Revealed: My Ridiculously Easy Early Retirement Withdrawal Strategy

Hundreds of you have requested this post.

It’s one of the most common questions I’m asked.

Every time I’ve spoke about this topic on Twitter, I get dozens of responses and tons of likes, retweets, and bookmarks.

The people are clearly interested.

Today I’m going to pull back the curtain and reveal my retirement withdrawal strategy — a ridiculously simple strategy that many of you can easily pull off. In fact, one of the main reasons I chose this particular method is because of how easy it is.

I’ll also explain why I choose my strategy compared to the many others out there, how I approached the problem from a different angle as an early retiree outlier, and why I have no interest in one common retirement withdrawal strategy.

We have a lot to cover today, so let’s get right to it.

Approaching early retirement

Up until 2018 or so, your author was staunchly against early retirement.

I was ambitious, still mostly enjoyed work, and was still quite motivated to save large amounts of my income. So I didn’t see the point of retiring early. At that point I had been saving at least 50% of my total income for the past 20 years, and it was a sacrifice I had gotten used to.

But slowly, my opinion changed. I can’t even put my finger on why, either. I was working hard and saving aggressively, but without a why behind it I started to struggle.

There was also probably some work dissatisfaction there too, but I can’t really remember what it was.

What I definitely remember was a powerful realization. There are a million paths to wealth out there. I had originally been attracted to deep value because of its potential for high returns. When those high returns didn’t pan out for me (I was a terrible deep value investor) I started pivoting to a more dividend-focused approach.

One of the main reasons I was attracted to the dividend approach was the simplicity of the whole exercise. It limited my investing universe, making research easier. Dividends were sometimes cut, sure, but overall they were much more stable than share prices. Dividend stocks were boring, easy-to-understand companies, which was right in my wheelhouse. And I liked the idea that I owned a small part of companies who I interacted with every single day. Paying your cell phone bill is much easier knowing you get a small piece of everyone’s bill.

Once I had a goal in mind I was reinvigorated. I put my head down, got to work, and started tracking those dividends. Once I hit my dividend goal, I decided, then I’d retire.

Actual retirement

The dividend-first retirement withdrawal strategy continued to appeal to me as I thought much more seriously about hanging up the proverbial skates.

It was attractive because:

• I had survived the market chaos of 2020 with my income mostly intact

• I witnessed my dividend stocks deliver both capital gains and increased dividends

• These ever-increasing dividends were an excellent inflation hedge

• The strategy of buying and holding quality blue chip stocks was ridiculously simple to pull off

• I could withdraw capital each year without selling any shares, which I viewed as killing the golden goose

One thing that changed between 2018 and my official retirement date in 2022 was my desire to build a buffer.

What I realized is that I was only going to get one shot at this early retirement thing. Failure simply wasn’t an option. If I was going to go back to work, it would be on my terms, dammit. Not somebody else’s.

To ensure that wouldn’t happen, I needed a extra bit of safety. I needed to stress test the whole apparatus to make sure it could handle more volatility than what it was designed for.

So I looked back to 2020 and 2008-09. I studied the impact of getting a big bet wrong. And I thought an awful lot about downside potential.

I also looked at the 4% rule, a simple withdrawal method that a lot of other retirees used. But I struggled a bit with it because the numbers work for a 30 year retirement. I was planning something much longer.

Because I like to keep my plans simple, I came up with a ridiculously easy withdrawal strategy. I would continue to retire on the dividends, but I’d only withdraw 70-75% of my dividends each year. 

Basically, I turned a 4% withdrawal rate into a 3% withdrawal rate.

This not only further secured what I viewed as a pretty solid retirement plan, but it also came with other advantages:

• It would allow me to have some capital to buy cheap stocks when they were on sale

• Additional dividends from the purchase of new shares would help dividend growth

• I could continue to put cash to work and research new companies to buy, which I love doing

• The extra security would also allow me to sleep well at night

That’s the whole strategy. Combine that with having a solid cash buffer on hand at all times (approximately a year’s worth of expenses), and that’s it. It’s the strategy in a nutshell.

I’ve been doing this strategy for close to two years now, and it’s worked out superbly. My portfolio hit an all-time high in late July and my dividend income continues to go up each year. My portfolio also survived the latest scare with nary a scratch on it.

This plan had an extra layer of security, too. I never intended to retire and do nothing all day. Sure, I had plans to travel, relax, and golf in early retirement, but I also knew it wasn’t going to be all leisure. I’d have some sort of work — but it would be my own project, at my own pace, and with tons of freedom to do whatever I wanted.

That project, of course, is this newsletter.

I call it selfish employment. My buddy Mark over at My Own Advisor calls it WOOT — work on own terms. Others might call it their passion project. Whatever the name, the result is the same.

I always hoped to make a little bit from this little newsletter, but my goals were modest. I just hoped for a small bit of extra income, just a little extra buffer. Something to make an already secure retirement all the better. And I’ve succeeded; I have way more paid subscribers than I’d ever imagined. I have hundreds of premium members, and I’m absolutely thrilled they welcome me into their inbox.

What account to withdraw from

One of the two most common questions I get about my retirement withdrawal strategy is this:

What account do you withdraw from?

I have capital in taxable accounts, RRSPs, and TFSAs. My wife has a similar account setup.

