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Long term GICs
September 27, 2020
3:54 pm
Alexandra
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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.

September 27, 2020
4:58 pm
topgun
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Alexandra said
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.  

As long as there is no transfer fee that is good. Years ago when had GIC's in my RRSP, I transferred at 5 year maturity if some was offering more. No transfer fee in those years. I have no idea when the fees were introduced. I am sure you will find Motive has competitive rates and you can stick with them.

Have a Great Day

February 5, 2021
5:22 am
Loonie
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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"!

February 5, 2021
5:41 am
topgun
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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!

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"!  

My method is to purchase once a year (i.e. same month) long term GIC. I do not know what interest rates will be in the next month.

Have a Great Day

February 5, 2021
8:07 am
canadian.100
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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.

February 5, 2021
9:17 am
Alexandre
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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.

February 5, 2021
10:47 am
Alexandra
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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?sf-kiss

February 5, 2021
11:29 am
topgun
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I have been creating a 5 year ladder. It smooths out the interest rate fluctuations. My average yield is 2.8%. Weighted term 2.9 years. Some is above 3%. Some is below 2%. Interest paid on anniversary dates. No need to change the plan.

Have a Great Day

February 5, 2021
11:30 am
Rick
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Alexandre said
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. 

What ever worx for you. May I ask ....Too late for what..and do what with all your funds? Stock Market, Mutual funds, precious metals, the casino? They are all rigged forms of gambling. HISA? Will probably go down before they go up. Annuities are paying squat. I'm doing OK chasing rates with my liquid cash, and my GIC ladder is giving me 2.9% average right now. My nest has been feathered after 45 years of work, I'm not drawing on it yet, and it is still growing. I'm good with that. Definitely don't need the stress of checking the market every day to see what unfortunate event caused my portfolio to diminish 40% overnight. Rather give it to my kids and watch em have some fun with it before we die.
BTW...if interest rates go up to a modest 3%, never mind 5-10%, life for the people that are supporting low interest rates, the seniors and savers, will become much more palatable.

February 5, 2021
1:06 pm
Bill
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I think I get Alexandre's point, i.e. it's specifically about the risk to GICs that a return of significant inflation would pose. Why are folks locking up their money at historically low rates when there's a risk by maturity time that the purchasing power of that money is diminished greatly due to intervening inflation? Rick, if interest rates are 5% that means (usually) that the cost of living is going up significantly too, so the purchasing power of your matured money will be eroded (i.e. you - or your kids - have lost money) and seniors will be hit with the price increases too - you hear it regularly even now when there's almost no official inflation that they can't keep up with the rising prices every year.

No-one's saying put it all in the market-casino, etc, but why are people (who have lived through times of significant inflation) locking up money for years at a time to get another bit of return vs HISAs where it would benefit if rates rise?

My answer to Alexandre would be twofold: One, GIC devotees just decide to ignore the risk that rising inflation poses to their locked-in instrument; two, GIC buyers are as loyal to their view of what to do with their money as are stock market/casino investors, etc. Of course a well-balanced portfolio has various instruments, but still there are folks who go pretty much all GICs, or all stocks, and so on - just what they like to do, as Rick says.

February 5, 2021
5:40 pm
Loonie
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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.

February 5, 2021
6:41 pm
topgun
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I have a good friend who has retired from a good job with a pension. His OAS is clawed back 100%. His income sources are primarily CPP, which he took at 65, and pension from work, both of which are heavily invested in market. He is single. He has no kids. He has RIF. he has a small amount of short term GIC. With interest rates so low he believes the only choice is stock.

Have a Great Day

February 6, 2021
10:42 am
canadian.100
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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.

February 6, 2021
3:29 pm
Loonie
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I'm quite aware of all the kinds of things pension plans invest in. The things you have named are all significantly more risky than GICs.

Such diversification does make some sense for large pension funds. My point was that people need to be aware of how their income is being generated when they decide what to do with the funds they control personally so that they can maintain the balance they want and ensure a base income.

