# If you were an elderly couple and wanted to invest conservatively...



## Siwash (Sep 1, 2013)

How might your portfolio breakdown? 

Profile of couple (my parents): 
-mid-late 70s in good health living in GTA suburbs
-just sold a home and opting to rent one instead of jumping back into real estate
-want to use cash from home to invest in order to increase their cash flow which is too low right now
-obviously want to keep things as safe as possible given their age and aversion to high risk - some minor risk they'd live with 

How much, if anything, would be put into equities such as ETFs? 10%? more? REITS? Bonds? Dividends or preferred shares? What would you add and subtract to such a portfolio? What might they be looking at earning? Less than 5%?

Annuities have been ruled out. 

They are going to see a few financial advisors (fee based) but I'd like to compare what the "experts" suggest to opinions on this forum. 

And if anyone knows of a good fee based financial advisor, please PM. Especially if that person has experience with elderly people. 

Thanks very much in advance...


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## humble_pie (Jun 7, 2009)

wondering why annuities have been ruled out, though?


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## Sherlock (Apr 18, 2010)

I'd be too afraid of equities at that age. Maybe a mix of GICs and something like XPF?


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## gibor365 (Apr 1, 2011)

I manage finances of my elderly mom. No equities, bond and other similar things. I maxed out her TFSA 3% HISA in Peoples Trust, several GICs in Peoples Trust (1-3 years period) at 2.25-2.4% , one 1 y GIC in ING at 2% (just to diversify a little) and rest in HISA again in PT 1,8%, when ING had promotion 2.5% for new money, I moved all in.... now promotion ended and moved all out back to PT


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## OptsyEagle (Nov 29, 2009)

Yes. They need equities like a hole in their head. And forget about 6%. Not going to happen. Doesn't matter how much they need for income. Aim for 2%. It is much more realistic.


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## tygrus (Mar 13, 2012)

So they have never owned any financial instruments in their entire life and are now going to start in their 70s? This is nuts. I don't think they know what they are getting into. Most people at that age that I know cannot handle any risk or volatility whatsover or having their money tied up in something they can't get at. 

And there are NO honest advisors out there no matter if they are free or fee based. They all want you into something regardless of the risk because they get backend fees that are way higher that what your parents could ever pay them.


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## AltaRed (Jun 8, 2009)

I did not read the OP's post in the way you describe, i.e. never owned any financial assets/investments. They just want to take capital from their home and invest in a way to slightly increase existing cash flow (whereever it comes from). There is no information from the OP just how much they will rely on investment cash flow (total return) vis-a-vis CPP/OAS/DB or DC pension. IOW, what annual return are they needing from their investments? That will dictate whether a full 5 year GIC ladder (of all funds) with about a 2.5% return is sufficient OR whether they need some additional return to get to, for example, 4%. That would be the basis to package a portfolio.....and still be relatively conservative.

At age 79, I would at least have about 20% in equities in the form of an ETF or equity index mutual fund (rule of thumb of 100 less age). My mother who is 96 has 15% in an equity income fund based on 110-age that my bro and I manage in a discount brokerage account. The other 85% is in a 5 year GIC ladder.

Added: If we are talking about a $200k portfolio, I would not add any complexities beyond an equity income ETF and a GIC ladder. If we are talking about $500k, I might make it 20% equity ETF (dividend ETF or XIC), 10% REIT ETF (such as ZRE) and 70% GIC ladder..... reducing both the REIT and Equity component with age. For a senior couple about 80, I would never put them in individual stocks of any kind (commons, REITs, or prefs). They do not need the worry of seeing individual stocks going down in value).


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## birdman (Feb 12, 2013)

You also have the matter of interest rate risk and if mortgage rates went up to 5 or 6% and your term deposits were laddered and averaging 2.5% plus some dividend income at 5% you would be going backwards. Not a good play in my books, too much risk with minimal, if any return.


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## gibor365 (Apr 1, 2011)

Than create short term ladder


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## OnlyMyOpinion (Sep 1, 2013)

As AltaRed notes, they need to consider their current sources of income (CPP,OAS, and you mentioned some pension in another thread, etc.) - versus the total income they need/desire. Remember that go-forward requirements may be different (less) now that the costs associated with owning a home are gone. 

Sorry about the inheritance, but if you’re like us, we’re telling our folks they deserve to spend their hard-earned dollars looking after themselves now in their senior years – not saving it for us once their gone. Even if we assume the returns of a GIC ladder just preserve capital on an after tax & inflation basis, drawing down $250k would provide them with $15k/yr for over 16yrs. 

Beyond that - what is their level of investing experience/comfort – or do they look to you to manage that for them? Our folks for example (in their mid-80’s) have never owned an individual stock or had a trading account. They were talked into buying CIBC monthly income fund (CIB512) at their bank a number of years ago and that drip’d to a present value of $94k. Today it pays them $413/month, grows slightly, and helps pay the bills. 
I’d never recommend it on CMF because it has a MER of 1.48% - but it has been ok for them - grew through drips, now provides reliable income, sits in a joint ‘bank account’ that they get paper statements for every quarter - so they are comfortable with it. Trying to convince them to go to a self-directed, lower fee etf at this point would just push them out of their comfort zone.
(I may even admit that we still own some TDB622 that we’ve never parted with over the years - faster growing flowers have kind of covered it up in our trading account while it’s plodded along at 7.8% over the past 10yrs).


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## bariutt (Feb 2, 2013)

If they are willing to assume some volatility then consider - 
60% in solid fixed term investments (GICs and laddered bonds)
40% in dividend paying stocks - Banks, Pipelines, Utilities - I have a lot of faith in companies like TD Bank/Enbridge/Fortis

I know that in the short term you can see losses with the equities however if you have solid companies and hold them for the long term they will provide better returns that fixed term investments. Even if there is a correction in the markets you only realize a loss if you sell.

For tax purposes - keep fixed term in your registered accounts and TFSA and equities in non registered accounts. Dividend payments are tax advantaged so their returns are even more attractive to an investor.


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## humble_pie (Jun 7, 2009)

bariutt won't you please check the investors' real profile.

not some madeup theory about dividend investing. Read who these elderly people really are.


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## troy87 (Aug 10, 2014)

Thanks for your all great info! This is very helpful for me.


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## Siwash (Sep 1, 2013)

humble_pie said:


> bariutt won't you please check the investors' real profile.
> 
> not some madeup theory about dividend investing. Read who these elderly people really are.


Not sure what is meant by this post..

Anyhow, I think they were thinking about dividend paying investments along with some safer stuff, like bonds and perhaps some laddered GICs. I've only recently gone into self-directed investing and I am still a novice playing it "safe" with 3 or 4 basic e-Series... I don't know if I'd want to manage this for them. Can someone recommend ETFs that are dividend-paying? I think they'd take on just a small amount of volatility.. if under 20% was invested in that direction... 

These investments would supplement their OAS and CP. The poster who mentioned that their living expenses would come down as a result of selling their home and renting is something that they are counting on and a main rationale I've pointed out for selling and renting. 

I am just not sure if they should go the route of a fee-based advisor or we can try to figure this out ourselves and save the money with some simple fixed-rem investments and dividend=paying ETFs. 

Thanks for the input..


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## Siwash (Sep 1, 2013)

By the way, is the any financial literature out there, a quality book, that is focussed on senior-aged investment strategies?


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## PrairieGal (Apr 2, 2011)

I would max out their TFSA's at People's Trust @3.0% to start with. Keep some money for the current year's needs in a HISA. Check around for rates, the big banks pay squat. https://www.highinterestsavings.ca/chart/. Then I would put the rest in a GIC ladder. Here is a good comparison chart of rates. I like it because you can click on the column headings to sort it. http://www.financialpost.com/personal-finance/rates/gic-annual.html. Don't put more than 100K in any one bank, so you are covered by CDIC insurance.

If you want to put a small percentage (10-20%) into income paying ETF's, here is an article by Rob Carrick of The Globe and Mail. http://www.theglobeandmail.com/glob...ide-vol-4-income-paying-etfs/article16743674/


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## humble_pie (Jun 7, 2009)

Siwash said:


> Not sure what is meant by this post



what was meant was very clear i do believe.

it was a message posted to bariutt who somehow opined that an elderly couple approaching their eighties with little investment knowledge & exceptionally conservative inclinations should 1) invest 40% in dividend stocks & 2) these should be for "long-term" growth.

ie not a suitable suggestion in the light of the parents' true circumstances.

as for the real-life parents of Siwash, the majority of posters on here have pointed to the 2.5-3-3.5% returns available from properly-managed conservative portfolios that might be suitable for an elderly couple.

these are low yields indeed & there is no prudent way to spike them higher.

that was why i inquired why annuities have been ruled out? an annuity as part of the portfolio mix could possibly provide better income relief.


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## peterk (May 16, 2010)

As HP suggests I'm not sure why annuities are ruled out, unless there are health concerns... but you say specifically in the first post that they are in good health.

An annuity would naturally replace the imputed rent from home ownership with the real rent now needed. Easy peasy. Who is it exactly that has "ruled out" these annuities, you or your parents?

I also don't see why drawdown of the capital isn't an option. They are in their 70s afterall. Surely sticking all the money in a 2.5% GIC ladder and drawing down 5%/year will end in no hardship.

Infact - I did the math. With 4% inflation and 6% drawdown @2.5% interest the capital lasts 20 years. i.e. late 90s. If you want to be extra careful at 5% drawdown it lasts 26 years.

Of course an annuity is both higher yielding and safer than the GIC/drawdown option...


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## gibor365 (Apr 1, 2011)

PrairieGal said:


> I would max out their TFSA's at People's Trust @3.0% to start with. Keep some money for the current year's needs in a HISA. Check around for rates, the big banks pay squat. https://www.highinterestsavings.ca/chart/. Then I would put the rest in a GIC ladder. Here is a good comparison chart of rates. I like it because you can click on the column headings to sort it. http://www.financialpost.com/personal-finance/rates/gic-annual.html. *Don't put more than 100K in any one bank, so you are covered by CDIC insurance.*


You can easily put more than 100K into one bank, but need to have different account owners, for example 1 HISA for yourself, one for your wife, one joint for both of you ....and 300K will ce insured all together..
btw, link you provided for GIC rates has incorrect info, Peoples Trust goves for 1 year not 1.4%, but 2.4%. 2 years not 1.7%, but 2.45% and so on


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## HaroldCrump (Jun 10, 2009)

Is it possible that the annuities have been "ruled out" by the current financial advisor (assuming there is one)?
Once capital is locked up in an annuity, there is nothing further for the financial advisor.

A typical financial advisor is more likely to recommend "dividend stocks", which can be obtained through a bunch a juicy mutual funds, no doubt recommended by the same advisor.


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## humble_pie (Jun 7, 2009)

HaroldCrump said:


> Is it possible that the annuities have been "ruled out" by the current financial advisor (assuming there is one)?
> Once capital is locked up in an annuity, there is nothing further for the financial advisor.
> 
> A typical financial advisor is more likely to recommend "dividend stocks", which can be obtained through a bunch a juicy mutual funds, no doubt recommended by the same advisor.



H please read the thread. There's no advisor.

an annuity would diminish any eventual inheritance. There are annuities with fixed survivor portions that go to heirs; however i would imagine that their yield is less.

this is why the crafting of such a retirement portfolio would best be done by an expert, imho. It might not be necessary to bring any annuity on board for some time, for example. Even then, an annuity or annuities as only part of a portfolio mix might be enough to cut the biscuit.


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## HaroldCrump (Jun 10, 2009)

I did see the statement about the parents going to see fee-based financial advisors.
It doesn't say that currently there is no regular (i.e. commission based) advisor in the picture.

Suggestions to elderly individuals/couples to invest their money in equities (blue chip or not) typically comes from advisors that want to collect trailer fees from the mutual funds.

The impact to inheritance is likely the cause of ruling out annuities.


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## wendi1 (Oct 2, 2013)

Gordon Pape has published some books on this very subject. Six percent seems pretty rich, though.

