Entries from February 2016 ↓

The unexpected

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Fifteen years ago, when I was a lad with rock pecs and a hot wife (still is), I made considerable money writing books about RRSPs. People actually bought them. By the thousands. “We’re printing more,” my publisher told me one day in her sultry, Bohemian tones. In fact, there was a new Garth Turner RRSP book every year for a while, which you can imagine was quite a feat.

But these things seem sexy no more. Shelves no longer groan every winter under new financial tomes. Poor displaced, homeless authors now congregate beneath bridges and behind Timmies’, keeping warm beside smoky pyres fueled with the curling pages of retirement guides. It’s tragic. I hear some guys completely lost it, and started blogs.

So why have we stopped putting money into these things? (The deadline for contributing for 2015 was Monday.) Ignorance seems a key factor. Despite RRSPs having been around for six decades, tons of people know little. An H&R Block survey found half of Canadians glaze over and profess ignorance at the mere mention. Another poll by BMO found 41% say they don’t understand RRSPs, so don’t play.

Then we have the TFSA dilemma. Thanks in part of T2 and his myopic chopping of contribution limits, tax-free accounts have seized a lot more mindshare than RRSPs. These new accounts have been embraced more by the young, despite the fact 80% of them stick money inside a TFSA into dead-end GICs or cash savings deposits. Then we have the nihilistic what’s-the-point? attitude so prevalent today among people under 40, who think retirement saving is futile because we’re all going to fry or drown thanks to climate change. Either that, or Justin will give everyone a better pension and a pony. So why bother?

Finally, RRSPs have dropped out of favour because we’re all house horny, real estate is crazy expensive, there’s no money left after buying some, and saving/investing is hard and scary. Getting property is easier. Your mom approves. And how can you show off liquid assets to friends? They just don’t care.

As a result, the average RRSP contribution, among the reduced number of people making one, is just a little over three grand. Peanuts, considering the government will refund the taxes you paid to earn that amount.

So, there’s a strong case for making sure you fund RRSPs and continue to do so throughout your lifetime. Plus, you should not consider them retirement vehicles, because they’re not. They let you shift taxes around during your working life, with funds accessible anytime – not only after you start resembling an antique leather couch.

For those who forgot, money placed in TFSAs is cash already taxed. You can remove funds without reporting them on your tax return. So, the income doesn’t push you into a higher tax bracket nor imperil any means-tested government pogey like CPP or OAS. Everybody should have one of these and keep it fully-funded, fully invested and absolutely intact for retirement – when the benefits will be awesome. Imagine a $700,000 TFSA churning out fifty grand a year in tax-free income, allowing you to still collect a public pension, free drugs and discounted bladder-control undies. Yahoo.

The RRSP, on the other hand, is a tool for shifting the tax burden from one year to another during your working career, or for splitting income (and taxes) with your spouse since you receive a refund from taxable income for contributions made (unlike the TFSA). So, naturally, it makes sense to contribute heavily in years you earn good coin, and to withdraw from the pot in years you don’t.

That could be a sabbatical to nurture homeless donkeys with your children’s inheritance, or a time to go back to school (you can borrow from the plan, tax-free for that), or perhaps it’s when you get punted from your job for being a whiny, needy Millennial. Whatever. The point is the feds will refund up to 50% of the money put into an RRSP and the same money can be withdrawn later at a fraction of the tax if you earn less. So everyone in 2016 should have an RRSP. It’s an uncertain world, after all. Pay less now. Build a personal unemployment fund.

As mentioned, RRSPs also let you income-split with a less-taxed spouse. Contribute to a spousal plan, deduct it from your own taxable income then your partner (after three years) can withdraw at a cheaper rate. It’s a great way to finance a mat leave, or a university gig. You can also make an RRSP contribution without money, by transferring existing investments into an account (called ‘contribution in kind’) – which means the government sends you money for selling yourself assets you already own. (How cool is that?)

Plus an RRSP loan makes sense, since you borrow money, contribute, then get a tax refund to pay the loan down. It’s like achieving an instant 30% return on investment for most people. Or, just contribute with money you’ve saved, then use the refund to top up your TFSA.

There’s more. Like putting your mortgage inside your RRSP and making payments to yourself. Or creating tax-free RRIF income when you finally turn 71 and have to cash out. But we’ll leave the extra kinky stuff for another day.

The point is, RRSPs rock. Mercy. I’m aroused just writing this.

