Author Topic: Guaranteed investments, where is the highest interest?  (Read 618 times)

Rob from Canada

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Guaranteed investments, where is the highest interest?
« on: February 03, 2019, 10:05:17 AM »
My fire is slated for April 30, 2019, my wife retired Dec 2017. We are both 55. 2.3m not counting the paid off house, zero debt. Expenses for my wife and I together is 40k per year. 1.2m in investments tat I don't need to touch until i'm 71 (Canadian RRSP mostly). My question is I have 900k cash, I'd like to keep 100k liquid but the rest I was planning to  just have it in guaranteed investments (GIC i Canada) that will pay between 3 and 3.5%. around 24k a year in interest. Does anyone have a better idea of what I should do with that cash?  Thanks in advance for you help and comments.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1531
Re: Guaranteed investments, where is the highest interest?
« Reply #1 on: February 03, 2019, 08:02:03 PM »
Right now 30-year U.S. treasuries are paying 3.03%, and historically companies might go bankrupt (thus voiding the "guarantee" part) more often than the U.S. government.  So at least demand a premium over U.S. Treasuries.

How are you going to meet expenses if you spend $40k / year and plan to receive $24k / year?

If you're afraid of the stock market, I'd still allocate to it - just a lower amount.  Deep in retirement, Vanguard's target date funds allocate 30% stocks.  So I'd point to Vanguard's example and suggest you put 30% of the $900k in a total world stock investment to ensure the money keeps up with inflation.  "Total World" means about half U.S. stocks, half international... an ETF like "VT" holds thousands of stocks from around the world, so it's the most diverse stock investment available.

ILikeDividends

  • Bristles
  • ***
  • Posts: 439
Re: Guaranteed investments, where is the highest interest?
« Reply #2 on: February 03, 2019, 08:49:56 PM »
My fire is slated for April 30, 2019, my wife retired Dec 2017. We are both 55. 2.3m not counting the paid off house, zero debt. Expenses for my wife and I together is 40k per year. 1.2m in investments tat I don't need to touch until i'm 71 (Canadian RRSP mostly). My question is I have 900k cash, I'd like to keep 100k liquid but the rest I was planning to  just have it in guaranteed investments (GIC i Canada) that will pay between 3 and 3.5%. around 24k a year in interest. Does anyone have a better idea of what I should do with that cash?  Thanks in advance for you help and comments.

Is your RRSP invested completely in equities?  If so, a bond allocation or a GIC * might be an ok allocation for the 900K if you want to tilt to a conservative allocation.

Presumably you will be in a very low tax bracket for the next 16 years.  Have you considered dribbling small chunks of your RRSP into a TFSA account over that time period?  Seems it could lessen your tax hit when you do have to start drawing down your RRSP at 71, and leave you a nice little bundle growing tax-free in your TFSA that you can also tap tax-free ** to fill in any gaps in expenses.

This article says you can:
https://www.theglobeandmail.com/globe-investor/investor-education/be-mindful-of-taxes-when-making-transfers/article15355199/

* I'm a US citizen/investor.  I'm not anywhere close to an expert in Canadian retirement accounts, investment options, or tax law.  Appropriate caveats apply.

** I'm assuming the features of a TFSA are very similar to those of a Roth IRA in the USA.
« Last Edit: February 03, 2019, 09:01:14 PM by ILikeDividends »

Rob from Canada

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: Guaranteed investments, where is the highest interest?
« Reply #3 on: February 05, 2019, 04:33:32 AM »
A good idea to consider cashing in some of the RRSP to go into the TFSA. A TFSA is simply a tax free savings account, 6k max contribution per year. The 40k includes my wife so she'll draw out about 10k and I have some rental income and the rest will be a bit of cash to fund the annual expenses. We both will collect our QPP at 60, that will be about 20k between us and another 12k for the AOS when we turn 65. Looks like the 3% is the most were going to find guaranteed. The numbers work, whole different ball game because to FIRE you have to start spending and stop making or at least not nearly as much. Jumping in with both feet. Thanks for your help.

ILikeDividends

  • Bristles
  • ***
  • Posts: 439
Re: Guaranteed investments, where is the highest interest?
« Reply #4 on: February 05, 2019, 07:06:16 PM »
A TFSA is simply a tax free savings account, 6k max contribution per year.
I read on another Canadian thread that you can realize up to 11.5K of tax-free income (perhaps slightly more, depending on your province).  So maybe move 6K per year from your RRSP into a TFSA, and another 5.5K per year into a taxable account ("unregistered account?") would help chip down your RRSP before age 71.