Education on retirement investing options in Canada and when to transition to safety and why

0:00 So, you're 55 to 60 and approaching retirement before deciding what accounts to hold what in. You need to understand how different investments get taxed. This is a foundation. This is going to be part one of three. Please consult a professional if you don't already. This is educational and every ETF I mention is just a placeholder for what actually works best for your situation. I'm Brian CPA over 15 years in finance. So, there's four types of investment income, four different tax treatments. interest.

0:24 So from bonds, GIC's, saving accounts, taxed at your full marginal rate, no credits, no breaks. If you're in a 40% tax bracket, you keep 60 cents on every dollar. Harshest treatment. There's Canadian dividends from Canadian companies. These get the dividend tax credit in Ontario at 100k income. You're paying 9% on eligible dividends versus 31% on regular income. Same bracket where interest leaves you 60 cents. Canadian dividends let you keep over 90. Under 53K, your rate actually is negative and you get money back. Foreign dividends, US and international dividends, there's no dividend tax credit. Taxes regular income plus withholding tax. The US takes 15% before it even hits your account. Capital gains. When you sell more than what you paid, only 50% gets added to your income. Effective rate in a 40% bracket is 20%, second best treatment after Canadian dividends. Why does account placement matter? RR RSP and TFSA shelter everything inside. No annual tax on dividends, interest or gains, but RRSP withdrawals are taxed as regular income. Your Canadian dividends, your capital gains, all lose their preferential treatment on the way out.

1:30 TFSA withdrawals taxfree forever, your most valuable shelter, non-registered. You pay tax every year, but you keep the preferential treatment. Strategy is to shelter what gets taxed the harshest. Let the tax advantaged stuff sit outside if you run out of room. There's a US and international nuance. US dividends in your RRSP tax treaty means zero withholding. US dividends in your TFSA, IRS doesn't recognize it. 15% gone forever. But here's the thing. If you're withdrawing from your RRSP at a 40% tax rate, that $1,000 US dividend becomes 600 and your TFSA, you lost 150 to withholding but kept 850. TFSA wins by 250. The break evens around 15%. Most retirees withdraw higher than that.

2:09 Internationals messier. Each country withholds at the source. R RSP treaty protection only covers the US layer for simplicity. Canadian listed international ETFs work fine except some drag. Quick summary, bonds, I like them in the RRSP. Interest tax the harshest. US growth goes in your TFSA tax-free compounding. Canadian dividends maybe go in non-registered because of the dividend tax credit. US dividends can go in RR RSP for tax treaty protection, but TFSA can still win depending on your withdrawal rate. If you're out of our RRSP room and you're looking for balance, swap-based bond ETFs can go in non-registered. They don't pay distributions. Entire return becomes capital gains when you sell. Cuts your tax rate roughly in half compared to regular bond interest. I want to give the background first and the why. Part two will cover balances and three ways to build your actual portfolio. Okay, so you're 55 to 60 years old. How do you balance Canadian, US, international, and bonds and what actually provides stability? This is part two of three.

3:06 Please consult a professional if you don't already. This is educational. Every ETF I mention is a placeholder for what fits your actual situation. I'm Brian CPA over 15 years in finance. On geographic balance, what research shows Vanguard and PWL Capital research suggests Canadian investors holding about 30% Canadian and 70% international equities tend to minimize long-term volatility. But whether you pick 25 or 33% Canadian, the difference is very minimal. For background, Canada makes up 3% of global markets. is heavily concentrated in financials, energy, and materials. Global diversification helps smooth the ride. A reasonable equity split could be 25 to 30% Canadian, 45 to 50% US, 20 to 25% international.

