Retirement Financial Mistakes … That I Made, Oooooops!

If you are looking to read some sort of terrible Greek tragedy involving financial disaster, family disintegration, and individuals spiralling down into deep despair, I’m sorry, you will not find it here.

Leading this off by saying that I made financial mistakes is a bit misleading… but it certainly makes for a snappy title :-). This article is more about planning or financial choices I made, that in retrospect, I probably would consider doing differently if I had the chance. More “misadventure” than “mistake”. Sorry.

I should add that we did make one poor financial choice/mistake, but I can’t say that it was me that made it… nudge, nudge, wink, wink… and ultimately it was an excellent learning experience.

Misadventure #1 – Worrying About OAS Claw-back

I could say that the one thing that really led me to do things in a way, that in retrospect, I probably wouldn’t do again, was the fact that I got overly fixated on preventing OAS claw-back, or the “Old Age Security pension recovery tax”, as it is officially referred to. That fixation involved trying to prevent our individual taxable incomes from crossing the minimum taxable income level that triggers the beginning of claw-back. OAS does not provide a ton of extra free money (It is a Basic Income for the elderly), but it was not something that I was really willing to allow to decay just because of poor money management.

Because most of our income is splittable, it allows our tax preparer to spread the money around so that both of us have near identical incomes for tax purposes. In taxation year 2020, the Love-goddess came within $13 of the claw-back threshold, and I came within $3. I would like to say that this demonstrates the success of my planning and thinking, but alas, it does not. It says we have a lovely combined taxable income, and we should not be worrying about losing any of our OAS – especially given that we would have had to have a combined total taxable income of almost $260,000 to lose all our OAS.

This is one of those pesky first world problems for many retired Canadians, and I should probably be ashamed about worrying about it at all. As you shall see, this worry and thinking led to other decisions that ultimately probably weren’t for the best either.

Going Forward – I will not allow the threat of OAS claw-back to impact future financial decisions.

Misadventure #2 – Exiting the Equity Market

Early in 2018, I decided that with having two indexed pensions that would continue to increase until we “weren’t using them anymore” assured us a long and happy retirement, so we didn’t really need to earn much more money than what we had already saved. Having survived the financial crisis of 2007-2008, I felt that I did not want to subject our financial position to a big dip in the market that might take a longer-term time than we have available to recover from. This led me to think that we should liquidate all our equities and invest strictly in GICs – even though these might not even keep pace with inflation. “Capital Preservation” became the order of the day.

The benefit of being invested in the stock market is that, overtime (i.e. the big picture) the stock market will continue to increase. There will be big ups but there will also be big downs from time to time, but the stock market marches on ever upwards.

The first part of the exit took place just before the Love-goddess was about to be forced to start drawing down on her RRSPs. I decided that I did not want us to take a big capital gains hit after that, because it would definitely put us solidly into OAS claw-back. As a result, I sold off all our non-registered stocks, taking the tax hit in 2018.

The second selloff took place not much later  – that being the liquidation of all of our equity holdings (primarily Index ETFs) in our registered savings plans i.e. RRSPs. I left the equities in our TFSAs alone because it didn’t really matter what happened to the stock price as long as they continued to spit out the lovely dividend income stream.

The outcome of this “brilliant” undertaking was that when the market collapsed by over 30% in March 2020 our retirement funds and our general investment fund did not drop one nickel. The TFSAs did of course, but only one of the 20 odd stocks we held decreased its dividends slightly. The “income” strategy held even during a major downturn. At the time, I was feeling pretty smug about my “sell” decision. But as we all now know, that was very temporary and the market has surged ahead of where it was before the collapse. Need I repeat, the market marches on ever upwards.

The bottom line is that if I had simply left everything intact, we would have been much further ahead than we currently are. As I said, this doesn’t really make any difference to us because we don’t really need that extra money… I hope… but I think it reminded me of the importance of continuing to have some of your investments in equities no matter what the economic situation is, or no matter what age you are. Ultimately, we will benefit… or our heirs will.

All of this reinforces the fact that when it comes to the stock market, the buy and hold long-term strategy is a total winner. Here is one example of how that would have benefitted us. On January 23, 2018 I sold all of our Apple stocks in our non-registered investment account at $179.25 a share. We had paid something like $83 a share a few years earlier. We made well over 100% on our investment… which was the magic number I was hoping to achieve before triggering the taking of profit. All very wonderful.

