# Age 75 investing advice



## dime (Jun 20, 2013)

My parents are at that stage of life where they really should have a pro help them, and I'm needing to advise them more often. Any advice, quick tips, website resource links, is appreciated. 


Some various questions: 

Is purchasing an annuity a good idea? 

Do you agree with the rule of thumb that seniors should hold a % of life savings in fixed income which is equal to their age in years? Does 25% in stocks for someone age 75 make sense? What are the odds of another '2008' recession hitting in the next 5 years where the general market drops 50% in value and takes many years to recover? I need to put this in a way that my parents understand the real risks involved in stocks. 

I keep reading that a GIC ladder currently gives about as good returns as a short term corporate bond fund but with far less risk of captial loss. Does it keep pace with inflation after tax or does it result in negative returns? 
How can we reduce the impact of taxes on a GIC ladder (other than the TFSA)? 
Would a GIC ladder in a LIF or RRIF be ideal? 


Thanks everyone!


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## My Own Advisor (Sep 24, 2012)

Do you agree with the rule of thumb that seniors should hold a % of life savings in fixed income which is equal to their age in years?

Not really. 

I think you need money in fixed-income as you get closer to retirement, in retirement, but how much depends on your risk tolerance and the need to protect capital.

Someone drawing down X% of capital each month or year to cover living expenses might have a different risk tolerance than someone who is living off of the income their capital derives.

I have no idea what the odds of another '2008' recession hitting in the next 5 years, but a market crash will happen again. I just don't know when.

I think some investments in stocks are a good thing because a GIC ladder simply won't return as much as stocks will long-term. GICs will not keep pace with inflation long-term. 

I would think income-producing assets in a LIF or RRIF are a good thing.

Not really answering the question I know but without understanding income needs, almost impossible to provide an answer - just a perspective! 

Good on you to help your parents dime. I've tried to help mine get out high cost mutual funds and they won't listen, they keep telling me "we like our guy at the bank".


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## AltaRed (Jun 8, 2009)

Depending on how much assets a couple at 75 has, it could be a good idea to annuitize enough to ensure base living expenses are taken care of. This is especially true if a couple is at the low end of financial assets because they can maximize annual availability of cash flow for their remaining lives. IOW, they avoid the risk of outliving their money. Age 75 is a pretty good sweet spot to annuitize because actuarial table assume death will occur within about 10 years (last to die methodology).

Determining the right factor for proportion of fixed income to have at a certain age also depends on the level of assets one has on whether they can afford the lower cash flow associated with fixed income, and more importantly, their ability to take risk in equities. At the very least, they should have at least 5 years of expenses in fixed income such that they can withstand a severe equity market downturn without having to sell equities in a down market. That said, given the low returns in fixed income, I would probably use a factor of 110 - age for level of equities. I have my 96 year old mother in 15% equities and it will likely remain close to that. She has enough in a GIC ladder to live out her remaining living days.

Everyone's situation is different. It depends on so many factors that you have not disclosed.


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## dime (Jun 20, 2013)

@My Own Advisor That makes a good mantra for investors to keep in mind: "The market will crash again and I don't know when."

What do you think is the way to go for fixed income yield right now? Any bond fund with long duration will drop when rates rise.
When "GICs will not keep pace with inflation long-term" and short term corp bond funds are underperforming GIC ladders, it really makes you wonder what to do for fixed income outside the yield of the equity market (stocks, REITS and ETFs)



@AltaRed: Thanks! Good points. Yea they're debt free, own the home and really just need to properly manage their asset allocation to reduce risk and can live off the income stream. Can you tell me more about how you set up the GIC ladder? Is it a 'normal' nonreg account? If yes, what do you figure is the yield after tax? Or is there some way to reduce the tax impact on the GIC ladder?


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## GreatLaker (Mar 23, 2014)

dime said:


> My parents are at that stage of life where they really should have a pro help them


What are you thinking of in a pro? Fee only, fee as % of assets, bank adviser? IMO the time to get a financial planner is in your family years for help with savings rates, insurance questions, tax optimization etc. Older peeps may need a FA if they have a lot of assets, property, insurance, want to leave money to charity, or just need some basic advice. Older folks that just have a home and basic investments may be better off with a simple couch potato portfolio.



dime said:


> Is purchasing an annuity a good idea?


An annuity transfers the risk of outliving money from the annuitant to the issuer of the annuity, who can then spread it out among many people. For retirees that are at risk of outliving their money an annuity may be a good choice. Retirees that have enough in pensions, CPP, OAS and investments don't need an annuity, except perhaps for peace of mind.



dime said:


> Do you agree with the rule of thumb that seniors should hold a % of life savings in fixed income which is equal to their age in years?


I don't, but it's an OK starting point for some analysis. Warren Buffet could put it all in bonds or equities and not worry. William Bernstein said "When you’ve won the game, why keep playing it?" I.e. if you can survive on the income from fixed income investments, it makes sense to lower you risk by not holding equities. Most of us are not that fortunate and some equities increases return enough to lower stress, provide a better life, or leave a larger estate. The key is to find a balance that lets them sleep at night.



dime said:


> What are the odds of another '2008' recession hitting in the next 5 years where the general market drops 50% in value and takes many years to recover? I need to put this in a way that my parents understand the real risks involved in stocks.


I remember crashes in 73/4, 87, 2000 and 2008, and smaller ones in early eighties, early nineties, 2011. Rick Ferri's book All About Asset Allocation is a good read to help understand the risks of various asset allocations.

Another great read is The Real Retirement by Fred Vettese.
Also have a look at the retirement planning section of Finiki.org if you have not seen it already.
http://www.finiki.org/wiki/Category:Retirement_planning


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## My Own Advisor (Sep 24, 2012)

_What do you think is the way to go for fixed income yield right now?
_

If I needed fixed income now, and I wanted to keep things fairly simple and liquid, I'd own a short-term bond ETF. Something like VAB or XSB.

Longer-term I'm intending to create a modified cash wedge strategy:
http://www.myownadvisor.ca/cash-wedge-opening-investment-taps/

Fixed income right now is tough, no doubt.

I feel for folks needing capital preservation now but they do not want to be in equities. I don't think there is a very good formula for that. I guess this is why I prefer income-producing assets like dividend stocks. Many companies can pass on inflation to their customers and if you're a shareholder, you win.


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## janus10 (Nov 7, 2013)

What about investing a portion into a preferred share fund or ETF?


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## AltaRed (Jun 8, 2009)

janus10 said:


> What about investing a portion into a preferred share fund or ETF?


As long as the OP's parents recognize the market price of such a beast will be volatile and that prefs are really equities. IF that is a consideration, it would be best to pick something like ZPR that consists entirely of resets (usually 5 year resets) that reset in relationship to the yield of a GoC 5 year bond. ZPRs price will be somewhat volatile depending on investor views of the GoC 5 year yield curve, but less volatile than something like CPD which has a lot of perpetuals which react more to long term bond.

@OP - I am travelling with a bad internet connection and have lost 2 replies to you on GIC ladders. Search threads on this forum or visit www.finiki.org for an explanation. The short answer is a 5 year GIC ladder reflects the better pricing of 5 year GICs but with only a 2.5 year average to maturity. They are best held in registered accounts because interest is fully taxable but that is not always possible. In any event, in drawing down an RRIF, the deferred tax savings are not that relevant.

Added: I have had a 5 year GIC ladder in my RRSP for many years. My aggregate yield is probably about 3% currently but is slowly dropping because renewal rates are not as good as what I had on maturing GICs.


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