Should Retirees Sell Stocks and Buy GICs Now?

Are GICs a good idea for retirement?

Rodeen, guaranteed investment certificate (GIC) rates have climbed to levels not seen in more than a decade. Short- and medium-term GICs—one to five years—are commonly paying in the 4% to 5% range, and in some cases slightly above 5% at certain trust companies, credit unions and online banks. Major banks often offer lower rates, typically one to two percentage points less.

Those higher rates can be appealing because GICs guarantee your principal while providing predictable income. But remember that rates have already started to move lower and are expected to decline further through the rest of 2024 and into 2025. That outlook matters when planning income through retirement.

Are GIC rates going up in Canada?

GIC rates rose as the Bank of Canada increased its policy rate to slow spending and curb rising prices. Inflation, measured by the Consumer Price Index, rose 6.8% in 2022 and 3.9% in 2023. With inflation near 4% at times, a 4% GIC produces roughly a 0% real return after inflation. The Bank of Canada’s forecast points to inflation moving back toward its 2% target by 2025, and when inflation falls, GIC rates are likely to follow.

GICs vs. stocks as inflation hedges

Stocks can act as an inflation hedge over the long run, but they are volatile. During the 2022 inflation peak, the S&P/TSX Capped Composite Index fell and the S&P 500 also experienced significant declines (total-return figures, with the S&P 500 measured in Canadian dollars). Markets recovered in 2023 and into 2024 as central banks worked to rein in inflation. Stocks usually respond well to falling interest rates, but the possibility of a recession or further market weakness remains a concern.

For retirees, the shorter time horizon matters. Stock market volatility can be stressful and may force emotional decisions. If your husband finds market swings intolerable, holding only equities might be inappropriate. On the other hand, moving everything into GICs eliminates the possibility of recovering from temporary stock losses, because once you lock in low-yield, fixed-return investments you forgo long-term growth potential.

Historically, long-term equity returns have been attractive. For example, the S&P/TSX delivered an average total return of about 7.5% over the 10 years ending Dec. 31, 2023, while the S&P 500 returned roughly 14.5% in Canadian-dollar terms over the same period. Those long-term gains help explain why many advisers recommend keeping some exposure to stocks even in retirement.

Rates aren’t the only thing that matters

It’s also crucial to look at how much of the portfolio is being withdrawn each year to cover living expenses. Is the withdrawal rate 5%? 10%? Or lower? Compare that rate to the portfolio’s income generated from interest and dividends, which for many portfolios is in the 2% to 4% range. Only the portion of withdrawals above that income is coming from selling principal.

For example, if withdrawals total 3% annually and portfolio income is 2%, only 1% of the portfolio is being drawn from principal that year. That means 99% of the assets remain invested, reducing the impact of a down year so long as you don’t have to sell significant holdings while markets are depressed. This dynamic makes a big difference when deciding whether to lock everything into GICs.

Finding the appropriate risk for retirement

Asset allocation—how much to hold in stocks, bonds, GICs and other asset classes—is highly personal. Most people find it easiest and most effective to maintain a consistent mix through market cycles rather than trying to time the market by increasing risk after gains and cutting back after losses. Buying high and selling low is a common mistake that undermines long-term returns.

Your husband should assess his comfort with market swings and choose a mix that balances the need for income and the desire to preserve principal. If he works with an investment advisor, this is an important conversation to have. If he manages investments on his own and finds the stress intolerable, seeking professional guidance may help him stay on course.

Rates, recession worries and practical steps

Many retirees worry about their investments, especially during transitions into retirement. If the stress is persistent, it can be a sign that the portfolio has more risk than the investor can tolerate. Rather than shifting everything to GICs, consider a partial and permanent reduction in equity exposure if that improves comfort—this can reduce stress without eliminating long-term growth potential.

It’s also helpful to structure withdrawals and income so that you minimize selling assets in down markets. A mix of guaranteed income (GICs, annuities, pensions) and growth assets (stocks, balanced funds) can provide stability and a path for continued portfolio growth.

Finally, keep the big picture in mind. Moving completely into low-risk fixed income will lower long-term return expectations and could reduce future retirement income or the size of any inheritance. As an illustration, retaining just 1% more annual return over a 25-year period can boost pre-tax retirement income by roughly 11% and increase a future inheritance’s value by about 27%, ignoring taxes. That potential underscores why many retirees choose a balanced approach rather than an all-or-nothing switch.

Read more about GICs as an investment:

• How GIC interest rates work
• Registered vs. non-registered GICs: Which to choose
• Annuity vs. GIC: What makes sense in retirement
• How to invest as a teenager in Canada