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GIC rate decrease coming tomorrow September 25
September 24, 2020
8:24 am
Norman1
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Our 2-year to 5-year term rates are decreasing on Friday, September 25.

Our new term rates will be:

1-year term - 1.60% average
2-year term - 1.65% [was 1.70%]
3-year term - 1.75% [was 1.80%]
4-year term - 1.80% [was 1.90%]
5-year term - 1.90% [was 2.00%]

September 24, 2020
3:26 pm
Loonie
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Having listened to an interview with the finance minister yesterday, following the throne speech, I think it's fair to predict that we will not see higher interest rates for a very long time, if ever. I don't think it will happen in my lifetime. For me, at least, the penny has dropped.

Future finance ministers may have somewhat different ideas but it's clear that they will all be dependent on low interest rates.

Anyone who is dependent on interest income to live should be very busy investigating alternatives. Fortunately for me, I am not in this position but am open to securing some discretionary income.

If anyone has reason to disagree, I'd be interested in your reasoning. I can see that "when" the economy perks up or "if" the economy perks up, significantly, that interest rates might tentatively creep up. But at the moment they are still falling and it looks like they will continue to do so, so it would take a lot of "up" to compensate - if and when.

September 24, 2020
4:01 pm
Vatox
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Yes Loonie, I too just use interest as bonus money. Not very concerned about lower interest going forward. I just like to get higher rates because it feels good!sf-cool

September 25, 2020
12:55 am
Loonie
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Vatox said
Yes Loonie, I too just use interest as bonus money. Not very concerned about lower interest going forward. I just like to get higher rates because it feels good!sf-cool  

I think a lot of us on this forum are in a similar position. I would not feel good accepting less if I don't have to. It becomes a bit of a contest, playing against myself, to see how well I can do. Sure beats the games that cost us money!

September 26, 2020
9:42 am
Norman1
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Interest rates will remain low as long as inflation is subdued as it has been. They won't remain low because the politicians need low interest rates. I don't think there will be lots of people with money who are stupid enough to lend at ½% when inflation is running at 3%.

What has been holding back overall CPI inflation is the restrained economic activity from efforts to control the COVID virus spread. Once ways are found to control the virus, those restraints will be removed, economic activity will return, and inflation will need to be watched.

It hasn't been a year yet since the COVID virus came onto the scene. I think ten years is a really long time for us not to find some way of vaccinating against, treating, or living with the COVID virus. Just like ten years was a long time for us not to find ways to deal with problems in 2008.

September 26, 2020
12:04 pm
AltaRed
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Loonie said
Anyone who is dependent on interest income to live should be very busy investigating alternatives. Fortunately for me, I am not in this position but am open to securing some discretionary income.

If anyone has reason to disagree, I'd be interested in your reasoning. I can see that "when" the economy perks up or "if" the economy perks up, significantly, that interest rates might tentatively creep up. But at the moment they are still falling and it looks like they will continue to do so, so it would take a lot of "up" to compensate - if and when.  

I've posted about this elsewhere but those that are going to really "need" additional income to maintain their standard of living will have to take some risk to boost returns. That could be in the corporate bond market, or the high yield junk bond market, but both of those froze up in the March market debacle and in my opinion, current yields are not attractive enough over that of GICs to make that a clear alternative. Not something I would do. Government bonds are a total loss given their returns are less than that of GICs.

Preferred shares have been talked about in another thread but they are a minefield for those that don't understand them well.

It may well be that investors will need to consider some sort of 'balanced' income fund, either of the mutual fund variety or the ETF variety. The issue here is MER costs must be kept low and one won't get that from the asset management arms of the big banks, e.g. the financial advisors in the big banks. Unless MER is under 1%, too much of the return is going to the middleman. Some possibles include Leith Wheeler, Beutal Goodman, Steadyhand and Mawer but most of those need to be bought through DIY discount brokerages.

Steadyhand is a key exception where one can invest directly with them with relative small sums. Folks may want to take a look at them, and especially their Income fund that has 80% fixed income and 20% income stocks.
https://www.steadyhand.com/funds/income/performance

Alternatives to the mutual fund business are the new Asset Allocation ETFs issued by Vanguard, Blackrock and BMO, and especially the lower equity ones such as, in the case of Vanguard, VCIP or VCNS https://www.vanguardcanada.ca/individual/etfs/about-our-asset-allocation-etfs.htm

VCIP ETF has a similar 80/20 fixed income/equity allocation as the Steadyhand Income Fund with a much lower MER....but one has to have a discount brokerage account to buy/sell it.

There is no free lunch in terms of boosting fixed income yield without taking some risk. The question is how much risk does one need to take on.

