Reader Case: Does FIRE Math Apply to the Elderly?

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Today’s reader case is a rather interesting one. A reader is writing to us about their 70 (!) year old mother, and asking us how to manage her retirement finances. Now, finances for the elderly is a bit trickier than normal finances, because they can’t recover if anything goes wrong. This situation is doubly risky because I’m giving advice to the reader (who admits she’s relatively new to this FIRE stuff), and she’s relaying it her 70-years-old mom. The odds of a broken-telephone communication problem are high here.

So while I’m happy to give my two cents, consult a financial professional like a fee-based financial advisor, have them review what I write, and have them do the actual implementation of her investment portfolio. That way THEY are responsible for getting it right rather than the reader.

OK so without further ado…onto the reader case!

Hi there,

I could use some advice for my mother entering retirement with cash, advice on portfolio at age 70 and what a withdrawal strategy looks like! You wrote about yield shield in early retirement as a temporary measure, and also that you had used cash savings to ride out touching the equity. Are you able to illustrate as Dan’s article does (, how each year you rebalance/what you use? I struggle to create a picture. I assume you do not use total return method as article linked talks about, but yields instead and how is it different?

My father passed suddenly last year with no retirement plans. My mother wants to be with her grandkids in BC, has about CAD$500,000 that she will be bringing with her to canada when she arrives this year. After reading your workshop last year, I have converted all my investments into passive etf’s but do not yet have the confidence to be responsible for my mothers money completely on my own! She is in great health and I’ve budgeted $1750 monthly, although this may change after a year once we actually see her expenditures. Additionally I’d like her to save $500 pm for trips to Germany to visit family once a year = $25800 annually. With her UK inherited pension in consideration, her portfolio needs to support a withdrawal of $18840py, which I believe is less than 4% withdrawal.

Money: $CAD500,000 cash to come to canada
UK pension: GBP400pm, = approximately depending on exchange rate $8160py

Expenditure: $25800py
House $200
Food $500
Shopping $100
Entertainment $200
Misc $100
Smokes $250 (non-negotiable for my mother, lol)
Dogs $100
Private health ins $300 (supervisa requirement as not successful with grandparent lottery)
Monthly trip savings $500

I’ve been told that it is very difficult to not eat into the principal unless you have a lot of investment, and I am concerned about mum living to 90 and not having enough money! Can you help in working it out:
1. whether this withdrawal amount can be supported?
2. Would you advise keeping 5 years in cash/GIC’s? I can get 2.3% at EQ bank, GIC’s I can get about 3% for 1 yr (saw that on rate supermarket website). But what if our budgeted amount is too much/too little, if we have GIC’s locked in we cant alter for some time?
3. Could you illustrate a withdrawal strategy to accommodate different scenario’s in market?
4. Plan on using vanilla funds – VCN/XUU/XEF/XEC/ZAG in taxable account

Hope this all makes sense!



OK so I read through the MoneySense article HelpMyMom linked to, and his withdrawal strategy is similar to mine. Basically, that article advocates for keeping a portion of their fixed income allocation towards a 5-year GIC (CDs to you Yanks) ladder. That’s essentially the same idea as a Cash Cushion.

My problem with his strategy is that he replenishes his GIC ladder every year, based on whichever asset has gone up. In a good year, he sells stocks. In a bad year, he sells bonds. But because in my strategy, I don’t replenish the Cash Cushion if stocks go down a year, yet I still rebalance my holdings, in a down year my strategy would sell bonds and buy stocks at a discount, while in his strategy he would sell bonds and buy GICs. Over the long term, my strategy would do better since stocks outperform bonds over sufficiently long periods of time.

OK enough about that guy. Let’s get back to HMM! First of all, is mom OK? Well, according to the email, she’s spending $27k annually. But because of a UK pension that pays $8160 per year, the portfolio only needs to generate $18840. That would require a portfolio of $471k. Her mom has $500k. So she’s good!

Bring on the Yield

So as I’ve written about before, when you’re accumulating assets you care about total return. You don’t care how much you’re making in yield (dividends + interest) and how much is in capital gains, you just care about your overall portfolio performance. But when you’re retired like us, you care more about your yield, because this is the amount you can spend without selling anything. This, combined with an amount of money you hold in cash, creates your Yield Shield and Cash Cushion, which allows you to withstand temporary market dips, like the one we’re experiencing now.

In that article series, I describe the different type of assets we use that yield higher dividends or interest. Assets like Preferred Shares, Real Estate Investment Trusts, and Corporate Bonds. While equities can yield around 2%, and bonds around 3%, those other assets can yield in the 4-5% range.

In this article, I also describe how I use these assets to squeeze a little more yield out of my portfolio while keeping my asset allocation mostly the same. At the time I wrote that, I was able to bring my yield from 2% to around 3%. Because ETF prices have crashed quite a bit lately, since my income stayed the same while prices went down, my portfolio yield went up. my portfolio is yielding around 3.3-3.5%.

Calculating Cash Cushion

So assuming we can get 3.3% at the time of this writing, how much Cash Cushion should we have?

This is actually not that simple to answer. Usually, my advice is to work until you can retire, then figure out how much Cash Cushion you need to be really safe, keep working a few months until you’ve saved up that cash, THEN quit. However, in our reader’s case, her mom is already retired. So she can’t just keep working.

This presents an interesting math problem that we haven’t encountered before. With a fixed portfolio amount, how much do we segregate as Cash Cushion, and how much do we invest? It’s not that straightforward, since if you calculate how much your Yield Shield is on a portfolio, you can subtract them from your living expenses to figure out the shortfall you need to make up for. And by multiplying that by how many years of Cash Cushion you want, you can figure out the amount you need to set aside. But then your starting portfolio is not as big, which causes your Yield Shield to change, which screws up your Cash Cushion amount.

