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Where can one invest a LIRA in GIC's?
May 19, 2023
8:46 pm
NCC1701Z
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Loonie said
There is one way around the annuity conundrum that may or may not appeal.

If you have a favourite charity, preferably a large one like a university, hospital, large religious body etc., many of them can help you set up a Charitable Remainder Trust. I'm not sure if LIFs qualify but they will know. Te idea is that you get the monthly payout similar to a regular annuity but the charity gets the remainder when you die. I'm not an expert on this so you'd need to ask them. Lots of wealthy people use this to reduce taxes and provide help to charities.. It's NOT a DIY project though, and small charities do not have the expertise.

I like this idea. There is also something called a Charitable gift annuity and both seem to give you immediate donation room which can be used up to 5 years. I'll get some quotes.

May 19, 2023
9:47 pm
Norman1
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NCC1701Z said

I wonder if you have the option to take more than the minimum RRIF withdrawal each year?

Yes, you do, up to the maximum under the LIF rules, from the self-directed LIF account, not from the individual GIC's.

The LIF is the account and not the GIC's. The GIC's are ordinary GIC's that are held by a RRIF trust. The GIC's are not LIF GIC's. The GIC's don't have any special early partial cashing to support desired withdrawals.

One needs to ensure there is enough funds from GIC interest paid (and not compounded) and from GIC's that mature to support the desired withdrawals.

May 19, 2023
9:48 pm
Loonie
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Yes, I think the two charitable systems are both the same thing. Maybe the nomenclature has changed. I'm not up on this.

My experience with RIFs is that an FI will take money out of a compounding GIC and out of the principal if needed to meet legal requirement of withdrawal. As the value declines over time (depending on rate of return and your age), it cn sometimes be difficult to figure out where exactly they took the money from, but they will take it. It's probably the same with LIFs.

May 19, 2023
10:57 pm
NCC1701Z
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You are both saying different things. Norman says you must time your GIC's to support the desired withdrawals but I'm confused because he calls them both LIF and RRIF's. RRIF's have no max but LIF's do.

Loonie is saying the FI will take out the minimums even if the GIC has not matured or paid interest.

May 19, 2023
11:27 pm
Norman1
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A LIF is a RRIF with extra conditions, like a ceiling on the annual withdrawals.

The brokerage RRIF accounts are not the same as the depositary RRIF's from banks, credit unions, and trust companies.

Brokerage RRIF are trusts that hold regular GIC's, stocks, bonds, and whatever. A brokerage RRIF cannot extract funds out of a bond or regular GIC the RRIF trust holds, before the bond or GIC matures or pays interest.

The GIC's in a depositary RRIF are not the same as regular GIC's. Those special RRIF GIC's have special terms and conditions that allow early access to accrued interest and principal for the RRIF withdrawals.

May 20, 2023
12:21 am
NCC1701Z
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Ok I think I understand. But what happens in a brokerage RRIF where you do not time your GIC's or bonds to match your minimums?

May 20, 2023
9:03 am
Norman1
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The trustee of the brokerage RRIF could be forced to do something nasty in order to withdraw the minimum. Some possibilities were discussed earlier.

Subsequent to that earlier discussion, I learned that CRA requires any source tax withholding to be out of the source. The trustee is not allowed to take required tax withholding from elsewhere.

There will be complications for an in-kind withdrawal if, for example, the minimum is $4,200 and the $20,000 worth of bonds are in $1,000 denominations. Four $1,000 bonds withdrawn in-kind would not be enough. Five bonds would be $5,000 and be $800 more than the minimum. Source tax withholding would be required on $800.

May 20, 2023
9:20 am
AltaRed
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NCC1701Z said
Ok I think I understand. But what happens in a brokerage RRIF where you do not time your GIC's or bonds to match your minimums?  

It is up to you to manage your investments to meet your minimum annual withdrawals. It is easy when one has stocks or mutual funds as one can just sell enough (or withdrawal in kind) the amount necessary. Even then it will not usually be a perfect match and there will be at least a bit of excess over the minimum for which withdrawal tax will be deducted.

As Norman1 said, for a bond/GIC, you would have to withdraw in kind the entire bond/GIC and pay withdrawal tax on the excess. How you would do that within the RRIF if nothing is maturing, I do not know.

Anecdotally, I have read sometime in the past that some? brokerages will not let you get into that position . They would not have allowed you to buy bonds/GICs in a way that would put you in that predicament. I cannot remember if it was RBC DI or another one, but given how pedantic RBC DI is, it would not surprise me if it was them. If that is true, they obviously have a computer algorithm that can immediately prevent this dilemma from happening when one attempts to click the Buy button. That all said, my view is an investor should not be DIYing in the first place if they don't understand the mechanics.

