In a moment we’ll get to Peter and Christa’s reproductive issues. First, a brief folo on yesterday’s collapse in the price of oil and the moaning and gnashing that ensued.
Friday was worse. Crude tumbled an astonishing 10.3% in a single trading session. That means a loss of more than seven bucks, taking a barrel down to the $66 mark. So, a big drop in gas prices next week. It also means oil has given up 38% since the summer, which is a total capitulation in anyone’s books.
Meanwhile our petrodollar was creamed, off eight-tenths of a cent, now down to 87 and a half US pennies. Plunging energy issues (Canadian Oil Sands stocks has bled out 40% since June) had the TSX down again – this time by about 180 points.
The consequences? A big tailwind for consumers, especially in the US where each cent reduction in a gallon’s price adds over $1 billion to incomes – just in time for Christmas. In Canada the effect is welcome, but more muted, given the fat tax component built into each litre of go-juice. In fact, as I mentioned yesterday, the collapse in crude will on balance be negative for the nation, since oil shipments form a huge part of the export income upon which we rely. This also puts oil sands investment plans on potential hold, and is the worst possible news for drillers, engineers and real estate in Alberta, Saskatchewan and northern BC.
The consequences are unknown, since it’s unclear how long prices stay depressed, or how much further down they might travel. As I mentioned last night, the OPEC guys can pump a barrel for thirty bucks, while some US frackers need $80 to break even, and oil sands producers are having a cow at current levels. It’s safe to say, however, that between Canada Day and now, everything has changed. It may take months for this to percolate through the housing market, but when it does the impact could be life-altering for those fools who thought it was different this time.
Of course, it never is.
But try telling that to Pete and his bride.
“Please don’t make fun of us too hard or tell us we’re too poor to have kids ??,” he says in his desperate email to me. “But, if we are too poor to have kids you got to tell us man ??.”
You bet. Here goes.
“My wife and I need your help: I have a combined $36,000 in two RRSP’s (one for retirement/paternity leave/house, one for education), my wife has $27,000 in her RRSP; we also have roughly $3,000 in shared equities (stocks) that we prefer not to sell.
I have no credit card debt, she has $18,000 on visa (10.99% interest) and we share $20,000 (prime+3.5%) on a credit line. We rent at a reasonable $1500 with a dog in Vancouver. We’re both 35 and are thinking about starting a family, part of which is fertility treatments approximated at $12,000 to freeze embryos.
We are both semi-professionals with a combined income of approx. $110k on a normal year, but only about 60k this year. My wife has been on disability for calendar year 2014, and therefore, has almost 0 taxable income. Should my wife withdraw her RRSP to pay off the Visa? Can she withdraw from RRSP without paying taxes since she hasn’t worked this year?
In your opinion would it be better to take the money from RRSPs or just borrow more on the credit line for fertility. We are expecting to get $15,000 – $25,000 in 2015 from a settlement and could replace the withdrawal from the RRSP with these funds. If we withdraw the RRSP, are we better off paying back the RRSP or putting settlement in a TFSA or some other investment vehicle.
We are unable to wait for the settlement to start fertility treatments. Should we keep drowning in our current debts and add to it, or pay off things and possibly drown in debt during retirement (due to lack of RRSP’s)?”
Well, where to begin? First, you have assets of $66,000, almost all of it in taxable RRSPs. The debts stand at $38,000, and are costing you a bundle in interest. You are devoid of other assets, and live in a stupidly expensive city. Now you want to borrow another twelve grand, or draw it from your registered funds, for fertility treatments, which may or may not work. And your wife has no income.
So, your net worth is a little north of zero. Yes, the money coming next year will help, but if she does get pregnant, this is only the start of more expenses to come, plus a maternity leave even if she gets back to work. Are you sure you want to do this?
As for your questions: You can’t ‘replace’ RRSP funds as you can with money taken from a TFSA. Contribution room has to be earned with new employment income, or borrowed from unused contributions in the past. No, you can’t take money from an RRSP without withholding tax, although your wife could get much of this back next spring after filing her 2014 return. Pay down the 11.99% Visa? Of course. Why haven’t you done it already, since you have a 6.5% (still hideously expensive) line of credit? If the RRSP money is sitting in some dead-end GIC or bank account, then it might make sense to use those funds to trash the card (then cut it up),
But, of course, there’s no good outcome. If the fertility stuff must proceed then sell the stocks, since they pose the greatest financial risk at a time when you can’t afford to take much. Put the rest on the line, then pay this off with the funds coming next year. Invest the money you have properly, as I have instructed. And obviously there’s much you’re not telling us. Like why your spouse is too disabled to work, but not to have a baby. And why it has to happen now.
Petey, life’s about choices. This one will probably change everything. Just pray you end up with a child rock star.