-valued by my yard-sticks, and future likely price appreciation is therefore unlikely. I think a lot about Price/Earnings ratios, and Price/book value ratios.

6   If we have a recession, is this company recession proof?  I consider consumer staples, utilities and drug companies as being more recession proof than an oil and gas company, and we typically feature at least a few of the former.

7   For most investors emotions usually play an important role in how long they decide to hang on to losers in the hope of being vindicated by a turn-around. I try hard not to fall into this trap. I try not to fall in love with any company. I own it as long as it continues to perform, and not much longer. I usually sell stocks upon a dividend cut, and I follow each of my holdings closely in order to sell a company before the irreparable damage happens. For example, DH corp gave us (and many others) profits of 15 -20 percent for 5 years until the price got too high, and started to fall as pension funds started to sell. We then sold and realized big gains.

8  What is the pay-out ratio? If a company pays all of its profits out as dividends, the bad news might be that its profits might be falling, and/or that it has no money for maintenance, expansion, and new product improvements.

9   I choose mainly Canadian Companies to get the benefit of the dividend tax credit. When I pick US companies I indicate that these are for your RRSP, RESP or RRIF where the tax credit doesn’t apply.

10     Lastly, we keep our holdings in any one industry from overwhelming what we  choose, in case that industry has an unpredicted downturn. Even when all five Canadian big banks are showing good financial statements, we will only buy two or three.

This approach has served me and many others well for the last several years, and will hopefully continue to do so for many more.



Chapter 5.4  Index ETFs; “Lazy”, “Sleepy”, and “Couch-Potato” portfolios of Equities.

Because the hidden MER charges in equity mutual funds are often 1.5% – 2.5% per year, a number of well meaning journalists and bloggers have recently begun to promote the advantages of lower-cost index equity ETFs.  Exchange Traded Funds (ETFs) are a newish (and better) cousin to mutual funds, and many (but not all) are “index” funds, in which the manager simply picks all of the stocks in one of the several published “indices” (or baskets of “similar” stocks).  A well-used Canadian benchmark is the TSX Composite Index, which represents the whole TSX, and is widely considered to be an appropriate benchmark for the whole Cdn stock market.  Such “passive” or index funds are recommended by the bloggers, instead of “actively managed” mutual funds (and some ETFs), in which the fund manager “actively” attempts to select “good” stocks for the fund, because most index-ETFs have much lower MER charges than most active mutual funds – in one case as low as .05%. So far, so good.

The “lazy,” “sleepy” and “couch-potato” index-only-portfolio advocates all choose and publish a handful of “broadly based” index ETFs or Index Mutual Funds to hold “forever”.  (This is the basis for their names). They thereby enable their followers to be identically or similarly invested.

These blog advocates correctly point out that most mutual fund managers do not consistently beat an “appropriately” chosen “benchmark”, or index. But the misguided conclusion they draw is as follows: “if most professional mangers of mutual funds can’t beat an index consistently, any non-professional retail investor also has a low probability of doing so”; and the theory goes, “the best we non-pros can hope for is to mimic an index, get mediocre results, and forget vainly trying to beat our chosen benchmark or index”.

The potato-zealots call this the “science of numbers”.  But their theory only has merit if one compares couch-potato performance to the long term performance of broadly based Mutual Funds held forever, which will have poor performance because of the hidden 2% MER charge which kills their performance, and because of the other reasons set forth in Ch 5.5. The couch potato theory of “mediocrity is best” breaks down in comparison to any good dividend portfolio, or any good ETF picker who can successfully pick good narrower sector ETFs, or even mutual funds – (like oil and gas in certain time periods, or banks, or country specific funds) — based on their recent price increases/ price momentum, and who then hold them for only 6 months, or for so long as they out-perform.  (See the next chapter).

The potato theory “worked” to some extent in the 1990s when all funds went up by double digits most years; but to my mind these potato-worshippers are unnecessarily limiting their arsenal, for the reasons set forth in the last and next Chapter. They are stuck in the glory years of the 1990s, when the baby boomers were creating demand for, and causing price increases in equities, and driving up almost all equities, almost all of the time. It takes a rising tide like the 90s to lift all broad indexes, but the index-zealots refuse to believe that the go-go 90s, and the glory years are probably behind us.

The proof is that these couch-potato portfolios have achieved almost  zero rate of return on the equity part of their portfolios for over a decade.

Another huge problem with the potato-zealots is that they tend not to clearly differentiate between Equities and Income-Generating  investments, so as to allow an older investor (or one with a different risk-tolerance) to easily modify their portfolios from the ones chosen by these 20 and 30-somethings, who are the biggest couch potato advocates. Sadly, these youngsters simply don’t advocate enough safe income-generating investments for investors in their 50s, 60s or 70s.

