Using GICs for Retirement Stability

A GIC is a low-risk investment product that you invest in for a predetermined period of time, referred to as a term, with a guaranteed level of return. Terms can be as short as 1 to 29 days (Short Term Cashable GICs) or as long as 10 years. At the end of the term, you receive your original investment back, plus any interest earned. For many GICs, the interest you will earn is known when you purchase the investment. Some GICs, such as Market Growth GICs, have returns that are linked to market performance, so the final interest earned may vary. Since your money is protected for a predetermined period of time, it’s considered a lower-risk investment option. Learn more about GIC here.

Retirement is an exciting life milestone that can bring meaningful changes to your finances. The way you spend, budget, save and invest may change as you shift from building your savings to using them for your everyday expenses and longer-term goals. As you prepare for retirement and once you are there, a focus on stability in your investments can provide you with greater confidence.

As you approach retirement, you may want to protect the money you expect to use for near- to medium-term expenses because there may be less time for your savings to recover if there's a market decline. Investments that guarantee your original investment, or principal, such as GICs can provide added reassurance. At the same time, retirement can span many years, so growth remains important. Keeping all your savings in lower-growth investments may limit your potential returns. A diversified portfolio can help balance stability with growth based on your goals and time horizon.

Once you retire, stable investments may help provide dependable income for your budget, everyday expenses and the things you look forward to. A thoughtful retirement plan that protects your principal while allowing for long-term growth can help you feel more confident about your finances and focus on enjoying this next chapter.

GICs offer a solid foundation of security and predictable income. They can work with other types of investment to create a low-risk investment mix that may help you feel set up for financial success in your retirement.  

An additional strategy to consider is GIC laddering. It offers you the best of both worlds: safety and access to your money. Instead of putting all your money into one GIC that matures a long time from now, you divide it up and buy several GICs with different maturity dates.

• For example: You could buy a 1-year GIC, a 2-year GIC, a 3-year GIC, and a 4-year GIC, all with equal amounts of money. 
• How it works: Each year, one of your GICs matures. You then have a choice:

1. Reinvest: You can reinvest that money into a new GIC, typically for the longest term in your ladder (e.g., another 4-year GIC).
2. Use the Money: You can take that money out if you need it.

This way, you still benefit from the potentially higher interest rates of longer-term GICs, but you also have access to a portion of your money every year. It is a simple way to balance security with flexibility. 

While GICs are a safe place to put your money, they don't solve every financial need on their own. They’re predictable and secure, but they don't grow as quickly as other options.

Here's what GICs may not solve:

• High Growth: GICs usually offer lower returns compared to investments that have the chance to grow more, like stocks. If you're aiming to make your money grow quickly, a GIC might not be the best choice.
• Keeping Up with Prices: Sometimes, the cost of things goes up. This is known as inflation. If your GIC return is lower than the rate of inflation, your money is still safe but is gradually worth less and less overtime. Your purchasing power can decrease.
• Quick Access: You often have to agree to keep your money in a GIC for a specific amount of time. This means if you suddenly need that money before the term is up, you might have to pay a penalty if the GIC isn’t cashable, or you might not be able to get it at all. Cashable GICs are an exception and can generally be redeemed before maturity, subject to the product terms and conditions.

So, while GICs are great for safety, they're not ideal if you need your money to grow a lot, protect it from rising costs, or have easy access to it anytime.

Thinking about a balanced retirement means having a mix of different financial tools to help you feel secure and comfortable. It’s like building a strong foundation with different materials. A low-risk retirement approach often uses a combination of investments to make sure you have money for different situations.

One key part is using GICs to provide predictable income. GICs are safe. They guarantee you'll get your original money back plus a set amount of interest. This is helpful for retirement because it provides a reliable stream of income that you can count on, helping you cover your regular expenses without worrying about market ups and downs.

Then, you need savings for short-term needs. This means having some money easily accessible for unexpected things. It could be for a new appliance, a medical bill, or even a fun trip you decide to take next year. Keeping this money in a regular savings account or a high-interest savings account means you can get to it quickly if you need it, without any penalties.

Finally, to make sure your money grows over time, you'll want other investments for long-term growth. While GICs are safe, they don't typically offer huge growth. For money you won't need for many years, you can consider investments like mutual funds or ETFs that have the potential to grow more. These investments carry more risk, but over a long period, they may help your money keep pace with inflation and grow more.

The most important thing to remember is that the right mix depends on your goals, timeline, and comfort with risk. If you’re closer to retirement and want to protect what you have, you might lean more on GICs. If you’re younger and have decades until retirement, you might take on more risk for potentially higher growth. A TD Personal Banker can help you figure out what balance may work for your unique situation.

Are GICs safe for retirement?

Yes, GICs are generally considered very safe for investing for retirement savings. They offer a guaranteed rate of return and your principal is protected, meaning you won't lose your initial investment. This predictability makes them a cornerstone of low-risk retirement planning.

Can you rely only on GICs?

Relying solely on GICs might not be ideal for everyone's retirement. While safe, their returns are typically modest and may not keep pace with inflation over the long term, making it harder to keep up with rising costs. A diversified approach often includes other investments for growth.

What is a GIC ladder?

A GIC ladder is a strategy where you divide your investment into several GICs with staggered maturity dates. Each year, one GIC matures, providing access to funds while allowing you to reinvest for longer terms, balancing liquidity risk and interest rate risk. Read more about benefits from laddering maturities.

Do GICs protect against inflation?

GICs do not always protect against inflation. Their fixed interest rates can sometimes be lower than the rate of inflation, meaning the purchasing power of your money could decrease over time. For inflation protection, other investments might be necessary.