May 20, 2023
9:51 am
Norman1
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This is from the Declaration of Trust of BMO InvestorLine Self-Directed RIF's in the March 15, 2023 set of BMO InvestorLine self-directed client agreements:

5. Payments

Payments must begin no later than the first year after the calendar year in which the Plan is established.

A payment cannot be greater than the value of the Fund [the assets of the BMO InvestorLine Retirement Income Fund] immediately before the time of the payment. Where there is insufficient cash in the Fund at any time to make a payment, the Trustee [BMO Trust Company] or the Agent [BMO InvestorLine Inc.] shall make reasonable requests for instructions from the Planholder regarding which assets of the Fund to liquidate in order to realize sufficient cash to make the payment. If, after making reasonable requests from the Planholder at the last address provided by the Planholder, the Trustee or the Agent does not receive satisfactory instructions from the Planholder within a reasonable time, the Trustee may, in its discretion, liquidate part or all of the Fund in order to realize sufficient cash to make the payment. Any such liquidation shall be made at such prices as the Trustee may in its discretion determine to be the fair market value of the assets at the time; in the case of assets which are illiquid or which have no readily ascertainable market value, the Trustee may in its discretion sell the assets to the Agent for the Agent’s own account, at such price as the Trustee considers fair and proper.

May 20, 2023
1:57 pm
Loonie
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NCC1701Z said
You are both saying different things. Norman says you must time your GIC's to support the desired withdrawals but I'm confused because he calls them both LIF and RRIF's. RRIF's have no max but LIF's do.

Loonie is saying the FI will take out the minimums even if the GIC has not matured or paid interest.  

We probably are saying different things. I did not read all of Norman's commentary as it is not relevant to me, but I know what my actual experience has been.
With Oaken, one year there was not enough accumulated (compounded) interest, so they took some from principal. You will recall that Oaken does not offer registered savings accounts, so it is impossible for them to take it from there. When withdrawal requires 5% and they are only paying 3% (or whatever), it is obvious that this is what they must do, particularly if you only have one RIF GIC with them.
Similarly, with one of my CUs, I had 2 RIF GICs. They, at their discretion, took the entire 5.28% mandatory withdrawal from the GIC that bore the lower interest rate. Rates on these GICs were 3% and 3.25% and I had no RIF savings account there, so, again, they had no choice but to take it out of principal, one way or another.

Perhaps brokerage accounts are more difficult to work with. I have not used one for RIF. None of our issuers have ever presented a problem figuring out how to make the necessary withdrawal. Sounds to me like the "flexibility" of the brokerage account may create more problems than it solves.

May 20, 2023
3:19 pm
Norman1
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The brokerage trusteed RRIF's work as one expects.

If one is required to or wishes to make a $3,000 withdrawal, one needs to make sure there is $3,000 to withdraw in cash or in kind. If part of the $3,000 is in kind, then the cash part of the withdrawal needs to be large enough to cover the source tax withholding.

No arbitrary rules in trusteed RRIF's about tapping accrued interest or principal from oldest/latest, lowest yielding/highest yielding, or largest/smallest GIC's first.

May 20, 2023
5:06 pm
Norman1
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NCC1701Z said

The annuity is tempting but I can't seem to get past the lack of an estate value and I don't think we'll be living into our 90's to get a decent return.…

I'm not tempted by the 7.2% per annum payout from the life annuity on the $100,000.

The 7.2% payout is not anywhere close to 7.2% per annum return. Basically just getting your own money back until 14 years afterwards:

Year Cash Flow Per Annum
Return
1 -$100,000 -100.0%
2 +$7,200 -92.8%
3 +$7,200 -69.3%
4 +$7,200 -49.8%
5 +$7,200 -36.2%
6 +$7,200 -26.6%
7 +$7,200 -19.7%
8 +$7,200 -14.7%
9 +$7,200 -10.9%
10 +$7,200 -7.9%
11 +$7,200 -5.6%
12 +$7,200 -3.7%
13 +$7,200 -2.2%
14 +$7,200 -0.9%
15 +$7,200 0.1%
16 +$7,200 1.0%
17 +$7,200 1.7%
Year Cash Flow Per Annum
Return
18 +$7,200 2.3%
19 +$7,200 2.9%
20 +$7,200 3.4%
21 +$7,200 3.8%
22 +$7,200 4.1%
23 +$7,200 4.4%
24 +$7,200 4.7%
25 +$7,200 4.9%
26 +$7,200 5.1%
27 +$7,200 5.3%
28 +$7,200 5.5%
29 +$7,200 5.7%
30 +$7,200 5.8%
31 +$7,200 5.9%
32 +$7,200 6.0%
33 +$7,200 6.1%

I think one needs to consider whether or not the longevity insurance is needed. Insurance is usually a lousy investment.