Wonderful yes, but it could have been fantastically wonderful if I’d have simply held onto them. On August 31, 2020 Apple split their shares 4 for 1. If I had held onto the shares, we would now have four times as many, all valued at this past Friday’s closing price of $148.60 a share i.e. equivalent to nearly $600.00 per original share. All the other stocks and ETFs I sold are all well up at this point as well.

This scenario of course begs the sarcastic question “so, how did that sell, sell, sell strategy work out for you”. This does not upset me in the least because I was happy with the gain at the time and knew that ultimately things would still continue to go up. That said, I have reconsidered the “capital preservation” strategy, and I have decided that in the next big market correction we will start to push money back into the market in our retirement funds.

I’ll have to admit to receiving some positive reinforcement in this area in the last month or so. At the beginning of July, a GIC came due in my RRSP and I decided that rather than buying another… one year GICs offering the princely return of 0.9% (1.9% for 5 year term, yikes!)… that I would jump back into the market. I ended up buying a bunch of “iShares Core S&P 500 ETF”. Since July 6, my investment in those shares has increased in value by over 6%.

So, the choice was, invest a chunk of money for one year and make 0.9% return or throw the money into the market for a month and a half and make 6+%… Seems like a no brainer. It is a no brainer in that the market continued to go up. It quite just as easily could have gone down, and I would have had to wait who knows how much longer before it ended up in positive territory. And I would have been fine with that.

When I threw the money back into the market, I knew it was going to be there for a long period of time, and wasn’t really expecting any immediate serious gains., However, when it got up over 5% I thought that it would not be a major mistake to sell the stocks again and lock in that winning percentage for the year. I would have been able to say, geez I made 6+% instead of 0.9% on that money in this year. This might be a strategy to think about invoking in our retirement funds going forward,  – quick buys and sells when the market is headed in the right direction. Food for thought.

Going Forward – I will get us back into the equity market in all of our financial saving products at the next market pullback. Consider buying and selling on a more regular basis to lock in profits for the current fiscal year.

Misadventure #3 – Not Drawing Funds Out of Our RRSPs Early

This does seem a little counterintuitive because that money is supposed to be saved specifically for retirement and stretched out over many years to ensure a reasonable cash flow through your entire retired life.

That said, when you retire, typically before you start drawing down on your RRSP funds, your income will probably be at its lowest level in your retired life. This also means that your tax rate on those funds may well be less than what you may pay down the road when you end up drawing them out as expected. Yes, you will lose out on tax free growth if those funds stay in your RRSP, but it may free them up for investment or immediate use that will provide long-term gains as well. And, at the risk of repeating myself, you will have drawn that money out at the lowest tax rate you’ll ever have. This is all based on the assumption that you have other reasonable income streams and don’t have to rely solely on your retirement savings down the road.

We ultimately decided not to withdraw funds because the Love-goddess started to make some good money doing consulting work right after she retired. No RRSP draw down for her. And of course, I didn’t start drawing from mine either because I had to claim more of her pension income on my income tax to compensate for her new income stream. The plan originally was that we would both start drawing out some RRSP funds when she retired. We decided that I wouldn’t start drawing mine as soon as I retired because I was going to start collecting my CPP at that point.

Going Forward – Not much we can do about this at this point. And perhaps drawing out RRSP money early would not have worked out well for us. Instead, right now, I could be writing about the hazards of drawing out RRSP funds early.

Misadventure #4 – Taking CPP Early

Which brings us to “mistake” number three. I started taking my CPP when I was 60, and in retrospect now, it would’ve made much more sense to not touch it until I was at least 65. But, I remain convinced that the thinking behind this decision was reasonable and not truly a bad decision.

The rationale was this: at that time the general consensus was that that if you took your CPP at 60 you would not start to lose money until you got to the age of 78. My thinking was, hey, I’m probably going to have more need for that money between the age of 60 and 78 after which I will be contemplating not doing the extensive travel that we currently enjoy. Secondly, we didn’t really need the money because the Love-goddess was still working, but I decided that the CPP money could simply be tucked away in my TFSA every year for the following several years and that money would make us a lot more money than it might sitting in the government coffers. Maybe.

Going Forward – Perhaps, an alternative approach for us might have been to have me start drawing down my RRSP money as soon as I retired and leave the CPP intact until I was at least 65 years old. That said, there’s absolutely nothing we can do about this now.