I am glad your parents realize they are conservative investors - mine decided to swing for the fences and had 100% of their money in equities. 

I would suggest talking to yours about annuities, too, but I remember trying to talk my parents into changing their strategy to no avail.


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## leeder (Jan 28, 2012)

In my opinion, age allocation for fixed income (i.e., 80% for someone 80 yeas old) is a good rule of thumb. OP indicates his parents are risk averse. That would mean more fixed income allocation. If that's the case, I would just stick with cash and putting money in high interest savings account or GIC ladder. I believe if OP's parents think they will outlive their money, then annuities make sense. Otherwise, annuities are a bad idea.

To address the topic directly, if I were an elderly individual/couple, I would do one or more of the following:
1) Put the money in a high interest savings account (some have suggested People's Trust. Oaken Financial is another institution with CDIC protection that offers a decent rate)
2) Purchase GIC ladder (1 to 5 year individual GICs)
3) If I really want to invest in equities, then I would put 80%+ in fixed income (GICs or short-term bond funds), with remaining amount in a diversified ETF (e.g., XWD).

Probably need to do some simple bookkeeping for your parents if option 3 is chosen, and the money is invested in a taxable account.

In terms of expectation of return, HISA generates about 1.75% to 1.80% in a taxable account. People's Trust's TFSA offers 3.00%. GIC ladder generates about 1.7%-2.5% (depending on the GIC purchased). 80% fixed income and 20% equity portfolio can reasonably generate about 2.5%-3.0% return on a reasonable year.


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## bariutt (Feb 2, 2013)

Dear humble pie - I take offence to your post. I guess that anyone that does not share your opinion is not allowed to post on this forum.

Your belief that someone in their eighties should never be be invested in equities is poor advice. With returns on fixed term investments being so low it does not make any sense to earn interest of 2.0% and then pay income tax on this in non registered accounts. With this approach you are not even keeping up with inflation after paying taxes. I still believe that a portion of an elderly person's portfolio can be invested in equities if they are willing to accept some volatility.

For an elderly person I believe that in tax sheltered accounts - RRIFs, TFSA, etc then all of their investments should be in fixed term investments. However in accounts that are not tax sheltered then some exposure to equities should at least be considered. Many wise investors supplement their pensions with income from dividend payments (which are tax advantaged)

The best investor that I know (who is in his mid eighties) has an asset allocation of 60% equities and 40% fixed term. Yes - he is a very experienced investor. However he is a very wise and very conservative investor. I would never recommend this high a percentage to an inexperienced investor. However maybe a figure of 20% invested in equities (dividend paying stocks) is a good starting point. As knowledge and investment confidence grows then this percentage could be increased. 

Yes - someone in their eighties is not investing for the long term and this is correct. If the markets were to dip then it might take several years to recover. This becomes a problem if you are in your eighties. It all depends on a person's financial position. If you are in a financial position where this risk cannot be tolerated then 100% should be invested in fixed term investments. Maximize use of TFSA, high interest savings accounts, GICs and bonds. 

The advice that I was offering earlier in my previous post still stands. For the elderly couple that wants to invest the funds from their home sale I still recommend that dividend paying stocks form a part of their portfolio BUT ONLY if they are willing to assume some volatility risk.


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## Siwash (Sep 1, 2013)

HaroldCrump said:


> I did see the statement about the parents going to see fee-based financial advisors.
> It doesn't say that currently there is no regular (i.e. commission based) advisor in the picture.
> 
> Suggestions to elderly individuals/couples to invest their money in equities (blue chip or not) typically comes from advisors that want to collect trailer fees from the mutual funds.
> ...


Yes, it is the reason. Not my reason -theirs. They want to leave something to us. I don't want their money, especially if it means they have to struggle in their final years. I don't think I or they know enough about annuities. They do know that it is locked away and can never be accessed by heirs (or at least this is the perception, if not indeed the facts). My wife and I are comfortable and don't need their money but they come from a culture where leaving something to the kids (whatever you have left!) is paramount. It will be very hard to change this. Perhaps only a partial annuity? Maybe $100K or $200 K? It could augment their cash flow... in addition to laddered GICs and perhaps some dividend-paying ETF and REITS (under 30%)

Thanks everyone. I have larded a lot from the spots. Much appreciated. I will keep you posted...


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## gibor365 (Apr 1, 2011)

leeder said:


> People's Trust's TFSA offers 3.00%. GIC ladder generates about 1.7%-2.5% (depending on the GIC purchased).


 imho, Peoples Trust GIC 1 year ladder at 2.4% is much better choice


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## humble_pie (Jun 7, 2009)

Siwash said:


> ... Perhaps only a partial annuity? Maybe $100K or $200 K? It could augment their cash flow... in addition to laddered GICs and perhaps some dividend-paying ETF and REITS (under 30%)



i believe an advantage of keeping an annuity option at least alive on a back burner is that one could be added at any time in the future that it might become necessary. It could be added many years in the future, for example.

annuity payouts rise according to the age of the beneficiaries as they enter the class - the older, the higher - so keeping the option alive instead of rejecting it out of hand will not create any particular delay penalty.

another advantage from delaying such an option is that you seem to have succeeded wonderfully well in reducing your parents' housing costs! this is a marvellous accomplishment, hopefully they will benefit from that for a long time to come.

part of your plans are likely to include a certain amount in a HISA or a short-term GIC of perhaps one year, so those are the funds that could be earmarked for possible future annuity purchase.

the next hurdle is the advisor. Not just any advisor will do. There are some reputable names that echo & re-echo here in cmf forum, have you been able to pick these up? 

because the investment account itself is likely to be fairly simple, i'm leaning to the view that you will be able to manage it together with your parents, although i would love you to have a good plan from a fee-based advisor to start out with.


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## Siwash (Sep 1, 2013)

humble_pie said:


> i believe an advantage of keeping an annuity option at least alive on a back burner is that one could be added at any time in the future that it might become necessary. It could be added many years in the future, for example.
> 
> annuity payouts rise according to the age of the beneficiaries as they enter the class - the older, the higher - so keeping the option alive instead of rejecting it out of hand will not create any particular delay penalty.
> 
> ...


Well, I've been scared off by the "traditional" 1% per year fee-based advisor. Thousands of dollars eating into their cash is a concern. Someone else here PMd me and suggested the one-time services offered by firms such as PWL (Couch Potato). I believe they charge $3000 to get a plan in place then then it becomes self-directed. I will have to teach my dad how to manage it and keep tabs on it with an online account. My mom couldn't be bothered with that part, but she sure as hell wants to know where that money is going!! She pretty spooked by the thought of losing money due to the volatility of equities, which is why we won't exceed 20% or so... 

Thanks folks. I really appreciate your input. I am feeling better about this already! 

Cheers!


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## AltaRed (Jun 8, 2009)

humble_pie said:


> the next hurdle is the advisor. Not just any advisor will do. There are some reputable names that echo & re-echo here in cmf forum, have you been able to pick these up?
> 
> because the investment account itself is likely to be fairly simple, i'm leaning to the view that you will be able to manage it together with your parents, although i would love you to have a good plan from a fee-based advisor to start out with.


Good advice IMO. I think the OP's parents would be more certain/comfortable going DIY if they first had a plan laid out by a competent FOP. MoneySense has a list of FOPs. It would not take much (pretty simple plan) for a FP to generate some graphs and charts to show the OP's parents what a conservative portfolio could give them....without the drain of a 1% of AUM advisor. No need for any such plan to be complicated. Example: 70% GIC ladder, 20% Dividend ETF (ZDV/XDV/CDZ/VDY) and maybe 10% (ZRE/VRE) in a REIT ETF to juice annual cash flow.... that is, after allowing for enough in a HISA to cover a forward year's expenses.

Plus, keeping one's mind open to a partial annuity perhaps 10 yrs down the road is ALWAYS a good thought. It would allow for decent cash flow while leaving the remainder of non-annuitized investments as the legacy.

Steve Salter of RRIFmetic http://www.fimetrics.com/, as one example, could easily generate a 20 yr plan on a pre-determined asset allocation split such as I mention above if he knew the size of each parent's CPP and OAS payments and assuming the house proceeds are split 50/50. Every FP will have some kind of spreadsheet to generate this info....for perhaps very little money. 

For what it is worth, this couple would pay almost no income tax (assuming each fully utilizes their TFSA room as well) and they would also get a partial HST/GST credit.

Added: Posters here keep pushing the higher GIC rates by various other institutions such as PT, Oaken, CDF. That is fine IF and ONLY if the OP's parents are computer savvy, comfortable with online banking and opening various accounts and making transfers. It seems to me that may not be the case... in which case, 2-3 accounts (his TFSA, her TFSA, their JTWROS taxable account) at one discount brokerage, with the OP having trading authority, is about as complicated as it should get. If there is a proliferation of accounts, would that cause the OP's parents to freeze up like 'deer in headlights' and go running to a financial advisor who will cost more in fees than what is lost in GIC interest staying at one discount brokerage? Only the OP might know the answer to that question.


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## humble_pie (Jun 7, 2009)

siwash what i'm sensing in your case is that there is excellent family communication (your mom sounds pretty amazing) & i believe this will play a big role in creating a thrifty-plus-happy outcome.

re advisors: a situation to be mindful about - possibly to avoid - would be the ongoing 1-1.5% per annum fee situation. Even with $1,000,000, this amounts to $10-15k per annum, or something like $1000 per month. It is this latter figure of $1000 per month that most offends me; it seems like a morbidly high amount of money to pay for sound, simple asset management that basically i believe is every senior's right to have.

but your parents are fortunate, they have a capable & devoted son who will help them.

as for a fee of $3000-$3500 for a seniors' retirement plan, i believe this is reasonable & you will find this with quality advisors everywhere. I feel that, for the right advisor, such a fee is absolutely worth paying. I feel that it is a very smart investment in long-term peace & security.

what about a situation where - since you already have the talent - you would work on preparing a basic, flexible proto-plan? a rough guide, with choices here & there, to how your parents' next 10 years might look?

meanwhile you would be building a short list of good advisors so that, when you eventually do sit down with the right one, you will be able to get maximum value out of every piece of advice or suggestion they provide.

in other words, you & the advisor will not have to re-invent the wheel. You'll already have a sense of roughly what proportion of assets to fit into the HISA & GIC ladder slots. You already know that the parents are comfortable with about 20% equity exposure & i believe you'll find a number of good souls here in cmf who will back this up.

in closing, might i ask for a piece of information: am i correct in assuming that the house proceeds will go into a non-registered investment account, since your parents are past the age of mandatory RRIF onset. If so, the eligible dividend tax credits from the above-mentioned 20% equity allocation should be underlined.

courage, carry on, you're doing a fine job! 

PS, yes PWL should be on your short list. But there are others.


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## bouquets (Dec 1, 2013)

An interesting conversation. What would people advise for my dad? He's widowed and 93 (!) and needs about $3000 per month to cover his expenses. He gets about $1800 from CPP, OAS, and a small annuity. In his RRIF, TSFA, and taxable accounts he has about $170k. He absolutely refuses to invest in bonds or GICs or mutual funds: he's been playing the stock-market for at least 50 years and only is interested in stocks and only in individual stocks. After some bad health recently, and his cognitive skills aren't what they used to be, so he's turned the whole lot over to me to run.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> in closing, might i ask for a piece of information: am i correct in assuming that the house proceeds will go into a non-registered investment account, since your parents are past the age of mandatory RRIF onset. If so, the eligible dividend tax credits from the above-mentioned 20% equity allocation should be underlined.


