(This article was originally published in the Stettler Weekender, January 2012)
With savings accounts and GIC rates near historic lows, it’s no wonder seniors who have GICs maturing are in a quandary now as to how to create adequate retirement income. Considering that both the US Federal Reserve and the Bank of Canada’s most recent postings indicated that there may not be any increase to rates until 2014, we need to look at what other options there are besides GICs for income opportunities for seniors.
- Some market analysts believe that bonds, especially quality corporate bonds may still be a good bet for a couple more years. Seniors should consider holding some level of these tempered to their age and risk tolerance. Especially worth considering in these volatile times are GMWB offerings that hold specific bond products are now available and pay a guaranteed income stream for life.
- Many quality Canadian and US equities have been driven down to low market valuations with the flight to fixed income. As a result, this may be a good time to consider them as a part of one’s holdings to help offset the risk of inflation to future income.
- Seniors looking for enhanced income opportunity as compared to GICs should check out GMWB products that offer guarantees of one’s invested principal on death, of a lifetime income stream, as well as the potential to lock in future market growth.
- If you have sufficient current income from CPP, OAS, company pensions and RRIFs and are looking to minimize taxes, investing surplus unregistered funds into an annuity may be a wise option. If estate conservation or a desire to pass surplus wealth to the next generation, a joint last-to-die life insurance policy can be set up to replace the annuity capital given to an insurance company.
- One overlooked option for wealthy seniors with a lot of taxable income from interest income investments, are joint last-to-die life insurance plans. Significant surplus funds over and above the base premium cost can be tax sheltered inside an exempt life policy, up to limits set by CRA. Maturing GICs, bonds, etc. can be dumped into these policies, grow tax-deferred at very attractive rates, and eliminate those annoying annual T5s that interest income creates. The growing cash values inside these policies may be leveraged against if required for income, or just left to enhance the eventual payout to your named beneficiaries, or to a favorite charity.
- For short-term savings, brokers representing banks, insurance and trust companies currently offer some of the best interest rates. Shop around!
So, before any upcoming maturing GICs get rolled over at low returns that no one can live on, seek out a qualified financial professional. Have a discussion about all of the other guaranteed investment opportunities available to you. It’s your hard earned money, so take the time to figure out how to get the best bang for your buck, with the lowest possible tax bill.
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