Worse yet, the potatoes all stupidly still advocate government bond ETFs for most of their income allocation. GICs pay better than governments bonds, and bonds will lose money as interest rates rise from their present crazy-low level. But sadly, the potatoes are zealously stuck on never changing their investments, no matter how extraordinary the interest rate environment. Why? Good question; probably because they worship the first advocate of Index Investing, Vanguard’s index fund salesman Jack Bogle (an American), who wrote the Potato Bible.  Moreover, Vanguard only sold mutual funds, and now ETFs, and the Potato Bible therefore ignores GICs, which should be one pillar for most life-veterans. They also ignore: MICs, REITs, and  dividend achievers. For the potato gospellers, these investments must be ignored in their zealous devotion to Potato worship/and the investments Jack Bogle sold.

That said, the one advantage of the “couch-potato” portfolios is that they are free to copycat. These portfolios are typically re-balanced every 3 months, with an investor selling a portion of those ETF funds that have increased in value, and buying more of those that have fallen, to get back into balance. (This would take no more than an hour or two, 4 times a year).


Chapter 5.5    Dale Rathgeber’s ”Momentum ETFs, Plus Dividends Strategy”

As noted above, in Ch 5.4, I believe, like the couch potatoes, that index ETFs are a very good building block for one-half of the equity portion of most portfolios. Apart from the one-half of my equities devoted to dividend payors, I like and use equity ETFs extensively,  but not exclusively, like the index-only portfolio advocates. I believe that the index zealots have unecessarily imposed a rule on themselves that they will never invest in a Sector ETF, or dividend paying stocks, and thereby stupidly limit themselves to a few broad based index ETFs, including bond fund ETFs, which will lose money as interest rates rise, and which they MUST HOLD FOREVER, REGARDLESS OF POOR PERFORMANCE.

In their rigid dogmatism, many index–only advocates have wrongly converted, “most mutual funds don’t consistently beat an index” (which is true), into “NO SMART INVESTOR CAN EVER CONSISTENTLY BEAT AN INDEX,” (which I know to be untrue, and which my Newsletter has done for 13 years). See Appendix 5.5 for the full academic discussion of how and why.

See also my year by year returns since 2001 in the Chapter called “the Newsletter,  which have averaged 11% per year, compared to the couch potatoes and their return since then of almost zero, with more losses to follow when interest rates rise, and their bond ETFs plummet.

My Newsletter’s Equity Strategy, previously called the “October Strategy,” has averaged 11% per year since 2001. Part of the reason for the good performance was that we cashed out of our equities every Sept and Oct to miss the typical autumn market meltdown, which tends to happen 70% of the time.  But the bigger reason for our success was the “ price momentum” aspect of our Newletter Strategy. Index-only potato worshippers won’t admit this fact; but in many circumstances a smart investor can easily find:

soaring Index equity ETFs in certain industry-sectors, (like oil and gas at certain times, or banks, or consumer product makers,  or country-specific-funds with recent solid gains (price momentum), which upward price momentum is likely to continue for at least the next 6 months.

How do we do this even though the majority of  potato advocates say that it is impossible?  Read Appendix 5.5 closely.  But in short, our economy and markets continually move in cycles, and narrow industrial or country-specific cycles — (and the sector ETF funds that invest in them) — tend not to reverse their cycles suddenly, and dramatically over the next 6 months.  For the riskiest (non dividend) momentum half of our equity portfolio, we  invest in ETFs for 6 months at a time, based on their  performance in the preceding 3 months.  Investing based on momentum thereby tilts the odds in our favour, because we can pick the sector funds that are out-performing in any investment cycle, and then sell our hot ETFs when they turn lukewarm or go cold. 

Although most fund managers are not allowed to invest outside of their chosen industry or country;  we can, (and do); and that is one reason for why so few mutual-fund managers do well from one calendar year to the next. But we are not as limited as one particular fund manager, and we are allowed to find the out-performing ETF funds, from various different industries or countries, from time to time; we then only stick with them for 6 months (or later, until they turn luke-warm or cold).  To borrow a sports/probability/coaching analogy;  for 1/2 of our equity portfolio, we are like a hockey coach using a “hot goalie” in the playoffs; come next season, we may well have chosen a different starting goalie. That is our “secret”.

Moreover, most of the index buy and holders say that transaction costs with a momentum strategy are too high — that is no longer true with deep discount brokers charging $5 -$10 per trade.

