Tag Archives: retirement

Goodbye Canada Retirement Savings Plan, Hello ING Direct RRSP

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For me, investing includes emotions not just facts. I like Canada Savings Bonds. My parents invested each of our “Baby Bonuses” into CSBs and those same bonds later helped pay for my engineering degree. When I started working, I enrolled in the Canada Savings Bond payroll deduction plan and each year I’d get some new bonds with the money that was taken from my cheques before I could see it, want it or spend it. Later, when we were cash-short to make RRSP contributions, my husband and I would transfer some of our CSBs directly by phone to the Canada Retirement Savings Plan. The tax receipt would arrive a few days later in the mail. So it’s with sadness that I am finally saying goodbye to the Canada Retirement Savings Plan and to the last of my Canada Savings Bonds; But I’m also saying hello to an old friend, our ING Direct, now called Tangerine.ca, RRSP account, which is offering me a bonus right now.

Why Am I Closing Our Last Canada Retirement Savings Plan Account?

I moved the bulk of our RRSP money invested in our Canada Retirement Savings Plans out a few years ago. I moved it to our brokerage accounts at BMO InvestorLine. Most of it was re-invested there in GICs. Why did I move the money from an investment in Canada Savings Bonds to an investment in GICs? Because after all those years of good returns, the Harper government had finally dropped the rates on CSBs below the rate trust companies offered on GICs.

I think that’s a shame. I think the Canada Savings Bond programs were two of the best, most accessible programs for small investors out there. Through automatic payroll deduction, free to employees and almost free to employers, regular people could be encouraged to save. The savings felt safe. Many people, especially those who moved here from other countries, don’t particularly trust banks. Investing in the government feels safer. The rates used to float a percent or two higher than that of GICs as additional incentive.

And the bonds could be transferred quickly and easily, without redemption, into a no-fee RRSP account called the Canada Retirement Savings Plan administered by the government. The tax receipts came quickly and accurately. Statements came (for free!) in the mail quarterly or semi-annually. Withdrawals (aside from withholding taxes) came with no fees. There were no fees to transfer the funds to another RRSP either. No sales people called, ever. It was a simple, pain free, secure way to save for retirement.

The Federal Government’s War of Attrition on Canada Savings Bonds

Unfortunately, a few elections ago, the government decided it wanted out of the Canada Savings Bond business. Given the tremendous goodwill out there for the bonds, they didn’t want to simply cancel the programs. Instead they began a war of attrition.

First, the interest rates payable on Canada Savings Bonds were slashed. Next, the CSB payroll deduction plan was significantly modified so that it became a virtual electronic savings account. While this had a few advantages it was largely intimidating to people who preferred getting a simple slip of paper telling them what they owned. Next regular CSBs, which could be cashed any time, were cancelled altogether. Only Premium bonds which could only be cashed on the annual anniversary date were offered. The Canada Retirement Savings Plan was closed to new applicants. Then they made another change such that if your balance in the CRSP drops to 0 they will close your account and you can’t re-open it.

That last one is why I left a small balance in each of our accounts. I was quietly hoping for a change in government and a change in policy. It’s not happening though. And I realized if we do get a re-think, they will probably re-open the program to all Canadians. So it’s time to close our accounts for now.

And the best time seems to be exactly now. The interest rate on our remaining premium bonds has dropped below that for a GIC. And ING Direct Tangerine is offering me a bonus to transfer in the money.

Tangerine Offers a RRSP Transfer In Bonus

We already have daily interest savings account RRSPs with Tangerine. They have been very handy for making last minute contributions, printing a tax receipt immediately, and then deciding whether to invest the money in a GIC at Tangerine or transfer it for free elsewhere later when we have time to think.

Their offer says:
“Simply transfer RSP savings you may have to your RSP ISA between August 26 and September 30, 2013. You’ll get a Cash Bonus equal to 1% of the amount you transfer in, up to $100.”

It’s a sign that it’s time for me to make the transfer.

UPDATE: Please be aware that as of January 2015, Tangerine has started charging a fee if you transfer your RRSP or TFSA from Tangerine to another bank, credit union, brokerage or financial institution.

I would no longer transfer money from a RRSP into Tangerine unless I planned to keep it there for the long term.