3:49 Stability on bonds versus dividends. As you approach retirement, you need stability. There's two options with different trade-offs. Bonds actually reduce crashes. When stocks drop 50% bonds typically drop far less or even rise a 60 40% portfolio worst case draw down over 30 years was about 31% versus 46% for an 8020 split of equity to bonds trade-off is lower long-term returns and interest is taxed extremely harshly so bonds belong in the RSP at a room maybe look at swap base bond ETF and then non-registered dividend ETFs give you cash flow not crash protection for instance dropped 33% % in 2020, nearly identical to the S&P 500. You're getting income and slightly lower volatility than pure growth, but they still fall hard in crashes. If you prefer dividends, that's super valid. If you want actual crash protection, you need something like bonds. Many people hold both. Three ways to build this could look like this. Option one would be simple. I love these all-in-one fund ETFs. Holds everything. US, Canada, international bonds, rebalances automatically. 10 plus years out, you can look at 100% equity or 8020 split. 5 to 10 years out, 8020 or 6040. Under five years, a 60/40 split or even a 4060 split. The trade-off is some withholding tax embedded. Bonds aren't optimally placed, but simplicity for most people wins. Option two would be tax smart, so build your own. Sample for this one would be 70% equity and 30% bonds. The bonds would be in your RRSP. Examples could be ZAG or XBB 35% US growth in your TFSA. Examples would be VF for S&P 500 or VUN for US total stock market 15% Canadian and non-registered examples VDY for dividends or XIC for broad market 20% international and non-registered.

5:37 Examples could be VIU or XEF for developed markets. Rebalance yearly when anything drifts 5% or more. Option three, optimize same foundation, same tools, 30% bonds in your RRSP. Zag works if you're out of RSP room. HBB and non-registered swap base, no distributions. Again, the best US growth goes in your TFSA, VF for simplicity. 10% US small cap value in your RSP, AVUV, US listed, zero withholding. It's a factor tilt. If at a room sheltered, you could look at Canadian dividends and non-registered like VDY. Again, 10% international factor in your RSP like AVDV. US listed avoids with double withholding layer. 5% international broad and non-registered VIU for simplicity. And if you only had 5% left, you could look at HXS, which is swap based, no distributions, all capital gains, and non-registered. And use Norbert's Gambit for conversion to USD, more potential savings, more complexity, only worth it if you actually maintain it. Research supports these frameworks, but preferences matter. High risk tolerance, saving aggressive, longer is viable. Preferred dividends over bonds. Valid choice if you accept the volatility. These are starting points, not rules. Think about the trade-offs. Part three will cover when to shift and what actual crash crashes can look like. 55 to 60. When do you shift from growth to stability and how bad can crashes actually get? This is part three of three. Please consult a professional if you don't already. This is educational. Think about the why, the risks, and the trade-offs for your situation. I'm Brian, CPA, over 15 years in finance. So, the data is clear. More equity means higher returns, but bigger crashes. 100% equity, average return around 10 to 11%. Let's say max draw down over 50% recovery is five plus years. 8020 split equity to bonds average return around 8% max draw down around 46% recovery is around 5 years. A 6040 average return around 8% max draw downs 31% recovery around 3 years. Real crashes. 2008 financial crash S&P 500 dropped 57% 500K became 215K took 5.5 years to recover. 2020 COVID dropped 34% in weeks recovered in 5 months. 2022 6040% portfolios dropped about 17% worst since 1937 recovered the following year.

7:52 You never know which crash you're going to get. Dividend ETFs don't protect like bonds. SEHD dropped 33% in 2020. back tested 2008 data down 44% nearly identical to the S&P 500. Bonds held steady or rose during those same crashes. That's why a 6040 only dropped 31% max versus 50% in all equity. Dividends equal income. Bonds equal cushion. If you want both, hold both. Sequence of returns risk. If you're working and contributing, crashes are buying opportunities. If you're withdrawing to live and selling low, your portfolio may never fully recover.

8:28 The risk peaks in the five years before and after retirement which is the danger zone. So how do you actually switch gradually? 10 plus years out 80 to 100% equity still time to recover XQT or XGrow for simple or build your own with VF or VUN as starting points. 5 to 10 years out, 60 to 80% equity. Start adding stability, XGrow, XBAL for SI simple, or add Zag to your RRSP, VDY or SCHD for dividends if you prefer cash flow, but understand they can still crash under 5 years, 40 to 60% equity.

9:02 Protect what you build, XBall or XCS, or increase your bond allocation. As you add bonds, keep them in your RRSP. Interest gets the harshest tax treatment. Definitely want to shelter it. If you're out of room, swap-based bond ETFs like HBB working on regge. This is what research supports. It's not the only path though. If you have a high risk tolerance and can stomach 50% drops, staying aggressive works, prefer dividends and accept crash risk for income, valid. Want one ETF forever?

9:31 All-in-1s are excellent. Goal isn't following a formula. It's understanding your tradeoffs. So, you make your own call. Don't let me or anyone else influence you online what's already working for you. Think about the why, the risks, and what fits your actual life. Please like and follow for more content like this.