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Why keep so much in a savings account?
August 26, 2021
5:35 pm
suburbs4life
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I have to ask this in case I am missing something ..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? Saving for house down payments? I imagine some are retired but people keep that much liquid at a time? Maybe many people on this board are in the 0.01% of the population but I don’t suspect that. Should your money not be making more than inflation for wealth generation? Instead of losing to inflation and Annual interest taxation. I only ask to learn other people’s motivations with moving money from 1.25% accounts to 1.5% which is negligible after taxes. Even a 100k deposit at most is an extra $250 before taxes if the said promo lasts 12 months.

August 27, 2021
12:37 pm
topgun
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suburbs4life said
I have to ask this in case I am missing something ..... why does it seem like many posters here are keeping at least a couple $100K in savings accounts?? Saving for house down payments? I imagine some are retired but people keep that much liquid at a time? Maybe many people on this board are in the 0.01% of the population but I don’t suspect that. Should your money not be making more than inflation for wealth generation? Instead of losing to inflation and Annual interest taxation. I only ask to learn other people’s motivations with moving money from 1.25% accounts to 1.5% which is negligible after taxes. Even a 100k deposit at most is an extra $250 before taxes if the said promo lasts 12 months.  

Well put. I would also like to hear responses.

Have a Great Day

August 27, 2021
3:08 pm
Loonie
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I'm retired, in my mid-70s. I do keep quite a bit in savings accounts but more in GICs. I like to have the flexibility of cash. At this age, spending one's money makes sense as you can't take it with you! - and you might need it for medical expenses or some extravagance. (A friend of mine, older than I, bought himself a Tesla.) Locking it away for five years is starting to seem less attractive; I might never see it again! I'm thinking of reducing my ladders to 3 or 4 years. I keep a chunk of RIF funds in cash so that I can decide near year's end how much extra to withdraw for tax planning purposes.

My cash is currently getting 2% (joint account) and 1.5% (single account). Overall, this year, I've done quite well with cash and not regretting keeping it there.

Somebody on this forum said a while ago that their elderly father had only one year GICs in latter part of his life

August 27, 2021
3:28 pm
julio
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My guess is, that people "with money" are closer to, or in retirement, and of those, some see through the brainwashing mantra of the world's society, that preaches Wealth Generation. You walk into any FI, and they, upon seeing a five figure balance (for a few days, because it is between the "shifts"), always suggest some investment (they get bonus points). When I point out, that I do not need to Generate Wealth, that I am content with what I have, and together with the pension, I am OK until I die, they always fine reasons, why I should Wealth Generate, e.g. "you'll have more(!), leave a legacy, give to charity", etc." (provided, that markets go up). I always keep in mind, that when I buy any other goods, I can return it, when it is not working, sometimes even with "no questions asked". Have you ever tried to "return" your investment purchase (Nortel,...)?
My bottom line: "Julio, don't become greedy, no matter what."

August 27, 2021
3:33 pm
canadian.100
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Loonie said
Locking it away for five years is starting to seem less attractive; I might never see it again! I'm thinking of reducing my ladders to 3 or 4 years. I keep a chunk of RIF funds in cash so that I can decide near year's end how much extra to withdraw for tax planning purposes.
Somebody on this forum said a while ago that their elderly father had only one year GICs in latter part of his life  

So true that a person of a certain age (maybe even before mid 70s) begins to realize that a 5 year GIC might more likely become a windfall to beneficiaries/children/grandchildren. Do you think say @age 80 one should only hold cash in HISAs? Probably no right answer for everyone. But you make a good point one should up their spending on themselves or perhaps make gifts to family depending on circumstances at advanced age, if one is able.

August 27, 2021
5:28 pm
savemoresaveoften
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It’s prob for those that has couple of hundreds in cash or near cash (gic), they may or may not have proportional amount in other assets like equities etc.
It’s of paramount truth that risk tolerance goes down and should go down as age goes up. Esp if one already has amass enuf for life, really little reason to earn 6% with risk vs 2% risk free.

August 27, 2021
7:10 pm
COIN
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I have a home equity line of credit in case I need some quick cash.

BTW: I think very few young people are members because they are probably spending their time on Facebook.

August 28, 2021
5:29 am
savemoresaveoften
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COIN said
I have a home equity line of credit in case I need some quick cash.

BTW: I think very few young people are members because they are probably spending their time on Facebook.  

Actually the Facebook population is middle age and up believe it or not. Tons of groups re plants, animal lovers, restaurant reviews and all populated with a lot of seniors believe it or not !

The young generation have left Facebook years ago as soon as the ‘older folks’ started using it. Millenniums are in Instagram, and a bunch of others ‘hip’ platform. My young adult daughter is the living proof lol

August 28, 2021
11:55 am
suburbs4life
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Thank you for all of your responses. I was a bit delayed.

I guess I am clearly on the younger side being on this forum. Mid 30’s. At this stage in life, I do need the wealth generation. New house/Reno’s just married etc. I do like to read the forum from time to time to learn from other members so thanks for sharing. Staying on top of High interest savings account rate changes have dropped off my radar after I spent my house down payment.

I do believe I would fit the tail end of the millennial generation by definition. For what it’s worth, I have stopped using Facebook regularly for about 5 years now.

August 28, 2021
1:45 pm
Loonie
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All good wishes for your new house and family!
Try to keep saving a bit every month in a TFSA, at least for a rainy day fund. You can catch up with the rest later.

