Reader N.T. asked me the following thoughtful question (lightly edited for brevity and privacy): I was reading your article Calculating My Retirement Glidepath , and I am still a little confused on your drawdown strategy. I think I understand the broad concept but I am confused on the details on how to execute. I was hoping you can comment on what I plan on doing with my parents’ retirement drawdown strategy. They are ETF index investors like yourself with a 60% stock/40% short-term bonds split. My dad will be 73 and my mom will be 60 when they retire. I plan on withdrawing 4-4.5% from their investment portfolio. Based on the safe withdrawal of 4% study and some of the recent research done from another great Michael, Michael Kitces, I think the success rate of my parents not running out of money is like 98-99%. I can’t tell you how you should handle your parents’ retirement spending, N.T., but I can explain how I would handle it for myself.  There are three areas I’ll discuss: what...

There aren’t many financial gurus willing to call out financial companies by name for their bad behaviour, but Ramit Sethi is one of them.  In his book I Will Teach You to be Rich , he promises “a 6-week program that works,” and he includes advice on which banks to use and which to avoid.  The book is aimed at American Millennials; Canadians will learn useful lessons as well, but much of the specific advice would have to be translated to Canadian laws, banking system, and account types.  The book’s style is irreverent, which helps to keep the pages turning. It may seem impossible to fix a person’s finances in only 6 weeks, but this is how long Sethi says it will take to lay the groundwork for a solid plan and automate it with the right bank accounts and periodic transfers.  The execution of the plan (e.g., eliminating debt or building savings) will take much longer. Sethi is rare in the financial world because he will say what he really thinks about banks.  “I h...

Last year I said I wasn’t counting on 2020 delivering another year of double-digit returns.  Well, despite a wild ride in the stock market, I wasn’t too far from double digits with a return of 7.7%.  This almost exactly matches my 2020 benchmark return of 7.6%. My return is somewhat lower than 2020 stock market returns because I’m now retired and have 5 years worth of my safe spending level in a combination of savings accounts, GICs, and short-term bonds.  This amounts to about 20% of my portfolio, and the rest is in stocks (see here for more detail on my holdings and how I run my portfolio). There were two main factors that determined how well my portfolio performed relative to my benchmark.  The first is that because I’m living off my savings, the returns from early in the year are slightly over-weighted compared to later in the year.  So, the stock market crash brought my portfolio’s returns down more than my benchmark’s returns.  The second factor is ...

Morgan Housel is an excellent writer.  No matter the topic, any article of his is a compelling read, as is his book The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness .  It may seem bold to declare the lessons you teach to be “timeless,” but Housel delivers on this promise.  Thoughtful readers will learn about themselves in reading this book. The format of the book is 20 independent essays, with just a few threads linking them together.  Collectively, though, they provide useful insight into the way we all think about money. The introduction observes that we’ve collectively “become better farmers, skilled plumbers, and advanced chemists,” but Housel has “seen no compelling evidence” that we’re getting better at handling our money.  He believes this is because “we think about and are taught about money in ways that are too much like physics (with rules and laws) and not enough like psychology (with emotions and nuance).”  I’d like to a...

Many people have heard of the Smith Manoeuvre, which is a way to borrow against the equity in your home to invest and take a tax deduction for the interest on the borrowed money.  It was originally popularized by Fraser Smith , who passed away in Spetember 2011.  Now his son, Robinson Smith, has written the book Master Your Mortgage for Financial Freedom which covers the Smith Manoeuvre in detail for more modern times.  Smith Jr. explains the Manoeuvre and its subtleties well, but his characterization of its benefits is misleading in places. The Smith Manoeuvre In Canada, you can only deduct interest payments on your taxes if you invest the borrowed money in a way that has a reasonable expectation of earning income.  Buying a house does not have the expectation of earning income, so you can’t deduct the interest portion of your mortgage payments. However, if you have enough equity in your home that a lender is willing to let you borrow more money, you could invest t...

I decided to check out the Microsoft software class action settlement .  They say “If you bought PC versions of Microsoft MS-DOS, Windows, Office, Word, Works, and/or Excel between December 23, 1998 and March 11, 2010 (inclusive), you may be eligible for compensation from this settlement.”  There is a link to submit a claim online.  I bought 4 computers during the relevant period, each with Windows and Office.  They assigned a claim value of $13 for Windows and $8 for Office (at least in my case).  So my claim total came to $84.  You have until 2021 Sept. 23 to submit a claim and if you get any money, it won’t be until 2022 sometime.  By then I will have forgotten about it and any money I get will brighten my day. Here are my posts for the past two weeks: The Myth of Simple Interest on Loans Your Money or Your Life The Total Money Makeover The Right Way to Calculate Net Worth Is Delaying CPP “Actuarially Neutral”? The Sleep-Easy Retirement Guide Here a...

There are many big questions when it comes to retirement and David Aston meets them head on in his thoughtful book The Sleep-Easy Retirement Guide: Answers to the Biggest Financial Questions That Keep You Up at Night .  His style is to discuss the advantages and disadvantages of different courses of action which works very well for the big questions he tackles. The main audience for this book is “relatively knowledgeable readers” and “the seasoned investor” who need help “answering the more complex and challenging questions.”  The first question sets the tone for the rest of the book: “How can I fit my retirement dreams within my financial reality?” The Big Questions In the chapter covering, “How big a nest egg will I need?,” the author does an excellent job making it clear that the safe starting withdrawal rate depends on how old you are when you retire, a fact that too many commentators miss.  For those retiring at 65, he suggests the default starting withdrawal rate is...