Is a retired Albertan too reliant on bank dividends in his RRIF?

Skip to Content News Archives Economy Defence Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Defence Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Defence Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeFP AnswersPersonal FinanceIs a retired Albertan too reliant on bank dividends in his RRIF?FP Answers: There are practical ways to reduce concentration risk without giving up the cash flow needed to support retirementLast updated 17 minutes ago Many investors may find that financial stocks represent a much larger portion of their RRIF than they originally intended. Photo by Getty ImagesQ. I am a 74-year-old married Alberta senior who is worried about overconcentration of registered retirement income fund (RRIF) investments in banks. With the rise of stock prices in the financial sector, I find that I am very vulnerable to a Black Swan event — something unpredictable — that could impact these investments. I have been relying on dividend income to cover part of RRIF payments but would like to find something else that provides the same benefit. I would also like to add some U.S. exposure but am concerned about the U.S. tax consequences. Do you have any suggestions for my RRIF investments, and what are other seniors doing in my situation? —KentTHIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThis advertisement has not loaded yet, but your article continues below.FP Answers: Kent, many Canadians built successful retirement portfolios around the major banks because they have historically provided dependable dividends, strong balance sheets and attractive long-term returns. After years of strong performance, however, many investors now find that financial stocks represent a much larger portion of their RRIF than they originally intended.Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againThat can create a dilemma. You appreciate the income and stability the banks have provided but you also recognize the risk that comes with having too many eggs in one basket. The good news is that there are practical ways to reduce concentration risk without giving up the cash flow needed to support retirement.Most seniors are not abandoning bank stocks altogether. Instead, they are gradually trimming oversized positions and broadening the sources of income within their portfolios. The goal is not to predict the next market correction. Rather, it is to ensure that one sector, one company or even one country cannot have an outsized impact on retirement savings.Many retirees are diversifying into a combination of high-quality bonds, guaranteed investment certificates (GICs), infrastructure companies, utilities, energy and global dividend-paying companies, as well as professionally managed income-oriented portfolios. By creating multiple sources of return, they become less dependent on any single segment of the market.This advertisement has not loaded yet, but your article continues below.Retirees are also becoming more disciplined about portfolio rebalancing. Rather than allowing their best-performing holdings to grow unchecked, they periodically trim positions that have become oversized and reinvest into areas that are underrepresented. This systematic approach helps manage risk, maintain diversification and reduce the likelihood that a single sector will dominate the success or failure of the overall portfolio. Diversification and periodic rebalancing are widely recognized as important tools for controlling risk and helping investors remain aligned with their long-term objectives.At age 74, another important consideration is your RRIF withdrawal requirement. Many seniors focus heavily on generating enough dividend income to cover those payments. While dividends can certainly play a role, retirement income does not have to come exclusively from dividends.One of the biggest shifts I see among retirees today is the move toward a total-return approach. Instead of relying solely on dividend income, the portfolio is designed to generate returns from a combination of dividends, interest and long-term capital appreciation. This allows investors to diversify more effectively while still meeting their income needs.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.For example, many retirees maintain a cash reserve or short-term fixed-income allocation that can cover one to two years of planned withdrawals. That reserve might include a high-interest savings account, short-term government bonds, GICs or a laddered bond portfolio. Having this liquidity available can reduce the need to sell equities during periods of market volatility and often provides valuable peace of mind.You also mentioned adding U.S. exposure for greater diversification. Canada’s stock market remains heavily weighted toward financials, energy and materials. The U.S. offers access to sectors that are underrepresented in Canada, including technology, health care and consumer brands.Adding carefully selected U.S. investments can broaden the opportunity set and reduce dependence on the Canadian economy alone. For many investors, this provides diversification that cannot easily be achieved through domestic holdings.The tax implications are often less daunting than people expect. When structured properly, U.S. investments can generally be held very efficiently within a RRIF. However, the most appropriate approach depends on the specific investment, the type of account being used and the investor’s overall circumstances. Investors with substantial U.S. holdings should also discuss any potential cross-border tax and estate planning considerations with their adviser and tax professional.This advertisement has not loaded yet, but your article continues below.Another factor retirees sometimes overlook is taxation of withdrawals. RRIF income adds to taxable income each year and may affect benefits such as Old Age Security (OAS). This makes withdrawal planning just as important as investment selection. In many cases, co-ordinated planning between spouses can improve after-tax outcomes and help preserve government benefits. Current RRIF minimum withdrawal rules and OAS recovery tax thresholds make tax-efficient income planning an important part of retirement strategy.Perhaps the most important point is this: A well-diversified portfolio rarely produces the very highest returns in any given year. What it often delivers instead is something far more valuable in retirement: confidence and resilience. Knowing your income stream is supported by multiple sectors, regions and asset classes can make it easier to stay invested when markets become uncertain.My suggestion would not be to eliminate your bank holdings. The Canadian banks remain among the strongest financial institutions in the world and can continue to play an important role in a retirement portfolio. Rather, I would consider gradually reducing the concentration and reallocating a portion of those assets into a diversified mix of fixed income, Canadian equities, global equities and U.S. investments.This advertisement has not loaded yet, but your article continues below.That is the approach many retirees are taking today. They are maintaining exposure to the companies that helped build their wealth while broadening their portfolios to create a more resilient source of retirement income.Successful retirement investing is not about finding the highest dividend yield. It is about constructing a portfolio that can continue supporting your lifestyle through a wide range of economic and market conditions.Mark Dumanowski, B. Comm, CIM, FCSI, is a senior wealth adviser and portfolio manager with The Dumanowski Investment Group with National Bank Financial Wealth Management. Reach him at mark.dumanowski@nbc.ca or www.markdumanowski.com.Do you have a question for FP Answers? Email wealth@postmedia.com.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. By continuing to use our site, you agree to our Terms of Use and Privacy Policy.