GIC vs HISA | Page 2 | General financial discussion | Discussion forum

I'm not prepared to make recommendations yet until I hear about the reluctance to go with longer GICs, but condos don't eliminate rent; they just call it "maintenance fee and property taxes" - which can be quite substantial.
in addition, you have to keep an eye on the condo's infrastructure needs and board management. I've known more than one person who was suddenly hit with an extra levy they couldn't afford.
I agree though that rent inflation is a risk. But, then, so are property values , which can go up or down - but at least you have a roof over your head.
Property is a good diversifier at least. And it doesn't count against you when qualifying for this or that benefit as income typically does.

Loonie said
I'm not prepared to make recommendations yet until I hear about the reluctance to go with longer GICs, but condos don't eliminate rent; they just call it "maintenance fee and property taxes" - which can be quite substantial.
in addition, you have to keep an eye on the condo's infrastructure needs and board management. I've known more than one person who was suddenly hit with an extra levy they couldn't afford.
I agree though that rent inflation is a risk. But, then, so are property values , which can go up or down - but at least you have a roof over your head.
Property is a good diversifier at least. And it doesn't count against you when qualifying for this or that benefit as income typically does.  

Oops, I had no idea taxes and fees were that high there (~$600), was thinking ~$250 lol. I've always owned a house and probably spent under $50/mo on maintenance over 30+ years. Can you defer taxes in Ontario?

How to mitigate risks:

They really need to take another look at whether they are willing to diversify their investments beyond GICs and HISAs, given the risk of remaining in them exclusively. It would be impossible for me to suggest which specific investments they should make because everyone must decide what they are comfortable with. And there are people on this forum who know more about these than I do. However, these are some possibilities to consider:

a. Invest in US dollars and/or whatever other currencies you consider likely to be more stable. Some FIs , such as Hubert, offer not-bad interest rates on USD HISAs, but they are still low compared to Cdn. You can, however, do reasonably well in some USD GICs available at Cdn FIs. I think I have seen rates of at least 3%. So, if the Cdn dollar tanks, you have some protection. Being a primarily resource-based economy and in the shadow of an elephant which has too much power over our future, we are more vulnerable than the US. Bear in mind that CDIC-insured FIs do not cover USD investments. MB CUs do cover them; I am not sure about Ontario CUs.

b. GIC laddering. This enables you to get the best rates over longer period. It takes five years to get it fully set up, then it just rolls along. Charlotte has given you an outline of how this works.
If they are not in the habit of raiding the emergency fund, I would keep it in the one-year GIC at Hubert. It pays well, you can cash it any time, and the greatest penalty for cashing out between quarterly interest payments would be slightly less than 3 months interest.
If you think the emergency fund might be raided more often, then I would just put it in Tangerine (along with a chequing account) and leave it there. You need quick access for emergencies, so a chequing account is required. I would suggest Motive but some people have had some problems with them, and you don't want problems in an emergency. I suggest Tangerine not because of a great rate (not!), but because I have found it very reliable for chequing access and their phone service is 24/7, and i think this is your main priority for this money, not the rate. You could also try AlternaBank or Meridian perhaps, which have higher interest; I'm not sure if they have 24/7 phone service, which I think you need. It's not worth moving around such a small amount from one bank to another frequently as it could be stuck in transit when you need it. Be sure to move a dollar in or out once a year in order to keep the account from going dormant - put it on the calendar.

c. Conservative stock market investing. I know they got dinged on this earlier, but it is one of the fundamental ways of diversifying, and it ought to work with a long life ahead of them yet. 25 to 40 years is, in my view, a good time line to consider, and that is pretty much what they have available to them. However, in order to do this, you have to commit to hanging on when things look bad. If you don't have the nerves of steel required for that, then, regretfully, you need to stay away from it. If you decide to go ahead with it, you should only put some of your money into it -I would say no more than 40% at this age and a minimum of 25% as it won't make enough difference if you put in less. I would divide the amount equally among a handful of ETFs (Exchange Traded Funds), to minimize costs. For specific recommendations on which funds to use, take a look at the Canadian Couch Potato system (online), which is more serious than it sounds. Make sure you choose funds which represent different parts of the globe; just see how you get on with ETFs and avoid particular stocks. This would be a good thing to do with the TFSAs as it will simplify your accounting and that is where you can use the longer time horizon
What you then have to do is monitor these funds every six months or so and "rebalance". This means that when one fund has a significant profit, you take some of it and put it into one of the funds that hasn't yet done so well. More can be said about that if interested. Alternatively you could use a good global balanced fund, where the rebalancing is supposedly done for you, but they include a lot of bonds.
Avoid all "financial advisors", "wealth advisors", etc. Some may be wel intentioned and a few may even do a good job, but you need to remember that their main job is sales. There really isn't any category of advice that I know of that will be in your best interests, be as conservative as you want, and be affordable considering the amount of money involved. So, welcome to the forum! - where advice is free, but you still need to check that it is right for you and accurate.

