• Dr. Garth

    Now that we’ve solved the nation’s woes and the week’s not yet over, there’s t to vex about your personal financial, emotional and marital ailments. After all, this is a full-service blog. Seven pathetic episodes a week. Never a snow day. Open 24/7. Just like a homeless shelter on Yonge or Robson, we take in the shivering, huddled, wretched masses, dispensing free advice and tummy rubs. Consensual, of course.

    Whazzup, Arlo?

    Have read your blog for years and appreciate your willingness to provide free financial education for Canadians that are able to see past the “advice” given so freely by the real estate cartel in this country.

    I have an aunt with an elderly mother who has late-stage dementia.? The mom has a TFSA with no beneficiaries assigned, but my aunt holds enduring power of attorney and takes care of all matters including financials.? She has been able to transfer money into this TFSA in the past and now is wanting to draw from the TFSA in order to buy a wheelchair.? The financial advisor at the bank is giving her trouble with this and is suggesting that she can only withdraw from the TFSA for particular items that he deems appropriate.

    Does my aunt, with PoA, have complete control over the TFSA?? I understand that she is legally bound to act in her mother’s best interests but it seems like the bank is trying intimidation tactics to ensure the account and its portfolio remains status quo.

    Dude, that banker is Grade A snot. Of course he has no right whatsoever to intervene between a PoA holder and the person who granted that power, so long as the document is valid, complete, precise and has not expired. The TFSA funds belong to your aunt’s mother, not the bank. By signing over management of her affairs, mom is trusting that her daughter will make good decisions. In fact your aunt, as you correctly point out, has a legal obligation to do just that.

    Read this for background. Tell your aunt to have her lawyer send a withering letter to the banker. Or just move the TFSA. Or let us know who this guy is. Maybe he needs a wheelchair.

    Now to Sarah. Not a lot of money here, but she’s trying to hang on to more of it.

    Thanks for the realistic, if occasionally apocalyptic, financial views each day.?My partner makes half of what I make and we’re trying to figure out where to best put the monies.

    I’m 40, he’s 47. We rent. I have $19K in RRSP, $3K in TFSA and smaller amounts in non-registered joint and joint savings with a robo-advisor. About $15K of my $70K income is self-employment. My tax bill last year was 3x than the year before and I’m trying to avoid that situation again this year.

    Should he open a spousal RRSP that I contribute to or should I keep stuffing my own RRSP for now? Does it matter? If he invests his full income while I pay for our life, how should we distribute that? We will likely both be going back to school in the next 2-5 years so I’m trying to figure out the best course of action. Ok to publish. Thanks.

    First, Sarah, you guys are hurtling towards the half-century mark with grand total of $25,000? Not good. And you’re thinking of going back to school? What for? What’s the plan? If it’s to become a tenured academic with a DB pension and a tweed coat I can understand the logic. Otherwise, pfft.

    As for a tax-saving strategy a spousal RSP makes little sense if you’re going to be an unemployed student in a few years. You can take the money out then to pay tuition for no tax after securing a deduction for contributing now. And is your ‘partner’ a committed person you have a stable common-law spousal relationship with? Otherwise your contributions into his plan might be in jeopardy.? Personally I think he should marry you. Get back to us on that.

    Okay, time for a question from a mouldie in Victoria (where else?):

    “Thank you for the steady hand and bottomless cup of humour,” says Brian. “I’ve enjoyed your blog for a long time. I’ve recommended it to many friends, some who don’t invite me over any more.”

    The thing is, I’ve long been an equities guy. I feed my registered accounts and TFSA’s with money from the unregistered, just as you suggest. Everything is topped right up and the blue chip dividend stocks keep rolling along. I only recently bought my first ETF – US one. Still a touch unsure of it, but keeping it fed.

    I’m approaching 60 and have some incredibly strong performers in the registered accounts. Up over 250% over the years. Lots of unrealized gains, in other words. Does one, at this fine age, reap those gains and roll the stocks into ETF over time, or simply sit back and know that I’ve set myself up with a nice tidy sum for retirement should I ever get bored with my day job of reading your blog?

