Long term GICs | Page 3 | Motive Financial | Discussion forum

About the RRIF's. I just asked Motive the other day about them. I currently have RRIF's with CWB. They said I could transfer them to Motive and there would be no transfer fee. I asked because I have a good rate right now with CWB and they don't mature until 2022. So rather get a better rate with Motive if they have it at that time.

I don't know if any of you bought those long GICs back in September when rates were terrible, but they are now even more terrible and you might almost be wishing you had!

Non-Redeemable Motive GICs5
12 Month Term
1.400%

24 Month Term
1.600%

36 Month Term
1.650%

48 Month Term
1.750%

60 Month Term
1.900%

72 Month Term
1.900%

84 Month Term
2.000%

96 Month Term
2.050%

108 Month Term
2.050%

120 Month Term
2.050%

I'm almost getting my head around the idea of not having to make another decision about a certain chunk of money for ten years. I might get to like it. I think they call it "retirement"!

Loonie said
I don't know if any of you bought those long GICs back in September when rates were terrible, but they are now even more terrible and you might almost be wishing you had!

I'm almost getting my head around the idea of not having to make another decision about a certain chunk of money for ten years. I might get to like it. I think they call it "retirement"!  

If you think rates are now "more terrible", I wonder what your adjective will be in another 6 months? I think the title High Interest Savings Account is dead for the foreseeable future and GIC rates are moving or have moved to lower than inflation rates.

Alexandre said
I can't comprehend how people, who should have lived as adults through Canadian inflation of 1970s - early 1980s, consider buying long term GICs when the Canadian government in 2020-2021 prints money like there is no tomorrow.

I am taking the opposite direction: most of my funds will be out of GICs by the end of this year. Hopefully, it would not be too late.

If there is hyperinflation it all is irrelevant, but with inflation going up to "modest" 5%-10%, people buying 10 year GIC at 2% interest rate may start regretting that decision halfway down the road.  

What is the opposite direction Alexandre? What are you going to do then? When a senior in their 70's can go on a months holiday each year, has a nice home paid for, a rental or two, a nice car and furniture paid for and enough coming in to live on comfortably, I'm not sure one needs to take any further risks other than GIC's with their available funds. I have quite a few GIC's paying between 1.85% and 3.6 percent now mostly having interest paid out yearly. As I have said before......for some of us, it comes down to how much more or less are your children/grandchildren going to inherit?

A lot of people seem to forget, or never knew, that some (sometimes a lot) of their income as retirees already comes from the stock market and similar instruments.
CPP and pension funds are all very much invested in the markets.
Thus, a conservative but diversified approach suitable for an old person may require them to stick closer to GICs. It depends on the breakdown of their income sources.

At one extreme, I have a good friend who has retired from a very good job with a very good pension. His OAS is 100% clawed back. His income sources are primarily CPP, which he took at 65, and pension from work, both of which are heavily invested in the market. He is single, no kids, and has 2 homes and 2 cars fully paid for. He has some savings, mostly in RIFs, all of which are in GICs. He basically spends all his income as it comes. Apart from his real estate, which is for him a lifestyle decision, he sees GICs as the only way he has to offset the heavy reliance on markets associated with his other income sources.

Loonie said
A lot of people seem to forget, or never knew, that some (sometimes a lot) of their income as retirees already comes from the stock market and similar instruments.
CPP and pension funds are all very much invested in the markets.
Thus, a conservative but diversified approach suitable for an old person may require them to stick closer to GICs. It depends on the breakdown of their income sources.

Today's Pension Plans are actually quite diversified and invested in much more than the stock market. Pension funds hold a variety of asset classes such as Private Equity (private companies and partnerships), real estate, infrastructure, as well as gold to act as a hedge against inflation, in addition to international stocks, and corporate and government debt instruments.

Sure, GICs might be appropriate for an old person and even a young person, but just being old and having pension income would not be the only criteria for them to purchase only GICs for achieving "diversification".

It is a good thing that Pension Plans do invest in a diverse manner to be able to pay pensions. For sure, Pension Plans would not be buying GICs at today's rates.

