Tag Archives: retirement

Trying to Pay for All Our Expenses Using Dividend, Distribution and Return of Capital Income Only

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Each year, I track our expenses as the bills come in and get paid. At the end of the year, I add it all up and start comparing to previous years. I’m curious about my personal rate of inflation. I’m also looking for interesting trends like the long-term drop in the price of natural gas which could lull me into a false sense of security about being able to meet that need in the future. And, recently, I’ve started looking at the numbers to see if it would be possible to pay for our expenses using only the income from our investments such as our dividends, distributions and, in the case of REITs, our return of capital.

What I Found Doing the Review of Our 2014 Expenses

Well, it looks like we have not had any leaking toilets or taps during the first three quarters of 2014. Our water consumption has stayed the same. (We don’t water lawns or gardens in the summer, by the way. Planting perennials that are suited to the climate here has paid off; and I hate grass and prefer it to go dormant so I don’t have to mow it as often.)

We won’t know if we “sprung a leak” since December, though, until the next quarterly bill arrives. (It’s too cold to try to read the meter and I can’t be bothered. You can remind me I stupidly said that if I ever get one of those $1000 water bills….)

The drop in the price of gasoline is too recent to show a big impact on our annual gasoline spending. The price of gas was so high in the early part of the year, though, that we spent about the same as if we’d made a road trip to the Maritimes from Ontario this year, even though we didn’t. Good thing this was the “stay home” year!

We have GOT to do something, almost anything, about our internet bill!

I can continue to ridicule the government when they tell me how they have forced the insurance companies to reduce my home and auto insurance rates. (Although neither rate has gone up much either.)

How Does Our Investment Income Match Up to Our Expenses?

Mark at My Own Advisor was playing this game and reminded me to try a hand.

Simple Bills to Budget For

Ok, we’d have no trouble paying for

  • Water
  • Telephone
  • Internet
  • House insurance
  • Hydro
  • Natural gas and
  • Property taxes

From our investment income.

Car Expenses to Budget For

I separated out our auto-related expenses before starting the game. And I’m glad I did.

Wow! Who knew how fast those add up? (Ok, Mr. Money Mustache does and he talks about it ALL the time.)

The costs include

  • CAA
  • Driver’s licenses
  • License plates
  • Car insurance (why does it cost the same to ensure a ’98 Corolla as a ’12 Camry?)
  • Gasoline
  • Car repairs and maintenance
  • Saving for the next cars

Somewhere down that list is where we ran out of income before we ran out of expenses.

Harder to Estimate Expenses to Budget For

Which is too bad, because the expense list continued with:

  • Dental (no coverage in retirement)
  • Eye care (almost no coverage now or in retirement)
  • Drugs and health (does your doctor tell you the only way to prevent colon cancer is psyllium fibre at $20 a bottle even though you’ve never been constipated in your life?)
  • Food and housekeeping
  • Clothes and dry cleaning
  • Gifts, hobbies, entertainment
  • Charity
  • Pre-saving for home repair and maintenance costs

And probably a few dozen other costs I forgot to include. (I know our overall annual spending so I don’t usually bother to parse it out into categories.)

Yet if we ditched the cars (not literally) we’d be quite a ways down that list. So I guess if we plan to retire early, we may have to plan on reducing our stable of vehicles, or on increasing our retirement income. (There’s no trouble meeting all of these costs if we include CPP, OAS and a few other bits and pieces that we don’t get access to until 65+.)

Anyone want to buy a ’98 Corolla? It comes with a free (partial) can of Tremclad.

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Is your investment income enough to cover your expenses? Or do you expect to have to use the capital? Please share your strategy with a comment.

Should I Dump My Bond Funds? Are Interest Rates Finally Going Up?

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Ok this is starting to get silly. For more than 3 years now I’ve been told by almost every article I’ve read, radiohead I’ve heard, and TV pundit I’ve watched that I should sell my bonds. Why? Because once interest rates start to climb, the saleable value of the bonds will have to drop so that the yield will increase so that buyers will be willing to purchase them. (Conversely, when interest rates dropped, the yield went up so sellers demanded a higher value for their bonds which reduced the yield but kept it higher than that offered by other fixed income investments like GICs.) Last year, I seriously thought about dumping my holdings in bond funds because it seemed like interest rates were finally going up; I’m glad I didn’t, totally.

What Did I Do with My Bond Investments in 2014?

In 2013, my bond funds lost a bit of ground. So in 2014, I tried to decide when and how to dump them. I began to second-guess myself though when interest rate announcements seemed to say things were staying flat.

Eventually, I decided to liquidate all the earnings made by the bonds in the past three years. In other words, I sold off enough units to drop the total invested amount back to where it was on January 1 2011.

What Happened with the Amount I Left Invested in Bond Funds in 2014?

Strangely enough, my bond funds did very well (for fixed income investments) in 2014!
They increased in value about 7.6% after costs.

(That’s understated because it assumes the gain was earned by the entire amount I started 2014 with in bonds, when in reality for most of the year less than that amount was invested in bonds. I didn’t include any of the profit earned by the money taken out of the bonds and invested elsewhere.)

That’s quite a bit over the 1-year GIC rate of about 2%!

Since I keep a certain asset allocation which is heavy on fixed-income investments, I’m glad I kept that money in bonds. The part of it earning GIC-rates sure didn’t grow much in 2014.

What’s My Plan for the Bond Funds for 2015?

I’ve decided to leave them alone. They will probably drop a bit in value if interest rates rise. The effect of ending quantitative easing, however, appears to be over with already. Or if it isn’t, it’s really not going to be a predictable effect.

In the meantime, PH&N appears to have some sort of idea of how to game the system. There’s not really any reasonable explanation for a 7%+ yield on a bond fund. They must be doing a fair amount of trading and winning capital gains to push it that high in such a low yield environment.

They do mention that they have bought in to some relatively high yield provincial (Canadian) bonds and that they are picking and choosing some corporate bonds to hold to maturity. (Note: this particular fund does not invest in high-yield aka “junk” bonds.)

So I don’t expect to get another 7% in 2015. I expect to see somewhere between -3% to +5%.

But, hey, since the articles, radioheads and pundits have all been wrong, I won’t be surprised if I am too!

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Whither go bonds in 2015? Up, down, sideways? If you’re invested, will you stay the course? Please add your opinion with a comment: you may very well be better at predicting the fixed income market than the talking heads on the TV!