d. It's probably too early to do this yet, but I would consider using annuities for some of the non-registered funds. The question is when to start this. The sooner you start, the less you'll get per annum; and rates might improve if you wait (but might not). I am not sure what the minimum investment in an annuity might be. Perhaps 50K? (I doubt it would be any less.)
The reason I suggest this is because it is a kind of protection against longevity. It doesn't deal as well with inflation. You can get inflation-indexed annuities, but the premiums on them are too expensive IMO. One of the advantages of non-registered annuities is that you can bump up your income, keep getting that income as long as you live, and pay very little tax on it. If you do this, make sure to get an annuity which covers both partners (continues after death of first) until death. You can use an annuity in this way to top up OAS, CPP etc without incurring much of a tax liability, and you know you will continue to get it. Consult an annuity broker if this is of interest.

e. Honestly, i would consider working more hours or looking for a job that pays better. Is there anything they can do that is related to their previous occupations that would pay more? I am not sure why they retired so young, but, while their next egg looks good if nothing changes, you can be sure some things will change. Whether it be rent, OAS, inflation, early death of a spouse (reduces family income significantly, putting more strain on fixed costs such as rent), govt decisions, or something else, they are not very well protected against unexpected changes. More income resulting in more savings would be better. If concerned about tax, put any extra into RSPs.

f. Instead of buying a property, which could break the bank at this point, considering condo fees etc., check whether Ottawa has any Seniors apartments that you can apply for. We have some in Toronto that are owned by the city. The wait list is about 4 to 5 years for non-subsidized right now and much longer for subsidized, but the rent is affordable and the units are decent - ideal for the frugal who don't need a huge amount of space because they are not weighed down by "stuff" and complexity. Some fraternal organizations also have affordable housing for senior members - e.g. Foresters, Lions, Elks, Oddfellows, etc. - you need to check into it. Also, some ethnic organization have this, if these people belong to a particular ethnicity. I can't remember which ones have it or where, but it's not too late to join such an organization, and it could be a good match as they are already giving back to the community, which demonstrates the desired attitude. Requires a bit of research. There must be some agency in Ottawa that keeps track of this kind of thing. Having this option open to you at a later date could insulate you from skyrocketing rents, and you can start planning ahead now for this rather than getting caught in a crisis.

g. Look into getting private insurance for some of the following: life insurance (especially useful if one spouse dies, at which point the other can be cancelled - can help cover fixed costs now that total income reduced), extended health insurance (may cover dental, drugs, various additional professionals, assistive devices etc), catastrophic illness insurance , and long term care insurance. I am not saying they will necessarily want to buy any of these. Be aware that rates can and will go up and that you need to read the fine print very carefully. I only mention them because I consider the situation of this couple to be marginal, given the risks and their assets, and they need to protect themselves if they can reasonably do so. For people who have a lot of money, it's not so much of an issue, and I don't normally recommend them, but should be at least investigated as an option. I think CARP has a group rate for extended health, and some other organizations may also have some group rates.

I will probably have more to say but it will have to wait for later.

Nothing else occurs to me right now.
I think the best thing would be for you to discuss these ideas with your in-laws and see what the reaction is. They will probably have questions, and will probably reject some ideas. There is a lot to absorb.
Let me know what the response is.

Regarding the RSP in HISA, it is unlikely that they will consistently earn as high as 3% (which is likely a temporary promotional rate). The RSP is the only place that I would put GICs.

The common argument against HISA and GIC income is that it is fully taxable, and not likely to keep up with inflation. However, that is true only if the income is high enough to pay any income tax (if they are working part time, it may or may not be). They really should consider investing some of the 350K in Canadian dividend paying stocks / ETFs because of the favourable tax treatment. However, that might be a big step from where they are now.

promise, just another view, has gotten stronger the older I get. I generally (actually, pretty much always) just shrug my shoulders, mumble something like "well, I'm not sure" when I'm asked for any financial advice by people that are and probably will be in my life for a while. Just take a moment to be sure about to what extent you want to interject yourself actively into your in-laws' financial affairs, consider the possible downsides (are there any upsides, aside from that warm feeling we all get when we are asked to opine on something?). And if yes, you're comfortable with providing substantial financial assistance to relatives, by all means pass on the good info, lots of solid advice, you're getting here.