What Does Silicon Valley Bank’s Collapse Mean for Canadians? + MORE Mar 27th

Ask MoneySense
We live in Ontario, and in light of the current banking problems in the U.S., we are a bit concerned about our investments.

They are held at three different banks at the moment and are largely in GICs and high-interest savings accounts.

We are aware that up to $100,000 is insured through the CDIC (Canada Deposit Insurance Corporation) at each bank, but at the one bank where we have our TFSAs, we are over that amount.

What would you suggest we should do?

—Mrs. B

The risks of exceeding deposit limits at Canadian banks

Silicon Valley Bank (SVB) failed in March and was taken over by the U.S. Federal Deposit Insurance Corporation. SVB’s customers were primarily venture-backed tech startups, but the bank was hardly a small player. It was the 16th-largest bank at the time it failed, and its failure was the second largest in U.S. history.

The two primary issues with SVB were questionable risk management and high uninsured deposits. The bank did not manage its interest rate risk well, having a lot of short-term deposits invested in long-term bonds…

Ask MoneySense
I am 59 years old, semi-retired and live in Ontario. I have $302,000 in my non-registered investment account (mostly Canadian equities), $133,000 in my TFSA (in equities), and $287,000 in my RRSP (in equities). I have three non-registered GICs, in 1-, 2- and 3-year terms, all earning approximately 4.3%. Each contains $25,000. Lastly, I have a savings account with $20,000 earning 4.250%.

I am single, have no kids, no debt and own my home (valued at approximately $250,000). I have no company pension.

I have recently transitioned to part-time work and earn approximately $15,000 per year. I supplement my income with money from another small savings account.

By 65, I will be entitled to $1,150 per month and I will receive the maximum amount from OAS.

I plan on an income in retirement of $45,000 after tax.

My questions are:

With respect to tax, what is the most efficient method to draw down my investments if I fully retire at 60?Do I have enough money to fully retire at 60?

—Francine

The most tax-efficient retirement income plan

Francine, there’s no such thing as “the most tax-efficient method of drawing down investments over a lifetime…

Update: On March 27, North Carolina-based First Citizens bank said it would buy much of the failed Silicon Valley Bank. The deal means First Citizens will assume US$110 billion in assets, deposits of US$56 billion and US$72 billion in loans from the failed SVB.

The collapse of Silicon Valley Bank, or SVB, earlier this month has been sending shockwaves throughout North America’s tech and banking industries. The lender, based in Santa Clara, Calif., had clients that included start-ups like HR and payment firm Rippling and major tech companies like Roku. It folded in March due to a bank run, making it the second-largest failure of a financial institution in U.S. history. 

California regulators closed SVB on March 10 after the bank’s stock plummeted by 60 per cent in a single day, handing control over to the Federal Deposit Insurance Corporation (FDIC). The FDIC said all insured depositors will have full access to their funds, but the bank’s failure is causing anxiety north of the border with companies concerned that something similar could happen in Canada…

If you’re a retiree or close to retiring, you probably have a paid-off principal residence, or should be close to having one.

However, many retirees—including me—have grown children struggling to get onto the first rung of the real estate ladder. Coming up with a down payment is still difficult. Home prices have fallen since interest rates started to rise in 2022, but mortgage affordability is still an issue for many young Canadians just starting out in their careers.

You’re 2 minutes away from getting the best mortgage rates in CanadaAnswer a few quick questions to get a personalized rate quote*I’m buying a homeI’m renewing/refinancingYou will be leaving MoneySense. Just close the tab to return.

All of which makes the new first home savings account (FHSA) timely: Scheduled to debut on April 1, 2023, the FHSA is a much-talked about financial product right now. See some excellent blogger commentary on the topic, notably this one from Dale Roberts’ cutthecrapinvesting…

Rising rates are causing a lot of stress throughout the economy and that stress will manifest itself in different ways. It’s a good time to review the tried-and-true principles of prudent investing.