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Generating income from your portfolio

Create the income stream you need for a longer retirement 
Canadians are living longer than ever before, and we don’t want to spend all that extra time working. The result? We’re living longer in retirement. In some cases, especially for those who are able to retire early, these retirements could exceed 30 years. That’s a long time, and more and more people are going to need a portfolio that can help fund all those years without a pay cheque. 

Our longer lives, our longer retirements
Our lives are getting longer because of improved nutrition and advances in medicine.
In fact, Statistics Canada reports that:
  • In 1972, the average life expectancy for men and women born in that year was 69 and 76 years, respectively.
  • For people born in 2002, life expectancy increased to 77 and 82 years, respectively, for men and women.
  • The most up-to-date numbers were recently reported and, as expected, the numbers have continued to improve. For Canadians born in 2012, the life expectancy for men is 80 years and the life expectancy for women is 84.
That means a retirement of 20 years is possible, and people will need a portfolio that can generate enough income to cover that many years. To be safe, however, many people are planning to fund up to 30 years in retirement.
Sources of investment income
To generate the income they need, many investors turn to bonds, dividend-paying stocks and income funds.
  1. Bonds have what’s called a “coupon rate,” which is a certain percentage of income (or yield) that is paid out every year. These yields vary greatly, but the general rule is: government-issued bonds are the most secure and offer the lowest yield, while “high-yield” (or below-investment-grade) bonds issued by corporations are the riskiest and offer, as the name suggests, the highest yield.

  2. Dividend-paying stocks are generally issued by mature businesses, like banks, that do not put their earnings back into other areas of their business, such as research, development or exploration. Instead, they pay earnings out to shareholders in the form of dividends that tend to be a certain dollar amount per share held by the shareholder. In Canada, dividend payments are also taxed at a lower rate than the interest paid by bonds, which is important when considering how to generate after-tax income.

  3. Income funds are a relatively easy way for investors to generate income from their portfolio because they don’t have to do all the research and investing themselves, but, instead, benefit from a professionally managed portfolio of fixed income holdings. For assets held outside of your registered retirement savings plan (RRSP), there is also a type of mutual fund referred to as “Series T,” which attempts to generate an income in a more tax-efficient manner.
You have many investment options available to you to help you fund your retirement. Perhaps the most important step is to seek the advice of an investment professional who can help you find the investments that best suit your individual needs.
Contact our office today to learn more about the many investment options available to provide the income you need in retirement.


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