People have no choice with life insurance as they can't self-insure that risk of passing away with young dependent children.

People usually don't have a choice with house insurance either as the mortgage terms and conditions require the insurance.

Be wary of proposals from life insurance salespeople about buying life insurance to donate to a charity. Charities need funding today, not years or decades from now, when one dies. People should resist redirecting what could be significant monthly charitable donations to, instead, a life insurance policy in the charity's name.

May 20, 2023
6:30 pm
savemoresaveoften
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Norman1 said

NCC1701Z said

The annuity is tempting but I can't seem to get past the lack of an estate value and I don't think we'll be living into our 90's to get a decent return.…

I'm not tempted by the 7.2% per annum payout from the life annuity on the $100,000.

The 7.2% payout is not anywhere close to 7.2% per annum return. Basically just getting your own money back until 14 years afterwards:

Year Cash Flow Per Annum
Return
1 -$100,000 -100.0%
2 +$7,200 -92.8%
3 +$7,200 -69.3%
4 +$7,200 -49.8%
5 +$7,200 -36.2%
6 +$7,200 -26.6%
7 +$7,200 -19.7%
8 +$7,200 -14.7%
9 +$7,200 -10.9%
10 +$7,200 -7.9%
11 +$7,200 -5.6%
12 +$7,200 -3.7%
13 +$7,200 -2.2%
14 +$7,200 -0.9%
15 +$7,200 0.1%
16 +$7,200 1.0%
17 +$7,200 1.7%
Year Cash Flow Per Annum
Return
18 +$7,200 2.3%
19 +$7,200 2.9%
20 +$7,200 3.4%
21 +$7,200 3.8%
22 +$7,200 4.1%
23 +$7,200 4.4%
24 +$7,200 4.7%
25 +$7,200 4.9%
26 +$7,200 5.1%
27 +$7,200 5.3%
28 +$7,200 5.5%
29 +$7,200 5.7%
30 +$7,200 5.8%
31 +$7,200 5.9%
32 +$7,200 6.0%
33 +$7,200 6.1%

I think one needs to consider whether or not the longevity insurance is needed. Insurance is usually a lousy investment.

People have no choice with life insurance as they can't self-insure that risk of passing away with young dependent children.

People usually don't have a choice with house insurance either as the mortgage terms and conditions require the insurance.

Be wary of proposals from life insurance salespeople about buying life insurance to donate to a charity. Charities need funding today, not years or decades from now, when one dies. People should resist redirecting what could be significant monthly charitable donations to, instead, a life insurance policy in the charity's name.  

No kidding. Very simple math will also show $100k divide by $7200 = roughly 14 years, basically they act as a safety deposit box for your money, earning absolutely zero return on ur deposited money too.

May 20, 2023
11:23 pm
Loonie
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Norman1 said
The brokerage trusteed RRIF's work as one expects.

If one is required to or wishes to make a $3,000 withdrawal, one needs to make sure there is $3,000 to withdraw in cash or in kind. If part of the $3,000 is in kind, then the cash part of the withdrawal needs to be large enough to cover the source tax withholding.

No arbitrary rules in trusteed RRIF's about tapping accrued interest or principal from oldest/latest, lowest yielding/highest yielding, or largest/smallest GIC's first.  

This is more or less true, but with a certain embedded bias in favour of brokerage investment accounts.

With an RIF, one IS required to make an annual specified withdrawal; it's not a matter of "if". (If you want to take more, that's up to you to arrange, no matter where you invest the money.)

It's quite true that if you invest your RIF directly with a bank or CU, their policies will dictate which GIC (or savings account if any) they will take the mandatory withdraw frpm, and they will do it automatically. However, they typically do it in a way that is advantageous to the customer, in my experience - which , in my view, is way better than having to liquidate more of an investmnet than you wanted to per AltaRed or having to keep significant amount in a RIF savings account earning lower interest so as to be able to meet the mandatory withdrawal. Best to ask in advance to check on this with the FI you are interested in.

