Entries from April 2018 ↓

Dr. Garth

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.

Tale of two cities

For me John Tory will forever live as a disembodied voice coming from my chunky ‘90s cell phone. Tory was running the backroom election campaign for Prime Minister Kim Campbell (remember her?) and I was a cabinet minister traveling the country trying to save a sinking Conservative ship.

“But John,” I argued, “this is a disaster. You’ve gotta pull that ad. It’s ugly, crass and pissing people off.”

But he refused. The ‘face’ TV spot continued to air for days more, showing close-ups of Liberal leader Jean Chretien’s puss, contorted, drawing undue attention to his mild deformity. Almost from the moment it was first broadcast, phones lit up across Canada (and in my riding) with people expressing disgust. The needle was pushed for many from ‘undecided’ to ‘anybody-but-a-Tory.’

On election night the Conservative vote collapsed, with the party seat count dropping from 156 to 2. So long, Kim. The Libs romped to majority government. Among the casualties was me. I got the third-highest vote count. Close, no cigar. And thus I went on to become a billionaire blogger spending his nights fighting anonymous xenophobes, dissing hipsters and making fun of wrinklies and realtors. What a career path.

Well, John Tory survived, because he had nothing to lose. Today he’s still a political force, now running Toronto (scene of today’s tragic event). This week he gave a speech revealing the big thrust of his campaign for re-election. No surprise. It’s affordable housing.

Well, notice a trend here? Provincial and civic governments in BC and Ontario are obsessed with real estate, and have dragged the feds into the fray. The rumours are that Tory’s bid for prolonged power will involve a GTA copy of Van’s ridiculous ‘empty house tax’ and perhaps even a version of the BC speculation tax. It’s all part of the Moister Politics – catering to the huge Millennial cohort where the meme is that Boomers stole all the houses (and the good jobs) and need to be spanked. Of course Ontario also has an anti-foreign-buyer tax, which no statistical base to justify it. But there ya go. In public life perception is reality. Just ask Chretien.

Meanwhile there’s an elephant in the room. Doug Ford, combative brother of the new-deceased rebel, crack-smoking mayor Rob, is leading in the provincial polls and might well be premier by the middle of June. He’s a rabid right-winger, at least in fiscal terms, and says he’d scrap the 15% go-home tax as discriminatory and ineffective. Barring an asteroid strike on his Escalade, that’s probably going to happen.

The impact? Bullish.

Remember ‘Capitulation Week’ (not my descriptor) recently on this pathetic blog? That’s where I underscored several GTA hoods in which 25-30% price declines had occurred and sellers were forlorn, lonely and unloved. A great example came with our heroic/hated blog dog Derek who sold for $2.25 million to buyers who walked (and got sued & lost), then sold again months later for $1.7 million in a changed market.

Anyone who thinks these price drops will double over time – that houses in 2020 will command half what they did in 2017 – is being unrealistic. It’s not happening in the GTA. If Ford is elected, locals might even expect a mini-Trump effect, with renewed buyer confidence and another headlong plunge into the debt pool. It’s hard to predict sentiment, but a year from now lots of people may regret not having tried a good vultch in April. Remember, a 30% decline in prices wipes out a 50% gain.

But I’m starting to have serious second thoughts about YVR and the LM. All of BC, in fact. Yesterday’s blog some hard numbers on current sales, some historical context, then 200 hysterical comments from NDP supporters who crave seeing my head on a stick outside the Vancouver Art Gallery. So many people have swallowed the ridiculous line that higher taxes will reduce house prices by 60%, restoring affordability to the homeless masses who will flock in and buy.

None of that will happen. Yup, the market will croak, sales will crater. Thousands of people will be forced into underwater real estate, owing more than their homes are worth. But cheap houses will get more costly with higher demand. Unaffordable ones will drop hard, but still be out of reach. Families, meanwhile, will be struggling to borrow and buy in a declining economy, where lenders are far more skittish.

More profoundly, the reputation of BC within the federation is starting to stink. The war with Alberta is incredible and bitter. The collapse of the Trans Mountain pipeline project has led to hostility in the oil patch, and even a threat that the cowboys will turn off the energy taps to the greenies. The BC ‘speculation tax’ left coast politicians have imposed on all other Canadians who have owned property in that province for years or decades is seen as capricious, unjustified and punitive. Which it is.

These other Canadians are not hurting BC, but rather helping support it. They pay school taxes but send no children. They pay property taxes year-round but live there far less. While in the province they spend heaps of money earned elsewhere, providing income and jobs for their neighbours. These are the kind of people American states court. Now, at the stroke of a pen, they face a retroactive tax that is, in many cases, massive. Just like the anger and anti-BC sentiment it is creating.

Add it all up. Money’s heading East.