Retirees, now is the time to try this defensive investing plan

The best way to protect your retirement savings from a market crash is to safely park enough money to cover your income needs for two to three years.

Until 2022, safe parking has meant dead money. Now, with interest rates rising, you can adopt this strategy with a smile on your face. Rates were high enough in mid-May that you could build a three-year ladder of guaranteed investment certificates earning an average return of as much as 3.8 per cent.

A feature of every stock market crash I’ve seen as a personal finance and investing writer is the senior distraught over the idea of having to sell hard-hit stocks and equity funds to cover the minimum annual required withdrawal from a registered retirement income fund.

In both the 2008 and 2020 crashes, the federal government allowed a 25-per-cent reduction in the minimum RRIF withdrawal for those years. But that’s only a limited benefit and, anyway, seniors shouldn’t depend on the feds for help with their investment portfolios every time stocks plunge.

The best strategy for protecting an RRIF against inevitable stock market declines is to keep a reserve of money to draw from when selling stocks or equity funds would lock in a serious loss.

At bare minimum, have enough money for one year. At best, try for two to three years.

You could keep this money in a high-interest savings account, where rates have recently climbed to between 1.5 per cent and 2 per cent at best among alternative banks and credit unions. If you have the financial flexibility to lock money into a GIC, the best one-, two- and three-year rates in mid-May were 3.35 per cent, 3.95 per cent and 4.1 per cent, respectively.

Those rates were available from alternative banks that sometimes don’t offer RRIF accounts. One option is to see what GI C rates your broker offers for RRIFs. Online brokers have unusually competitive GIC rates right now – not as high as alternative GIC issuers such as Oaken Financial and EQ Bank, but close.

With a three-year GIC ladder, you invest equal amounts in terms of one through three years and invest each maturing GIC into a new three-year term. If a twoyear term seems a better fit for you, try that. The key is to have cash safely stowed to give your stocks time to recover from the next stock market decline.