So, the studies that say that last year’s “hot”  funds do not stay hot for another whole 2 calendar years are both true, and irrelevant to what we do.   We don’t pick “last year’s” hot ETF funds, and we don’t necessarily keep our ETFs for “years”. These studies are always cited by the “buy and hold/ignore” advisors who do not like paperwork twice per year.

That said, Momentum investing isn’t always a perfect predictor of future 6 month performance; some trends do uncharacteristically reverse abruptly. Momentum doesn’t always pick all of the future winners all of the time. But it does predict most of them, most of the time. Although we have picked a few dogs, our stars have typically outshone our dogs by a wide enough margin that momentum has been a very successful strategy for us — 11%, per year since 2002.

The “tricky” part of momentum investing is to identify, and stay away from, certain types of funds, like hedge-funds, leveraged funds, and some fund managers who have a history of such wild short-term fluctuations that they should be avoided. This is where I think I add value; by knowing which wild-swingers to avoid. That said, I believe that others could, and probably do replicate my results.  I don’t claim to be the most brilliant investor in the universe; and I didn’t invent momentum investing or Autumn Abstinence. All I have done was to weave these pro-active, sensible probability strategies into a format which works to keep transaction costs down. Recall again that momentum ETFs represent one half of our equity portfolio, with the other half devoted to less risky dividend payors, as per Ch 5.3.

At my StraightTalkInvesting Newsletter, we do a portfolio review with significant equity fund changes in early May, and again at the end of October. Investors who wish to “fall-out” of their non dividend stocks for the treacherous months of Sept/Oct can easily do so, if they don’t mind the paperwork.  My buy recommendations are clearly stated,  such as “buy this ETF for 10% of your equity portfolio, and sell that ETF, etc”; and I never use vague weasel-words.  Momentum selections make up one-half of our recommended equity portfolio. The other half of our equity selections are dividend achievers, which are held for as long as they perform — typically a few years.  See chapter 5.3 for how and why dividend achievers are important. Our newsletter also contains recommendations for Income-Generating Investments  in clear language for the safety part of your portfolio.

Moreover, I always invest 100% of my family’s portfolio in exactly the same manner advocated in each newsletter.

You can sign-up for an introductory 2-issue subscription for $50, including GST.  To recieve a trial subscription, send a cheque payable to Dale Rathgeber Professional Corp at 125 1st Ave NW, Airdrie Ab T4B 2M8. Please put your email address on the cheque, and give us the name of your broker, so that we can be assured that you have a discount broker who will not charge you exorbitant fees for implementing our strategy. (See the list of good discount brokers in Chapter 2.1; note again that if you need to switch to a discount broker, they will do all of the paperwork, and that you need not confront your present broker or advisor). The regular subscription price is $350.


Chapter 6:  Niche Equity Investing topics that deserve to be discussed summarily; Leverage; The “Smith” maneuver; Options; Annuities; Hedge funds; Tax shelters; and Charitable Super-Write-offs.

This grab-bag of topics, which will be of interest only to “keeners,  is mentioned here for the sake of achieving comprehensive completeness in this manual. These topics are discussed as several sub-Appendices to Chapter 6, at the very end of the manual.



The main part of this manual is now complete, and many investors will conveniently skip or skim anything more, unless they were keenly interested in the topics discussed summarily in the manual, but dealt with in more detail in an Appendix. The various detailed appendices follow below.

My hope is that you save and plan well, and that your plan and investments both: provide for a long retirement; and also allow you to sleep well.


Dale Rathgeber, BA.(82), JD (1985).   Copyright 2010/11/12/13/14/14/15/16.    All copyright and proprietary rights reserved by the author; short extracts may be copied without permission.


APPENDIX   to CHAPTER 1.1;;  Step-By-Step Guide to Retirement Planning

The further away you are from retirement, (ie 20 – 25 years) the more “rough” your data and goals can be, and/or the less anxiety you can feel about glossing-over this step for a few more years. That is, if you are less than 40 (or perhaps 45), you can probably get away with “ballparking” your projections, (or perhaps skipping this step altogether), and just focus on the other planning rules such as: maximizing your RRSP etc. The closer you are to retirement, the more precise your data and Plan should be.

Computers are great for generating  a decent set of retirement calculations, and your “how-much-is- enough to retire?” number (or sets of #s). Accordingly, I believe that you can now conveniently ignore all of the “How Much is Enough?” and “Can I afford to Retire” Books and Moneysense articles — (and their esoteric debates about whether a 4% “draw-down” rate is more prudent than 5%) — because the best retirement planning method now available, for anyone who can use the internet, is to spend at least a few hours with some sophisticated retirement planning software, to ensure that you are “on track”; (and if not, how you can get back “on-track”). For example, the “good” software calculates your CPP and Old Age Security benefits for you, and uncomplicates what was formerly a minefield in Planning-the-Old-fashioned way. (I assume that CPP and OAS will still be available to most of us as we age; if you do not, the good software allows you to easily adjust your government entitlements accordingly). I like and use, and the rest of this Appendix is a step-by-step guide to using   I have no affiliation with the company that sponsors this site. I merely like their work.