August 28, 2021
3:44 pm
COIN
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The RRSP and/or the TFSA might not be around much longer. Apparently, only people with money (the so called "rich") contribute to RRSP's.

August 28, 2021
3:54 pm
Bill
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I suppose if you put $20K/year into HISAs and GICs for 30 years and returns after tax are able to keep up with inflation (which I personally don't see happening but others on here have said it's possible) then you'll have about $600K in today's terms. Then if you live for another 30 years and manage to continue to keep up with inflation during that time that gives you equivalent of today's $20K/year on top of CPP, OAS, etc. to spend.

Also, I think wealth contained within workplace pension plans are underrated by many young people, don't give them enough weight when choosing employment. It's common for medium to large-size employers to have money purchase pension plans where they match (or so) the employee's contribution, i.e. you put in $10K a year and you make 100% on it the first year. That can be a pile at retirement time too.

Facebook's for boomers, instagram for millennials, tiktok for the youngsters, is my understanding.

August 28, 2021
4:52 pm
topgun
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Bill said
I suppose if you put $20K/year into HISAs and GICs for 30 years and returns after tax are able to keep up with inflation (which I personally don't see happening but others on here have said it's possible) then you'll have about $600K in today's terms. Then if you live for another 30 years and manage to continue to keep up with inflation during that time that gives you equivalent of today's $20K/year on top of CPP, OAS, etc. to spend.

Also, I think wealth contained within workplace pension plans are underrated by many young people, don't give them enough weight when choosing employment. It's common for medium to large-size employers to have money purchase pension plans where they match (or so) the employee's contribution, i.e. you put in $10K a year and you make 100% on it the first year. That can be a pile at retirement time too.

Facebook's for boomers, instagram for millennials, tiktok for the youngsters, is my understanding.  

More realistically. Put 2K per year into some form of equity investments @ 7% for 25 years. Company pension plans are good. Never was a consideration when I started out. I was happy to have a job.

Have a Great Day

August 28, 2021
5:40 pm
savemoresaveoften
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topgun said

More realistically. Put 2K per year into some form of equity investments @ 7% for 25 years. Company pension plans are good. Never was a consideration when I started out. I was happy to have a job.  

Equity investment of 7% compound return for 25 years is not realistic sadly.

August 28, 2021
6:36 pm
Bill
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I believe the annual rate of return on the TSX Composite Index was between 9 - 10% (inclusive of dividends) between 1960 and 2020, so more than doable in the past.

But I agree, based on what I see around me these days I have almost zero confidence this will continue.

August 28, 2021
7:38 pm
COIN
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Pension plans --- I think the vast majority of defined benefits pension plans are in the public sector funded jointly by you and the beneficiary.

How does the Teachers Pension Plan manage to pay an index pension for a teacher who retires at age 55?

August 29, 2021
5:01 am
savemoresaveoften
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COIN said
How does the Teachers Pension Plan manage to pay an index pension for a teacher who retires at age 55?  

When it was 4 active teachers to 1 retiree, it’s easy….

Now that it’s 1.2 to 1 ratio, it certainly needs to take more ‘risk’. That’s why they switched to be actively managed 20ish years ago.

Funding Variables Comparison 2020 1990
Average retirement age 59 58
Average starting pension $47,500 $29,000
Average contributory years at retirement 26 29
Expected years on pension 32 25
Ratio of active teachers to pensioners 1.2 to 1 4 to 1
Average contribution rate 11.0% 8.0%

August 29, 2021
8:26 am
AltaRed
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For folk who truly want a portion of their net worth in guaranteed investments, it is still very difficult to beat a 5 year GIC ladder over longer, e.g. 10 year, periods of time. For those who want more liquidity as per Loonie's early post, HISA accounts and promotions likely offer the best opportunities. How much of each should mostly depend on where one is in the journey of life.

There are a lot of good reasons for Loonie to do what Loonie is doing in one's mid-70s. Being in my early '70s, I want the flexibility to call on substantial amounts of cash, e.g. high 5 figures perhaps, for certain family emergency situations, an impulse Corvette purchase, etc. I don't want a HELOC for that purpose and I would rather not have to rely on selling equities at an inopportune time which could very well coincide with a family 'situation'. It does not bother me that this 'cash' is not in the market working to get me 5+% longer term.

FWIW, I don't see a need for younger folk with employment earning power to hold more than an Emergency Fund in HISA cash...or better yet, to use a HELOC for that purpose. Cash at current rates is a drag and it is only relevant that one hold enough cash to manage bumps in the road while they still have debt on the books (mortgage, auto loan, etc).

Ultimately, it is up to each individual to assess their personal risk (volatility) tolerance to decide how much to hold in a liquid and/or guaranteed form.

August 29, 2021
8:31 am
mordko
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I have been advising my kids to keep their cash savings to an absolute minimum and invest as much as possible in equities. They listen but still keep a bit more in cash than makes sense to me.

Most humans are naturally risk averse and tend to look for certainty even if it’s mathematically bad for our pockets.

August 29, 2021
9:06 am
Bill
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100% agree with AltaRed's last paragraph - aside from the fact I see no upside for me to give advice it's why I refuse to give even a bit of financial advice to anyone, especially family. Part of the burden of adulthood is taking the time to figure out, like I did, what lets you sleep well at night, is what I tell them.

Recently one adult child did persist in pestering me what to do with a bit of a windfall, so finally I did tell them generally a couple of investments I did/do but then pointed out they were in a completely different situation, in a number of ways, than I ever was, so it might be better for them to NOT do that. Luckily they left more confused than before they asked.

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