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When retirees turn 71, they must transform their existing registered retirement savings plan into an annuity or RRIF.

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A recently retired couple wants to add some safety to the husband's RRIF account. Their adviser thinks that's a bad idea.

The wife recently e-mailed to get an opinion on this impasse. "How should we respond?" she asks. The answer is simple: Insist on safety.

The couple's idea is to keep enough money to fund two or three years of RRIF withdrawals in a high-interest savings account or guaranteed investment certificates. If the stock markets tank, they won't have to cash in their stocks. Instead, they can use some of the cash or maturing GICs and give the stocks time to recover. This is particularly important because the couple needs money from the RRIF to cover expenses.

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The adviser's objection to keeping a substantial amount of money in the RRIF account in a savings account is that the couple will miss out on market gains. This is legit. Returns from the kind of high interest account you can hold through an investment dealer are below 1 per cent, whereas U.S. and global stocks have been strong in recent years. The Canadian market has lagged, but total returns for the year through Aug. 31 still came in around 2.1 per cent on an annualized basis over the past three years.

And yet, smart investment planning sometimes means passing up the opportunity to make the best possible returns. The payback for doing this is the comfort of knowing you can weather the worst sort of stock-market conditions in a RRIF because you have cash to cover expenses.

Let's be clear about the idea of keeping a few years of RRIF withdrawals in cash or a GIC ladder of two or three years. It's a fairly standard strategy among advisers and planners, and the rationale for employing it was highlighted in the stock market crash of 2008. We've had generally good markets since then, so there's a natural tendency to believe in strong returns ahead. A correction is also possible.

Wisely, this couple wants to prepare for that possibility. Their adviser should listen up.

Rob Carrick discusses the replacement ratio and the living standard replacement ratio and how they can help with planning retirement savings
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