Goodbye CRSP and Thanks for all the Fish

Today I’ll fill out the T2033 online at ING Direct Tangerine, print a copy and mail it in. My next statement from the Canada Retirement Savings Plan will show a balance of 0. And I will feel sad.

Related Reading

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Did you use the Canada Retirement Savings Plan? Was it simple and useful for you? Please share your reminiscences with a comment.

Why Do Rising Interest Rates Affect Real Estate Investment Trusts, REITs?

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I like Gordon Pape’s style of writing. When I started trying to understand our finances a few years ago, I read through all of his books. When I started to take control of our investments using self-directed brokerage accounts, I subscribed to two of his newsletters, Internet Wealth Builder and the Income Investor. I learned a great deal from both. From time to time, I renew my subscriptions and I learn even more. For example, in a recent Income Investor I read an informative article on REITs that included information about why rising interest rates affect REITs.

Why I Care About REITs

I have been trying to arrange our investments so that by the time we actually retire we will have a steady stream of income. I realize this is not an approach everyone wants to follow. Some people want to maximize their actual portfolio value, often by realizing huge capital gains; they prefer to wait until they are actually retired to figure out how to use that money to generate an income.

I’d like to have a steady stream of income developed long before retirement. So as an experiment, I bought a small amount of a REIT several years ago. Without warning (to my inexperienced eyes) it took a plunge in value this spring. The distributions have not decreased and the holding still is worth more than I paid for it, but even so, I thought it was time to find out what had happened and why. (And whether I should sell now or hold on.)

Why Did Real Estate Investment Trusts Drop in Value in June?

In May and June, in the USA, the US Federal Reserve indicated that it might stop buying back bonds at its previous levels. According to Kevin Mahn in Forbes, many investors decided that meant that a rise in interest rates was imminent. That led to a hit on REIT prices.

Why Would Rising Interest Rates Matter to REITs?

According to Rob Carrick in the Globe and Mail, many high yield (income-driven) investments dropped in value when investors became hopeful that interest rates were on the way up. He says pipelines, utilities and REITs all decreased in price.

In other words, market demand for REITs might decrease if interest rates (and income rates) increase for fixed income investments. Many investors would prefer to take little or no risk provided they can get a decent rate of income from their investments. They will want to get out of REITs and even blue-chip dividend-paying stocks if they are able to get a similar rate of return with a much lower risk of loss. Decreased market demand would usually result in lower share or unit prices for REITs.

Mr. Carrick also points out that many REITS borrow money to finance new acquisitions. Higher interest rates would mean these REITs would have less profit to distribute to share holders.

Other factors cited by many reports include the possibility that if interest rates rise, people’s ability to buy houses will decrease, which will depress the economy because they won’t spend on all the things needed to maintain and use those houses, which will reduce the demand for retail and commercial properties which will impact REITs. Sounds a bit like the old “for want of a nail the kingdom was lost” nursery rhyme.

Should I Sell My Small REIT Holding Now or Not?

One thing all the financial articles online agree on is that REITs will either go down in value or go up.

Yep. No one has any idea what’s going to happen.

I read logical agreements that said “up” and others that said “down.”

Given I have a very small (actually tiny) amount of our future tied up in a REIT, and given that it is one of the REITs that is generally approved of by the pundits, I think I’ll just keep it. For one thing I don’t have any brilliant ideas of where else to invest that small amount of capital.

It’s times like these, though, that re-affirm our decision to keep a huge amount of our savings in money-losing (to inflation) GICs. Even though we are steadily losing ground on that portion of our portfolio to inflation we sleep better knowing it’s the back stop to our more volatile investments. Again, this is not the approach I recommend others take. I have no financial training and no second sight into the future. It’s just what we do.

Related Reading

  • Why REITs look ripe this summer
  • Understanding The Three Rs: REITs, The Real Estate Recovery And Rising Interest Rates
    http://www.forbes.com/sites/advisor/2013/08/15/understanding-the-three-rs-reits-the-real-estate-recovery-and-rising-interest-rates/
    This article pointed out that you can invest in a REIT that holds self storage locker units. Who knew?! And that there seems to be no correlation between this type of use of real estate and interest rates or the housing market. I guess if I did sell our REIT I could buy one of these ones instead.
  • Real Estate Investment Trusts are Sources of Retirement Income

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Do you use REITs as part of your income-generating portfolio? Are you going to bail out now that rates may be rising? Please share your views with a comment.