If the parents take full advantage of TFSAs for $63k (soon $74k) for interest income, and I suspect zero (or possibly even negative) tax on dividend income, they will not pay much income tax on their investments....period. Which is why the equity ETF should be a Cdn one like I mentioned above with no ex-Canada component. A mid-70s couple does not need geographical diversification.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> If the parents take full advantage of TFSAs for $63k (soon $74k) for interest income, and I suspect zero (or possibly even negative) tax on dividend income, they will not pay much income tax on their investments....period. Which is why the equity ETF should be a Cdn one like I mentioned above with no ex-Canada component. A mid-70s couple does not need geographical diversification.



yes i saw your income tax reference in your previous post but alas did not flag it as my message was already too wordy each:

but your observations are awesome. Siwash, won't you please take note of altaRed's points. Including the message that ageing seniors don't really need ex-canada geographical diversification ...

the only hitch i see to the max-TFSA plan is that prescribed HISA & GIC type investments in registered accounts at brokers have lower interest rate yields than can be obtained by going directly to some of the product issuers. Gibor & others have given some direct-connection interest rate quotes upthread.

altaRed, how do you see working around this problem? would you envision creating TFSAs directly at, say, a couple of the product issuers, such as issuers of hi-yielding HISAs & GICs, in order to benefit from their higher rates? the product issuers will often have promotions to keep attracting deposits to their house products, whereas the brokers never have HISA promotions ...


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## AltaRed (Jun 8, 2009)

humble_pie said:


> altaRed, how do you see working around this problem? would you envision creating TFSAs directly at, say, a couple of the product issuers, such as issuers of hi-yielding HISAs & GICs, in order to benefit from their higher rates? the product issuers will often have promotions to keep attracting deposits to their house products, whereas the brokers never have HISA promotions ...


Yes, I recognize that places like PT, CDF, Oaken provide better TFSA GIC and HISA rates than do the discount brokers. It really depends on how willing the OP's parents are to having accounts at multiple places, how computer savvy they are with online accounts and having investments in places they cannot 'see' or perhaps 'identify with'. I would hate for the parents* to get cold feet about multiple institutions and run off to a 1% AUM financial advisor on all their investments... which is worse than the loss of 0.5% more in HISA/GIC rates going to a single discount broker. 

For what it is worth, a current 5 yr GIC ladder at RBC Direct Investing (as an example) would be paying almost 3% today (but coming down towards 2.5% as 5 year GICs continue to mature and get rolled over at 2.5-2.7%). I know because that is what I have. Granted, the OP's parents would not be able to get a 5 year ladder going immediately....they would have to start with 1/5th in 5 year GICs, and perhaps 1/5th in 4 year GICSs, etc.. The key is to get the ladder going... and maybe the OP can get his parents to put some of the 1-3 yr money in HISAs in the interim. He will have to cross that bridge when and if the parents go the DIY route.

* I currently help a couple of seniors (including my mother) with their finances and there is no way they would even contemplate multiple institutions...nor anything with a more foreign name than say, RBC or TD or Scotia, etc. Guess what? They are happy to be all in one place.... e.g. RBC Direct Investing, and not at all interested in "playing games at online banks". I don't even bring it up. Only the OP can deal with this issue.


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## AltaRed (Jun 8, 2009)

I am getting wordy too....:cower: but I do want to follow up on my thoughts of 70/20/10 in GICs/Dividend ETF/REIT ETF portfolio from a prior post.

I did a 'for example' based on current posted 12 month yields... 70% of GIC ladder (@2.5%) plus 20% Dividend ETF (XDV or ZDV @ 3.6%) plus 10% REIT ETF ([email protected]%) yields 2.95% on the full portfolio. Even if the REIT portion was dropped for GICs, that is still 2.7% not including any capital appreciation from the equity ETFs or capital drawdown. Granted capital appreciation is not guaranteed...certainly not on an annual basis, but it is more likely over a rolling 5 year basis.

One can do a bit of stickhandling to handle equity downturns. For example, for the 2-3 years of the last equity crisis, my mother did not draw on any of her downtrodden equity capital. She pulled from her GICs instead. Over the last 2 years as her equity fund came back, she sold enough units every year to keep it within her 15% equity allocation.....and either putting the sales proceeds in a HISA for annual cash flow spending and/or putting some back into GIC capital.


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## humble_pie (Jun 7, 2009)

excellent points. The only way i could even remotely imagine several accounts across multiple institutions in siwash's case would be via a power-of-attorney arrangement, so that the son could pitch in with the administrative backup when necessary (actually a PA is probably a good idea but here we are moving into the next level; so should leave that topic aside for the time being.)

i think the seniors who are all "happy to be in one place" sound very typical.

btw, the seniors whom you help, other than your mother? if you are doing this as a volunteer, they are among the most fortunate seniors in the whole of canada. Congratulations to you.





AltaRed said:


> * I currently help a couple of seniors (including my mother) with their finances and there is no way they would even contemplate multiple institutions...nor anything with a more foreign name than say, RBC or TD or Scotia, etc. Guess what? They are happy to be all in one place.... e.g. RBC Direct Investing, and not at all interested in "playing games at online banks". I don't even bring it up. Only the OP can deal with this issue.


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## AltaRed (Jun 8, 2009)

Since I have no financial planning credentials, my efforts are voluntary. But this stuff is also my hobby and I want to keep it a hobby. 

A POA is one option for Siwash to pursue but if the parents are a bit reluctant about that and many parents do not want to give over that much control, then trading authority in the discount brokerage account would be the next best option. It is not difficult to put that in place....just good ol' paperwork.

One scenario that might be palatable for OP's parents is for them to have their TFSAs at some place like PT with everything else at a discount broker. Each of the parents need a separate TFSA account anyway and that is one way to get some of the money invested at a higher GIC rate. I think though that any such decision is simply mechanics and what needs to occur first is the preparation of the financial plan that the parents can endorse...and then the next steps are the 'how' and where.


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## My Own Advisor (Sep 24, 2012)

I was thinking about this Siwash:

50% in GIC ladder.

30% in CDN equity/dividend ETF (ZDV, VDY), I reviewed some earlier this year:
http://www.myownadvisor.ca/top-canadian-dividend-etfs-portfolio/

10% REIT ETF (ZRE, XRE)

10% U.S./international ETF (VUN, VEF).

Unless they've been investing in individual stocks, I wouldn't go there. Here are some Canadian dividend stocks that have paid dividends for decades, and in most cases, generations:
http://www.myownadvisor.ca/canadian-dividend-stocks-buy-mostly-forget/


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## humble_pie (Jun 7, 2009)

advisor with all due respect may i say that i believe the equity exposure in your suggested portfolio is far too high.

the OP has mentioned parents are OK with 20% equities. For his part altaRed has added 10% canadian REITs to his very nice beta-portfolio just upthread. I'm one who might hesitate somewhat over this REIT allocation, though, out of concern that commercial property reits particularly will be susceptible to any economic downturn that might unfold.

in the end i'm one who would certainly bow to altaRed's opinion & experience, but i might ask him first whether his own maman has reits inside the 15% equity portion of her portfolio?

most strongly of all, i vote against any international component. Eligible dividend tax credits will help more, by reducing income tax payable to the zero amount that altaRed envisages, than will any possible long-term growth from foreign ETFS. Put another way, the tax bird in the hand will be better than 2 exotic foreign birds on the wing.

one should keep in mind that the OP is not creating a balanced portfolio for 50-to-60-year-olds. He is tasked with creating a safe, secure income portfolio for folks approaching their eighties who need some extra income, plus he faces the challenge of having to do this in an environment where there are no high interest rate returns.


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## Siwash (Sep 1, 2013)

Okay, lots of info to digest! Since my folks have until late November (when their closing occurs on their home), I have time to digest and decipher, and explain this to them... Keep in mind that I started my DYI investing over the past year so I am learning as I go along. The tax implications (seemingly very favourable according to HP and AR) due to the Cdn content is most welcoming. I think they were concerned about the tax man eating into their cash. Now I don't exactly understand how much or how little of income tax they will pay (we won't worry about this for now), nor do I know how to set up a laddered GIC (I am going to read up on them over the next day or so), I think the overall plan of 70/20/10 (GIC, ETF, REIT) is clear to me and they will appreciate this simplicity. I suppose a good FP will explain this to them but I want to know as much as possible before meeting with an FP with my parents. 

My dad has always been more of a risk-taker - this has resulted in both positive and negative results. Planning is not their forte (they shouldn't have been in this situation where they were essentially forced to sell) but they may be open to the idea of seeking out higher-rate GICs at perhaps one or two alternative institutions, like OAKen or PT. I'll have to look into it. But if they can get an extra .5% that would be a strong motivational push to look at those institutions. I have PT accounts. Both wife and I are TFSA maxed-out in the 3% account saving for a home purchase and we have a GIC and and HISA account there as well.. not one of these accounts exceeds 100K so I think we are protected. I will encourage them to go for the 3% (TFSA?) or perhaps save the TFSA stuff for the laddered GICs. AltaRed mentioned a GIC avg of around 2.5 with RBC. I am wondering how much better they'd do with the alternatives. I've also read somewhere on this site that you can use the services of a broker to search out even better rates. Is this true? 

Also, Altared has mentioned the merits of RBC DI (my folks already bank with them). This may sound like a stupid question, but can they buy an BMO ETF (ZRE) through RBC DI? 

As far as the POA issue, I will not address it with them now as it isn't necessary. I have two siblings (one living in the US the other not involved in this) and we'd probably need to discuss this issue as a family. 

I am will have more questions over the next few days and probably weeks. In the meantime, please continue with the excellent advice! I should be paying you folks! 

Thanks again...


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## My Own Advisor (Sep 24, 2012)

Fair enough HP. re: i believe the equity exposure in your suggested portfolio is far too high.

I guess this is where I was going with that: A secure income portfolio = some REITs and some dividend stocks or ETFs in a modest amount. The distributions from many REITs and stocks shouldn't go anywhere in a major downturn although there is no guarantee of that. 

If self-directed investments via ETFs is too complicated, then why not an annuity again?
http://www.lifeannuities.com/articles/2014/annuity+rates+canada+2014+20140102.html

$100k invested = $700+ per month per male, a bit less for $100k invested for female. Joint is understandably lower.


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## gibor365 (Apr 1, 2011)

_but can they buy an BMO ETF (ZRE) through RBC DI? 
_ Sure. You can buy any ETF in any discount brokerage.

Also, you can buy 3rd party GIC , usually around 10 in any discount brokerage. But I bet that they even close won't beat 2.4% 1year Peoples trust GIC (not even talking about 3% TFSA)


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## AltaRed (Jun 8, 2009)

humble_pie said:


> in the end i'm one who would certainly bow to altaRed's opinion & experience, but i might ask him first whether his own maman has reits inside the 15% equity portion of her portfolio?


No, she does not. That is because she is 96 yrs old and does not need that volatility nor the juice in cash flow. If she was 80 and we had upwards of 30% allocation available for equities... with a better than 50-50 chance she would live another 10 years, a partial REIT slice would have juiced cash flow. Please note that I am not pushing a REIT ETF... only pointing out an option for a 10% slice.... and if I did pick a REIT ETF, I would never pick XRE (it is market cap weighted and heavily dominated by RioCan). ZRE is equal weighted distributing risk much better. 

I would suggest that the FOP Siwash and his parents engage be tasked with running scenarios with/without the REIT component and see the differences in a 20 year cash flow model.

Again, regarding alternatives to a discount broker for some of the Fixed Income component, it is a matter of managing multiple accounts with multiple institutions and the perceived complication (or not) seen by Siwash's parents. Just remember that an outfit like RBC DI has Gold Circle service for accounts exceeding $100k (I think). I would suggest that this account contain the equity components and at least some of the FI component. 

I would suggest not including the 0.5% interest boost as the base case in the FOP's modelling.... let that be a bonus in real life IF the parents become willing to go that way once they have made the major decisions. Most importantly, do not contaminate the decision making process with a lot of implementation 'details' Make the key decisions first, e.g. DIY (or not) and equity allocation (percentage), and then figure out how to select the investments as part of the implementation process. Seniors cannot handle too much data/detail at one time.