The bulk of our dividends come from taxable accounts, and those are the ones we spend. Withdrawing is simple, and there’s no tax implications there.

Making the decision to withdraw from RRSPs is trickier. I want to withdraw when my taxable income is lowest so I’m not stuck paying a big tax bill simply because I want to get my capital out of my RRSP.

Here’s what I do. Each December 1st I have a pretty good idea of what my taxable income will be for that year. So I use an online tax calculator and play around with the numbers. How much extra tax will I owe if I take $X out of my RRSP? How about if I take $X+5,000? And so on.

In 2023, I made an RRSP withdrawal. The numbers told me it made sense. I haven’t checked whether it’ll make sense here in 2024, but if it does then I’ll be making another withdrawal.

By playing with the numbers on December 1st, you give yourself time to comfortably make the decision. Then you can do the needed withdrawals with plenty of time to spare.

As for TFSAs, the strategy is simple there. I make sure I contribute the maximum each January and I’m loathe to withdraw anything from the account. Remember, TFSAs let you compound tax free… forever. It’s a powerful account that should be treated like the true gift it is, rather than some piggy bank to be robbed from.

Why I’m not selling any of my stocks

The second-most common question I get asked is this:

Why isn’t selling some of your stocks part of your retirement plan?

There are three primary reasons.

Firstly, let’s call a spade a spade. Most investors absolutely suck at selling. They get nervous and they sell something at a 52-week low that’s poised to recover. Or they sell a company way too early, like I did:

I’ve gotten a lot better at selling since my Intertape Polymer bungle in 2013, but I’m still the first to admit I’m not a great seller. So I don’t really do it. I buy and hold whenever possible. I have a selling plan that specifically tells me when to let go. And I make sure I don’t pull the trigger on a sale until I contemplate it for at least three months.

If I believe most investors are bad at selling, then I believe that a retirement plan that depends on the sale of assets is not very ideal.

Secondly, I don’t want to sell anything. I’ve spent years building up my portfolio and I don’t want to tear it down. I bought these companies because I believe they have the ability to grow their cash flows over time on a per share basis. Why would I sell these productive assets to pay bills? Especially when I don’t have to?

What I’ve found is the folks who are after me to sell assets have very different portfolios than I do. Their money is usually invested in growth companies with very small dividends. If that’s the way they want to invest, then great. I’m the first to admit that approach has merits.

But one of the disadvantages to that approach is you’re forced to make sell decisions to take capital out. That’s not easy. I’d much rather have the company send me a percentage of the profits each quarter, like clockwork.

That’s much easier, and I’m really all about keeping things simple.

And finally, selling stocks ultimately adds risk to my early retirement plan. The whole reason why I live on 70% of my dividends is because I wanted a buffer. I could easily have another 60 years on this planet, and I have to plan accordingly.

Sure, my stocks should grow fast enough that I can sell down a few shares each year, but nuts to that. By doing so I’m adding risk to an early retirement that’s already a little sketchier than a regular version. I’m asking my capital to last about 25 years longer than a traditional retirement, which is a lot to ask.

It’s why I felt I couldn’t depend on the 4% rule. I had to go more conservative.

If I have the view that an early retirement is riskier than a traditional retirement, then why would I take steps to further add to that risk? Especially if the dividends already give me enough to live a very comfortable life? It just doesn’t make any sense.

To use a farming metaphor, selling is akin to eating next year’s feedstock. You only do it if the family is going to starve. I’m nowhere close to that situation, so I’m doing what every farmer knows is best. I’m keeping the feedstock and adding to next year’s hoard — because I know eventually there will be a bad year and I want to be prepared.

The bottom line

I thought about my retirement withdrawal plan an awful lot before I stopped working.

I’m not exaggerating when I say it was one of the biggest decisions of my life. I only have one shot at this retirement thing, and the last thing I want is to go back to work with my tail between my legs.

So I implemented some rules that removed some risk. I invested in dividend stocks with the goal of growing my income faster than inflation. I only spend about 70% of my income, reinvesting the rest. I keep an eye on taxes. And I started a selfish project that makes me a little extra cash.

I also wanted to make my withdrawal strategy simple. I don’t want to agonize about what stock to sell or when to do it. I’m not really wired to do it anyway. So I let the companies I own do it for me. They distribute some of their profits back to me, every quarter, and I’m free to do whatever I’d like with them. They then reinvest the rest. I like that optionality.

Folks might say my withdrawal strategy is “suboptimal”, which is rapidly becoming my least favourite word. It’s too simple. I’m leaving too much money on the table by not selling stocks. Dividends are bad. Or some other such nonsense. I couldn’t care less. The world is filled with Monday morning quarterbacks that second-guess the play after it’s done. I’m making the best decision for me with the tools I have available.

And it’s working. I’ve been retired for almost two years now, and both my portfolio and annual dividend income are flirting with all-time highs. Even though various bear markets and rising interest rates (which hit many of my dividend stocks hard), the strategy has worked. I think it continues to work, too.

Most importantly, I’m actually doing it. I was able to retire from the corporate world before my 40th birthday, which is a pretty damn good achievement. I don’t plan to go back anytime soon, either. So my strategy reflects that. Even if some might say it’s suboptimal.

If you have questions about my early retirement withdrawal strategy, hit me up on the Twitter (@cdinewsletter). I’ll be on there periodically over the next couple of days, answering questions.