# Minmizing tax and risk in retirement ...



## rikk (May 28, 2012)

I'm watching myself sell off my equities as I put trading behind me ... I realize I no longer have the interest and that will result in mistakes ... and I'm thinking this is a really good time to convert to cash (e.g. oilsands are getting what $57/barrel for their product, looks like US won't need our oil/gas in the near future, don't see much growth anywhere myself or at least nothing worth the risk).

So ... my simple plan from 2013 to 2018 is to minimize income tax (on ~$80K) by topping up the RSP as much as I can ... in 2018 it'll be a RRIF (and hopefully not an RIP :cower for me, and my wife retires so income splitting will help out with that ... and to minimize risk through GICs. 

It's really sad to be looking at GICs paying 2%/yr (QTrade, no fee) ... geez that's only $2K per $100K. Haven't committed just yet but I'm considering putting all except the $100K in the PC Financial 1.35% savings account into 1 year GICs in the minimum $30K chunks.

Thoughts?


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## Cal (Jun 17, 2009)

Why not a buy and hold, dividend, or couch potato strategy. Surely it will out perform a GIC.....

Just my 2c worth? But why lock in to something that guarantees you lose money in comparison to inflation.


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## pwm (Jan 19, 2012)

The bank pays you 2% on your GIC, then lends your money to someone else at 6%. Why not own the bank's shares and collect a 5% dividend? I've been retired for 8 years and would never buy a GIC now. They were OK for me when I was saving to pay off my mortgage back in 1984, but have never owned one since.


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## mrPPincer (Nov 21, 2011)

The Manitoba credit union HISAs are paying 2%
100% guaranteed by the Deposit Guarantee Corporation of Manitoba.
http://www.highinterestsavings.ca/chart/


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## mrPPincer (Nov 21, 2011)

The HISA's I mentioned are savings accounts and your money would not be locked in but the interest rates would be subject to occasional changes over the years.
eg. if interest rates do start to rise, these HISAs would likely keep pace.
Personally I do not see why anyone would lock in when they can get the same interest rates in a daily interest savings or chequing account compounded monthly and have access to the funds at any point.


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## Cal (Jun 17, 2009)

rikk said:


> so I ask myself, is that $3K (less tax) worth the risk of investing $100K in a bank ... I'm thinking not these days, and sure, there could be growth but there could also be loss of that $100K.....which bank are you referring to that pays 5% ... thanks.


I almost look at it from the opposite side, why would I want to lock up 100K to put $800 in my pocket. With that extra money the dividends pay out, you and your wife could go on a trip every year...for doing nothing.

The other thing about picking a few equities is that you would get a raise as they raise their dividends, and you would have liquidity. What you pick is up to you....BMO, ARX, BCE, you do have some choices in various sectors.

You seem to be pretty set on getting the GIC, and appear to be very concerned about losing any of it. I am pretty sure there are HISA's that are paying out 2% per year, like the GIC you bought, and you wouldn't have to lock in your money. It would be accessible with the click of your mouse.

All the best.


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## rikk (May 28, 2012)

Cal said:


> You seem to be pretty set on getting the GIC, and appear to be very concerned about losing any of it ...
> All the best.


Exactly!!! I have been trading as a hobby for a long long time ... it's been fun, it's been profitable but then the markets have been almost a sure thing until now is my opinion ... and ... I'm just not into it anymore ... so time to stop rather than carry on in a half-assed way ... my philosophy. I see locked in (only for a year) GICs as a reasonable vehicle out :encouragement:, others see banks as reasonable vehicles :encouragement:

Ok, well then it would be time to turn in my CMF membership ... good luck to all you guys :encouragement:


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## mrPPincer (Nov 21, 2011)

I suppose GICs could give one more peace of mind than an online bank account would if one is concerned about cyber-crime / identity theft :encouragement:


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## mrPPincer (Nov 21, 2011)

Awesome! Congrats!


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## heyjude (May 16, 2009)

Rick, you didn't say what percentage of your portfolio you need to withdraw annually. Just be aware that for sustainability, the withdrawal needs to be a smaller percentage if you don't include stocks. Having a cash buffer is nice from a psychological POV, and makes little difference if you are otherwise in bonds, but it does not make the portfolio more sustainable than having some equities. 

http://www.fpanet.org/journal/Home/SustainableWithdrawalRates/

Even my 91 year old mother had a substantial equity portfolio.


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## My Own Advisor (Sep 24, 2012)

@rikk,

Why trade the bank stocks (previous comment). Just buy and hold and collect 4% + yield in retirement? What am I missing?


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## pwm (Jan 19, 2012)

rikk: I'm sorry, but I don't understand when you talk about losing money when your share prices go down. You only lose money if you sell. The value of my investment account went down by over $600k from September 2008 to March 2009. I didn't lose a dime, and my dividends continued to come in. Why? Because I didn't sell anything at such prices. Why would one do so? Just buy and hold dividend paying securities, or the ETFs that hold them. Keep them until you die, and collect the dividends. There's almost no time required managing your investments. Just spend a few hours once a year to rebalance a little. That's what "cough potato" is all about. You sit back and relax and get 4 or 5% return on your money instead of 2% in GICs.


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## My Own Advisor (Sep 24, 2012)

Totally agree.

....buy and hold dividend paying securities or ETFs that hold dividend stocks never sell. Never sell even when these securities drop 20 or 20 or 40% in value. If anything, buy more. Collect dividends all the way. 

I suppose some folks prefer more selling and trading, that is fine. Not me. Too much effort.


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## My Own Advisor (Sep 24, 2012)

An indexed pension of $80K (per year??) is awesome. 

You can easily retire on that.

I don't own any GICs. I don't think I have since I was 12.

I don't have very much cash either. Almost always invested.


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## rikk (May 28, 2012)

So getting back to my post, how can I minimize tax and risk in retirement, the answer so far is invest in solid dividend paying equities, e.g., canadian banks. Well, I'd like to do that ... I know, ignore the cost, don't bother trying to time the market, ... but geez when everything looks topped out I just can't bring myself to do that ... what I will do though is build up the watch list and most likely do some trading in my TFSA to offset that 24% tax bracket I find myself in. As mentioned, even if I do nothing I'm ok with that and will sleep just fine at night... was just looking for ideas ... thanks all.


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## mrPPincer (Nov 21, 2011)

Just spitballin' here but,
dividends = favourable tax treatment right?

you want minimal risk with minimal headaches, and are not so much into playing the markets anymore

diversification = lowering unnecessary risk, 
so why not pay vanguard their 0.30% for their basket of (atm) 81 Canadian high dividend-paying stocks in VDY
https://www.vanguardcanada.ca/individual/etfs/etfs-detail-overview.htm?portId=9560

I do understand that there's an argument that dividend stocks have been extremely popular of late due to the low interest rate environment and there's been a bit of a run-up in prices, but I think p/e ratios have been a lot worse in periods of irrational exuberance, and yeah, rising interest rates could possibly hurt the banks a bit but who knows how long this low interest situation could last.

you have room in non-registered
Maybe buy some VDY now with what you don't have locked up, and plop more in later, when some of the GICs come free, timing the market a bit, buying on dips, and holding


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## My Own Advisor (Sep 24, 2012)

@rikk,

I know for me, I'm trying to build a unregistered dividend portfolio because of the favourable tax treatment. I'm also trying to max out the TFSA.

I recall prescribed annuities purchased with non-registered funds are not subject to taxation rules.

I don't think you want to own an annuity right now!?


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