I’d like her to do one thing with the $70,000 to generate curiosity or revenue—and even to have a plan to attract it down. And no matter possibility is chosen must be risk-free, as she may be very risk-averse.
The curiosity on a GIC is negligible. Is an annuity a greater possibility? Or is the $70,000 merely not sufficient to do something with?
FPAC responds:
Though this query might sound easy, it gives an ideal instance of how complicated retirement revenue planning will be. It sounds as if your objective is to discover a answer that gives revenue to complement your mom’s lifestyle whereas she is alive, versus making a monetary legacy upon her passing.
FP Canada projections inform us that, at 79, a Canadian lady in good well being has a few 50% likelihood of residing to age 92, however a ten% likelihood of residing eight extra years past that, to age 100.
As a place to begin to anchor our calculations, let’s say your mom wished to withdraw $450 monthly from her $70,000. Ignoring any curiosity she may earn, that would supply 155.6 months (13 years) of revenue, to her age 92—that’s, to common life expectancy.
The GIC possibility
In at present’s ultra-low interest-rate surroundings, the GIC is an answer that’s supposed to protect capital, versus generate revenue.
In case your mom put the $70,000 in a one-year GIC, with a fee of 1.5%, she may earn about $1,050 (equal to $87.50 monthly), and the $70,000 would stay untouched. She might get the next fee—as a lot as 1.8%—if she purchased a five-year GIC, however she’d want to attend till the top of the 5 years to get the $6,531 she earned over the GIC time period (equal to $108.85 monthly). You may verify present GIC charges right here. Remember that if she’s capable of put the $70,000 into her TFSA, not one of the curiosity she receives could be taxable. The yearly curiosity can be unlikely to maintain tempo with inflation.
The annuity possibility
An alternative choice could be to make use of the funds to purchase a prescribed annuity. A prescribed annuity is designed to generate revenue to your mom whereas she’s alive—however doesn’t protect the capital used to generate the revenue. As an alternative, the $70,000 could be transferred to a life insurance coverage firm in change for month-to-month lifetime revenue.
