Some financial planners call it the cash wedge, others the bucket approach. The basic concept is to have enough cash or safe, liquid investments in your registered retirement income fund to cover at least three years’ worth of living expenses. That way, you’ll never have to sell any of your investments at a low point in order to pay for living expenses or to make the minimum annual RRIF withdrawal.
Mr. Gillespie starts setting aside money for retirement living costs when a client is about five years away from leaving the work force. Right now, he’s using guaranteed investment certificates maturing in one or two years to hold this money. When the client was a year from retirement, maturing GICs would be routed into an investment savings account.
Her view on cash in a retirement plan is that there should be enough to cover expenses for as many as four to five years, which should be long enough for stocks to recover from an extreme drop. Her preferred cash vehicles include high interest accounts, high interest savings accounts packaged as mutual funds and diversified short-term bond funds.