Misadventure #5 – Fixated on Equity Produced Income, Not Growth

I suppose the other thing that I would consider to be a financial “mistake” was becoming too fixated on income investing exclusively in our TFSA’s, rather than focussing on growth investing, at least in part. Although, even I would find this difficult to identify as a mistake, given how much growth we have got out of our dividend stocks over the years. What I missed out on was some dramatic growth by not investing in technology stocks… the area in which I feel I might have the best understanding.

Here is a quick example. Approximately five years ago, I had to extricate us from a financial misstep that I will address next. The decision was made to minimize our loss and sell an equity we were invested in, Crescent Point Energy, that had crashed and burned.

The thought had crossed my mind to step away from the income investing path we were on, i.e. dividend paying blue-chip stocks, and buy a serious technology growth stock at the time. The growth stock I identified as probably having the most upside for us was Shopify. At the time Shopify was in the $50-$60 range. As I write this it is approaching $2000. Instead, I stuck with the original plan and bought Emera, a high yielding utility stock. A decent investment certainly, but not a high-flying growth stock. Still, I don’t feel any remorse over this purchasing decision. And that is a key quality everyone needs, don’t second-guess yourself after the fact.

Going Forward – One modification to our equity investment strategy that may come out of all of this is that I have given thought to adding in some riskier growth investments to our TFSAs now that they are already providing a nice ongoing income stream..

The One Actual Mistake

So here it is, the one actual mistake. Back in 2016, I was looking to add Enbridge, a Canadian pipeline company, to our mix of blue-chip dividend stocks. However, another family member discovered that Enbridge was transporting that awful, high polluting, greenhouse gas emitting tar sands oil. She wanted no part of that.

The nice folks who were managing our money at the time suggested that instead we invest in Crescent Point Energy, an energy firm that produced only that beautiful, healthy, non-polluting, organic, extracted directly from Mother Earth… OK I’ve gone on just a bit too far with this… oil from beneath the ground in Alberta. So, we bought Crescent Point. The suitability of that thinking and decision making still escapes me to this very day.

Anyway, to continue the sad story, Crescent Point tanked and we lost a big chunk of change. Not a seriously impactful amount of money, but an annoying misstep, nevertheless. The most annoying part of it was it was entirely in my TFSA because the other family member did not want any of that tawdry oil money in her TFSA. Mutter, mutter, mutter.

Going Forward – The lesson here is investing decisions should not be guided by arbitrary, isolated ethical reasons. If you are going to be an “ethical” investor you need to do it with absolutely every investment that you make.  I am happy to report that we now own a whole bunch of Enbridge stock. 🙂

Misadventure In Timing – Didn’t opt to Manage Our Own Finances Soon Enough

One other thing I would change is that I would have set us up to manage our own financial matters much sooner than we ended up doing so. There certainly was a legit reason for it not happening sooner. We were both working full-time and did not really have the time or energy to spend on studying and practising effective investment strategies, and we were very happy with our “for fee” financial advisor until he retired.

I can’t honestly say that this is something everyone should be doing, but over the last several years it has worked out well for us. We are well ahead of where we would have been if we had allowed someone else to manage our money.

To repeat, this is not something I would suggest for everyone. In fact, I have said to a couple of widowed friends, who have zero interest in learning how to manage their finances, that they are better off leaving their money with the professionals and should not attempt to go it alone.

So, What Does This Mean for You?

Hopefully, nothing. Please do not interpret my ramblings here as suggestions for how you might approach things. If you find something here that was of interest to you personally you should discuss it with your most trusted financial advisor. My misadventures did not cause us any financial harm at all, but that may not be the case if you try to follow someone else’s path.

I suppose my greater aim in writing about all of this is to make you aware that you can make financial decisions that you may not be totally happy with later on. That is just part and parcel of financial life in retirement. If it does you no or limited financial harm then it is just an interesting learning experience.

Additionally, the value to me in writing this all out provided an opportunity to think about all of our financial actions since we’ve been retired, and just how those have worked out for us. This is probably a good thing for all folks to consider doing. I found the fact that I was writing it all out really helped clarify my thinking. Perhaps this has just been some glorified navel staring after all. 🙂

One thing I do know about financial planning in retirement is that every individua’s and every couple’s situation is different from every other individual’s or couple’s situation. I wish you all the best with your retirement financial planning and execution.