Fortunately, we can solve this by…you guessed it…MATHING SHIT UP.

Whenever coming up with a math problem to solve, you start by simply stating the truth. And the truth here, is that…

(Spending – Yield Shield) x 5 = Cash Cushion

That how we define the Cash Cushion. It’s enough money to last 5 years of just living off your Yield Shield. So now, let’s define Yield Sheild a bit further

[Spending – (Portfolio x 3.3%)] x 5 = Cash Cushion

The Yield Shield is how much our portfolio throws off from dividends and interest. Right now, that’s about 3.3% of the total amount.

{Spending – [(Starting Portfolio – Cash Cushion) x 3.3%]} x 5 = Cash Cushion

This reflects the fact that we’re taking part of our portfolio and using it as the Cash Cushion, which reduces how much of our portfolio is actually acting as our portfolio. And at this point, we can start plugging in some numbers. We know how much Spending is, as well as our Starting Portfolio.

{18840 – [(500000 – Cash Cushion) x 3.3%]} x 5 = Cash Cushion

Now our equation only has one variable in it. Which means we can figure out what it is.

94200 – 82500 + 0.165 x Cash Cushion = Cash Cushion

11700 = 0.835 x Cash Cushion

14011 = Cash Cushion

So there you have it! You need to keep $14k as your Cash Cushion, and I would suggest keeping it in a HISA like EQ Bank or Simplii Financial (the latter currently paying 3.15% for new deposits). Personally, I don’t like GICs. Why keep your money locked up if you can make the same (or in the current environment, MORE somehow) without locking anything away. In the 20 years or so I’ve been dealing with money, I’ve never found a compelling reason to own GICs.

Withdrawal Strategies

So finally, she asks, what are my withdrawal strategies, and what ETFs should she use?

Fortunately, I answered both questions in our Investment Workshop. Specifically…




Aaaand We’re Done

Again, because of the delicate nature of your mom’s retirement situation, I suggest she go to a licensed fee-based financial advisor to actually implement her retirement strategy. Normally, I tell our readers to learn this stuff themselves, but for your mom, the stakes are too high and the communication too fraught-with-error.

Readers, what do you think she should do? Let’s hear it in the comments!

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19 thoughts on “Reader Case: Does FIRE Math Apply to the Elderly?”

  1. With the current market conditions it wouldn’t be unreasonable to wonder if fire math applies to young people also.

    Have you started to look at Thai visas? You might need them.

    1. I read on CNN today that this week has actually been the worst week on the Dow since September 2008. That being said, I’m not worried at all. I’ll be writing more about this in the new year.

    2. You can’t be on FIRE if you can’t stand the heat.

      I get it, market corrections are scary. We’ve been through them (multiple times). And since we have the Yield Shield and cash cushion, it’s super easy to sleep at night. Also, I’d go to Thailand, with or without a correction, so I’d consider that an upside either way.

      As Warren Buffett says “be fearful when others are greedy, and greedy when others are fearful”. We’ll be taking advantage of this market sale by putting earnings from passion projects into it. If you want to run, more shares for us.

  2. Some decent advice above Wanderer. It’s worth mentioning that the higher yielding vehicles mentioned above are going to be slightly more sensitive to interest rate swings.

    If you’re holding these investments to maturity of course, that’s hardly any problem at all.

  3. Trump to be impeached . Matter of time, USA is in shambles at the moment. We are no where near the bottom folks, sorry.

    that 6% you’re using is based on historical average. May need to drop it

  4. Perhaps mom could lay off the smokes and pocket the $3,000(!) every year. That is literally more than 10 percent of her budget and more than she pays for housing! Jeez! Kicking the habit now may also help her avoid uber expensive and sucky health issues over the next few decades. Just sayin’.

    1. Hey, I’m in the same camp. She’s spending almost as much on smokes as health insurance, which is kinda funny. But still, she says “non-negotiable,” so whatever.

  5. Hi

    Good post and good articles by Dan too.

    Just so you know « that guy » Dan-Bortolotti is the guy behind canadian coach potato.

    Happy holidays

  6. This may have been already been discussed elsewhere (just point me in the direction of the article). If your portfolio is down due to market (and it’s for a prolonged period) wouldn’t your yield shield for that year (or multiple depending on how long the market is down for) also be less as it’s based on a percentage of your total? How does that factor into the math?

  7. I wish the lady all the long and happy retirement years! That said, 500k is a good number and even if she does not make it just on the earnings, dipping into the portfolio wouldn’t be a disaster at this age…

  8. Wanderer said, “Because ETF prices have crashed quite a bit lately, since my income stayed the same while prices went down, my portfolio yield went up. my portfolio is yielding around 3.3-3.5%.”

    That’s not really the case. Your personal yield was locked in the day you purchased using the price you purchased at. Only new purchases, due to the lower price as you noted, would have an increased yield. If the return stays the same the yield is locked in at the original strike price.

    1. In absolute dollars, yes you’re correct. But as a percentage of your total portfolio size, it changes as your portfolio size changes, and in fact moves inversely to your portfolio value. I’ll clarify all this in a future article.

      1. Looking forward to that article. I think most folks don’t realize the yield for that tranch is set at purchase price, so while the portfolio yield will look improved if the underlying asset drops in price, their personal yield has not moved and you now own an upside down asset relative to purchase price. One could buy one (or more) tranches on the drop to lower overall cost basis, and thus change the yield on the entire nut, but if dividends/interest stays the same yield based on purchase price of a particular tranch stays the same too.

  9. Church 1st will benefit from my “side hustle millionaire” status. Then mom. Then me last. 🙂

    Wooooooooooooooooooooooooooooooonderful! 🙂

  10. Thanks for any other informative web site. Where else
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