Episode 259: The Smarter Way to Fund Retirement: The Income Factory Strategy

Listen here on our website:

Or jump to this episode on your favourite platform:

Watch Now!

What if your retirement plan depends on selling the very assets you spent decades building?

For many business owners and high-net-worth Canadians, “financial freedom” often means reaching a number on paper—but what happens when that number has to be slowly drawn down to fund your lifestyle? This episode challenges the traditional retirement mindset of accumulating a pile of assets, then hoping it lasts long enough. Instead, Jon Orr and Kyle Pearce explore how to think about income, diversification, and portfolio structure in a way that can support more confidence, flexibility, and peace of mind in your financial freedom years.

You’ll walk away with:

• A clearer understanding of why relying only on asset sales can feel emotionally risky when funding retirement.
• A fresh way to think about diversifying not just by asset class, but by strategy and structure for retirement.
• Insight into how income-focused investing can help create cash flow without constantly shrinking your principal when designing retirement.

Press play now to rethink how your portfolio could support your lifestyle without forcing you to sell off the assets you worked so hard to build.

Resources:

• Ready to take a deep dive and learn how to generate personal tax free cash flow from your corporation? Enroll in our FREE masterclass here. 
• Book a Discovery Call with Kyle to review your corporate (or personal) wealth strategy to help you overcome your current struggle and take the next step in your Canadian Wealth Building Journey!
• Discover which phase of wealth creation you are in. Take our quick assessment and you’ll receive a custom wealth-building pathway that matches your phase and learn our CRA compliant tax optimized strategies. Take that assessment here.
• Dig into our Ultimate Investment Book List
• Follow/Connect with us on social media for daily posts and conversations about business, finance, and investment on LinkedIn, Instagram, Facebook [Kyle’s Profile, Our Business Page], TikTok and TwitterX. 
  

Calling All Canadian Incorporated Business Owners & Investors:

Consider reaching out to Kyle if you’ve been…

• …taking a salary with a goal of stuffing RRSPs;
• …investing inside your corporation without a passive income tax minimization strategy;
• …letting a large sum of liquid assets sit in low interest earning savings accounts;
• …investing corporate dollars into GICs, dividend stocks/funds, or other investments attracting cordporate passive income taxes at greater than 50%; or,
• …wondering whether your current corporate wealth management strategy is optimal for your specific situation.

Effective retirement planning for Canadian entrepreneurs and high-net-worth investors requires more than chasing a single financial freedom number—it starts with financial vision setting, strong portfolio management, and a clear Canadian wealth plan built around income, diversification, and long-term stability. In this episode of Canadian Wealth Secrets, Jon and Kyle explore how income strategies, dividend funds, real estate investing Canada, RRSP optimization, and a thoughtful investment bucket strategy can help support financial freedom Canada without relying solely on selling assets in retirement. From tax-efficient investing, corporate wealth planning, and personal vs corporate tax planning to legacy planning Canada, estate planning Canada, and corporate structure optimization, the conversation highlights practical wealth building strategies Canada for business owners who want stronger financial systems for entrepreneurs, better business owner tax savings, and more confidence in their path to financial independence Canada. Whether you are comparing real estate vs renting, exploring corporation investment strategies, optimizing RRSP room, reviewing a capital gains strategy, or designing an early retirement strategy that supports a modest lifestyle wealth goal, this episode offers valuable insight into passive income planning, financial buckets, financial diversification Canada, and building long-term wealth Canada through smarter Canadian tax strategies and retirement planning tools.

Transcript:

Jon Orr: Okay, let me ask you this. Let’s say right now you had to start fire-selling your assets to pay your bills and to live your lifestyle — you’re not in retirement, you haven’t hit your financial freedom number — Kyle, how would that honestly make you feel?

Kyle Pearce: Whoa, thanks for throwing the curveball right off the top here, Jon. But I would say, and I think you’ve framed this question because you know me so well, I wouldn’t feel good about it. I’ve got quite a bit of equity in real estate and we’re in a soft period right now. So if I had to do that, it would be a problem for me emotionally, for sure.

Jon Orr: Right. And it’s like, when we hit our financial freedom numbers, most people — most high-net-worth individuals, business owners — have paper assets and hard assets. When you’ve planned your entire strategy around building those assets but have no strategy around pulling value from them in your retirement years, you are in that fire-sale scenario. It doesn’t feel like a fire sale, but you are planning to sell assets — paper or hard — to fund your retirement. Right now you feel nervous about selling those assets because your net worth is going to decrease every day you pull value from them.

