FILE 50: Pre-retirement Planning

FILE 50

Brenda and David Harris are in their final years of work before retiring at age 65.
They have a modest amount of money in their RRSPs, a home that is paid off, and
about $250 per month in excess of their living and saving expenses. They will not
invest in mutual funds or other investments, because they have seen many of their
friends lose their savings in such investments.
They have been depositing the $250 every month to their savings account, where
recently it has been earning no more than 1.7% interest. Given that the cost of
living is currently increasing about 2.9% annually, their real rate of return on their
savings is 1.2%. They have been saving for over 15 years and now have about
$51,300 in their joint savings account.
Question

How should they invest their money?

Situation Analysis

Their time horizon is limited.

They cannot afford to risk their money at this point, and their risk
tolerance is very low.
They might need to access their money when they retire; they cannot
invest it where it will not be available to them.
Recommendation

Guaranteed Investment Certificates (GICs) are a good choice for the

Harrises. Their investment will be completely secure, and yet their rate of
return will be improved over the bank savings rate.
They can choose GICs with different maturity dates, and thereby have
access to some of their money if needed.
They can plan for the future, because they will know exactly the amount
that they will receive as interest on each GIC.
Fairly soon they will exhaust their Canada Deposit Insurance Corporation
insurance on their funds, so the savings, or some part of them, should be
moved into another protected investment.

Copyright 2011 Oliver Publishing Inc. All rights reserved.

Agents Course of Action

The agent completes Know Your Client forms for the Harrises that
confirms their low risk tolerance.
She advises them of the variety of GICs available: the terms, the CDICguarantees, and the differences between redeemable and non-redeemable
investments.
The agent makes a note of the first maturity date, and pencils in a
reminder to check back with the Harrises and monitor their satisfaction
with their investment choice.

Copyright 2011 Oliver Publishing Inc. All rights reserved.