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The Money Management Newsletter: GICs and Fixed Income
The lifetime term deposit

A practical alternative to GICs, T-Bills and Mortgage Backed Securities. With the recent volatility in interest rates, one of the questions we are being asked by our clients is, "what do I invest my money in to produce a retirement income that will maintain my standard of living?"
Living expenses have not gone down, in fact government related services and utilities have gone up. Specifically, there are significant increases in ICBC rates and property taxes. Where is the extra money to come from? The problem is that while interest earned is unpredictable, expenses are increasing.

As we see it, the senior living on an income provided mostly from fixed term investment has three choices:

1. Substantially lower their lifestyle and continue to spend only their investment interest while preserving the capital.

2. Start to spend capital as well as interest each month to supplement the shortfall. This may be in their RRIF or their taxable capital outside their RRIF.

3. Look at an overall planning strategy with a portion of the capital being invested into what we call the Lifetime Term deposit.

The willingness of the senior to view part of his/her capital as long term capital, with a purpose specifically dedicated to providing income to live off will help the senior accept that to protect his or her income stream, a long term commitment with that capital must be made.
On the portion of funds that are to be invested in the lifetime term deposit, the following example demonstrates how effective it is as an income generator.

FEATURES OF THE LIFETIME TERM DEPOSIT

Example: 75 year old male, Non-smoker
Lifetime Term Deposit 7.5% 5 Year GIC Fixed Income
Amount Invested: $100,000 $100,000

Monthly
Annually
Monthly
Annually
Income 
$625
$7,500
$1,192
$14,304
Tax Payable (48%)
 300
3,600
197
2,364
Net After-Tax Income
325
3,900
995
2,364
Capital Replacement
428
5,136
Net Income
325
3,900
567
6,804
Pre-Tax Equivalent
7.5%
12.6%
After-Tax Yield 
3.9%
6.8%

* * *

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25 Lakeshore Road, Oakville, On L6K 1C6.
(905) 844-7700

 





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GICs And
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The Companion Advisor:
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Fixed Income