There could be another problem with trying to make your GIC ladder work out right in an RIF/LIF investment brokerage. You would have to arrange it so that all the GICs came due at about the same time in order for it to work to your best advantage. The brokerage account will, as far as I know, take out the mandatory withdrawal all at once, on the same date every year, so GICs need to line up accordingly. Date for mandatory withdrawals is set when you first set up the plan and is not supposed to be changeable, although i know one FI that said they would if I wanted.

You avoid all this nuisance and management needs when you deal direct - as long as you don't change FIs very often. In the early years, you might want to make such changes or may be OK with having to manage your investment account, but as the years go by you probably will be less interested or able. I'm not that old yet though!

Yes, annuities are more of an option than life insurance, but the principle is the same: you are buying insurance against a particular real risk.

The comments about being wary of insurance salesmen are valid but should not be confused with charitable annuities. with a charitable annuity, the charity DOES get a significant portion of your money upfront and you get a charitable receipt which gives you some additional funds. It's a valid alternative to giving all your money to the insurance company, and the income is still going to come as long as you live.
Annuities are not for everyone, but everyone should have a clear, reasoned picture of why they do or do not need them. I have listed their advantages on other threads, a major one being that the money is then safe from unscrupulous financial advisors or POAs. The former can be a real hazard when you start to lose your marbles. They can't get their hands on the money invested in your annuity.

Longevity runs in my and spouse's families, all parents exceeding 90 comfortably etc. I doubt we'll do as well but probably won't buy an annuity anyway because we will have enough without it. Still, it has its advantages and I will keep my options open a few more years.

May 21, 2023
6:05 am
Norman1
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A RIF does require a minimum amount to be withdrawn every year. But, there's no requirement for that minimum be withdrawn in a single withdrawal.

In the Scotia iTRADE application form, one can chose the minimum amount to be withdrawn over monthly, quarterly, or semi-annual withdrawals as well as a single annual one. The declaration of trust allows changes to withdrawal amount. Not sure about the base date for the withdrawals. If no, one can transfer the RIF to another RIF with the new desired base date for subsequent years.

No real need to align GIC maturity dates. The brokerage RIF can park cash in a brokerage ISA until the next monthly, quarterly, or semi-annual withdrawal for the minimum.

I looked into charitable annuities. They don't look great either. Essentially, one "overpays" for the annuity through a charity. Charity gets the "overpayment" and issues a receipt for that. Rest of the money goes towards the annuity. sf-frown

This is from Charitable Gift Annuities: A Gift That Gives Back showing a 48% gift "overpayment" portion:

Of the $100,000 you provide to the charity, about $52,000 is used to buy the annuity from a tier-one life insurance company. The life annuity provides a return rate [not rate of return] of about 5 per cent [of the $52,000, not of the $100,000], much higher than the banks are currently paying on a 10-year GIC. That translates to $2,600 [not $5,000] a year until the second spouse dies. The remaining $48,000 of the original $100,000 is a charitable donation, and the donor receives a charitable receipt for that entire [$48,000] amount. That results in approximately $24,000 of tax savings, assuming a 50 per cent tax bracket.

The gift portion needs to be at least 20% of the total.

My take would be to donate $48,000 to the charity and invest the $52,000 somewhere else. I haven't seen any evidence yet in my family tree of the longevity needed to make a life annuity worthwhile.

I discussed life annuities with one senior relative. She nixed the idea when I explained there would be no residual at the end. She passed away some years later. Didn't make it to her 80th birthday. So far, the odds don't look good for my part of the gene pool.

May 21, 2023
8:23 am
AltaRed
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Both spouse and I have RIFs in brokerage accounts, RBC DI and Scotia iTrade respectively. One does set a date (or multiple dates) for withdrawals via forms, but they are easily changeable online on a forward basis and arbitrary changes can be made for additional withdrawals if one wishes to do so. As Norman1 posted, there is plenty of flexibility.

For the time being, spouse withdraws annually on June 1st and I withdraw annually on Dec 15th. Timing works well and in my case specifically, a few of my legacy GIC and bond maturities don't line up with Dec 15th, I put the funds in DYN6004 until withdrawal date (versus changing withdrawal date). If and when we need to change either frequency, or dates, we will do so.

Added: Example of how to change withdrawal date at RBC DI https://www6.royalbank.com/en/di/hubs/investing-academy/chapter/how-to-find-your-rrif-info-online/kjqa5y3y/ki58kjqy

RIFs at brokerage accounts are not for everyone obviously and debates for or against are partially beauty contests and personal bias as is clear from posts in this thread.

