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October 20, 2020 | When The Party Ends

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.

Aren’t you tired of Millennials? Whiskers, tats, bicycles, house lust, skinny pants. Yeah, me too. So let’s talk about old snort issues for a few minutes. Like how to get money out of your investments without being nuked by the virus or taxes.

Joan, in BC, throws us this question.

We have a financial advisor and a friend who is a retired financial advisor, each giving us different advice. We were wondering if you could help us decide the best action to take. I’m 67 and retired. My husband is 66, still working, and intends to do so until he’s 71. We started receiving our OAS and CPP pensions at 65 and receive a federal government pension as well. We have no mortgage and no debt and our lifestyle is pretty frugal. We have approx. $327,000 invested, TFSA’s and spousal RRSP’s mostly in Spousal, since my income is much lower.

Our retired advisor friend thinks that with the instability of the markets, Covid, etc. we should seriously consider converting our RRSP’s into either a RRIF or an Annuity now, instead of waiting until age 71. Our current advisor disagrees, since we are well balanced and diversified and weathered the drops in March pretty well. Also, he said Annuities are paying lousy returns right now. We feel since a RRIF is subject to market fluctuations, what’s the point and also we don’t want to add to our income, since it would push us into a higher tax bracket. What do you think Garth?

Easy, you need new friends. Your advisor’s correct.

Now let’s make sure everyone knows the difference between an RRSP and a RRIF. Plus the tax changes that came down recently. During your working years contributing to a retirement savings plan nets you a tax break since the annual contribution can be deducted from taxable income. Cool. Do it. RRSPs are great tax-shifting tools and can also be used when you lose a working gig, get pregnant, buy a house, go back to uni or want to take a year off to find yourself (good luck).

RRSPs (like tax-free savings accounts) are not products or things, but just accounts into which you can dump different investments. Growth is tax-free, so it makes sense to hold things that will swell in value (like equity ETFs) as opposed to brain-dead, interest-earning duds (like GICs).

But the RRSP party ends at age 71, when these holdings must be converted into accounts (called RRIFs) that pay income. And, yup, it’s taxable. Now the good news is, thanks to Covid, the feds have lowered the minimum amount a RIF must pay out annually, by a whopping 25%. So now at age 72 only 3.96% of what a RIIF contains must be converted into taxable income (this rises to 15% by age 94, should you be so wirey). That means almost all of the RRIF investments can continue to grow free of tax for a long, long time.

Okay, back to Joan. So, yes, an RRSP can be converted to a RRIF at an earlier age, if you want. And once that happens, income must flow (through a slightly different formula) and be taxed. But why do this? There’s no rule preventing a person from taking RRSP money if they need income.

Her retired advisor friend should stay retired since converting a retirement savings plan into a retirement income fund doesn’t reduce risk one iota. It just means taxes are payable on withdrawals that (in this case) aren’t needed. As for an annuity – which locks the money up in return for a guaranteed monthly stipend – the worst time possible to get one would be now. Annuity payouts shrink along with interest rates, which these days are in the ditch.

Advisor, 1. Friend, 0.

$     $     $

Well, here’s an interesting chart. HouseSigma figures Toronto condos have never dived this deeply, or quickly, into a buyer’s market.


Things grow darker weekly for all the amateur landlords and specuvestors who snapped up mini-units of 500 square feet or less over the last few years. The vacancy rate is going up, rents are going down, condo prices are falling ten grand a week, listings are piling up (200% more in a year) and both tenants and purchasers are scarce.

Word is that some mortgage brokers are about to stop lending any funds against these things. Meanwhile thousands more units are coming to market as existing projects are completed. There are oodles and oodles and oodles of assignment condos available as investors bail. And look at the latest Covid news – as of this week  no more open houses in Toronto or most of the GTA, the condo heartland of the nation.

Well, come winter, the growing second virus wave, a lot more mortgage defaults and risk-averse lenders there’s every reason to think the glut will worsen with prices caught in a vice. It will be a painful lesson for investors who thought losses were impossible and there’d always be some kid willing to shell out $2,500 a month to sleep in their closet.

Of course, the city will come back. The pandemic will end. Downtowns will seduce, entice and intoxicate once more. So have the chequebook ready.

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October 20th, 2020

Posted In: The Greater Fool

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