    Besides the need for new friends, it’s time to start unwinding some of those equity positions. Sure, stocks have gone ballistic over the past year and the gains have been sweet, but let’s not forget markets are at all-time highs and owning individual companies? can result in heart failure just as easily as joy.

    There’s a reason smart people diversify and own ETFs instead. One exchange-traded fund can give you exposure to the 500 biggest US companies, for example, so if Tesla or Netflix or Amazon blows up, you’re still okay. Sixty isn’t that old (I remember it fondly), but your recovery time is narrowing if a disaster happened. Do it.

    Finally, capital gains taxes are the best deal in town. Half the profits come tax-free and the other half is taxed at your marginal rate. For most people this typically results in 15% tax, while you keep 85% of the profit. Don’t be a greedy old snort. They already hate us enough.

    Lastly, let’s dissect young Ben.

    Long time listener, first time caller. Thanks for the blog, it’s been a real eye opener for this (borderline) millennial. I’ve seen you mention a few times over the blog posts that if someone has some excess cash that adding additional payments to an existing mortgage isn’t the way to go, as the loan is basically free with current rates.

    My wife and I are up for a renewal, we’re 10 years into a 25 year mortgage, that realistically will be done in about 17 years total. Before finding your blog I doubled up on a number of payments to help get that number down. As we come up for renewal my plan was to slightly increase our payments as I make significantly more than 5 years ago. This combined with a slight rate decline would decrease our time left on the mortgage from 9 to just under 7 years. Surely this 2 years of no payments would more than compensate for any interest I would have gained on investing the $50 bi-weekly. I feel like I’m missing something, or possibly just misinterpreting your advice.? Thanks for any thoughts you might have and for all the work you put into the blog.

    Here’s the logic: mortgage money is still available for 3% or less. The inflation rate is 2.2%. That’s damn near free money, especially if your house is growing a little in value. Last year a boring balanced portfolio of financial assets earned 15%. The average over the last nine years is 7.2%. If the goal in your household is to build net worth, then why would you pay down an incredibly cheap house loan instead of diversifying into liquid assets paying far more?

    The best bet is to stuff your TFSAs as well as a joint non-reg account with growthy, diversified assets and take out a cheapo five-year mortgage. Then when the loan renews use some investment gains to chunk down the principal. Overall your net worth will be higher than if you applied your cash flow only to debt retirement.

    Real men invest.

    The way out?

    So if half the people on your street are within $200 a month of insolvency, they must be morons, right?

    Nah. Of course not. They’ve just made bad choices. They have kids, cell phones, cars, houses, Netflix and jobs. They’re getting by. Taking vacations. Going to the mall. Timmies. Hockey. Living a life. Doing what they think they should. And it’s all damned expensive. Running out of month before you run out of money is a big win. Even if it’s by two hundred bucks.

    Yesterday I opined, as a wounded, narcissistic, entitled, coy little blogger, that the words published here (all 2.7 million of them, so far) had fallen on deaf ears. Financial failure surrounds us, I said. We’re awash in debt, deficient in assets and steaming towards a retirement iceberg. House lust has been the fatal flaw leading to the point where, yes, just paying the bills is an achievement.

    “I was a little taken aback when you wrote that your blog is a failure for not reaching enough Canadians to reverse their financial fortunes,” blog dog Bill says, trying to stanch my bleeding ego. “ I would say that is completely inaccurate.

    “Your blog is reaching all corners of Canadian society and having quite an influence. There is a reason it is the top financial blog in the country. As such, I suspect that influence is likely now a political force large enough to not be ignored. It would not surprise me if the central bank governor himself drops in for visits, or any of his deputies.”

    But this is more than just a MSU. Let’s actually talk about how the average schmuck can be helped to get off the debt treadmill, build some solid net worth and look forward to life-long financial security as a wrinklie.