May 21, 2023
6:18 pm
Loonie
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You can usually save some money if you do an annual withdrawal and leave it to close to the end of the year.
I have the FI put the withdrawal towards income tax, so I usually never see it. I also usually take additional discretionary withdrawal, and some or all of it goes directly to CRA also. I can make reasonable estimates as to how much tax I will owe.
Tax payments made out of RIFs can be paid into tax account late in the year, thus postponing, reducing or eliminating need for quarterly payments or other deductions. Thus, you can keep all the money until near the end of the year, earning income. Unless you absolutely require the monthly income, I prefer late-year and all t0 CRA. All the banks and CUs I have dealt with have been happy to arrange this although they seem to find it odd that someone wouldn't need to keep as much as possible.

The Charitable Annuities don't all do 48%. I was looking at one the other day that was 30%. I think it was the Anglican Diocese of New Westminster in Vancouver but not sure. I brought it up specifically because OP said he couldn't swallow the idea of having nothing left in it after he's gone (and won't care anyway by then). It's an option, and your favourite charity will thank you for your generosity. It suits people who were planning on leaving something in their will, allows the charity to get some money sooner while you keep the guaranteed income. Might be good for an organization addressing climate change if one could be found as that is an emergency that may not wait until you are dead. It's important to remember that it IS a charitable gift; it's not meant to necessarily compete on rates
so you can keep it all for yourself.

In any event, OP has lots of ideas to chew over.

May 21, 2023
9:57 pm
NCC1701Z
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Last time I looked a 20 year guarantee 100% survivor annuity paid 6600/100k which is about 2.8% over 20 years. I guess an HISA and a few GIC's could do better. I can't remember the lowest HISA rates when rates were at rock bottom.
One could also do 20-30 year provincial strips to secure a long term income, currently near 4%

An annuity isn't about returns, it's an insurance product that protects one against longevity, variable market returns, mental deterioration and even irresponsible spending and scammers.

If your surviving spouse does not have any investment skills, knowledge or interest the annuity will provide them with a guaranteed income. For many this would be one of the main incentives. Vettese recommends to annuitize ~20% of your funds to provide some protection.

It's puzzling that everyone envies the coveted DB pension that has no estate value after the last survivor but they shy away from annuities.

May 22, 2023
1:49 am
savemoresaveoften
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Everyone envies the DB plan as it’s always partly funded by the employee. So most think of it as ‘free money’. I never paid into a DB plan for the bank I worked for, happily surprised it’s worth something when I leave. They contributed amount up to CPP maximum earnings each year on my behalf, and top up was only optional back then ! Of course those types of plan don’t exist anymore.

May 22, 2023
8:40 am
Norman1
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That's right. Pretend that $7,200 per year annuity only cost $50,000 because someone else paid the other $50,000:

Year Cash
Flow
Per
Annum
Return
Year Cash
Flow
Per
Annum
Return
1 -$50,000 -100.0% 11 $7,200 7.2%
2 $7,200 -85.6% 12 $7,200 8.6%
3 $7,200 -54.2% 13 $7,200 9.6%
4 $7,200 -32.6% 14 $7,200 10.4%
5 $7,200 -18.9% 15 $7,200 11.1%
6 $7,200 -10.0% 16 $7,200 11.6%
7 $7,200 -4.0% 17 $7,200 12.1%
8 $7,200 0.2% 18 $7,200 12.4%
9 $7,200 3.3% 19 $7,200 12.7%
10 $7,200 5.5% 20 $7,200 13.0%

Even better if someone else ended up having to pay 2/3 because that someone else promised a $7,200/year pension but investment returns for the last 30 years didn't turn out to be like the 14% per annum from stocks and 10% per annum returns from bonds at the time the promise was made:

Year Cash
Flow
Per
Annum
Return
Year Cash
Flow
Per
Annum
Return
1 -$33,333 -100.0% 11 $7,200 17.2%
2 $7,200 -78.4% 12 $7,200 18.2%
3 $7,200 -41.5% 13 $7,200 18.9%
4 $7,200 -18.9% 14 $7,200 19.5%
5 $7,200 -5.6% 15 $7,200 19.9%
6 $7,200 2.6% 16 $7,200 20.2%
7 $7,200 8.0% 17 $7,200 20.5%
8 $7,200 11.6% 18 $7,200 20.7%
9 $7,200 14.1% 19 $7,200 20.9%
10 $7,200 15.9% 20 $7,200 21.0%
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