In addition, there is the question of how secure their pension fund is. There have been a lot of issues with some of these, especially the smaller ones. I know of one, for instance, that at last report was only funded at 82% while others were over 100%. It's not clear to me what the reason for this is as I am not personally involved. Admin has been topping it up from other pockets but I don't believe this is sustainable. It's a small group plan and I have questions about how m any employees are going to be there to sustain it with future contributions. 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.

People who know very little about their pension plans are not going to know enough to take defensive measures, should they be advisable.

February 7, 2021
5:29 am
canadian.100
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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.

February 7, 2021
8:11 pm
COIN
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When considering deferring CPP, one has to do a calculation on how long it would take to "catch-up". For example, say you take your CPP at age 65 instead of at age 60. That means you missed out on 60 months of CPP payments for a slightly higher monthly payment. I did a calculation that shows it would take you 10 years to catch-up (i.e. age 75).

February 8, 2021
12:44 am
Rick
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canadian.100 said
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.  

So nobody has answered my first question.....if not GIC's - what? My risk taking days are over, I have enough in various savings to last me for the rest of our lives, our registered accounts are maxed out. Doesn't leave many options.If I was still young and looking to retire at 55, different story.
Most of my GIC's are in registered accounts...TFSA and RRSP. Tax not an issue right now. I do have a couple surplus cash, non-registered GIC's locked in @ 2.65 & 2.7 until 2024 & 25. If inflation was 2.4% for 2020, does that mean I'm "winning".
Still not seeing the "significant risk" with GICs here. Laddering averages out the interest rate over time once they are set up. I guess the convenience of having everything laddered and rolling over automatically every 5 years may cost me, but like I said I'm finished feathering, time to start spending, any growth is just gravy, and leaving my spouse and heirs with a simple estate is worth it.

COIN said
When considering deferring CPP, one has to do a calculation on how long it would take to "catch-up". For example, say you take your CPP at age 65 instead of at age 60. That means you missed out on 60 months of CPP payments for a slightly higher monthly payment. I did a calculation that shows it would take you 10 years to catch-up (i.e. age 75).  

Providing you spend it. Did you factor in the interest earned (after tax) on your payments if you invest in something....anything? Not positive, (been a few years) but as I recall, will take me until I'm somewhere around 81 to "break even" and start losing on taking CPP at 60.

February 8, 2021
4:58 am
canadian.100
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Rick said
So nobody has answered my first question.....if not GIC's - what? My risk taking days are over, I have enough in various savings to last me for the rest of our lives, our registered accounts are maxed out. Doesn't leave many options.If I was still young and looking to retire at 55, different story.
Most of my GIC's are in registered accounts...TFSA and RRSP. Tax not an issue right now. I do have a couple surplus cash, non-registered GIC's locked in @ 2.65 & 2.7 until 2024 & 25. If inflation was 2.4% for 2020, does that mean I'm "winning".
Still not seeing the "significant risk" with GICs here. Laddering averages out the interest rate over time once they are set up. I guess the convenience of having everything laddered and rolling over automatically every 5 years may cost me, but like I said I'm finished feathering, time to start spending, any growth is just gravy, and leaving my spouse and heirs with a simple estate is worth it.
 

Sounds like you are a senior doing just fine - you have more than enough savings and income to last for the rest of your lives and you are risk adverse. GICs are working great for you, so just stay the course and enjoy life!

February 8, 2021
5:31 am
Loonie
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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.

February 8, 2021
7:54 am
RetirEd
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I don't think anyone in this thread clearly enough detailed these factors in calculating OAS "break-even" (or for CPP): If you get your pension 5 years earlier...

1. You get interest (possibly compounded) on those 5 years of pension earnings, minus whatever tax you have to pay on the earnings. Which can be low or zero if you have room to put them put them into a TFSA or tax-advantaged investments.

2. You can pay off debt and save interest you'd pay over the 5 years, if you have any debts you can't pay right off, and there's no tax on that benefit.

3. If you qualify for any income-tested benefits after you stop working, they will later be higher if you take the early payments and that doesn't increase your income too much. The value of the benefits is usually much, much greater than cost of income tax on these relatively small amounts.

On the other hand, if you take the 5 years while you have a higher income tax bracket, you may have to pay more tax.

So - are you looking after your retirement and/or lifestyle, or are you primarily focused on inheritance?
RetirEd

RetirEd

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