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ALWAYS CONSULT YOUR INVESTMENT PROFESSIONAL BEFORE MAKING ANY INVESTMENT DECISION

April 24, 2018 | Dr. Garth

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

The doctor is IN. Who’s first?

Hey Garth: I’m 30 and have been reading your blog since 2013, which has saved me from making too many major financial mistakes. So thanks for that.  Oh, except that I quit my job to travel for a year back in September.

I’m waiting out a Kenyan rainstorm and had a thought. Currently, I have about $85k in my RRSP and my TFSA is not topped up at around $45k. Both are balanced portfolios of ETFs as recommended on your blog. Since I’m going to earn $0 for the 2018 calendar year, it would be a good opportunity to move some of it from the RRSP to top up my TFSA, since my tax rate will never be lower. Right?

If I’m correct about that, can I transfer the holdings or do I have to sell, move the money out, then buy again in the TFSA? I would appreciate your sagely advice.

So you’re sitting in Kenya during a big break year worrying about your TFSA? What a hopeless case. Well, the answer is yes, sort of. As mentioned here before, RRSPs are not actually for retirement, but more for tax-shifting. They allow you to sock money away and get a tax deduction during years of employment – the higher your income the bigger the benefit – then to shift some of that income to other years when it can be removed at a lower rate of tax.

You’re a perfect example. Now, because you’re a hedonistic bum with no visible means of support, you can remove RRSP money tax-efficiently (the amount withheld when you cash the plan in will be returned after you file taxes) then insert it into your TFSA. But if you want to hang onto the ETFs in your balanced RRSP you must transfer them to a non-registered account. This will be considered income for 2018 (sorry). Then you can move the stuff into your tax-free account as a contribution in kind.

Next?

Hey Garth – Started reading your blog last year just in time. As I was sorting out my financial life, my husband decided to leave me.

So, here I am at 51 with two kids under 12 and have been staying at home for almost 11 years. I gave up a great federal government job with a pension to stay home. I started working part-time last year on a couple of provincial decision-making boards. No proper salary, but an honorarium when I work – about 3 days a week, sometimes more. I can easily earn about  $50K a year, but  no job security and no benefits. What was to supplement our family income has turned into my income. I know I need to sort this out and find a real job within the next while. I did take my pension early and receive just over $13K annually.

For the first time in my life I feel financially insecure — that’s the polite way of saying scared shitless. Our RRSPs are virtually the same ($150K each). I have a TFSA, but only about $10K in there. The kids RESPs are just about maxed out. We have a small mortgage on our house, and don’t have any other debt. The two big assets are the house, and his federal government pension (17 years service so far). Which should be more important to me and why?

Sounds like you’ve separated, but not divorced, so your question is in preparation to finding a settlement with the brute who walked out. I don’t know the value of his pension, nor the worth of the house, but if he’s about your age there’s another decade of working for the feds until his pension maxes. He could quit, retire or die. There is an element of uncertainty here, plus no income for you until he actually starts to receive it. The real estate, on the other hand, is real, immediate and (so far) has been an appreciating asset.

So, go for the house. With young kids you need one, anyway, to stabilize your accommodation costs until you’re able to land a full-time work gig. This also sounds like a case for big alimony, given your economic sacrifices. And don’t take him back.

Next?

Hey Garth, love the blog. My mom is single, 75, 13 years retired on a well-deserved nurses pension after 40 working years, collecting all the usual government benefits that go on top of it.  Financially she’s floating along ok, her main needs are covered but any surprise expenses are put on credit.  She lives in a townhome in beautiful North Vancouver worth just shy of 1 million bucks.  She’s in average health, but I think she’s going to need more help day to day down the road, and her split level townhome and garden are too much physically for her. I’m in Edmonton so not nearby to offer much help day to day.

She’s been active with her condo board and knows there’s a $20k+ special assessment coming in a few years that’s been pushed off for redoing the roofs. She wants to bail before this is on the books.  She has expressed no appetite for going back to the renter class, and is currently mulling over selling her townhome, clearing her debts… and buying a $900k condo down the hill in a 55+ building.  Her main reasons she states for not wanting to rent again is that she has bad memories of landlords selling out from under her, and stability.

Using the cashflow in retirement mantra you’ve hammered home over and over I’ve tried to raise all the alternatives that may exist for her beyond purchasing another home.  In home care costs, travel for pleasure, travel to visit grandchildren, no condo fees, property taxes, special assessments etc etc.  I think from her townhome sale her cashflow could be excellent, and it could more than cover rental costs indefinitely.

It drives me crazy that she’s sitting on a lottery ticket and carrying credit card balances, or putting somewhat menial home maintenance costs on credit and worrying about it.  I know there are obvious whiny kid things here about inheritances but this isn’t my concern, it’s her money, leave some leave none, that’s her call.  I don’t want her to be in a situation in a few years where she needs help in the home that she can’t afford with the only real asset being her currently ridiculously valued far from liquid condo.

Can you slice through this like you usually do, for what I’m sure are many people in the same scenario with aging parents at a crossroad in life?

If your mother can’t handle any unexpected expenses, has no cash reserve for years of poor health, is building up a credit card balance (at 19%) and knows a special assessment on her condo-townhome will crush her finances, then get her out! Sell the sucker. In North Van that’s considered an affordable home, and will probably go fast.

Buying a condo for almost the same amount in a restricted-use building is nuts. She’ll piddle away money on the transition, still face condo fees she cannot control and be invested in a development which excludes 90% of potential buyers (because of the age restriction). Wicked bad idea.

If she sells and invests in a balanced portfolio that should generate an extra $5,000 a month – plenty of money to rent a lovely condo apartment in a quality building, have extra money to handle unexpected expenses (or travel and enjoy her health), plus still keep a million bucks to finance the rest of her life. How is that a bad scenario?

The ball’s in your court. Do the right thing, guide her actions. When you were a kid, mom made good decisions for you. Now she’s old, it’s your turn. That’s love.

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April 24th, 2018

Posted In: The Greater Fool

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