How
much more annual income could you have?
Too often in my practice, I see retirees who want to keep
their investments safe but at the same time, they are risking their
current income in the hopes that interest rates are going to rise to the
levels they were in the late 80's and early 90's. Or, they are only
locking their money in for one year at a time in the event of
their deaths, so that their estate can be settled and their heirs receive
their inheritance in a timely fashion.
Each year, the retiree will receive their notice from the
bank that their GICs are coming due for renewal. The current renewal
interest rates are still low but they are willing to forego another year
of lower interest in the hopes that next year the rates will be higher.
The other thought they have is that if they invest in a
5-year GIC this year, they may miss out next year if the rates go up.
A laddering strategy is one remedy to this, where you have money coming
due each year and reinvest for the longest term to take the highest rate
possible. But, we've experienced fairly low interest rates for
several years now.
Following, we will analyze a scenario, where a healthy 70-year old
couple (we will refer to them as Jack and Jill) have $250,000 (which is a portion of all of their investments) and
continually roll over this investment one year at a time (they have enough
liquidity with other investments, so they are not concerned with keeping
this amount liquid).
We
will then compare this to an "Insured Annuity" strategy (please
click here to learn about an "Insured Annuity") and show you the amount
of income that the couple is foregoing until their mortality assuming
interest rates stay consistent.
Here are the current GIC posted rates from four of the Big Five Canadian Banks based on a deposit of
$250,000.00:
