Dr. Garth

The specimen jars have all been wiped. The golf clubs and Glenfarclas have been tucked away. Nurse Jiggles looks especially fetching today. So it’s time to throw open the clinic doors. Who’s crawling in first?

“I’m a loyal reader of your blog, and have followed your advice,” gasps Craig. “I’ve been a happy renter for 20 years, enjoying a spacious and beautiful apartment in downtown Toronto at well-below market price, affording me loads of money to invest in ETFs inside my RRSP/TFSA/FHSA and Non-Reg accounts.”

So why are you here today? And let go of her ankle.

“Unfortunately we’ve been given an N12, and we now have to face the reality of paying market rate for rent which we estimate at $3500-$3900 for a comparable size. I fight people all the time about what a great deal renting is, but at 2.5x the price (of what we’ve been paying) it’s harder to be enthusiastic about renting. For the first time I’m considering liquidating my portfolio to put a huge chunk of it into yes, a single, illiquid asset. I know this is dumb, but help me calculate the decision of renting vs buying when the price of rent is skyrocketing.”

Why do you have a nice, fat, liquid portfolio? Exactly. Because you rented and invested, instead of paying mortgage financing costs, property taxes, maintenance and repairs, land transfer fees and hefty insurance premiums, plus the lost earning power of a downpayment, over the last two decades. So why now throw that precious liquidity into a single asset when ownership risk is elevated? For a couple of grand a month extra rent? Sheesh. Do the math.

The average skanky house in Toronto costs $1.7 million. If you buy it with a fat 20% down, that means $400,000 in cash (adding in $52,500 land transfer tax, legals, moving) sucked out of your portfolio, plus a mortgage of about $1.4 million.

The monthly mortgage cost (at 4.8%) is $8,015. Add in property tax and insurance, plus the opportunity cost of the downpayment, and the tab comes to (at least) $11,200. Three years later you would have paid out $195,000 in interest and still owe $1.306 million.

Or, you can rent for $3,500, and put eight grand per month in your portfolio, retiring a decade or two sooner and living stress and racoon-free. Now get out.

“I’ve followed your blog for years now and I know you are generally in favour of taking CPP at 60,” says the next victim patient,  who wishes to be known as ‘Tripping Up’.

“Would it still be the best option for me in this circumstance:  I picked up a great seasonal job from March to October that I really enjoy and that pays relatively well.  From October to February I can collect E.I.   I’ll be 60 years old soon.  Would it make sense to still collect CPP at 60?  I plan to continue this job for 5 years.”

The CPP debate is endless. People who think they’ll never get sick, stay healthy until they have a hundred candles on their Twinkies or fear running out of money when they can no longer spend any, argue for delaying taking pension benefits. We don’t. If the government gives you money, take it.

In this instance, work, contribute and collect. The CPP should not be enough to affect the jobless pogey. If you don’t need the income, invest it in your TFSA in some growthy assets. The main reason to take early benefits is to have the money when you can enjoy it, instead of waiting until closer to death when your body and mind may falter. Sure, the monthly is higher at 75 than at 60, but the time left is materially shorter and you have shortchanged only yourself.

There’s a reason the government incentivizes retirees to delay taking CPP. It’s not to help you.

Finally, here’s Ian, just in from NS. “Obligatory sucking up to say I enjoy your blog.  My brother turned me onto it a few years ago and while I can’t imagine writing a blog everyday never mind reading all the commenter’s posts I appreciate the free advice.  Looking back I can certainly see I could have made much better investing decisions which leads me to my question for you.”

“Before moving to self directed investing I built up a fairly significant amount in non registered investments in mutual funds with the institution using FIRE principles when it used to be called prudent money management. Is there any good way to move those finds to different management, utilizing ETF’s without having to pay capital gains?  If not, any advise on how to decide if it’s better to let the money stay until I am in a lower tax bracket in retirement or bit the bullet and take it out?”

Worrying about a capital gains tax bill is no excuse not to get out of mutual funds, asap. Like yesterday. The MERs are still ridiculous, compared to low-cost exchange-traded funds. The high fees are non-deductible, nor do you have any control over what the decisions a mutual fund manager takes that could actually increase your tax load through distributions.

Face it: you’ll pay for those capital gains at some point, and what happens if the feds decide in five or ten years to make the inclusion rate 100% (could happen)? Get out. Get into ETFs. Make sure the TFSA plus RRSP are stuffed. And take your brother out for a fresh lobster dinner. Dumping day is November 25th.

About the picture: “Hello Garth,” write Scott and Karyn in Toronto, owners of Zelda the Instagram influencer. “Just answering the call for pup pictures!  Zelda would like to remind everyone to stop and smell the flowers.”

To be in touch or send a [icture of your beast, email to ‘garth@garth.ca’.