Dear Nancy Woods,
My name is Frank and I am about to retire. I have about $146,000 in RRSPs and I would like to invest this money in something safe. I'd like enough return on the investment that I can draw about $1,000 a month without reducing my capital. Is it possible?
In order for you to withdraw that amount you need at least a return of eight per cent on $146,000. In today's market environment it is not possible to receive that income from a domestic bond or fixed income product. There are bonds that pay a coupon or cash flow of 8 per cent but there is a premium cost to them reducing the face value amount you can buy as a result.
The other possibilities you can consider are some income closed end funds or corporate bond funds. These alternatives will expose your capital to some risk.
Your time horizon plays an important role as well. With the expectation that interest rates will rise in the future (albeit, when is another question) you should not lock your funds in for a long length of time, but ladder the maturities by having some funds mature each year.
There are structured notes that guarantee a return of your original capital and pay an income, but again, they may not pay the eight per cent income you require.
The final consideration is the possibility of an annuity product. This would pay you a fixed income for a predetermine amount of time and can be a worthwhile investment for your estate. I would only do a portion of your funds to allow for diversification.
The $12,000 income is also taxable, so you need to take that into consideration.
This is very involved question that requires a carefully planned solution with your input as to time horizon, risk and expectation. I strongly suggest you seek the advice of an investment advisor to help you with this after a financial plan is worked out.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To ask her a question, send an e-mail to email@example.com or visit her web site at nancywoods.com
READ MORE FROM OUR ASK AN ADVISER SERIES HERE