A fellow Winnipegger, Daryl Diamond created a retirement income strategy called the cash wedge (copyright Rarestone Financial Series Inc.)
Daryl is a Winnipeg-based author, educator and advisor on the subject of using assets to realize the greatest amount of security.
If you want to withdraw income from your portfolio, how much do you take out and what will be the rate of return on your overall portfolio?
With volatility and markets up and down each year, how can you predict how it will do and how much you can take out?
The cash wedge is for conservative retirees who are wondering, where do I take my income from, stocks, bonds, GICs mutual funds or all of them?
When we experience large fluctuations on our statements, especially to the downside, taking income may leave you wondering how long it will last and add worry to your retirement plan.
Consider adding a cash wedge and withdraw income from a less volatile and conservative investment.
For example, if I have $500,000 and want to withdraw five per cent per year of $25,000 I can take approximately $2,083 out per month from the total portfolio.
The cash wedge strategy suggests you invest $25,000 into a short term high interest investment and withdraw monthly from it. Then you would invest into GICs for one and two years so three years of income is covered.
Each year you replenish the cash wedge with a maturing GIC and plan to buy another GIC for two years. Then the rest of your nest egg, $425,000 will not be touched for at least three years.
The remaining portfolio can have some time to grow. If the $425,000 grew at 5.75 per cent compounded, it would grow to $502,609.
You can also plan to have up to five years of income and have a rolling five year GIC strategy where every year you invest in a five year GIC and the maturing GIC is used for monthly income and invested into a short term liquid investment.
Prepared by: Grant W. Hicks RDB, C.I.M., FCSI, Investment funds advisor with Manulife Securities Investment Services Inc. in Parksville / Qualicum Beach. Information provided is not a solicitation and although obtained from sources considered reliable, is not guaranteed. The views and opinions contained in this article are those of Grant W. Hicks and not Manulife Securities Investment Services Inc. Comments or questions Grant can be reached at 954-0247 or 1-866-954-0247. E-mail: grant@ghicks.com. Web: www.ghicks.com.
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