Jon Orr: For many people, that’s exactly what they’re going to do. And I think what we want to talk about here today is — do you really want to do that? Or do you want to be in a position where you’re not fire-selling assets just to pay bills? Because it may make you feel nervous. What are you doing now, and what could you do now to battle those feelings but also set up your portfolio so that you don’t have to fire-sell just to pay your bills?

Kyle Pearce: I love it. Great intro. On this show, a lot of folks — if you’re new, welcome to Canadian Wealth Secrets — you’ll probably recognize that we often start with optimization as sort of the beginning, and we look at how could we do this better. But at the end of the day, we usually find somewhere in the middle that aligns with who we are as people and the goals we want to set for ourselves.

Kyle Pearce: That really aligns with our four-stage process. Stage number one is vision. It’s one that we all think we know, but it’s usually very soft — like, hey, I want financial freedom, or I want to retire by this age. That’s not enough. It has to go deeper. Then we work through the other three stages to optimize, to determine what kinds of investments we want, and finally how we plan for legacy and estate transfer.

Kyle Pearce: What I want to chat about today is how you and I have grown in a fairly short period of time based on how we’re planning as we look at our own FIRE numbers. Our FIRE numbers are probably higher than they need to be, and that’s because of my conservative nature — my worry that maybe there’s something I don’t know. I just want to feel very financially secure. And what a lot of people haven’t thought about is that as we’re working and growing our pile, at some stage the traditional retirement planning approach is that we’re just going to erode that pile. As long as it doesn’t completely disappear before we leave this place, then it worked.

Kyle Pearce: That doesn’t work for a guy like me. And I’d argue it doesn’t work for a lot of people listening. It’s about building something and preserving it while still being able to live the life you want — more time freedom, more financial freedom. And ultimately in this episode, we’ll talk about what you and I have been doing to transition from being T4 employees with pensions, to building real estate as a just-in-case strategy, to recognizing that real estate alone isn’t going to get us to the level of freedom we’re really after. Because remember, if I’ve hit financial freedom, I should be sleeping well at night every single night regardless of what’s happening in the world around us.

Jon Orr: Yeah. And the guiding question we started the episode with — how would we feel if we had to sell assets in a traditional portfolio design to live off of — my immediate thought was the Die With Zero book. I’m thinking about perfectly timing things so that I die with nothing and give away a chunk to my heirs in a certain way. But when you think about wealthy individuals, they’re not doing that. They’re not figuring out how to die with zero.

Jon Orr: They’re saying, I’m not going to be okay with dwindling my pile down. The goal is to strategize so that my pile grows and I always have more than enough. Then I can give things away. There’s no more risk. You get to sleep better at night.

Jon Orr: And I think the question that drives this is — right now you don’t feel like that because you have income. You take the income, you build the pile, and the income supplements your lifestyle at the same time. The question that has driven us to explore how to create that in your retirement years is: how do you maintain income while your pile is not dwindling? People who have pensions understand this — I know this defined amount is coming every single month and it will never go away. That’s the feeling we’re trying to recreate.

Jon Orr: That’s why that pension feels super safe. You never want to be in a dwindling-pile scenario. That’s the problem we presented. Now let’s talk about the solution. What was some of the first thinking around income-producing assets and building your portfolio at the same time?

Kyle Pearce: What I’ve learned the most being in this industry, having shifted from high school math teachers to consultants to building businesses and having to solve challenging problems for ourselves as business owners, is that we’ve been on hundreds and hundreds of calls with Canadian Wealth Secrets listeners. We learn something from every single call. I really appreciate that because it allows me to reflect on how to do things better in my own world.

Kyle Pearce: For example, one listener said, hey, check out Wealthsimple — they’ve got some really cool things going on for money you don’t want managed by a private banker or a wealth management arm. They’ve got great opportunities and leverage tools. I checked it out, learned something, and we utilize that as part of our process now.

Kyle Pearce: But the biggest thing we’ve learned is that individuals who are all in on any one thing face the biggest challenges. I see myself in this first example because I used to be all in on real estate. Now, there was a time when we had a pension — we’ve since commuted those pensions, so no longer is there any money coming from a pension each month. But at that time, I knew I was going to have a flat amount coming in. Fantastic, safe, no worries. We now use insurance policies to represent that foundational floor for us.

Kyle Pearce: Then we topped up with real estate. But we were only doing real estate for a really long time. No regrets, but during that period we were too concentrated. There are clients in the Canadian Wealth Secrets community with $25 to $40 million real estate portfolios who are essentially 95 to 100% concentrated in real estate, with maybe $1 million in an RSP on the side. Their problem? Cashflow. They’re not sure what that cashflow looks like, and they know that maybe down the road there will be cashflow as mortgages get paid off — but then they run into tax inefficiency and the whole process starts over again.