Before you launch into plugging numbers into the program, in order to get it to perform its “magic”, you need to do some leg-work to plug realistic data into the program. Otherwise you risk a “garbage-in/garbage-out” projection of how much you need, and when you can retire.

Keep in mind that the whole process of retirement planning is an exercise in probability forecasting, — which is a fancy way of describing fortune-telling, or predicting the future. You will never definitively “know” (with exact certainty) your:  exact date of death, or future rate return, or inflation; but that should not stop you from doing the best you can with realistic projections. Otherwise, you increase the risk that you will retire too early, based on what you want to achieve, and/or increase the risk that you will spend too much and thereby run out of money in your retirement.

Unless you are uber-wealthy, you can never completely eliminate these risks, but with careful planning you can reduce their probability to a low enough level to allow you to sleep at night.

Some silly commentators say that “the future is unknown; therefore all planning is a waste of time”. I disagree, and appreciate the anxiety-reducing comfort of thinking that I will “probably be OK”, based on a realistic Plan. Sound-sleep is one of the main reasons for undertaking this retirement-planning process, and for reviewing it periodically on your road to retirement, — (and indeed throughout your retirement), in order to modify your spending if need be.

Making a Retirement Plan is not a one session job. It is a process that needs to be reviewed and revised as life unfolds. To make your initial How-much-is-enough Number(s)/retirement-date-Plan, you will probably need a few sessions using the software in order to realize that you may need to do some further preliminary leg-work on budgeting (or on your employer pension) to get the software to work for your unique hopes and dreams.

You also need to “dream-build” with your spouse, — (ie, do we down-size our house/ do we buy a second property in Arizona?) — and re-do your calculations a few times to see what you would need to do differently to get “on-track” for your unique goals.


Many people would also benefit from doing 2 or 3 sets of calculations based on different goal lifestyles: ie, one for a luxury-retirement; one for the bare necessities; and one or more for something in between.

The main piece of information that you will need prior to generating anything meaningful from any software is your present budget, and how much of your present level of expenses will either: (1) fall away in your retirement, — (i.e. mortgage, expenses relating to children, etc); or (2)  perhaps increase — (i.e. we want to travel the world in five-star luxury).

Many 5-minute “quick and dirty” computer plans assume that you will “need” 70% of your pre-retirement income when you leave work. This 70% rule of thumb is dangerous  – because for many people 70% is “too much” (post mortgage and kids); and for many others 70% is not enough. – (especially for those who have eliminated their mortgage and kids’ costs, and now wish to take up 5-star golf holidays and cruises). Again, to get a reasonable Plan, you need to do some work on it, probably over a few sessions.

Also, don’t forget to add in a yearly contingency into your budget of at least a few thousand dollars for: house repairs, replacement vehicles and appliances, and any travel expenses, and  possibly a huge one-time contingency for a second property purchase, net of any down-sizing proceeds from your present house.

You should use today’s dollars, and their buying power, and will automatically take inflation into account.

You then need to convert your retirement budget from after-tax dollars to pre-tax dollars, and to divide your budget # in half if you are married, before you make that conversion. To help you figure out how many pre-tax dollars you will need, you can use any one of hundreds of tax calculators on the web. Fidelity has one at Centre. To use it, you need to work “backwards” and guestimate how many pre tax dollars you will need to fund your after tax budget, and press calculate to see what your net after tax income is as a result of your guestimates. (Remember, if you are married, you divide your budget in half, and do calculations for each of you and your spouse). Ten or twelve rounds of backwards guestimating should do it. (Anyone finding a better website that does not require all this effort is asked to disclose it for the next edition).

You are now ready to achieve a set of retirement projections in — (which will also automatically tell you whether you are on track, and if not, a Plan for how much you need to save each year to get on track)– based on: various realistic rates of return on your investments, and post-retirement spending levels. To get there, you will use and “play with” the variables under the “Standard Retirement Calculator” (under “Tools”) — to get one or more sets of “how much-is-enough?” plans using the following steps. (But again, remember to do separate calculations for each spouse to properly deal with taxes, CPP, and OAS).

I suggest that you use your required pre-tax retirement income #(s) and input them into “the current annual earnings input-box” for you and your spouse’s separate calculations (even though this may be inaccurate in fact).  If you do this, you can then input: 100% for “income replacement” (instead of the default setting of 70%). This gives a better result.

