Gordon Pape is a well known investing and personal finance guru and author, 2009Tory Zimmerman/The Globe and Mail
It may be the dog days of summer, but your money questions don't take a holiday. Here are my answers to some of the ones that have come in recently.
Buying gold
Q - If a person wanted to buy hard gold or silver, can you suggest a source other than the bank, which seems to have a mark-up of about $100 per ounce. That seemed a little steep to me. Thank you. – Al H.
A – There are several companies that sell gold to Canadians. I have never used any of them personally so I cannot vouch for them, but Kitco has a good reputation and offers an on-line service.
Other non-bank companies include Border Gold and Canadian Bullion Services.
Locking in RRSP money
Q – I have $400,000 in my RRSP that I want to lock into a five-year GIC at 3 per cent. The funds are 100 per cent insured by AB Credit Union. Would you ladder instead? This is all the pension money I have and this is keeping me up at night! – Terry B.
A – I have two problems with this idea. The first is the deposit insurance aspect. Most credit unions are not covered by the Canada Deposit Insurance Corporation (CDIC). They have provincial or industry coverage but if you read the terms and conditions you may find that you don't have the quality of protection you do with CIDC. Check the backing of your credit union carefully and decide for yourself if it is adequate to meet a serious financial emergency.
Second, even though the economy is bleak now, it will eventually improve and interest rates will begin to rise. I can't offer a time frame for that but it's very likely to be much less than five years. By locking in all your money, you won't be able to take advantage of that situation when it occurs. Taking a laddered approach, with some of your GICs maturing each year, will enable you to benefit as rates rise.
Has cash, needs income
Q – I expect to receive $50,000 this quarter. I will need income. How should this be distributed across investment areas? I am 83 and in good health. – W.H.
A – That may seem like a lot of money but it won't generate much income at today's low rates if you put it into safe securities like GICs. You could do better by investing in ETFs or mutual funds that pay regular distributions but your risk would be higher. If you want to go that route, I would suggest putting 60 per cent in fixed income funds and the rest in dividend-oriented equity funds.
Alternatively, you might wish to consider investing the money in a life annuity. This would give you guaranteed cash flow for life and remove the risk factor, assuming the insurance company you select remains solvent. Annuity rates vary considerably so you should shop around. Right now, $50,000 would buy a monthly annuity in the range of $400-$450 with no guarantee period, depending on your sex and the insurance company you choose. You can find current rates. The payments you see there are based on each $100,000 invested, so cut them in half in your case.
Not claiming tax credit
Q - I'm 73 and have and am receiving a life annuity payment each month from Manulife. Can I claim that as pension income and qualify for the credit or do I have to claim it as other income, as I have been doing? – George L.
A- Life annuity payments definitely qualify as pension income and you can claim a tax credit of up to $2,000 for them. If you have not claimed the credit in previous years, you can still collect your money. The Canada Revenue Agency allows you to change returns as far back as 10 years. For details go here.
If you have a money question of general interest, send it to me at gordonpape@hotmail.com and write Globe Question in the subject line. I can't promise a personal response but I'll answer as many as possible in future columns.