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## humble_pie (Jun 7, 2009)

how wonderful is the internet! we don't know each other & will never meet, but here we are trying to hold out a little bit of a helping hand ...

siwash you have lucked out in altaRed. IMHO you will probably never find a paid advisor who will be as true-blue, as knowledgeable & as altruistic as the big Red, who is acting here as your parents' own personal volunteer. He will not mislead you, nor ever give you profiteering suggestions.

please don't feel overwhelmed with the parents. This is basically a very simple situation, it's going to be fine. Adult offspring often feel overwhelmed with the responsibility when they first begin caring for ageing parents - i certainly did - so what you're feeling is normal.

it's good that you have until november to do some homework. Even then, there's no deadline about november, you could ease into the plan early in the new year & actually be none the worse for wear.

you should also thank yourself right now for being already so johnny-on-the-spot!

on the plus side for leaning towards RBC is not only the fact that your parents bank there, but also RBC can offer an array of GIC products from different issuers. This could be meaningful for capturing the $100k insurance for each product. (PT, if i'm not mistaken, would offer their own products only?)

also on the plus side for RBC leaning is the fact that banks are sometimes known to scrounge out an extra increment of interest yield for a package of GICs that they can sell to a high net worth client.

on the plus side for PT are slightly higher interest rates, along with the fact that you & your wife are already clients, so you know the ropes.

as altaRed suggests, asking a financial planner to run various scenarios for you - roybank vs PT, portfolio with 20% dividend etf vs portfolio with 20% dividend, 10% REIT - these are all detailed studies that are worth paying for, as we've mentioned.

to end with a lighthearted image that i see in my mind's eye: altaRed goes to visit his maman in the summer of 2014. It's a nice day so they sit outside in the garden, among the the shrubs & the flowers. Maman listens attentively. Around them cluster worshipfully, in their adirondack chairs & their wicker rocking chairs & even their wheelchairs, all the other little old ladies whom altaRed volunteers to help each:


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## AltaRed (Jun 8, 2009)

humble_pie said:


> the $100k insurance for each product. (PT, if i'm not mistaken, would offer their own products only?)
> 
> also on the plus side for RBC leaning is the fact that banks are sometimes known to scrounge out an extra increment of interest yield for a package of GICs that they can sell to a high net worth client.
> 
> as altaRed suggests, asking a financial planner to run various scenarios for you - roybank vs PT, portfolio with 20% dividend etf vs portfolio with 20% dividend, 10% REIT - these are all detailed studies that are worth paying for, as we've mentioned.


PT only offers PT products only....as it is with Oaken or CDF, etc. It is true that $300k could be covered by CDIC insurance by PT in taxable accounts but that would require 3 accounts there.... plus TFSA accounts.... plus a discount brokerage JTWROS account. Account profileration! Siwash will have to think that through come implementation time.

The discount brokerages do not pay extra interest on in-house GICs. They do not talk to their bank brethen. Example: RBC DI is not Royal Bank retail banking. Discount brokers are 'order taker' only based on the offerings they will list from 10-15 institutions each day.

Actually a financial planner only runs scenarios based on total returns, not strictly income. S/he will, with Siwash input, pick and agree on a return for Fixed Income (e.g. GICs, bonds), and the same for equities (e.g. 6% consisting of cap appreciation + income).

In this case, Siwash may pick 2.5-3% for FI and may pick 5-7% for equities... together with 2% inflation. The planner could run a 70/30 scenario and an 80/20 scenario. I would pick 4 scenarios to bracket the possibilities:

80/20.... 2.5% FI return and 5% equity return
80/20.... 3% FI return and 7% equity return
Rinse and repeat the above with 70/30 ratios.

All of the above would bracket everything we have talked about when it comes time for implementation.

Once these scenarios are run, Siwash and his parents can then determine which meet their needs for implementation. Obviously going for the max (70/30 and 3%/7%) means reaching more than they probably should and I would NOT use this as the base scenario. It would be better to see if the lowest scenario (80/20 and 2.5%/5%) would meet basic needs and if not quite enough to satisfy, then consider reaching from there, i.e. using PT et al to squeeze out 3% FI, and then considering 70% equity, or 75% equity instead of 80% which might determine whether to include a REIT component or not, etc. 

P.S. I use 5% as a base for equity returns because a dividend ETF will yield 3.6% in dividends and there will be some capital appreciation. A REIT ETF will deliver almost 5% in distribution yield alone....with perhaps very little capital appreciation. A 7% scenario is more likely longer term but should not be counted on.


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## Siwash (Sep 1, 2013)

humble_pie said:


> how wonderful is the internet! we don't know each other & will never meet, but here we are trying to hold out a little bit of a helping hand ...
> 
> 
> 
> Couldn't agree more! I don't know where I'd begin without this forum... I was pushing them toward expensive advisors!


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## Belguy (May 24, 2010)

I haven't followed this thread but some may find the article 'The MoneySense Guide to the Perfect Portfolio' in the September/October issue of MoneySense magazine to be of interest.


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## Siwash (Sep 1, 2013)

Belguy said:


> I haven't followed this thread but some may find the article 'The MoneySense Guide to the Perfect Portfolio' in the September/October issue of MoneySense magazine to be of interest.



Got that issue... problem with a lot of the reading out there is that it is directed at people in the 30s, 40s, 50s... I am finding it hard to come across literature, strategies, etc, for people who are in my folks' position. Mid/late 70s, no assets left to rely on other than the sale of their home (which is a pretty juicy asset!) and needing to implement a plan that was pretty much non-existent up until now. Seems to me that all the info out there is for getting to 70, and once you're there, hit cruise control... in an ideal world, that's very appealing! But lots of people makes mistakes or need to adjust for unforeseen things. They are basically "re-setting". 

Even money sense's issue stops at 60-something...


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## AltaRed (Jun 8, 2009)

Siwash said:


> Got that issue... problem with a lot of the reading out there is that it is directed at people in the 30s, 40s, 50s... I am finding it hard to come across literature, strategies, etc, for people who are in my folks' position. Mid/late 70s, no assets left to rely on other than the sale of their home (which is a pretty juicy asset!) and needing to implement a plan that was pretty much non-existent up until now. Seems to me that all the info out there is for getting to 70, and once you're there, hit cruise control... in an ideal world, that's very appealing! But lots of people makes mistakes or need to adjust for unforeseen things. They are basically "re-setting".
> 
> Even money sense's issue stops at 60-something...


Very good perception and perspective. There is little out there that specifically focuses on withdrawal upon retirement. So ignore that stuff. What you are really looking for is some 'what if' spreadsheet analysis on various Sustainable Withdrawal Rates, of for example, 3/3.5/4 percent withdrawal rates. 

I have a hunch that a SWR of 3.5% based on a 80/20 or 70/30 asset allocation in a DIY portfolio of cost efficient investments...as already discussed, will show that your parents have a great chance of having their money last 20-25 years and yet have a good probability of leaving some legacy that may be important to them. That said, it is unrealistic for them to believe they can maintain their current capital through to the end of their lives.... which is the reason for SWR analysis in the first place. Almost no retirees (maybe 1% of them) can realistically believe they can just live off the income from their investments. The issue is accepting that some depletion of capital may be required over that 25 year period.

I hesitate to mention this because it is US centric but if you go to http://www.firecalc.com/ you will find a calculator that you can adopt somewhat to Canada. It is a matter of substituting the right information and that is where one can go wrong. That said, if you have time to play with the calculator, you may be able to apply inputs that represent your parent's case. The joy of FIRECalc is that you, yourself, can run tons of scenarios at no cost. 

If you also google "Firecalc for Canadians", you will see (possibly as a first link), http://www.finiki.org/wiki/Canadian_retirement_software_&_calculators which itself lists both FireCalc and also RRIMetic. The latter, which I have previously mentioned, is Canadian centric but you either have to buy the software or have Steve Salter do some scenarios for you. I suspect there is more than one FOP that uses RRIFmetic.... or semi-clones of the same thing. Hence why I urge you to find a local FOP and spend that $2k or so on SWR analysis.

The key for now is to focus on the strategy and plan.... with only a concept of implementation, e.g. DIY. The actual selection of investments and where and how does not matter at this time.


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## humble_pie (Jun 7, 2009)

altaRed when i mentioned about RBC possibly topping up GIC offered rates with a small additional increment to a valued customer, i meant the bank, not the brokerage.

i was harking back to cmf member Karen, who has mentioned that this is what happens with her own GICs at the TD bank.

i was also thinking that, since the parents already bank with RBC, it would not overly complicate the website architectures they would need to contend with, if they would have both a discount broker account & a bankside GIC account at the same familiar institution.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> altaRed when i mentioned about RBC possibly topping up GIC offered rates with a small additional increment to a valued customer, i meant the bank, not the brokerage.
> 
> i was harking back to cmf member Karen, who has mentioned that this is what happens with her own GICs at the TD bank.
> 
> i was also thinking that, since the parents already bank with RBC, it would not overly complicate the website architectures they would need to contend with, if they would have both a discount broker account & a bankside GIC account at the same familiar institution.


Okay...fair enough. I don't think Royal Bank can match (never mind beat) what is offered by RBC Direct Investing as I had that conversation a few years ago with an RBC Bank Manager. That said, if Siwash's parents eventually set up a RBC DI account (and the paperwork can/should all be done based on the current relationship via the Account Manager in an RBC Bank branch), that could be a discussion to be had at that time (or later when funds start to flow into the RBC DI account).


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## humble_pie (Jun 7, 2009)

i'm somewhat lukewarm about using strictly calculators to map out Sustained Withdrawal Plans for the simple reason that i don't believe they truly cover the range that a future scenario based on real live human beings might represent.

why don't they? because there are far too many messy, human, unpredictable, 3-dimensional, non-quantifiable life events that can throw a rigid bone-dry plan out the window.

what happens when one spouse has a stroke that requires elaborate private physiotherapy, for example? so he or she can walk or talk again? is such elderly person to be denied because "the model" doesn't allow for the expense? or are other, massive adjustments to be made, for example by lowering housing costs by moving to a cheaper environment ... which could result in negative psychosocial effects that would not be quantifiable but could harm the quality of life.

i could go on & on with all the unpredictable things that could happen ... nursing homes get sold ... conditions may deteriorate or fees can be drastically elevated ... health can deteriorate suddenly ... private health care costs can cease to quality as deductibles (mostly) for income tax purposes ... additional income taxes can be imposed at any time by any future government .... costs of non-covered prescription medication may rise (indeed probably will rise) ...

i'm thinking now of a famly i'm acquainted with, one of whose elderly parents has moderately severe alzheimer's. The still-well spouse - in this case it's the wife - does not want to move to the advanced alzheimer's facility that is now required.

the family is finding there are no faclities in or near town that meet the standards they had hoped to find, within a budget they can afford. The alzheimer care facilities they find to be suitable are costing twice what their plan allows.

there are less expensive & suitable care programs out in the country, something like 100-200 km away from the city, but the wife dearly hopes to be able to visit her ailing husband every day & she doesn't drive.

i don't know how they will resolve this sticky wicket. Recently they were talking about invading capital to keep the father in an expensive local facility, where his wife of half a century can visit him every day, until the time comes when he will no longer be able to recognize her. 

then they say that if the couple's savings become badly exhausted by this approach, they will take the wife into their own home (they would have to move, though) & try to pay for any medical or extra care she might need out of their own pockets.

all this is to say that i don't believe programmed decumulation plans - while absolutely worth pursuing for the light they can shed - can truly cover events like these. Real life is often messy.


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## AltaRed (Jun 8, 2009)

Calculators are simply meant to bracket outcomes based on what we know at any given point in time. They bring some sensibility to expectations and thus a reference point on a 'go forward' basis. That 'go forward' basis should be revisited every 5* years OR when life throws a curve ball their way. 

Example: The senior is 65 and has just retired. He wants his $500k to give him $50k of income every year for the next 30 years and he does not want to take much risk....and oh yes, he wants to leave a legacy. It is pretty hard to get this person inside 'reality' without some SWR projections based on various asset allocations. It is only when a workable scenario or two is adopted that retirees should consider emergencies (contingency plans) and what they may do to prepare for potential curve balls. Maybe the contingency plan should be a 3% SWR rather than a 3.5% SWR preserving some additional capital for 'life' issues. There is no right answer.

