Withdrawing from a stock based RSP

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rharvey199
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Withdrawing from a stock based RSP

Post by rharvey199 »

Assuming one has an RSP made up of individual stocks and assuming the overall portfolio does not generate enough interest/dividends/other income on its own to fund retirement, I was wondering how people determine which stocks to sell to withdraw cash from an RSP to fund retirement?
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Re: Withdrawing from a stock based RSP

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I would sell my worst performers.
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Re: Withdrawing from a stock based RSP

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Look at your recent historical Total Return and trending data of your holdings and then simply pick the one you think has the lesser chance of growth 'going forward'. Example: If you are a believer of slowly rising interest rates, keep your lifecos, but pick away at your highly indebted holdings...like utilitiies and pipelines, maybe even telcos. That's likely a better than 50/50 chance of throwing darts.
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Re: Withdrawing from a stock based RSP

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A two part answer. What about TaxTips.ca - Making "in kind" withdrawals from an RRSP or a RRIF rather than selling and withdrawing cash?

Or I'd look at the problem from a different perspective. Annual RRSP withdrawals are a fact of life and the formula is known. So why wouldn't you setup your portfolio holdings to include a fixed income/cash (or equivalent) that would match the known upcoming liability?
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AltaRed
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Re: Withdrawing from a stock based RSP

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Peculiar_Investor wrote: 12 Apr 2017 11:16 Or I'd look at the problem from a different perspective. Annual RRSP withdrawals are a fact of life and the formula is known. So why wouldn't you setup your portfolio holdings to include a fixed income/cash (or equivalent) that would match the known upcoming liability?
If you are going to maintain an asset allocation going forward, selling equity is as important as selling fixed income, no?
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adrian2
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Re: Withdrawing from a stock based RSP

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AltaRed wrote: 12 Apr 2017 11:50
Peculiar_Investor wrote: 12 Apr 2017 11:16 Or I'd look at the problem from a different perspective. Annual RRSP withdrawals are a fact of life and the formula is known. So why wouldn't you setup your portfolio holdings to include a fixed income/cash (or equivalent) that would match the known upcoming liability?
If you are going to maintain an asset allocation going forward, selling equity is as important as selling fixed income, no?
Or you may subscribe to the idea of Reducing Retirement Risk with a Rising Equity Glide-Path.
Wade Pfau and Michael Kitces wrote:This study explores the issue of what is an appropriate default equity glide-path for client portfolios during the retirement phase of the life cycle. We find, surprisingly, that rising equity glide-paths in retirement – where the portfolio starts out conservative and becomes more aggressive through the retirement time horizon – have the potential to actually reduce both the probability of failure and the magnitude of failure for client portfolios. This result may appear counter-intuitive from the traditional perspective, which is that equity exposure should decrease throughout retirement as the retiree’s time horizon (and life expectancy) shrinks and mortality looms. Yet the conclusion is actually entirely logical when viewed from the perspective of what scenarios cause a client’s retirement to “fail” in the first place. In scenarios that threaten retirement sustainability – e.g., an extended period of poor returns in the first half of retirement – a declining equity exposure over time will lead the retiree to have the least in stocks if/when the good returns finally show up in the second half of retirement (assuming the entire retirement period does not experience continuing poor returns). With a rising equity glide-path, the retiree is less exposed to losses when most vulnerable in early retirement and the equity exposure is greater by the time subsequent good returns finally show up. In turn, this helps to sustain greater retirement income over the entire time period. Conversely, using a rising equity glide-path in scenarios where equity returns are good early on, the retiree is so far ahead that their subsequent asset allocation choices do not impact the chances to achieve the original retirement goal.
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Re: Withdrawing from a stock based RSP

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adrian2 wrote: 12 Apr 2017 11:55 Or you may subscribe to the idea of Reducing Retirement Risk with a Rising Equity Glide-Path.
Personally, I wouldn't give much credence to the results of a study based on the foolish SWR model. The SWR withdrawal model is foolish because it lets most retirees die as the richest people in the graveyard, while bankrupting most of the others years before their death.

I might give more weight to rigorous mathematical proofs such as found in Merton's portfolio problem and Samuelson's Lifetime portfolio selection by dynamic stochastic programming.
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Re: Withdrawing from a stock based RSP

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Adrian, I do subscribe* to a rising equity allocation as one progresses through retirement. Have said that before, as have others. But it does not mean drawing 100% from fixed income and no equity for most people. They would likely run of out fixed income completely well before they do a face plant into the daisies.

* In 'walking the talk', my equity allocation has continued to creep up 11 years into retirment and it will continue to do so, especially when I RIF in a few short years. But I won't let my FI allocation slide too fast and to avoid that, I have actually been selling equities to fund my 'lavish' lifestyle along with tapping into FI.
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Re: Withdrawing from a stock based RSP

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adrian2 wrote: 12 Apr 2017 11:55
AltaRed wrote: 12 Apr 2017 11:50
Peculiar_Investor wrote: 12 Apr 2017 11:16 Or I'd look at the problem from a different perspective. Annual RRSP withdrawals are a fact of life and the formula is known. So why wouldn't you setup your portfolio holdings to include a fixed income/cash (or equivalent) that would match the known upcoming liability?
If you are going to maintain an asset allocation going forward, selling equity is as important as selling fixed income, no?
Or you may subscribe to the idea of Reducing Retirement Risk with a Rising Equity Glide-Path.
My point is that, in most cases, it's more likely that more fixed income than equities will be sold in retirement.

A person with a big enough RRIF would not need to sell any equities at all.
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AltaRed
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Re: Withdrawing from a stock based RSP

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adrian2 wrote: 12 Apr 2017 13:52 My point is that, in most cases, it's more likely that more fixed income than equities will be sold in retirement.

A person with a big enough RRIF would not need to sell any equities at all.
Could be, but it will be situational depending on one's net worth and equity/FI allocation at withdrawal stage. I am currently between 80-85% equity (90% if I include preferreds). That doesn't count the circa 12 month running spend that I keep topped up in HISA bank accounts.
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Re: Withdrawing from a stock based RSP

Post by rharvey199 »

Thanks for everyone's responses. looks like it will be a tough decision determining what to sell. my RSP is made up mainly of fairly conservative but steady performers - BCE, TRP, RY, BEP, BIP, MO, ENB, etc. but i do have some cash i can use for a few years before having to touch any of the stocks. if i could hold these companies forever i would but the dividends won't cover expenses so they will have to be sold off one by one. First world problems, eh?? :mrgreen:
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Re: Withdrawing from a stock based RSP

Post by kcowan »

Every November I rebalance my RIF stock holdings to create the payment. Usually I sell the losers but once in a while, I will ratchet back on winners if I think their future is less rosy.
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