Loonie said
If it were me, I would be looking at ways to secure my necessary retirement income from other sources as much as possible. This could include GICs, life annuities (yes, I know the rates are poor now but I'd still consider it as something that could be phased in), working longer, part time or consulting work, and delaying CPP/OAS. I would be less likely to consider the stock market, private equity, real estate or gold, because they don't generally provide a secure income stream. 

I understand your risk-adverse approach - I would say life annuities and GICs actually have significant risk these days. You already know that annuities contracted at this time may not return much more than the capital invested/locked in to the annuity - and for sure GICs these days are losers after income tax and inflation - to get 1% interest (more or less, probably less in 2021 and 2022) on a GIC will not guaranty you much of an income stream nor will it keep up with inflation. Of course, you are correct that people should always look at their whole situation and determine what they are in a position to control.

Rick's perspective is worth paying attention to.
There really is no need for him to take additional risks or to try to hunt down alternative investments.
GIC rates ARE low, no question. But my analysis of my own situation shows, to my surprise, that when rates are low and inflation is also low, I actually net more, even with GICs. It may be an effect of squeezed FI margins but I'm not sure. Even after taxes, I am ahead.

I just finished analyzing our "investable assets" - savings, registered plans, not property, and how they have grown or diminished since the second of us retired from full time work. We haven't come out ahead every year. The year we bought a new car took a bit of a bite. However, we are now on target to exceed inflation and income tax for the foreseeable future, partly due to good planning and partly due to good luck. In 2021, we will exceed the cumulative impact of inflation and taxes over the last several years, even if interest rates go below 1%.

I think one of the things that clouds people's thinking is that retirement income planning is very different from accumulation planning in the earlier years. That's a big topic and I won't do justice to it here, but well worth looking into for those interested.
Another issue is that "experts" are fond of raising alarm bells about inflation and taxes, but their assumptions don't usually hold water for most people. Most of us, especially in retirement, are not going to be particularly affected by 40 and 50% marginal tax rates in retirement, if ever. And even those who might be are probably scurrying to their brokers to ensure their investments fall into the dividend and capital gains pockets.
Marginal tax brackets are not nearly as significant as average tax rates in retirement because you are no longer in the accumulation phase, so those extra dollars that you might have gotten are less important and may not be there. Looking at the rate one is paying on average is more informative. And it also encourages better planning, taking advantage of provisions which are available to retirees - pension tax credit, pension splitting, pension sharing, RIF withdrawal planning, etc., as well as the impact of donating some of one's largesse to charities. (Some of the latter can even be done for free as gifts-in-kind. I donated some items to a rare books library last year and got a tax receipt for over $1000 at fair market value because no library in Canada had them and they are Canadian items. I would have had difficulty finding a buyer on my own and was delighted to find a good home for them. Will be donating more this year and have several filing cabinets to go!) All these things combine to reduce one's average tax rate.

Re: CPP break-even. The breakeven point for CPP and OAS under current rules and actuarial numbers comes out somewhere around 81 to 84, depending on whose stats you read and precisely at what age you elect to receive payments. OAS is lower than CPP because the benefit of delaying receipt is less.
However, I have a different "take" on this than most people. How much I have in my kitty at 70 or 80 or 90 or 100, and trying to guess how long I will live to accumulate it is not the deciding factor in my view. To decide on this basis is really to decide on the basis of how much money you think you can leave on the table when you die, which is an accumulation strategy, not a retirement income planning strategy. I don't even think the impact on your income tax burden is the deciding factor.
In my opinion, the deciding factor is ensuring that you will have enough income during the various stages of your retired life, however long it may be. I have broken it down to five and ten year chunks and decided on that basis when it would be best to introduce CPP and OAS to the income mix. (It also allows for you to adjust the few income sources other than CPP/OAS that are still adjustable later - you might want to buy an annuity, do more pension splitting, take extra from RIF, plan charitable gifts, etc. if your main sources don't keep up with inflation.)
I took CPP early because that was what my friends in the teaching profession were being told to do so i followed suit. But by the time it came to spouse, I had changed my mind and followed my own strategy, so that one was delayed to 70. The plan has worked well for us so far.
Again, as with the marginal tax issue, the standard model for decision making is based on the accumulation phase. My main goal in retirement is not further accumulation; it's income security and predictability and figuring out some kind of spending plan. I'm still working on the latter.