September 26, 2020
12:55 pm
canadian.100
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Loonie said
Having listened to an interview with the finance minister yesterday, following the throne speech, I think it's fair to predict that we will not see higher interest rates for a very long time, if ever. I don't think it will happen in my lifetime. For me, at least, the penny has dropped.

Future finance ministers may have somewhat different ideas but it's clear that they will all be dependent on low interest rates.

Anyone who is dependent on interest income to live should be very busy investigating alternatives. Fortunately for me, I am not in this position but am open to securing some discretionary income.

If anyone has reason to disagree, I'd be interested in your reasoning. I can see that "when" the economy perks up or "if" the economy perks up, significantly, that interest rates might tentatively creep up. But at the moment they are still falling and it looks like they will continue to do so, so it would take a lot of "up" to compensate - if and when.  

I agree completely with what you say. The pandemic has thrown Canada off - I also believe interest rates will remain low for a long time - Trudeau repeats non- stop that he and his govt can keep up this very high level of spending (he calls it "investing") because the govt can borrow at these very low rates.

Not sure what you consider discretionary income, when you say above you are open to securing some discretionary income. If it is to secure extra income (not required for essential living) to spend perhaps on non-essentials, you do not appear to be one who would do that; seem to be quite frugal.

These will be rough years for retirees who depend on GIC interest to live. At a certain point, the govt will not be able to bail out everyone - the money being spent is not endless and "debt is debt" that someone someday will have to repay (at least partially). If not, then Canada's credit rating will take a hit again which is not good when borrowing.

September 27, 2020
10:29 am
pooreva
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canadian.100 said
These will be rough years for retirees who depend on GIC interest to live.

Living on interest is interesting option.
Lets say you have a million and in 2019 you were getting about 25k in interest. That was enough to live frugal assuming you have no debt of any kind.
Next year, if lucky, interest will bring about 10-15k/year. Definitely not enough to cover property tax, utilities and food.
But you still have that million, correct? If you are taking 50K/year it should last you 20 years (plus miserable interest). If you are 65+, you get OAS. If you ever worked there will be some CPP. If you were lucky, little bit of company pension, not to mention RRSP.
Am I wrong when thinking this is the way to survive and live decent life until 85/90?

September 27, 2020
10:55 am
Dean
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AltaRed said

. . .

There is no free lunch in terms of boosting fixed income yield without taking some risk. The question is how much risk does one need to take on.

  

'Amen' to that , AltaRed ❗

As for my wife & I ... we are some of the 'Lucky Ones'. We're both retired, but in most months our incomes allow us to add up to $3K to our savings after all the bills are paid. We get income from our Pensions, RIF's, GIC's, Blue Chip Dividends, CPP, OAS, and HISA's.

Our situation didn't come easy, though ... we started out with Absolutely Nothing, and we had only mid-paying jobs. It took us many years of saving, investing conservatively, and living on the 'frugal' side, but we still enjoyed our youth and had lots of fun.

For those less fortunate retirees, these are definitely Tough Times now, especially with today's Very Low interest rate GIC's, and that 'Scary' stock market. We know a few people (friends & relatives) in this pickle, and we feel for them ... they're struggling. sf-frown

      Dean

sf-cool " Live Long And Prosper " sf-cool

September 27, 2020
11:20 am
AltaRed
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pooreva said

canadian.100 said
These will be rough years for retirees who depend on GIC interest to live.

Living on interest is interesting option.
Lets say you have a million and in 2019 you were getting about 25k in interest. That was enough to live frugal assuming you have no debt of any kind.
Next year, if lucky, interest will bring about 10-15k/year. Definitely not enough to cover property tax, utilities and food.
But you still have that million, correct? If you are taking 50K/year it should last you 20 years (plus miserable interest). If you are 65+, you get OAS. If you ever worked there will be some CPP. If you were lucky, little bit of company pension, not to mention RRSP.
Am I wrong when thinking this is the way to survive and live decent life until 85/90?  

The RRSP portion, as well as TFSA, would be part of that $1milion portfolio, would it not? A portfolio is a portfolio in aggregate.

Regardless, one cannot take that $1M and simply divide by 20 because the interest income would keep dropping as well over the years. Classic SWR withdrawal methodology would be 4% of the portfolio per year but that is based on a classic 60/40 equity/fixed income portfolio. One would have to take a smaller SWR percentage with a 100% fixed income portfolio... perhaps 3% per year or less....which in a 1-1.5% interest environment, means depleting capital by $15-20k per year to get $30k (3%) from that $1M portfolio. Certainly doable for a 30 year retirement.

There is nothing wrong in depleting capital over a 30 year retirement. After all, that is what one worked for in the first place. It is just that it cannot be depleted too aggressively.