* I suggest 5 years as a reasonable interval in most cases before potentially re-running SWR calculations. For starters, that original FI/Equity allocation should be changing as one ages. If it was 70/30 at age 70, then it should probably be 75/25 at age 75. That will result in slightly different outcomes for the forward years since the portfolio has become a bit more conservative. As well, market results (and thus remaining capital) may well have changed substantially from original thinking. Spending $2k every 5 years is a pretty good 'sleep at night' return on investment.


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## humble_pie (Jun 7, 2009)

yes i agree with everything you say. Calculators, as you point out, are meant to bracket outcomes based on what we know at a given point in time ... they bring sensibility to expectations ... they help to survive curveballs ... there is no right answer.

i hadn't realized there could be very many folks still thinking like the example you gave in your 2nd paragraph, though. The retiree who over-expects that his $500k will last 30 years plus turn itself into a legacy when all is said & done. I would imagine that for advisors assisting over-expecting seniors, those decumulation calculators are a godsend! because they quickly show what is *not* going to be possible.

the 5-year-or-major-curveball-whichever-first-occurs interval means that $$ invested for this kind of input are a real bargain. It boils down to something like a dollar per day, does it not? less than the price of one home-brewed coffee.


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## AltaRed (Jun 8, 2009)

I don't think there are many examples like the one I used - intentionally exaggerated. But most people cannot wrap their heads around how all the variables (including taxes) work together, either in their favour or hiding insidiously behind the next corner. People tend to either be over cautious or throw caution to the wind. Calculator outputs provide reference points.

Added: I don't want to oversell calculators but I mentioned calculators and SWR because I sensed there was a focus by the OP only in cash income generated by the parent's investments. If the OP's parents were only using cash yield in a 80/20 or 70/20/10 asset allocation, they will ultimately have capital growth over the years and end up with a legacy well above their initial investment. A calculator will show the parents that they could either tweak up their spending a bit from time to time on an onging basis, or once in awhile for a capital item like a new car.


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## lonewolf (Jun 12, 2012)

With the GIC portion they might want to consider GICs that pay monthly. 1yr, 2yr, 3yr, 4yr, 5yr does not have to be used when setting up a 5 year ladder. 3yr, 4yr, 5yr, 6yr, 7yr can be used also to set up 5 year ladder i.e., Assinoboine credit union GICs go out 10yrs @ the moment. There virtual credit union pays higher rates


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## AltaRed (Jun 8, 2009)

lonewolf said:


> With the GIC portion they might want to consider GICs that pay monthly. 1yr, 2yr, 3yr, 4yr, 5yr does not have to be used when setting up a 5 year ladder. 3yr, 4yr, 5yr, 6yr, 7yr can be used also to set up 5 year ladder i.e., Assinoboine credit union GICs go out 10yrs @ the moment. There virtual credit union pays higher rates


Monthly GICs typically do not pay as much interest as annually based GICs. Surely the OP's folks can budget around, for example, ten annual paying GICs staggered at approximately 6 month intervals. Given today's low interest rates, I would not recommend going out more than 5 years such that the duration of a 5 yr GIC ladder at 2.5 years approximates the same duration of a short term bond fund such as VSB, XSB, etc.


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## Belguy (May 24, 2010)

I have always followed the 'keep it simple' philosophy. Some of the analysis included in this thread is making my head explode. I am 71 years old and have a 10 per cent hisa/40 per cent VSB and PH&N Bond Fund D/50 per cent equity index etf's split evenly between Canada, U.S. and international. I refuse to drive myself nuts trying to outsmart myself. However, if that is your shtick, go at it.

Life is short and very short by the time you reach 70.


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## AltaRed (Jun 8, 2009)

I agree, but don't think the OP's 'conservative' folks are ready for bond funds that show variability in capital value (perception of capital losses) in the FI portion of their portfolio, especially as interest rates rise. It is my understanding they are investing neophytes. One step at a time.


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## My Own Advisor (Sep 24, 2012)

@Belguy, that seems reasonable to me...50% cash and VSB and then 50% equity.

@AltaRed, using a 'keep it simple' philosophy...wouldn't a GIC 5-year ladder (50%) and 50% equities (one or two ETFs) provide the seniors with what they are looking for? That remains too aggressive for 70-somethings?

One of my favourite investing/finance books is The Retirement Income Blueprint by D. Diamond.
http://www.boomersblueprint.com/

I see this allocation as a modified cash wedge, considering the seniors would have OAS and CPP as additional fixed income:
http://www.boomersblueprint.com/blog/2014/06/the-cash-wedge-an-income-delivery-process-–-part-1/

Thoughts?


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## AltaRed (Jun 8, 2009)

I am going by the OP's post that the parents are investing neophytes and want a conservative portfolio. They also need the cash flow. 

While I recognize CPP and OAS could (should) be factored in as part of the FI component, and a FOP could explain this concept to the parents, I don't think this applies that well to investing neophytes in their senior years. I could imagine them panicking in a 30% down equity market and selling their equity allocation low. That would be much worse (almost a death warrant) than the 'lower' returns of a conservative portfolio (no time to recover). Ultimately, it is for the parents to decide on their equity allocation.


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## lonewolf (Jun 12, 2012)

AltaRed said:


> Monthly GICs typically do not pay as much interest as annually based GICs. Surely the OP's folks can budget around, for example, ten annual paying GICs staggered at approximately 6 month intervals. Given today's low interest rates, I would not recommend going out more than 5 years such that the duration of a 5 yr GIC ladder at 2.5 years approximates the same duration of a short term bond fund such as VSB, XSB, etc.


AltraRed your right monthly rates pay a little lower rate, monthly 1 years 1.92%, monthly 5 years 2.57% plus possible dividends (current credit union rate @ a credit union)

Not paying monthly fast search highest found 1 year 2.25% & highest 5 yr 2.8% online credit union Manitoba ( never checked to see if the interest on 5 year could be paid annually or only compounded)


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> @Belguy, that seems reasonable to me...50% cash and VSB and then 50% equity.
> 
> @AltaRed, using a 'keep it simple' philosophy...wouldn't a GIC 5-year ladder (50%) and 50% equities (one or two ETFs) provide the seniors with what they are looking for? That remains too aggressive for 70-somethings?



altaRed has offered a platform of suggestions to the OP that are not only spot on for the specifics of the case, but in fact they equal or better the services of many professional advisors who would charge thousands of $$.

the OP is fortunate & it does appear that he realizes this.

the investors here are seniors nearing their 80s who have indicated they have no equity investment experience, therefore wish a low 20% allocation. AltaRed has suggested upping slightly to 70/30, with a dividend plus a reit etf for the 30%.

it's also been indicated that the parents would be gravely distressed weathering even a 20% drop in equity markets.

in addition, the OP declares - very honestly & commendably - that he is in the process of learning about financial markets himself.

imho, these would not be folks to plunk down in a 50% stock situation.

what all can see in this thread is the unfolding of a delicate & beautiful story, in which a fellow canadian expresses a wish & a hope for financial assistance with his particular family situation. Then lo, out of the blue, like the genii from aladdin's lamp, the absolutely perfect, tailor-made response begins to materialize before our delighted eyes. Let's not undermine altaRed's fine work.


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## Siwash (Sep 1, 2013)

humble_pie said:


> altaRed has offered a platform of suggestions to the OP that are not only spot on for the specifics of the case, but in fact they equal or better the services of many professional advisors who would charge thousands of $$.
> 
> the OP is fortunate & it does appear that he realizes this.
> 
> ...


HP you've summed it up nicely. I am not an expert, as you can tell...What I am is a willing learner and open to different opinions. The little knowledge I have about investing and knowing my parents characters and situation, I highly doubt a 50% equities allocation is prudent. Perhaps a 65/25/10 allocation would work? Their OAS/CPP is about $32K combined right now. That gives them a bit of a backstop if they want to go slightly more aggressive. 

Keep in mind they do want to vacation every year as long as they're healthy. A vacation can cost thousands of dollars. Will they be able to do this still? Not sure. It may have to be cut out... They otherwise live very modestly. 

One more sort of related question. They have a car with 3 years to go on the financing. The rate is 0% (Hyundai) - would you pay off that loan or just continue to pay monthly and invest the money instead?


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## AltaRed (Jun 8, 2009)

You cannot decide on asset allocation for your parents. The question they have to answer is whether they would 'stay the course' if their equities dropped 40% in paper value as they did in 2008 and not fully recover until 2013/2014.... or panic and sell 'low'. If there is some probability they could panic and sell, the equity component is too high. They have no way to recover from a decision like that. It is harder to stay the course than one thinks. Based on them being investing neophytes, I think 65/25/10 is 'high', but that is me 'guessing'. You, or the FOP, will have to ask them that question. 

It is a no brainer to continue the 0% payments on the car. They just have to allow for the payments in their annual cash flow until paid off. Indeed, once those payments are done, they should be 'reserving' that same payment perhaps in a separate HISA (at RBC Direct Investing perhaps) for annual vacation purposes. In other words, if they can manage to make payments for 3 more years, they will be 'used' to setting this money aside.

Added: If you are primarily focused on cash flow only, doing the math is fairly simple.
Fixed Income: 2.5-3% depending on what one does with the FI portion and how much stays in a HISA (1.25-1.9%) for emergency purposes. These returns may go down further a bit.... or more likely start to climb slowly over time. Even if one goes with PT or similar to get 3%*, that will not be for all the money. I'd be loathe to assume as much as 3% for overall FI. The PH&N Bond D series fund (D series of lower MER available only at RBC) mentioned above currently yields about 3% but it has been dropping slowly as: 1) higher paying bonds mature in the underlying portfolio and have to be replaced by lower yielding bonds, and/or 2) new money from investors forces PH&N to buy bonds at lower rates. It is not known how much lower the yield will go over the next few years before longer term interest rate increases in the future arrest the decline.
Dividend Equity ETF: In the range of 3.5% for eligible dividends (likely no income tax) using ZDV/XDV or similar. The absolute yield (as compared to percentage yield) will likely go up slightly as the underlying stocks have dividend growth over time BUT since the parents should be trimming their equity exposure (capital) a bit every year to keep allocations in line, the absolute yield may remain static. In a severe economic downturn like 2008/2009, the dividend yield will most likely drop a bit...perhaps to 3% as some of the underlying stocks have to cut their dividends.
REIT ETF: If desired, should yield almost 5% consisting of Other Income, Cap Gains, Return of Capital. Behaviour of a REIT ETF should be somewhat similar to that of a dividend ETF - the primary difference being that a REIT typically pays out more of its cash flow to owners than do corporations and thus the higher cash yield (as compared to capital growth).

* The 3% PT rate is only for TFSA funds and subject to change at any time. Regular HISA rates are 1.8% and a 5 yr GIC is 2.6%.


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## RBull (Jan 20, 2013)

AltaRed said:


> No, she does not. That is because she is 96 yrs old and does not need that volatility nor the juice in cash flow. If she was 80 and we had upwards of 30% allocation available for equities... with a better than 50-50 chance she would live another 10 years, a partial REIT slice would have juiced cash flow. Please note that I am not pushing a REIT ETF... only pointing out an option for a 10% slice.... and if I did pick a REIT ETF, I would never pick XRE (it is market cap weighted and heavily dominated by RioCan). ZRE is equal weighted distributing risk much better.
> 
> I would suggest that the FOP Siwash and his parents engage be tasked with running scenarios with/without the REIT component and see the differences in a 20 year cash flow model.
> 
> ...


I believe you are speaking about Royal Circle which is for an account over $250K. Benefits can be extended to all members of the family regardless of account size. 

It is also very helpful with home/auto insurance rates since your premium is based on a group rate.

Some great advice btw. I couldn't agree more with all you've written.


