Add to all this the “tariffying” environment of the Trump trade war, and with it fears of a recession or worse, and it’s certainly not a time for retirees to take excessive risk. I mentioned in my previous column about registered retirement income fund (RRIF) withdrawals advisor John De Goey’s recommendation for retirees to “de-risk” their portfolios. For this column, I followed up with De Goey about the old rule of thumb that your age should equal your fixed-income exposure (bonds and bond exchange-traded funds (ETFs), guaranteed investment certificates (GICs), money market funds and preferred shares). For example, that rule would suggest a new RRIF owner aged 71 might have 71% fixed income and just 29% stock exposure.
New rules for your asset mix
However, De Goey says that guideline is outdated. He showed me a formula that was new to me and perhaps most readers. “My view, after taking longevity into account, is that you should use age times the decimal of your age until you get to RRIF age—71. This assumes that the client is not particularly risk-averse. The portfolio still has to be suitable.”
So, under this new rule, and assuming the other qualifications apply to your personal circumstances:
- a 50-year-old should be 50 x .50 = 25% in fixed income;
- a 60-year-old should be 60 x .60 = 36% in fixed income;
- and a 71-year old-should be 71 x .71 = ~ 50% in fixed income.
Beyond that age, however, De Goey thinks 50% fixed income is the maximum. “People over the age of 71 should be able to withstand having half their money in equities even if they’re in their 90s, because the risk associated with the 50/50 portfolio is quite low.”
Allan Small, senior investment advisor for Scarborough-based IA Private Wealth Inc., says the amount of equities and fixed income in an account (at any age), should be based on the needs or investment objectives for that portfolio.
“Thus, if you need growth or if you need to maintain a rate of return that’s higher than what a lower-risk, fixed-income product would pay, then an investor will be forced to invest in the equity markets to obtain a higher return than what fixed-income investments would pay. We all would like to make the most money with the least amount of risk. If someone could keep their money in fixed income only and be happy with a 3%-ish rate of return then that works. However, for many that low rate of return does not cut it.”
Age has little to do with it: “I have clients in their early 30s in GICs and investors in their late 70s invested in the stock market.”
Investing in an age of uncertainty
I was recently interviewed by Small on his Allan Small Financial Show, along with financial commentator and broadcaster Patricia Lovett-Reid, formerly a TD Waterhouse senior vice-president, and later a CTV commentator. Small probed us on the current investor psyche and how to position for the global trade war.
Lovett-Reid cited the term “Triple T,” which stands for Trump (U.S. President Donald Trump), trade and tension. Reviewing past investor panics, she said it is “different this time in that we have an individual wreaking havoc on a global platform.” Even so, she suggested staying the course with quality holdings, albeit more defensively with utilities, telecom, financials and gold.
Retirees should not abandon the “stocks for the long run” stance, she said. If you can’t sleep at night, ask your advisor what you can do about it. On a personal level, Lovett-Reid says she has not made any drastic changes to her family’s asset allocation.
One focus of the interview was our “crystal ball” for markets by end of year. All of us thought they would likely be a bit higher from where they were in late April. Lovett-Reid said the TSX should outperform for the rest of 2025, based on its energy and materials stocks. My view assumed Trump would partly back down from his harder-nosed tariff positions. But if he doesn’t, I warned, “Look out below.”
Arguably, those with defined benefit (DB) pensions and the usual government pensions can consider those to be a form of fixed income. That leaves more room to take risk with equities in other parts of one’s retirement portfolio. In a follow-up email, Lovett-Reid said, “As someone with a DB [pension], I tend to skew toward more equities. And, yet, I do like the 60/40 split of equities to bonds. I’m very much about asset protection versus accumulation, so we are erring on the cautious side.”
Should those without DB pensions annuitize?
What about annuities? In the past, I have referenced retired actuary Fred Vettese’s suggestion in various articles that retirees, at least those without employer-sponsored DB pensions, should partly annuitize when their registered retirement savings plan (RRSP) must be converted to a RRIF.
Depending on timing, Vettese has in the past suggested that 20% or 30% of an RRSP/RRIF could be annuitized. Asked for his current stance, Vettese clarifies he does “consider annuities to be fixed income. Too bad long-term rates are low in Canada—although not in the U.S.—since it makes annuities less attractive. Also, I think there is an elevated risk of higher inflation in the short term.” So, both interest rates and inflation make annuities suboptimal right now, even for this knowledgeable source who is well acquainted with the upside of annuities.
For his part, Small has avoided annuities “because interest rates have been so low that it was never worth it. You might as well just buy a money-market fund. For many years annuities just returned your own capital back. So, no, I do not usually invest in annuities.”
Similarly, Lovett-Reid says she’s “not a big fan of annuities in a low-interest-rate environment; however, I’m a big fan of not worrying about outliving your money.” For those lacking DB pensions, “annuities can provide guaranteed income that reduces the risk of outliving your money. An added benefit for those who struggle with spending discipline is that an annuity creates a structured payout… . You can only spend the money you have, and that reduces the risk of overspending in early retirement years.”