Why GICs are a good addition to an RRSP or a TFSA + MORE Feb 8th

Many retirees have the bulk of their retirement savings in registered retirement savings plans (RRSPs) or similar tax-deferred registered accounts. RRSPs need to be used to buy an annuity or more commonly converted to a registered retirement income fund (RRIF) by Dec. 31 of the year someone turns 71. Required RRIF withdrawals begin the next year, with each withdrawal based on a percentage of the account value. 

Locked-in RRSPs, defined contributions (DC) pensions, and deferred profit sharing plans (DPSPs) all have the same rule requiring conversion at age 71. 

The two big questions for a retiree prior to age 71 are: When should I start withdrawals? And how much should I take out each year?

If we take a simplistic approach to the RRSP drawdown, a sustainable withdrawal rate may be 2% to 5% of the account value. That is, between 2% and 5% of the starting account value may be withdrawn each year with subsequent withdrawals increased each year with inflation for life. There are many asterisks depending on age, life expectancy, investment risk tolerance, investment fees and other factors…

Experts say where you put your money depends on your short- and long-term financial goals — and sometimes what tax bracket you are in

It’s tax time again, which means Canadians may be thinking about tax-smart ways to invest to reduce their tax burden next year. Chances are, you’ve seen and heard more about guaranteed investment certificates (GICs) in recent months than ever before, and there are concrete reasons why. Read on to learn more about how adding GICs to your investment portfolio may help bring safe and solid returns.

How GICs work

When you purchase a GIC, you agree to leave a deposit with the bank for a certain amount of time—the term—and in return, the bank agrees to pay you a guaranteed interest rate. The key word here is “guaranteed,” meaning that you aren’t at the mercy of market fluctuations, and 100% of your principal is protected.

As long as you don’t withdraw your money during the term, you’ll earn that rate when the GIC reaches its “maturity date,” or the end of its term. The exception is redeemable (or cashable) GICs, which you can cash in earlier—more on that below…