You are now ready to input numbers for: “expected annual earnings growth,”  “inflation” and your “projected earnings growth” at something realistic, such as 2.5.  Answer “Yes” to the question about cost of living increases.

A big unknown is the blank for your “income required to age ____”  (which is a euphemism for your anticipated age of death). Using too low an end-age increases your “longevity risk” (that you will outlive your money). Therefore, planning for a long life of 88 or more is safer; (although many people who plan to 85 say that, “ if, and when they turn 85, they can ‘get-by’ on OAS and CPP, with zero remaining savings, because most travel and expensive fun is over”). There is some merit to this point; it all depends on how much “longevity-risk” you wish to take on. (Actuaries say that: at age 60, a man will typically live to 80; women to 84.  At age 75: a man will typically live to 85; a woman to 87). More importantly, if you are married, you can generally feel safer with lower end-dates, because the probability of both spouses reaching age 88 is only about 8%. You could drive yourself crazy trying to pick the “right” number; just know that as you progress through your retirement, you may need to reduce your expenditures, (and re-do your plan), if longevity seems to be smiling upon you.

You are now ready to pick a preliminary “retirement age”, but this is the one variable “input” which is likely to need revision if the program tells you that your Plan seems unrealistic.

You also need to choose “expected rate of return” #s which are realistic based on your history, and the fact that you are likely to shift your assets toward lower risk/lower return assets as you age.

Tweaking your return estimates, or inflation, by even a percentage point or two, and changing your anticipated retirement date or anticipated death by a year or two, all result in astonishing changes in the projections. Using any rate-of-return number above 7 percent is pure folly.  More realistic projections would be 6%, or optimally 5%, unless you invest only or primarily in ultra-safe GICs and bonds, — in which case 4% or 3% is prudent.


Remember again that planning conservatively tends to result in pleasant surprises; planning aggressively tends to result in unpleasant surprises.

For the result, and Formal Retirement Plan, press the “Compute” button, and hope that the program tells you that “Congratulations; you are on-track”.   If not, it will tell you about the additional savings you will need to set aside, each year, before your planned retirement date.  If that level of additional saving seems unrealistic, you need to re-calibrate your spending goals and/or choose a later retirement date, or hope for a lottery win or inheritance.

Under “graphs” and “data” the program will show you the effects of inflation over time, by adjusting your spending upwards over time. These will also show you how many dollars you will have left at your anticipated death. You need not worry about your spouse’s needs if you have done a separate calculation for them; but if your combined nest-eggs at death are not what you would like for your other heirs, you need to re-calibrate either your spending needs or retirement age.

After you get a congratulatory  statement, or a realistic savings plan, your input data and the resulting data and graphs are are now officially a “formal Retirement Plan”.

A useful exercise is to do a second series of “fallback” calculations based on a few lower anticipated rates of return, and to match these up with your various “bare-necessities,” “luxury” and “middle-of-the road” retirement spending plans.

Note also, that if you are either planning on downsizing your house, and/or buying a second property in the Sun-belt or a cottage, don’t forget to adjust your non-registered assets accordingly. Do not include the purchase amount in “other non-registered assets”. This would be a huge, and possibly life-style-changing mistake. Another mistake would be planning to retire with a mortgage that you neglect to include in your post-retirement budget.

As a second-check on the validity of your “how much is enough number(s)?”,  you should compare your annual pre tax spending needs, with 4 or 5% of your projected total assets at retirement. If your annual pre-tax needs are more than 4 or 5% of your total portfolio at retirement, something is probably amiss in your projections. If you can’t make them align with this “draw-down-rule-of-thumb” from old-school planning, you may need to hire a fee-only (hourly) financial planner.

For those readers inclined to question the accuracy of, I can attest to having my findings from that site cross-verified to an acceptable margin of error by the “Retireware” software, which I purchased and found clumsy to use.  However, if readers are familiar with other good software, I will be happy to include any consensus choices in a future update to this chapter).

Lastly, after your Plan/Series of Projections comes into being, you need to periodically review and revise your inputted data as you move through life to account for, (and adjust your savings for): your past rates of return; and any financial surprises that life throws you; — (such as an inheritance, divorce, or an unexpected major expenditure), — together with any goal changes as you move along life’s journey toward, and indeed throughout your retirement – at which time spending patterns may need to be lowered, or hopefully adjusted upward after pleasant surprises! This is what “experts” mean when they say that Retirement Planning is a “process”, and not a one-shot deal.

The remaider of the Appendices appear in Part 4.