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How to Use GICs to Plan for Retirement



Are you building your retirement fund portfolio? Financial experts continue to emphasize diversification of equities, securities, managed funds and certificates to create a nest egg that is able to stand up to the vagaries of world economies and your future wealth. One of the financial products you should consider using is a guaranteed investment certificate (GIC.)

Guaranteed Returns Generate Steady Income

After your retirement, you won’t want to be betting on the continued performance of specific stocks or the market in general to deliver a steady income. A guaranteed investment certificate states up front how much interest you will earn over its term, so you are able to include its earned interest into your budget. It is insured by the Canada Deposit Insurance Corporation for up to $100,000. There are no hidden fees and the principal remains intact. Before you invest, take your time to check the GIC rates to find the product able to pay you the highest return for the lowest price.

A Variety of Terms Allows for Added Flexibility

Many people who purchase a GIC as part of their retirement plan use a ladder approach for the greatest flexibility. Your initial investment of perhaps $125,000 is broken up into five different investments. You are able to purchase a GIC with a 1, 2, 3, 4, and 5-year investment term. Every year one of the certificates mature; delivering to you steady income. The principal is available to be reinvested or used to defray unexpected costs that year. It is a great way to have access to your funds while protecting your investments.

Insurance GICs Offer the Ability to Specify a Beneficiary

GICs are issued by banks and some by insurance companies. The insurance funded GICs provide the added perk of a named beneficiary. In case of the owner’s death, the certificate is paid in full to the beneficiary, skipping probate and preserving the wealth of the account. This is particularly helpful for a person that is cared for by somebody other than their direct heir.

Works Outside of Your RRSP or RPP

The money that you have invested in a registered retirement savings plan is subject to a wealth of regulations and tax restrictions. A GIC exists outside that financial structure. You are free to invest or spend the money in a GIC as you see fit. Any penalties you may pay are stated when you purchase the certificate. Should you want to take a trip or make a large purchase that would cost above and beyond your pension income, you can cash in a GIC on short notice.

If you are approaching your retirement date and want to continue to grow your savings, look at adding one or more GICs to your portfolio. Your money is protected, it grows at a predictable rate, and you avoid a sudden loss of principal due to a sudden fluctuations in the market.

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