CI G5|20 Mutual Fund Retirement Cash Flow Review - GIC Comparison

CI Investments has introduced CI Guaranteed Retirement Cash Flow Series - a unique mutual fund that offers the following:
  • 5% cash flows for 20 years (guaranteed by Bank of Montreal).
  • Flexibility to provide downside protection in bear markets and take advantage of opportunities in bull markets.
  • A low volatility investment strategy.
  • Tax-efficient cash flows for non-registered accounts (payments as "return of capital")

But what are the downside considerations?  Are there better alternatives to manage investment risk and achieve stable cash flows in retirement?  First, here are the scenarios to consider:

You can't argue that the downturn protection is nice to have in scenario 3.  But is getting all your funds back (5% in each of 20 years after the first 5 years) all that great?  Consider $20,000 invested -you could earn 3% a year in the first 5 years in a GIC - compounded that means that after year 5 you have $23,185 to start.  As the funds grow you have the potential to get more than your original 5% back each year with the GIC, $1513 per year to be exact.

Or you can withdraw $1000 and have a load of cash left over.  In the chart at right, you would have over $14,000 left over sticking with a GIC instead.

The thing to remember is that with inflation, getting 5% of your principal investment back in year 25 is really only worth 3% in terms of future buying power.  You really need options that continue to grow over the 20 years to have meaningful cash flow that lasts!