Fiscal Agents - Money Management Newsletter - February 2023

A reader asks: “Do you expect any up-tick in GiC rates following yesterdays increase by the Bank of Canada?”

There is a complex relationship between the Bank of Canada (BOC) deposit rate and the GIC rates provided by Canadian financial institutions. Longer-term GIC rates are also influenced by the bond market.

Here is a link to more information from the Bank of Canada concerning its interest rate policy.

Based on our own experience, we believe GIC deposit rates will gradually soften over the next year as the rate of inflation declines in reaction to the previous rate increases by the BOC.

We are suggesting to our clients that they extend the term of their GIC purchases based on their own comfort level and the future need of the capital, to take advantage of the current GIC rates which are much higher than they have been over the last few years.

We also encourage clients to ladder their GIC maturities to provide access to capital over different years as well as reduce the interest rate risk of their GIC portfolio.

Also available on our website is a thorough explanation of the concept of laddering GIC terms.
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What is a Safe Withdrawal Rate?
By Jim Yih, Retire Happy

From the article: When you retire, you will need to switch your thinking from being a saver to being a spender. The trick is to balance your withdrawals from spending too little and potentially dying with too much money and spending it so quickly that you run out of money.

What is the withdrawal rate? The term that describes how much money you take out of your portfolio is the withdrawal rate. It is the amount of income that you are going to draw off your investments. If you have $100,000 in your portfolio and you have a withdrawal rate of 5%, you would withdraw $5000 per year for income. You can adjust your withdrawal rate as you need. I like to think of your portfolio as a bucket of money and when you need income, you are going to punch a hole into the bottom of the bucket and put a tap on it to regulate that income. You would adjust the withdrawal rate by opening the tap bigger or making it smaller.
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