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## lonewolf (Jun 12, 2012)

People are like a flock of birds. Walk up to a flock of birds that are eating on the grass & the whole flock flies away. The mood of the masses effects the thinking of even the most advanced of intellect. Right now the flock is flying high with equities i.e., Hedge funds are 170% invested which is higher then the 160% invested in 2007, NYSE Margin debt last checked was coming off an all time high. In 2009 when AII sentiment readings were 2% bulls do you think the percentage of money that would be allocated to stocks would be the same as the percentage allocated to stocks for someone setting up a portfolio now ???

Right now the mood of the masses is going to bend the thinking of anyone setting up a portfolio to allocate to high a percentage towards stock. Do not under estimate the power of the herd. It can be readily observed in nature i.e., a flock of birds flying away after being spooked or a lion spooking a herd of prey.


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## RBull (Jan 20, 2013)

^The voice of doom speaks again.


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## Nemo2 (Mar 1, 2012)

RBull said:


> ^The voice of doom speaks again.


_“The Moving Finger writes; and, having writ,
Moves on: nor all thy Piety nor Wit
Shall lure it back to cancel half a Line,
Nor all thy Tears wash out a Word of it.”_


― Omar Khayyam :wink:


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## lonewolf (Jun 12, 2012)

Hi, RBull for some reason I m an investment freak I become more bearish as the trend becomes more bullish & more bullish as more people become bearish. Up thread there is a lot of talk about using age as % to allocate to stocks with no talk of going contradiction to the trend & using percent of bulls or bears or real money used in bull or bear funds as % allocation such as the Rydex bull bear funds. I was a lone fish that had trouble swimming with the school of fish & still do. ( I did not do well in school memorizing & repeating ) When you swim with the school of fish you are prey for the big fish they see all that tasty food/money & the jaws of death will eat the little fish.


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## RBull (Jan 20, 2013)

Nemo2 said:


> _“The Moving Finger writes; and, having writ,
> Moves on: nor all thy Piety nor Wit
> Shall lure it back to cancel half a Line,
> Nor all thy Tears wash out a Word of it.”_
> ...


Apropo.

"Experience has shown, and a true philosophy will always show, that a vast, perhaps the larger portion of the truth arises from the seemingly irrelevant."

Edgar Allen Poe


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## Siwash (Sep 1, 2013)

lonewolf said:


> People are like a flock of birds. Walk up to a flock of birds that are eating on the grass & the whole flock flies away. The mood of the masses effects the thinking of even the most advanced of intellect. Right now the flock is flying high with equities i.e., Hedge funds are 170% invested which is higher then the 160% invested in 2007, NYSE Margin debt last checked was coming off an all time high. In 2009 when AII sentiment readings were 2% bulls do you think the percentage of money that would be allocated to stocks would be the same as the percentage allocated to stocks for someone setting up a portfolio now ???
> 
> Right now the mood of the masses is going to bend the thinking of anyone setting up a portfolio to allocate to high a percentage towards stock. Do not under estimate the power of the herd. It can be readily observed in nature i.e., a flock of birds flying away after being spooked or a lion spooking a herd of prey.




I agree with the overall premise of this. This mentality is mirrored in the real estate market today in Toronto and Vancouver, in my humble opinion.. which is one of the reasons I rent and not own even though I can easily afford to own. "I gotta buy a house or I'll be left behind" - but I digress...


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## humble_pie (Jun 7, 2009)

wolf u are being a bit obtuse here! a tentative allocation towards highly conservative dividend-paying blue chips is in the neighbourhood of 20%. A possible REIT investment might up equity exposure in this conservative portfolio to a maximum 30%.

taking 25% as an average just to illustrate an example, this is a low proportion. In a severe market crash it is possible that 50% of the market value of this already small allocation could vanish, along with perhaps 30% of its dividend flow.

the equity allocation has a double function. It serves to slightly increase income with a stream that is favourably taxed, during the lifetime of the seniors.

at the same time, it also serves as bedrock to the portion that will likely form an eventual inheritance. During the seniors' lifetimes, it is the only portion that has the potential to increase in value. It is the only portion that can keep step with inflation.

returning to the doom scenario & projecting that a market crash could occur during the seniors' lifetimes, this almost crashproof portfolio (ie the 75/25) could experience a slight downturn in dividend income. But such downturn will not make a big difference to the seniors' lifestyle, because 75% of the income is already fixed & guaranteed. The downturn might mean a cleaning lady less often, or a vacation closer to home, whatever.

meanwhile, during said crash, the market value of stocks in the tiny equity allocation would plunge, but since this is the portion earmarked for the eventual inheritance, the on-paper drop in capital value will not matter in the here & now. Because well-chosen stocks do, in fact, rise again; so this tiny equity holding will eventually come back & rise again, although perhaps not for several years, possibly not until inherited by the next generation.

we saw exactly this kind of recovery following the 2008/09 crash.


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## RBull (Jan 20, 2013)

lonewolf said:


> Hi, RBull for some reason I m an investment freak I become more bearish as the trend becomes more bullish & more bullish as more people become bearish. Up thread there is a lot of talk about using age as % to allocate to stocks with no talk of going contradiction to the trend & using percent of bulls or bears or real money used in bull or bear funds as % allocation such as the Rydex bull bear funds. I was a lone fish that had trouble swimming with the school of fish & still do. ( I did not do well in school memorizing & repeating ) When you swim with the school of fish you are prey for the big fish they see all that tasty food/money & the jaws of death will eat the little fish.


It's good to have someone cautioning people and showing the contrarian side when the momentum is running strongly opposite. 

With all this talk of birds, fish, bulls, bears I think I need to brush up on my zoology.


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## humble_pie (Jun 7, 2009)

lonewolf said:


> Hi, RBull for some reason I m an investment freak I become more bearish as the trend becomes more bullish & more bullish as more people become bearish. Up thread there is a lot of talk about using age as % to allocate to stocks with no talk of going contradiction to the trend & using percent of bulls or bears or real money used in bull or bear funds as % allocation such as the Rydex bull bear funds.



wolf a contrarian approach is fine for younger folks who can tolerate the risks.

but it goes out the window as people edge towards their 70s, 80, 90s. Actuaries & good financial planners working with this age group will always stick with tried-&-true statistical probabilities. Because there's no time for recovery, if a fundamental mistake in probability calculation occurs.


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## RBull (Jan 20, 2013)

humble_pie said:


> wolf a contrarian approach is fine for younger folks who can tolerate the risks.
> 
> but it goes out the window as people edge towards their 70s, 80, 90s. Actuaries & good financial planners working with this age group will always stick with tried-&-true statistical probabilities. Because there's no time for recovery, if a fundamental mistake in probability calculation occurs.


Yes. For the purpose of this thread the advice Alta Red has given is sage. There is no point in timing markets, contrarian approaches etc for someone that age. I would add IMHO this holds for most in a retirement situation, even at a younger age.


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## humble_pie (Jun 7, 2009)

i made a small mistake in the income calculations under the doomsday scenario, though. Sorry about that.

it's not 75% of the income that's fixed & guaranteed. Actually no income is "fixed & guaranteed" although most of the income in this hypothetical portfolio is extremely secure.

it's the income from 75% of the capital that is likely to survive. Surviving income in a severe market crash would also include the reduced dividend stream from the small but afflicted equity portion of the portfolio.

ottomy one might roughly reckon that in a draconian market collapse situation, 80-90% of the original income stream would survive.

continuing with the doomsday scenario: if one of the GICs would suffer an issuer failure & if the CDIC would reimburse with the insurance, there would still be no replacement of the anticipated future income stream from that particular GIC. CDIC insurance would reimburse the capital only.


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## buddyb (Aug 8, 2014)

*Books*



Siwash said:


> By the way, is the any financial literature out there, a quality book, that is focussed on senior-aged investment strategies?


Lately I've been reading a number of books that are about 10 years old. The topics are only slightly dated and are just as good as most of the advice offered today. The 10 year period lets me see how good the suggested strategies work. 

I'm finding Gordon Pape's "Retiring Wealthy in the 21st Century" a good easy read and has content many other books don't have. I buy these old books (cheap) online for $7-8 dollars total with shipping included. Abebooks.com has been good with me so far as a source.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> continuing with the doomsday scenario: if one of the GICs would suffer an issuer failure & if the CDIC would reimburse with the insurance, there would still be no replacement of the anticipated future income stream from that particular GIC. CDIC insurance would reimburse the capital only.


That, to my knowledge, has not (never?) been the case in practice...though I have not researched that to be fact. Generally the assets of a failed institution are sold to another institution and all terms are honored to maturity....including interest payments. 

I went through that with GICs in an RRSP with Principal Trust in the '80s. All that changed was the insititution name and letterhead. In any event, multi-year GICs placed with a range of institutions AND paying annual instead of compound interest have minimal 'return' loss (1 yr or less of interest for that part in the failed institution only). It is not something the OP or the elderly parents should worry about any more than crossing a street.


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## donald (Apr 18, 2011)

I think 25% of equities is more than reasonable.
They had these monies in a 100% asset class before sale!(single family homes/real-estate)that look at broadly had way more risk than what they would/will have if they choose 75% fixed/25% equities.
Also..they have never functioned(how many years)without this capital.
I don't understand how older folks "forget?" they were heavily allocated to R.E market.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> ... crossing a street.




you're right again, of course.

OK maybe 98% right, je pense each:

because we were talking about a 40-50% market collapse. This is pandemonium. It's far outside the normal range. It harks back to the early months of 2009, when the world teetered on the edge of a massive global banking collapse. Folks today block out that memory, refuse even to admit that memory, but that is indeed what was happening.

it didn't carry through because on the night of his election in november 2008, obama said that the first thing he would do immediately after his inauguration would be to sign QE1 into action. Even during the weeks leading up to inauguration of the new president, outgoing pres dubya bush did everything in his power to collaborate & to shape up QE1.

in a severe global doomsday scenario, though, there would not be enough money in the CDIC or in the FDIC or in the BIS in basle, switzerland, to bail out all the financial institutions that would fail. The world has never known this.

in the US, the FDIC system failed in 2009. It survived on immediate extra contributions injected by surviving banks. Over time, everything was patched up.

in canada, i recall hearing that parliament had authorized a staggering sum of money - hundreds of millions of $$ - for the CDIC, in the event that doomsday would materialize.

it never happened. None of us have ever experienced anything like this. The risk is no doubt what you say, about the same as crossing a street on foot. But a final doomsday scenario is what lonewolf was talking about.

in the few GIC issuer-specific failures that have occurred in canada, another institution was indeed found to pick up the reins & drive on. The same thing has occurred with random failed brokerages here & there; other brokerages took them over, although the insurer is not the CDIC.

in the US, it was frequently reported that, in the early years after 2009, Savings & Loans were regularly failing here & there. The statistics were showing one or more failure every week. An S&L would fail on a friday, the FDIC or the state financial authorities would march in over the weekend, & the place would open up for business on the monday under a new name. It was reported that the customers never noticed any difference, each transition was so seamless.

i think my central point is still valid, though. It was in response to those who advocate zero equities because they think that stark doomsday is around the corner.

i still believe that a modest portion in equities will not only help to boost income in the here & now, but also any downturn in its underlying stocks will eventually be offset in the future, although perhaps not until the epoch of the eventual heirs.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> because we were talking about a 40-50% market collapse.


Fair enough. I believe it could especially leave the smaller players that are focused on the consumer loan and mortgage business especially vulnerable, e.g. the PT's, Oakens, CU's, etc. when follow ons to a market collapse such as jobs are lost, RE foreclosures mount and mortgage writeoffs increase. None of these have been severely tested since the Canadian RE market did not collapse in 2008/2009 albeit the PTs of the world did weather the RE downturn of Vancouver and Toronto in the late 80's/early '90s.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> Fair enough. I believe it could especially leave the smaller players that are focused on the consumer loan and mortgage business especially vulnerable, e.g. the PT's, Oakens, CU's, etc. when follow ons to a market collapse such as jobs are lost, RE foreclosures mount and mortgage writeoffs increase. None of these have been severely tested since the Canadian RE market did not collapse in 2008/2009 albeit the PTs of the world did weather the RE downturn of Vancouver and Toronto in the late 80's/early '90s.



absolutely agree


EDIT one of the reasons i appreciate the anti-bank rants from james4beach is that he rants very well. His anti-bank reasoning is usually cogently & lucidly explained. We may not agree, but from time to time our james does a fairly good presentation of global risk.

often i wonder whether the folks on here who say they long for a big bang market collapse so they can start buying stocks again, truly do understand the chaos that will accompany. How millions of people will lose their jobs & their homes.

so i appreciate our james4, i think we need this kind of gadfly every now & then.


