Investing RRSP money

Question: We are both retired with each receiving a company pension. I’m 59, she is 54. We both have $200,000 in RRSPs. Would it be advisable or possible to invest the full amount into AAA-rated bonds, bond funds, and preferred shares? Would a return of 6 per cent-8 per cent be possible as a safe investment?

Also we would like to draw down this portfolio over a 15-20 year period by selling enough each year to give each of us a return of about $18,000-$20,000 a year. Are there any problems doing this? – F.C.

Gordon’s answer: With interest rates at current levels, I suggest that a target at the low end of your range is more realistic for a high-quality portfolio. To achieve a return of 8 per cent right now, you would have to add more risk in the form of lower-rated bonds, income trusts, etc.

I’m not sure what sort of problems you are thinking about in terms of drawing money from the RRSP. Of course that can be done and I am sure you are aware that you will be taxed on the withdrawals. But if you want to take out $18,000 to $20,000 a year, you will have to draw down capital. A $200,000 RRSP earning 6 per cent will only produce $12,000 a yearn dividends, interest, and capital gains. So your capital would be depleted at a rate of $6,000 to $8,000 a year at the start and more each year as the asset base erodes. You may want to think it through again. – G.P.

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