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Cash Wedge Strategy

Cash Wedge Strategy

To provide income flow through retirement, many types of accounts can be used, such as the Registered Retirement Income Fund (RRIF). When opened, annual payments must be withdrawn from the RRIF in each of the following years. The objective is to structure the portfolio in such a way that we have liquidity to fund the payments, but also have investments that generate growth.

How it works

  • Generally, two years’ worth of retirement income is invested in a combination of low-risk, income-oriented investments to create the “cash wedge”.
  • The rest is invested in a balanced mix of equities and fixed income investments.
  • Dividends and profits from the investments are used to replenish the cash wedge on a year-to-year basis.
  • During times when the investments drop in value, the cash wedge is there so that you are not forced to sell low, giving the portfolio a chance to recover.

How the sequence of investment returns can impact your portfolio

The example below demonstrates how investment returns can impact your portfolio during retirement withdrawals

The sequence of returns is crucial during withdrawals, as it can tremendously affect the portfolio’s end value and its
ability to provide long-term income.

The Cash wedge strategy can help protect your portfolio from the impacts of withdrawing income during volatile markets.

Alliance Wealth Management is a program provided by Credential Financial Strategies Inc. offering financial planning, life insurance and investments to members of caisses populaires and their communities. Trade-mark(s) of Alliance Wealth Management are used under licence by Credential Financial Strategies Inc.

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