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## lonewolf (Jun 12, 2012)

AltaRed said:


> Fair enough. I believe it could especially leave the smaller players that are focused on the consumer loan and mortgage business especially vulnerable, e.g. the PT's, Oakens, CU's, etc. when follow ons to a market collapse such as jobs are lost, RE foreclosures mount and mortgage writeoffs increase. None of these have been severely tested since the Canadian RE market did not collapse in 2008/2009 albeit the PTs of the world did weather the RE downturn of Vancouver and Toronto in the late 80's/early '90s.


 I would trust the credit unions more then the Canadian banks holding up. Some of the smaller banks in Singapore & Switzerland would hold up better then any financial institutions in Canada.




"There are even a few banks in the world with liquidity ratios @ or above 100 percent." page 186 of Conquer the crash


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## AltaRed (Jun 8, 2009)

Perhaps but I think people would prefer to rely on CDIC insurance and the backing of the Federal Gov't in a Depression like crisis. Regardless, for the OP's purpose, the key is to diversify the GIC component across a number of CDIC insured institutions (I would suggest no more than $100k total regardless of the ability to hold $300k with his, hers and JTWROS accounts. It is plenty easy enough to do.


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## Siwash (Sep 1, 2013)

Just did some "GIC shopping' and I couldn't find any rates over 2.8 (Oaken, 5 year was tops). So back to that portfolio breakdown - why wouldn't I just recommend they plunk 100K each into Peoples Trust (CDIC covered) and then take the balance and put it into GICs and an ETF ($65K REITS, about $130K ETFs and about $255K into laddered GICs).. so in other words, cut back on the GIC allocation.


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## AltaRed (Jun 8, 2009)

Siwash said:


> Just did some "GIC shopping' and I couldn't find any rates over 2.8 (Oaken, 5 year was tops). So back to that portfolio breakdown - why wouldn't I just recommend they plunk 100K each into Peoples Trust (CDIC covered) and then take the balance and put it into GICs and an ETF ($65K REITS, about $130K ETFs and about $255K into laddered GICs).. so in other words, cut back on the GIC allocation.


What would you do with $200k at PT? PT pays 3% only for TFSA funds and all each of your parents can do is put $31.5k each in to a TFSA this year (rising another $5500 each in Jan 2015). That said, you can also buy 5 yr GICs at PT for about 2.6% (which is marginally better than 2.5% in RBC Direct Investing). Hhowever, PT's regular HISA does pay 1.8% (for now) which is a good place to stash emergency funds and spare cash.

Your fixed income allocation is still $455k, it is just a matter of how much is in GICs of varying maturities and how much is in TFSA HISAs, and how much is readily accessible (liquid) in a regular PT HISA.

So consider PT for the TFSAs and a place to park spare cash in their HISA. Then go elsewhere for the rest of the portfolio.


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## humble_pie (Jun 7, 2009)

random thoughts, in no particular order:

1) good: you have about 30% allocation to non-GIC, which is fine by the old plans. It doesn't seem that this new iteration is "cutting back on GICs."

2) bad: TFSAs at people's trust because they're (temporarily?) paying 3%? me i say put the REITS into the 2 TFSAs to be established at a discount broker. The reason is that REIT taxation is complex, so when held outright they cause bookkeeping grief.

3) good: the dividend ETFs would go into non-registered account at the same broker, which is good because the 'rents will receive the dividend tax credits.

4) soso: i'd ask others - altaRed - about this, but it occurs to me that each insurable GIC should be about $95-96K, not the full $100k, so that accruing interest is insured as well?

5) bad: so far you are mentioning 5-year GICs only. But the ladder is constructed with 1, 2, 3, 4 & 5-year candidates. On the anniversary of the first year, change that maturing one-year GIC to a 5-year & renew. On the anniversary of the 2nd year, change that maturing 2-year GIC to a 5-year & renew, etc.

this means that the ladder will take 5 years to build, while paying less than maximum 5-year rates for the entire first five years it is in existence.

6) very bad: were you not planning to find a fee-based advisor? this would be so much better. After all we are just anonymii on a message board. I would not be so concerned if it were just yourself, but the 'rents are another story, much more responsiblity is involved.

7) to discuss: these forecast payouts are on the low side, now that we look at them in the harsh light of day. Perhaps consider getting a few annuity quotes? perhaps for only $100k to begin with? to see how that perks up cash flow?


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## AltaRed (Jun 8, 2009)

humble_pie said:


> 6) very bad: were you not planning to find a fee-based advisor? this would be so much better. After all we are just anonymii on a message board. I would not be so concerned if it were just yourself, but the 'rents are another story, much more responsiblity is involved.


Agree. I fail to understand the focus on the what (implementation) when the first order of business is the how and why? Too many focus on implementation details before establishing the overall plan.

FWIW, I agree it would be tax simpler to put the REIT allocation into the TFSAs though not necessarily more tax efficient to do so. Regardless, there will be some learning involved on how to handle cap gains, return of capital to maintain ACB records, etc. on any ETF investment in a taxable account. 

However, there seems to be much enamourment with PT's 3% TFSA (for however long that continues to last) and no one can fault anyone for wanting to squeeze an extra $300 or so in income per TFSA each year that way.


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## AltaRed (Jun 8, 2009)

humble_pie said:


> 4) soso: i'd ask others - altaRed - about this, but it occurs to me that each insurable GIC should be about $95-96K, not the full $100k, so that accruing interest is insured as well?


Technically yes if the OP's parents definitely never want to go above $100k. The GICs should be the Annual payout type (not Compound) so that the interest is paid out each year to supplement annual cash flow needs. A $97k GIC pays less than $3k interest per year....and stays within the $100k CDIC limit. I just found it much easier to manage my mother's account with nice round numbers of $100k principal (face value)....can do the math in my head.


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## humble_pie (Jun 7, 2009)

a very specific suggestion to Siwash:

write a pmm to moneyGal (cmf member) & ask her for the name of the actuary she recommends.

she gave me the name a couple years ago, i'll try to look for it in my records.

at the time, i went to his website & formed a high impression. He had an excellent education; he'd worked all his life as an actuary at giant insurance companies; after retirement he set up a small private practice so he could focus on individual human beings at last.

he seemed to really enjoy helping folks with their retirement questions & issues. Not grand, rich, high-falutin folks. The cases he described were down-to-earth.

i have no idea what he'd charge. It's possible it would be at the highest end of the spectrum (for complicated cases, with many pensions, private corporations etc, he would be worth it.)

but it's another name to check out. He's in toronto.


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## humble_pie (Jun 7, 2009)

AltaRed said:


> ... FWIW, I agree it would be tax simpler to put the REIT allocation into the TFSAs _*though not necessarily more tax efficient to do so*_. Regardless, there will be some learning involved on how to handle cap gains, return of capital to maintain ACB records, etc. on any ETF investment in a taxable account.
> 
> However, there seems to be much enamourment with PT's 3% TFSA (for however long that continues to last) and no one can fault anyone for wanting to squeeze an extra $300 or so in income per TFSA each year that way.



1) do you not think, though, that having the highest-paying holding in the TFSA is already the most tax efficient thing to do? plus the amount is perfect for the 2 TFSAs. There's something to be said for euclidean geometry.

2) how long is PT doing that 3% in TFSA? since the beginning of 2014? they're not likely to drop now because they'll be gearing up for the january 2015 contribution campaign. I'm on the fence though. If OP is crazy crazy for PT TFSAs with their 3% yields & if altaRed gives his blessing then i'll join my vote.

keep in mind that by january 2, 2015 those TFSA contributions could total $74,000, which is a very nice amount to keep sheltered from the tax man.


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## larry81 (Nov 22, 2010)

If i was an elder with no prior experience and knowledge about investing, i would definitely invest in ING streetwise portfolios.

Sure there is 1% MER but i believe keeping things simple would allow to better enjoy retirement


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## mrPPincer (Nov 21, 2011)

I'm not so sure about ING streetwise myself, I recently looked into their holdings because my parents are selling their homestead and renting a condo, and have little experience with investing.
But the fixed income component seemed quite heavily into long-term bonds, which, I think most would agree, is kinda scary right now, because it could mean a loss of principal in the event of a rise in interest rates.

---



humble_pie said:


> 2) how long is PT doing that 3% in TFSA? since the beginning of 2014? they're not likely to drop now because they'll be gearing up for the january 2015 contribution campaign. I'm on the fence though. If OP is crazy crazy for PT TFSAs with their 3% yields & if altaRed gives his blessing then i'll join my vote.
> 
> keep in mind that by january 2, 2015 those TFSA contributions could total $74,000, which is a very nice amount to keep sheltered from the tax man.


re People's Trust TFSA HISA, it's been unchanged at 3% since PT launched the plan approximately *five and a half years ago.

I'm not sure of the exact date because the 'rate history' function on the site linked to below seems to be broken for me atm, (the admin has done some modifications within the last week), but I sent him a post on their forums so I expect it will be functional again shortly, link below
https://www.highinterestsavings.ca/chart/
If you click on the rate it should show the rate history.

*edit: fixed already! The 'rate history' at the site linked to above says PT HISA has been paying 3% steadily, unchanged since Feb. 16/2009
ofc being that it's a HISA it could change rates at any time, but 5.5 years of being the clear leader seems like a pretty solid track record to me!


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## AltaRed (Jun 8, 2009)

humble_pie said:


> 1) do you not think, though, that having the highest-paying holding in the TFSA is already the most tax efficient thing to do? plus the amount is perfect for the 2 TFSAs. There's something to be said for euclidean geometry.
> 
> 2) how long is PT doing that 3% in TFSA? since the beginning of 2014? they're not likely to drop now because they'll be gearing up for the january 2015 contribution campaign. I'm on the fence though. If OP is crazy crazy for PT TFSAs with their 3% yields & if altaRed gives his blessing then i'll join my vote.
> 
> keep in mind that by january 2, 2015 those TFSA contributions could total $74,000, which is a very nice amount to keep sheltered from the tax man.


1) Yes, potentially based on a 5% distribution and the potential for cap gains. And yes, there will be $74k available come Jan 1, 2015 to fill. Whether that makes it more tax efficient in the TFSA or not depends on the amount of ROC vs Other Income ratio in the REIT ETF. ROC is the most beautiful of all income distributions in a taxable account because it is deferred cap gains (no tax payable) until REIT units are sold.

2) PT has been offering 3% for multi-years in their HISA for TFSA (a loss leader in my opinion). It may continue indefinitely, change tomorrow up or down. Totally at their whim but I'd have to say they should not be able to be paying that far beyond the competition's HISAs indefinitely. I am indifferent to REIT ETF in TFSA or PT [email protected]%......the comparitive tax calculations probably make it inconsequential.


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## larry81 (Nov 22, 2010)

mrPPincer said:


> I'm not so sure about ING streetwise myself, I recently looked into their holdings because my parents are selling their homestead and renting a condo, and have little experience with investing.
> But the fixed income component seemed quite heavily into long-term bonds, which, I think most would agree, is kinda scary right now, because it could mean a loss of principal in the event of a rise in interest rates.


They follow the DEX*Universe Bond Index. There is no loss of principal if bonds are held at maturity.

