One Strategy When Converting a LIRA to a LIF

[Viking]

I am in the process of converting my two LIRA’s to LIF’s. LIRA (locked in retirement account). LIF (life income fund). Funds in a LIRA can’t be touched. Funds in a LIF must be withdrawn (min/max levels set by government). This thread will mean more to Canadian readers. What do readers think about the strategy? What high dividend stocks am i missing from my list below? (I am looking for more high conviction ideas.)
 

I like the idea of stuffing both accounts with a basket of high dividend stocks, given yields are so high right now. And then setting the withdrawal rate for each LIF at the dividend yield of the portfolio. I have started down this path and my current dividend yield is 5.7%. So i get a perpetual monthly stream of income that will grow over time (as the dividends are increased). My guess is the capital appreciation of the equity holdings will keep up with inflation so the total real value of the two accounts will stay flat. The income stream received will likely come in at about 50% of what my wife and i need for a very good retirement. 
 

My total portfolio is also of a size today that i want to take pieces of it and ‘set and forget’ (and not actively manage). My two LIRA’s seem like a good place to start. Doing this would also check the estate planning box as my wife is not interested in stock picking. I want to get some of our financial assets in ‘dummy’ type portfolios. 
 

I know dividend stocks are supposed to be in taxable accounts because of the favourable treatment they receive in Canada… my ‘problem’ is most of my investments are in tax free accounts. So, yes, any income received from the LIF will be taxed as income. My wife and i have a lot of flex in what our reported income is so i am not worried about taxes (they will be reasonable).

 

So many stocks (and sectors) today in Canada offer high dividend payouts. I am not sure that this will continue indefinitely. 

Here is where i am at in terms of holdings (as of today):

- telecom: Telus, BCE, Rogers

- energy: SU (should probably add CNQ)

- utilities: Atco, Enbridge, TC Energy, Pembina

- financials: BMO, CM, BNS, CWB, Citi

Canadian bank stocks are a small weighting. As they report in the coming weeks i am hoping for a sell off so i can add more (i have some though as a few companies are trading at or near 52 lows). 

Edited August 16, 2023 by Viking

[bizaro86]

Is it important to you the payments be smooth? If not, I think VCI and LIF will both payout high average yields, but they'll be lumpy.

 

VCI is a glass recycler that crushes bottles and sells the pieces to fiberglass manufacturers. They are the only firm that does this in Alberta, and there are multiple fiberglass manufacturers here, because of cheap natural gas. I think this is a great niche business.

 

LIF has a royalty and equity stake in a large, long life iron mine. They dividend out basically all cash flow, which varies dramatically with iron ore prices. On average I think payouts will be higher than your list above but much more variable.

 

Final idea is MRD. Real estate owner and developer. Land business has huge tailwind as people move to AB from BC/ON to escape onerous housing prices. Yield is 5.4%, and owned RE portfolio/management of a captive reit are significant here, so the development land is more gravy than necessary to tread water.

 

I own all 3. Finally, I think Canadian prefs are very cheap right now. I'm still in the accumulation phase so Im not converting my LIRA to a LIF any time soon, but I levered up a taxable account for my wife (whose taxable income is much lower than mine) and put the money in prefs. She'll pay very low net taxes on the dividends because the dividend tax credit is figured on the top bracket while she pays in a low bracket, and the margin interest is still 100% deductible so the tax benefits are very real. Floating rates from good companies pay around 10%, and since it moves with floating rates the interest rate risk from funding with floating rates is lessened. I think these are potentially a good source of retirement income - they don't have the dividend growth side covered, but you could pair them. Eg, something with a low but growing payout for the future with a pref to cover the now.

Edited August 17, 2023 by bizaro86

[SharperDingaan]

Look at province of newfoundland bonds, laddering as opportunities permit, and holding to maturity. 50% of the minimum draw funded from interest, the rest funded from prefs

 

SD