Big ideas


“People are correct to perceive there is a serious problem with the housing market,” says blog dog Joe, “but incorrect to believe the solution lies in government intervention. A better solution is to let the market sort itself out (interest rates normalizing) and for people to make better financial decisions, painful as that might be.”

Can’t argue with that. But Canada isn’t in the mood for personal responsibility, and won’t be for a while. Comments here over the weekend proved that. While it’s obvious cheap money, house lust, financial illiteracy, easy credit and a disregard for debt have propelled house prices to the absurd, nobody’s buying it. Instead it’s the fault of flipping realtors, Chinese dudes and lame politicians. While rank speculation is killing real estate, we flame crooked immigrants. Pathetic.

“Bigger picture, I also worry we are collectively losing our way when it comes to our approach to serious political issues,” adds Joe. “With housing and the economy, it troubles me that the majority of people now look to government as a solution to problems best addressed by the private sector or private citizens. The pendulum has swung too far left. The recent elections of Rachel Notley and Trudeau are a symptom of this, not a cause, I think.”

Me too. I take our debate a few days ago about TFSAs as evidence. Why would so many people come here to support the government hacking a tax shelter and thereby increasing taxation? Simple. Investing is hard. It’s risky. Voting for higher pensions is easy. No risk.

The latest example is the moister momentum for a guaranteed annual income, which many of the spawn think will be financed by sucking off others’ RRSPs. They crave a new cradle-to-grave social support, no doubt the reaction to a world in which young people have big debt, uber education, high expectations, lousy jobs and swelling anxiety over ever owning a house or turning into their parents. They’re huge into sharing now. It’s a defence. Shared cars. Shared mortgages. Shared jobs. Shared (public) pensions. Shared economy.

It’s the antithesis of individual ambition. So governments, like those of Trudeau & Notley, are elected to tax the rich more, abandon balanced budgets, go green and replace private enterprise as the creators of wealth and jobs. In a world where people get a minimum annual income their whole lives, then a liveable public pension, where excessive government spending can be amortized into infinity, why worry about TFSAs, stock markets, or investing?

Since the T2 era dawned, I’m seeing a lot more comments like this being directed at me:

“You Conservatives are all the same, it’s all projecting your flaws onto others and worrying exclusively about what’s good for your pocket. Which is fine and dandy on a financial blog where dudes and dudettes come to learn how to get rich, but cut the sanctimonious crap because nobody but a handful of nodding sycophants believe you.:

And this…

“You’re just like with Trump. Because you’re a cheerleader for the status quo, which has served you and the people you’re surrounded with well, and you can’t imagine that ever changing. Meanwhile more and more people in western countries have their back against the wall as your lust for money (you previously referred to dividends as “yum” and “delicious”) causes more outsourcing, more short term thinking, and more corporations that are perfectly happy to sell our country out if it means a buck next quarter.”

Oh yeah, and this…

“You talk about all of us having an obligation to save and invest. What happened to personal freedom, Garth? You conservatives love to talk about so called freedom. No matter how pure your intentions might be, you have to understand how it looks when you say that. As an equities peddler and multi-millionaire investor yourself, you stand to gain in two fundamental ways from putting the burden of retirement funding on all individuals. You stand to gain because they will need the help of professionals such as yourself, whereas with state pensions that is unnecessary.”

How can you not love the way the lefties call me a Conservative, and the rednecks dis me as a Liberal? It’s one of my greatest accomplishments. Irritating everyone. It’s also common sense.

Whatever the flavour of government, we’re not moving in the right direction. Real estate’s become a casino in which every player thinks they’ll win. Sinking money into registered retirement funds has crashed and burned. Most people are willing to flip off TFSAs, because they don’t use them. The rest think they’re savings accounts. Our willingness to swallow debt would astound previous generations. Cash reserves are gone. Credit’s endemic. Kids expect nicer houses than their parents. Now. It’s a society of consumption, not denial. Savers and renters bad. Mortgages good.

Today the young truly believe interest rates cannot rise, houses will always go up, they can retire without investing, it’s different this time, deficits will solve themselves and taxes on others – the wealthy and corps – will make it all work. As Joe said, government is now the solution. A year ago it was the problem.

I can’t help but think of hippies sticking flowers in the barrels of cop guns. Beautiful. Doomed.

Well, there ya go. Blaming others – from immigrants to central banks, Boomers, realtors or Americans – is lame. We’re the architects of our own destiny. Together we have destroyed the housing market, borrowed our butts off and elected leaders for the wrong reason. Pointing that out is neither lib nor con.

The young can learn from experience, or think they know it all.

I did once. It was great.