Also, everyone have been predicting bood hecatomb for the last 3-4 years, see:

http://canadiancouchpotato.com/2014/07/04/bond-bears-admit-you-were-wrong/


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## Uranium101 (Nov 18, 2011)

I skipped reading all replies but only read the OP. Assuming your parents have a lot of money (like 5 million or so). And depending on how much they need as living expense each year. I would keep around 1-2 years of living expenses in a High Interest Saving Account and rest into the S&P 500 index fund. 

After a year, take 1 year worth of living expenses from the S&P 500 index fund and put them into the HISA.

I will tell you why and the rationality behind it once I get on a desktop.


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## mrPPincer (Nov 21, 2011)

Excerpt from the final two paragraphs of the CCP post linked above;


> advisors should help investors understand what could happen to bonds if rates rise or fall, and then encourage them to choose a fund appropriate to their time horizon and risk tolerance.
> 
> If you’re uncomfortable with volatility, for example, use a short-term bond fund or a ladder of GICs for your fixed income holdings. If your time horizon is several decades into the future, you can use a broad-based fund with a longer duration: your risk of loss is higher, but so is your expected return. The important idea is that your investing decisions should be based on your personal goals and a clear understanding of risk


^That's just it, most elderly don't likely have a time horizon of several decades left for bumps in the road to even out.
Right now there are HISAs that have higher yields than bonds, but the principal is guaranteed with HISAs, not so with bond funds.

Bond funds have done well because interest rates have been falling and have been artificially held down with the US fed's bond-buying policy.
This tampering can't last forever, so eventually yields will return to a normal market-driven level, which means eventual pain for bond-holders, & for the elderly it could mean watching their life savings dwindle away at precisely the time when it is most needed, IMHO


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## mrPPincer (Nov 21, 2011)

bump..



mrPPincer said:


> re People's Trust TFSA HISA, it's been unchanged at 3% since PT launched the plan approximately *five and a half years ago.
> 
> I'm not sure of the exact date because the 'rate history' function on the site linked to below seems to be broken for me atm, (the admin has done some modifications within the last week), but I sent him a post on their forums so I expect it will be functional again shortly, link below
> https://www.highinterestsavings.ca/chart/
> ...


I edited the post above to show the actual length of time (five and a half years now) that People's Trust has been paying 3% in their TFSA HISA 

(most of that time at least a full percent more than the competitors, especially the big banks!)


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## humble_pie (Jun 7, 2009)

thank you mrPincer. That's a pretty impressive history.

i believe this is not so much of a "loss leader" for PT since if they can take in at 3% & lend out at 3.5-4% this must surely be a break-even strategy for them. It seems to me that PT is willing to sacrifice profitability in the TFSA sector in order to attract new business, is all.


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## humble_pie (Jun 7, 2009)

Uranium101 said:


> I skipped reading all replies but only read the OP. Assuming your parents have a lot of money (like 5 million or so)



5 million? you are reading the right OP, yes? each:


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## humble_pie (Jun 7, 2009)

sometimes i think this thread should become a sticky for plain-vanilla retirement planning. There's so much wisdom & expertise in altaRed's contributions.

take methods for comparing different Sustainable Withdrawal Rates, aka decumulation strategies, from retirement portfolios. These are almost never discussed on cmf forum, although they should be better known.

in this thread, we have altaRed's posts with valuable concrete details about where to find the decumulation calculators & how to work them. I'm taking the liberty of bringing the posts forward again.

i know that working on a sustainable withdrawal plan would be a good for idea for myself. Up to now i've just been harbouring some happy-go-lucky retirement ideas such as Live Reasonably, Save what you can & Hope for the best. Tch.

but now i'm glad to have the big Red's calculator links & i intend to work out a few SWR/decumulation forecasts for myself


http://canadianmoneyforum.com/showt...conservatively?p=347337&viewfull=1#post347337




AltaRed said:


> There is little out there that specifically focuses on withdrawal upon retirement ... What you are really looking for is some 'what if' spreadsheet analysis on various Sustainable Withdrawal Rates, of for example, 3/3.5/4 percent withdrawal rates.
> 
> I have a hunch that a SWR of 3.5% based on a 80/20 or 70/30 asset allocation in a DIY portfolio of cost efficient investments...as already discussed, will show that your parents have a great chance of having their money last 20-25 years and yet have a good probability of leaving some legacy that may be important to them. That said, it is unrealistic for them to believe they can maintain their current capital through to the end of their lives.... which is the reason for SWR analysis in the first place. Almost no retirees (maybe 1% of them) can realistically believe they can just live off the income from their investments. The issue is accepting that some depletion of capital may be required over that 25 year period.
> 
> ...



in other posts upthread altaRed says:




> Calculators are simply meant to bracket outcomes based on what we know at any given point in time. They bring some sensibility to expectations and thus a reference point on a 'go forward' basis. That 'go forward' basis should be revisited every 5* years OR when life throws a curve ball their way.
> 
> I don't want to oversell calculators but I mentioned calculators and SWR because I sensed there was a focus by the OP only in cash income generated by the parent's investments. If the OP's parents were only using cash yield in a 80/20 or 70/20/10 asset allocation, they will ultimately have capital growth over the years and end up with a legacy well above their initial investment. A calculator will show the parents that they could either tweak up their spending a bit from time to time on an onging basis, or once in awhile for a capital item like a new car.


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## AltaRed (Jun 8, 2009)

mrPPincer said:


> Excerpt from the final two paragraphs of the CCP post linked above;
> 
> ^That's just it, most elderly don't likely have a time horizon of several decades left for bumps in the road to even out.
> Right now there are HISAs that have higher yields than bonds, but the principal is guaranteed with HISAs, not so with bond funds.
> ...


This is a very valid concern and not one that a bond ETF can mitigate. One poster mentioned many posts upthread that he uses VSB (short term bond ETF) and PH&N D series bond fund (actively managed mutual fund - D series available only via RBC or PH&N) for his FI component. That is a good strategy for him because of his 'sophisticated' understanding of the markets, and perhaps time left available to him, but it is not a strategy I would recommend for neophytes that would become frightened at capital losses that will inevitably show in their statements for their FI component, at least for a number of years, as bond markets result in interest rate increases. 

For the OP's parents' case, I suspect they will need the stability of knowing their FI component is 'solid as a rock' and therefore consisting of HISAs and a 5 year GIC ladder to protect capital. They will already be subject to capital swings in their equity components and that may well test their 'staying power'. For folks in their '70s, I will repeat yet again.... there is insufficient time for them to ever recover from a 'panic sell' in a major economic downturn so their 'plan' must take this into account.


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## lonewolf (Jun 12, 2012)

Aug 15 close Daily sentiment index (trade futures.com) 91% bond bulls, Altra Red is right stick with GICs


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## mrPPincer (Nov 21, 2011)

I agree AltaRed, and my parents are in a very similar situation to to OP's.

Late 70s/early 80s, the sale of their home is closing later this month, & I don't think they have plans for the $ besides a big bank HISA for the moment.
I'm not sure anything I have to say will have much influence on their decision making process, but this thread is like a jackpot of sage advice for someone in their situation.

Last night I spent some time reading all the posts in this thread that I had missed and AltaRed your contributions here are much appreciated; your experience in privately managing your elders portfolios and the knowledge you've shared are a valuable source of info, well worth re-reading.


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## My Own Advisor (Sep 24, 2012)

Agreed, great to get AltaRed's perspective...


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## Siwash (Sep 1, 2013)

mrPPincer said:


> I agree AltaRed, and my parents are in a very similar situation to to OP's.
> 
> Late 70s/early 80s, the sale of their home is closing later this month, & I don't think they have plans for the $ besides a big bank HISA for the moment.
> I'm not sure anything I have to say will have much influence on their decision making process, but this thread is like a jackpot of sage advice for someone in their situation.
> ...




WORD! Keep us posted on your folks' situation..as will I. They're looking for a rental now. We will meet with a planner in the coming months. I am recommending they largely follow Altared's advice.


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## humble_pie (Jun 7, 2009)

mildly interested in the answer to this question but have never pursued it ...

does anyone know what happens to TFSA as of the date of death? presumably the tax-free is not taxed in the final personal income tax return that must be prepared for the deceased by his or her executor, as of the date of his or her death?

after that i suppose the holdings in a TFSA become part of the assets of an estate, subject to the deceased's will? or can a TFSA be made over to a spouse or minor child, as can an RRSP, ie with all of the tax-free benefits intact, so these special-category heirs get to inherit not only the assets but also all of the tax-free accumulation?

just wondering here, i've never seen this point discussed, please accept thanks in advance if any respond with knowledge.


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## OhGreatGuru (May 24, 2009)

humble_pie said:


> mildly interested in the answer to this question but have never pursued it ...
> 
> does anyone know what happens to TFSA as of the date of death? presumably the tax-free is not taxed in the final personal income tax return that must be prepared for the deceased by his or her executor, as of the date of his or her death?
> 
> after that i suppose the holdings in a TFSA become part of the assets of an estate, subject to the deceased's will? or can a TFSA be made over to a spouse or minor child, as can an RRSP, ie with all of the tax-free benefits intact, so these special-category heirs get to inherit not only the assets but also all of the tax-free accumulation?


There must be plenty of explanations of this on the web. But I'm too lazy to find them for you. This from memory:

A spouse, if so named in the account, is a "qualified successor account holder". The account is transferred intact to the spouse at no penalty.

If there is no named beneficiary it is paid to the estate, and it is tax-free up to the date of death. Any earnings in the account after the date of death would be taxable to the estate. (And note it can take months for a financial institution to release an account to the executor so it can be liquidated.)

If someone other than a spouse is the beneficiary, the account is de-registered as of the date of death. It becomes taxable in the hands of the beneficiary from that time forward. There are no tax consequences to the estate. I can't say how long it would take for the financial institution to actually transfer the account. With a named beneficiary it should be simple, but the banks are famous for coming up with all kinds of rules to protect their corporate liability.

A minor child cannot own a TFSA. They would not be a "qualified successor account holder". Even naming a minor child as a beneficiary of a de-registered TFSA could be problematic, because what minor child is eligible to own an investment account? And the bank doesn't want the responsibility of determining what adult is authorized to represent the child. I suspect it would be better paid to the estate, with instructions in a will for the executor to disburse it somehow.


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## Emma (May 18, 2013)

Just to confirm, I was the named beneficiary of my husband's TFSA and it was transferred into my TFSA with what seemed like a lot of paperwork. It is the only time a deposit is allowed that is not considered an over contribution, and I can still deposit my 5500 for this year which I had not done yet. Thank you for AltaRed's advice, although not elderly yet, I would not like to take a big hit even now.


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## RBull (Jan 20, 2013)

OhGreatGuru said:


> There must be plenty of explanations of this on the web. But I'm too lazy to find them for you. This from memory:
> 
> A spouse, if so named in the account, is a "qualified successor account holder". The account is transferred intact to the spouse at no penalty.
> 
> ...


Pretty good memory. 

I read this some time ago and accordingly adjusted our TFSA's to successor account holders. 

http://www.moneysense.ca/save/tfsa-confusion-moneysense-answers-your-questions


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## humble_pie (Jun 7, 2009)

Emma said:


> Just to confirm, I was the named beneficiary of my husband's TFSA and it was transferred into my TFSA with what seemed like a lot of paperwork. It is the only time a deposit is allowed that is not considered an over contribution, and I can still deposit my 5500 for this year which I had not done yet. Thank you for AltaRed's advice, although not elderly yet, I would not like to take a big hit even now.



isn't that wonderful. Emma i hope you will not mind if i make a teensy suggestion. Won't you please scrounge up $5500 & contribute to TFSA for this year. Next teensy suggestion is to start eyeballing whence will come the next $5500 to contribute in january 2015, which is only a few months off.

TFSAs are magnificent plans which will benefit your estate beautifully even if you do not withdraw from them tax-free during the course of your lifetime.

of course, you can also contribute "in kind" which is to say contribute an existing stock or other eligible security that you may already be holding. Be careful here, though, the tax rules for contributions in kind get a bit tricky. Check again with the forum if this what you are thinking of doing.


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