    “I didn’t write you to point out the obvious, but rather to ask if you could write a few blog articles about what our future governments can do to avoid financial disaster regarding the wave of “retirees” that is entering the system present day,” Bill continues. “Don’t sell yourself short, I know you are the person responsible for the introduction of the present day TFSA.? I had one idea – raise the non taxable level on RRIFs and not receive the OAS in return, as an example. No losers in that, since no Canadian has to pay in to it.? I’m sure yourself or the blog dogs will have better ideas than mine.”

    Actually, I have a few suggestions to add. Hey, Chateau Bill and Poloz, you guys here today?

    First, let’s help people make better decisions about money, spending, investing and borrowing.

    • Teach financial literacy as a mandatory course in high school.
    • Don’t allow car loans longer than the bloody car lasts
    • No more pay day loan outfits. They prey on ignorance and misfortune. Vultures.

    Second, we must find ways to stomp down house-horniness and reduce the risk from concentrating on a single asset. Real estate.

    • Increase the mandatory minimum downpayment for CMHC insured mortgages to 10%. That would turn 20x leverage into 10x.
    • Tax capital gains on personal houses the same as personal investments – speculation is the enemy of affordable housing, and this ridiculous, historic tax break has turned us into a nation of speckers. Sure, phase it in.
    • Don’t gut the stress test
    • Don’t cave and bring back 30-year amortizations
    • Do not introduce 30-year mortgage terms. More debt and higher house prices would result.
    • Require the Canada Child Benefit money to actually be spent on children, not the mortgage, property taxes or hardwood flooring
    • Ban Airbnb. It turns houses into businesses, jacks up prices, sucks off rentals
    • Ban reverse mortgages. They Hoover off a punitive amount of equity, destroy the wealth of retired people, and reduce available real estate for younger families
    • Instead, allow retirees selling houses to grant VTBs (vendor take-back mortgages) and enjoy tax-free interest payments.
    • Legislate that HELOC and LOC payments be amortized – not interest-only – so they’re actually repaid instead of hanging around for years.
    • Abolish the Bank of Mom.

    Next, let’s clear up some of the misrepresentation that confuses and misleads people.

    • Federally regulate everyone calling themselves a ‘financial advisor’, mandating standardized training and titles. [email protected] is a salesperson, not an advisor. Insurance floggers are not advisors. Mutual fund reps have the same level of training as realtors. And look where that got us.
    • Let’s have full transparency on how financial people are paid. No hidden, high-cost MERs on mutual funds. No trailer fees. These things kill investor returns.
    • Ottawa should stop spending big bucks on TV and elsewhere advertising CDIC insurance. It’s pointless. If a major bank fails (won’t happen) we’re all pooched. This scares people away from investing. And that’s just stupid.

    Finally, how do we mitigate the retirement storm now gathering on the horizon? What do people with no savings or investments think they will live on?

    • Bill’s suggestion is a good one: allow people to opt out of OAS in return for lower or waived taxes on RRIF withdrawals. Should be revenue-neutral.
    • Incentivize companies with lower corporate taxes to enhance their employee pension plans and up matched contribution limits
    • Make fees paid to manage RRSPs and TFSAs tax-deductible to encourage saving, investing and avoid the dumb mistakes most people make with their money.
    • Restore the TFSA limit to $10,000. The US limit for IRAs is $7,000 a year – and tax rates are much lower there. In the UK, people can put the equivalent of $34,000 a year in this kind of account.
    • Don’t raise the capital gains inclusion rate or diddle with dividends. Encourage people to invest instead of taxing them more on money their after-tax funds earn.
    • Goose CPP contributions by employees (not those of employers since that kills off jobs) and flow them into enhanced benefits. The feds have started this, but more guts are required.

    So, there are a few ideas. Some would work nicely. Others have hair all over them. But clearly this is a discussion we need to have, while our political leaders fiddle.

    Something to add? I’m listening. So will they.