Kyle Pearce: The same is true on the other end of the spectrum. If you go 100% equity-focused, index-focused — we’re not stock pickers, not advocating for that — but those following the traditional wisdom of just putting everything into index ETFs will be okay from a net worth perspective. But when it comes to actually funding their life at some point, they’ve got to either use leverage against real estate, sell real estate, or sell from an equity portfolio that’s maybe producing 2% in dividends. That can be very hard to do emotionally if that’s your only bucket, especially if markets are down 10%, 20%, 30%. You did the 4% rule calculation, it should work, but it still doesn’t feel good at the time.

Kyle Pearce: If you have one strategy and one bucket, that can be really difficult emotionally and psychologically. For someone like myself, it would be incredibly difficult, which is why we’ve now made a real effort to be much more diversified across buckets and across different asset classes as well.

Jon Orr: So somebody might say — okay, to battle the idea of taking money out of our portfolio or selling assets to pay for lifestyle in retirement, the easy answer is to just build a dividend portfolio. Pick stocks that are producing dividends, and then I don’t have to start selling because the dividends will be enough to fund my lifestyle. Is that all we’re suggesting here, Kyle?

Kyle Pearce: I would say for us, it’s going to be a little bit more detailed than that. We’ve had episodes about dividends. It’s important to understand how a traditional equity company makes a dividend. You pay out say $0.10 per share, and on dividend day the share price goes down by $0.10. So it’s kind of like a sale, but it’s really a cash distribution coming out. What you choose to do with that dividend depends on the stage of your life — you may choose to buy more of that share when it’s down. In market downturns, this reinvestment of a dividend can be really, really helpful.

Kyle Pearce: The problem is that if you go dividend investing — picking dividend aristocrats or dividend kings, companies that have paid and increased dividends over really long periods of time — it’s fantastic, but it is a lot of work. What we’re arguing is that imagine if there was an opportunity to look for a portion of your portfolio to potentially be dividend payers, but without having to stock-pick, without having to do a whole lot of work because they’re well diversified within particular securities. And they tend to provide a much higher dividend as well — anywhere from 7% to north of 10%.

Kyle Pearce: Though I would argue you’ve got to be cautious. The higher the dividend on these types of funds, the more likely some of that money coming back to you may actually be some of your capital returning. For us, we’re kind of hanging out in the 10% range for this portion of our portfolio. And we’re doing it with a type of security that isn’t just covered call ETFs on the Canadian Stock Exchange. We’re doing it with what we call a closed-end fund, which has a very specific purpose of producing certain cashflows to the investor.

Jon Orr: Right. And this is where answering the question of how we create a business-like income — our businesses have generated us income, allowed us to build our net worth — how do we not let that go away? That’s really where this exploration has come from. We came across two books, two authors that basically helped give a pathway forward on this strategy that looks at funds like closed-end funds and covered call funds to produce income as the primary source of your portfolio strategy.

Jon Orr: The typical traditional portfolio is focused on capital appreciation — you want the stock to go up, you want the fund’s value to be higher 10 or 20 years from now as the primary driver of your net worth growth. The difference with both of these authors — Stephen Bavaria in The Income Factory and Stephen Seligit in Retirement Secrets — is that they’re saying that strategy of buying assets for capital appreciation isn’t the one that’s going to help you sleep better at night long-term.

Jon Orr: What they propose is an income strategy rather than a capital appreciation strategy. You pick funds where the primary goal is to get that dividend, that cash distribution, as its primary goal — and you’re not so worried about capital appreciation. Over the course of a year, did the fund go up? It doesn’t matter, because that fund spit out a 10% dividend every year, and it has done that year to year going back seven years or longer. You pick funds based on that.

Jon Orr: So you can say: if I park a chunk of money in that fund and get 10% every year, that covers part of my goal to produce income in my retirement years. You get to use and rely on that income, strategizing around income and not around selling assets — because you never have to sell the asset if your pile in that fund is big enough to produce and cover all your lifestyle expenses. That’s truly financial freedom. You’ll never have to sell the principal in that type of strategy.

Jon Orr: Now, let’s say I’m sold on the idea and I want to allocate a chunk of my portfolio to this income-factory world where the primary source is to generate income — cash distributions coming into my account. If I’m in my accumulation stage, I’d reinvest them when those funds are lower so that my actual gain in distributions is a higher yield. This is a great strategy because you’re not so concerned about the price going up. You actually want them to go down, because if they always spit out 10% year to year whether they’re up or down, you want to buy them when they’re low to get more shares and therefore more dividends as a result.