September 28, 2020
7:03 am
Loonie
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I agree that it can be done if you have that much money, don't live past 95, are willing to put up with conditions in a nursing home (you won't be able to afford to hire caregivers), taxes remain the same, inflation doesn't return, your POA appreciates the wisdom of your plan and doesn't squander it on the shorter term, nursing home rate system does not change to require a higher payment from you (who did you think was going to pay for the necessary upgrades in LTC homes?), you have excellent timing in terms of when you decline, at what pace, and how long you live. Otherwise, even the millionaire could be SOL.
30 years is a long long ways out to try to plan. We'll likely be fried by climate change by then anyway. 30 yrs ago, we had very little idea of the severity of climate change crisis, smart phones didn't exist, internet was a new idea etc. A financial plan, even for the elderly, has to have significant flexibility built into it, not written in stone with many assumptions unstated. I guarantee it will have to be changed, perhaps significantly.
If you are 65 and in the situation described, see if you can keep working til at least 70 full or part time, even if it doesn't pay as well as your regular job did, preserve your nest egg as much and as long as you can

September 28, 2020
8:44 am
AltaRed
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Agree one has to have a sufficient capital reserve to handle the 'what ifs' at late stages of life. Depletion of capital towards zero at age 90 or 95 is a dangerous roll of the dice. As Loonie advocates, financial plans will have to undergo numerous adjustments throughout life, even circa age 90 or so.

But it is always a matter of degree too... a balance depending on resources at hand. Retirees tend to spend more in their early 'go' years when they still have desire and ability, then a lot less in the middle 'no go' years circa 75-85 give or take, and then more again as health issues multiply. There is no way I want to have regrets at age 85 wishing I would have done X or Y, or X and Y, when I was able to (and could financially) do so in earlier years of retirement.

September 30, 2020
12:58 pm
pwr1019
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AltaRed said
Agree one has to have a sufficient capital reserve to handle the 'what ifs' at late stages of life. Depletion of capital towards zero at age 90 or 95 is a dangerous roll of the dice.

That's an opinion, since I'm male the chance of me seeing 95 or even 90 is at best pretty slim. Statscan says about 14.5% of Canadian males survive to 90.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1310013501&pickMembers%5B0%5D=2.1

I worked hard for my savings and I have no desire to be the richest guy in the graveyard. I think spending it all by 90 is a fine plan since 6 out of 7 guys won't see 90 anyway. If I'm the 7th guy I'll deal with it then sf-laugh

September 30, 2020
1:35 pm
Kidd
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pwr1019 said

That's an opinion, since I'm male the chance of me seeing 95 or even 90 is at best pretty slim. Statscan says about 14.5% of Canadian males survive to 90.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1310013501&pickMembers%5B0%5D=2.1

I worked hard for my savings and I have no desire to be the richest guy in the graveyard. I think spending it all by 90 is a fine plan since 6 out of 7 guys won't see 90 anyway. If I'm the 7th guy I'll deal with it then sf-laugh  

My father died at the age of 83 or 84, the money he and mother had saved went to support her, in her later years. If not for their savings, that burden would have most likely fallen upon me. So, I'm rather glad they saved and didn't splurge.

September 30, 2020
1:55 pm
Dean
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Kidd said

My father died at the age of 83 or 84, the money he and mother had saved went to support her, in her later years. If not for their savings, that burden would have most likely fallen upon me. So, I'm rather glad they saved and didn't splurge.  

Yes ... and then 'in theory', the offspring will inherit what's left, and the beginnings of a family Financial Legacy starts.

That's how it works in my family. Pass it on, and continue to build the family Financial Legacy for future generations ... each generation adding more to the pot.

Carpe Diem,

      Dean

sf-cool " Live Long And Prosper " sf-cool

September 30, 2020
4:33 pm
AltaRed
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pwr1019 said
That's an opinion, since I'm male the chance of me seeing 95 or even 90 is at best pretty slim. Statscan says about 14.5% of Canadian males survive to 90.
https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=1310013501&pickMembers%5B0%5D=2.1

I worked hard for my savings and I have no desire to be the richest guy in the graveyard. I think spending it all by 90 is a fine plan since 6 out of 7 guys won't see 90 anyway. If I'm the 7th guy I'll deal with it then sf-laugh  

So if you are one of the 14.5% that get there, or the 5?% that get to 95, are you willing to be a ward of the state? I sure don't care much about a legacy either, but I want to have coverage to 95. Variable Percentage Withdrawal (VPW) is a good way to die broke at age 100 (see the table). The table provides me with my guideposts...based on similar principles to RRIF withdrawal minimums.

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