Changing investment priorities

Dollars and Sense

As investors approach retirement, investment priorities change. Accumulation of wealth gives way to preservation and distribution of that wealth. As a result, the investment focus shifts to income-producing assets designed to deliver a predictable rate of return that you can literally “take to the bank.”

Investing for retirement has become more complex with a greater diversity of investment options and strategies from which to choose as you make the move to fixed income investing.

Maximize your 

tax advantages

Income from investments comes in a variety of forms, each treated differently from a tax point of view. For this reason, high net worth investors will want their portfolio of income-producing equities and investments in an unregistered account rather than a RRSP or RRIF.

Examine your 

equity investment 

options

The equity markets can play an important role in fixed income investing. In particular, dividend-paying common equities can provide capital appreciation and income potential.

Investors should look for companies with a long track record of regularly paying a dividend and more importantly, those that increase their dividends on an annual basis.

Dividends paid by Canadian corporations are now receiving more favourable tax treatment by the federal and many provincial tax authorities — the upshot of which can make dividend income the lowest taxed form of investment income. 

Also coming back are corporate preferred shares. They are non-voting and not as volatile as a company’s common shares. Sometimes described as “bonds in waiting,” preferred shares are more secure investments than common stock and may pay a regular, and often attractive, dividend.

Income trusts remain attractive to those investors who seek above average yields and are prepared to handle the additional investment risk that comes with them. Not all trusts are the same in terms of investment quality or how they distribute income. Sometimes funds flow back to investors as a return of capital, or as a dividend. Each has tax implications.

Other Income 

Options

Traditional insurance annuities can be tailored to each investor’s personal circumstances. The terms of the annuity contract may vary but all annuities are designed to provide a guaranteed retirement income for the life of the annuitant and often the spouse.

The insurance industry is now also offering principal-protected investment contracts designed to provide the potential for equity growth along with guaranteed minimum withdrawal benefits.

For mutual fund investors, there’s an option of investing in established funds that allows a systematic withdrawal plan (SWP). These funds allow unit holders to receive a steady income stream paid out regularly while still maintaining an equity position in the fund. 

Fine Tune Your 

Retirement

There’s more to income investing than first meets the eye. With the many investment options to consider, it’s often a fine-tuning exercise.

 

 

 

To receive PDF versions of this or previous articles please email jim.grant@raymondjames.ca.

 

 

 

Jim Grant, CFP (Certified Financial Planner) is a Financial Advisor with Raymond James Ltd (RJL). This article is for information only.  Securities are offered through Raymond James Ltd., member Canadian Investment Protection Fund. Insurance and estate planning offered through Raymond James Financial Planning Ltd., not member CIPF.  Commissions, trailing commissions, management fees and expenses all may be associated with mutual funds.  Please read the prospectus before investing.  Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

For more information feel free to call Jim at 250-594-1100, or email at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.