Kyle Pearce: Especially in the accumulation phase. And I’m so happy you said a chunk of your portfolio. This is going to be different for everyone. When we try to incorporate a strategy for diversification purposes — and we’re talking about diversification of strategy, not just assets — remember that there are people all in on real estate, all in on index funds, all in on covered calls. What we’re advocating is to take parts of these strategies and allocate them appropriately. You may become the type of person who wants all of your stuff over in a strategy like this. That’s fine, just make sure you’re diversified.

Kyle Pearce: Now for closed-end funds specifically — they exist in the Canadian and US market, though I would argue the selection is much greater in the US market. When we invest in US equities that pay a dividend, there is a withholding tax. Sometimes if we do this in a TFSA or a non-registered account, that withholding tax is there and there’s work to be done to try to get it back.

Kyle Pearce: However, in an RRSP, a LIRA, or other retirement accounts — double-check this for your specific account type — there is actually no withholding tax from the US government. The reason they do withholding taxes is they want to make sure they get their cut when you live outside of the country. But the CRA and the IRS have an agreement where they say: for RSPs and LIRAs, it’s a retirement account, let’s make this tax-free. There’s a handshake deal there.

Kyle Pearce: So when something says it’s going to pay a 10% dividend every year, you know that full 10% — paid out monthly, quarterly, or semi-annually, most often monthly — is going to come to your RSP or LIRA without withholding. In some ways, that sets up a strategy like this to be almost perfect. It keeps you from going all in on one strategy everywhere.

Kyle Pearce: Closed-end funds basically means the fund has a certain number of shares outstanding, and it has to pay out 95% of its income every year in order to be considered a closed-end fund for tax reasons. It has to pay out these profits to shareholders in the form of dividends. The value still goes up and down depending on who’s buying and selling, and you can sometimes get them at a discount to net asset value.

Kyle Pearce: You want something well-diversified — you don’t want a closed-end fund that’s based on a single security like Bitcoin. That’s not well-diversified, and if Bitcoin’s down, the income coming off it could be bad. These can be in equities or in the credit market, which is one that you and I have really started looking at. Instead of us going into private lending in Canada through a fund, we can look at CEFs that do essentially the same thing but with what’s called junk bonds — companies you might own shares of that have borrowed money. It actually puts you higher up the priority list in terms of who gets paid first if that company ever runs into financial difficulty.

Kyle Pearce: There’s lots to learn here and we’re not suggesting you run out and buy closed-end funds right now. You might want to check out The Income Factory or Retirement Secrets from Steven Seligit to learn more about how you can diversify your strategy. One thing I’ll say is that we plan forward every single year, looking at our own situation and financial goals. And I’m telling you, I feel more comfortable already having made a recent shift towards seeing income coming into these registered accounts each month, regardless of what the actual balance is.

Kyle Pearce: Because once that monthly income in an account like that is enough to cover daily life expenses for a given month — and this is only one account — if I can see that number getting larger and larger, I could care less about the actual balance. I get to see what I could take out at some point down the road without having to sell anything. And in the meantime, when things are down, I can choose where these dividends get reinvested, targeting the ones that are way down. We want to make sure they’re good funds, but we want to try to create an income factory — as Steve Bavaria calls it — where we can see this money coming in and going out without the need to actually go and sell something.

Kyle Pearce: And I still have my real estate doing its thing, my equity portfolios doing their thing, and my policies there as dry powder should Armageddon happen in the world around us and we don’t want to take from any of these buckets. We have optionality — a word we use a lot on this show — so that we can go to bed knowing we are covering our bases regardless of which bucket we look into.

Jon Orr: Well said. And I think the big message here is to diversify by strategy, diversify by asset, and diversify by structure. These are really important lenses for looking at your entire portfolio. And this is what we do — we help individuals and business owners strategize around their vision, their wealth reservoirs and structures, the optimization of their portfolios, and estate and legacy planning.

Jon Orr: If you want us to take a look at your situation, reach out to us at CanadianWealthSecrets.com forward slash discovery. There’s a quick form there to help determine if we can help you, and if so, we’ll be hopping on a call and strategizing on that very first call. That’s what we do every single day. Again, that’s CanadianWealthSecrets.com forward slash discovery.

Jon Orr: Just as a reminder, the content you heard here today is for informational purposes only. You should not consider any of this information as legal, tax, investment, or financial advice. Kyle Pearce is a licensed life and accident and sickness insurance agent and the president of corporate wealth management at Canadian Wealth Secrets.

Canadian Wealth Secrets is an informative podcast that digs into the intricacies of building a robust portfolio, maximizing dividend returns, the nuances of real estate investment, and the complexities of business finance, while offering expert advice on wealth management, navigating capital gains tax, and understanding the role of financial institutions in personal finance.

OPTIMIZE YOUR FINANCIAL FUTURE