Dr. Garth

Z’s lobbing American missiles deep into Russia. Putin’s threatening to turn the word into ash, again. Trump’s putting a wrestling exec in charge of schools, a sex offender into the justice portfolio and an anti-vaxer will run health. What could possibly go wrong? The Apocalypse guy has set his hair on fire. ‘Moving to Canada’ is a big Google search thingy in Washington state and Vermont. There are now 43,000 deceased in Gaza. A weather bomb went off on Vancouver Island. And cops shut down clogged TO expressways so Taylor Swift’s entourage could float around freely.

Does this sound like a normal world?

Fortunately, some things never change. Like the free, cheesy investment, medical, and canine advice dished out daily here, assisted as always by the spectacular and pneumatic Nurse Juggles. Let’s dig in. Wednesdays, as you know, are reserved for rich patients.

“I’m a long-time reader, dog photo contributor, and follower of the chalice of Garth,” sucks up Brian. “I’m a writer and I know what it’s like to have to do what you do (although you got me beat on daily output!!) and I am a true fan of your words and dedication to your readers.”

“I have a wonderful balanced portfolio, self-managed. I have some stocks (Manulife, Sunlife, the banks) that are up over 80%. So I have a huge unrealized gain. I’m 63 and still work. Is it wise investing strategy to sell some of those stocks to realize that gain, reinvest in other similar stocks (say RBC to TD) and for sure add to balanced ETFs, and realize the gain and big increase in dividends? Or, is it better to just let those gains stay put until I do withdraw the money? I plan to share your wise words (should they be forthcoming) with a couple of friends who also happen to be devotees of all that is Garth.”

Nice problem. The first thing to remember is that capital gains taxes (at least on the first $250,000) are cheap. You keep 50% of the raw profit, with the other half added to annual taxable income. That means the maximum tax load will be around 25% (if you earn over $252,000), and three-quarters is left for you. It’s a good deal. But it could change again at Ottawa’s whim. So why wait and risk a higher inclusion rate? (Most Canadians would vote for 100% to be taxed.)

The only reason to delay would be to realize gains when your income has dropped, taking the marginal rate with it. Are you a starving writer or a famous one? Depends. Of course, this tax liability just underscores the wisdom of using tax shelters, like the TFSA, to hold growth assets. Gains are untaxed. Withdrawals can be replaced. Income from the account is not counted and won’t affect wrinklie pogey.

Finally, consider dialing back the risk of holding individual stocks as you near retirement. We’re in a new age of volatility when balance and diversification will be more salient than ever. You are not smarter than Mr. Market.

Now, here’s Mike. Also a millionaire. Worried about his govy pension.

“I’m 43 and going to retire soon,” he writes, irritating everyone. “$3.4 million liquid across registered and non-registered accounts. I anticipate being able to fully fund retirement without ever needing to rely on CPP, however I have been thinking it might make sense to make just enough voluntary CPP contributions when I’m not working to retain maximum benefit.

“Based purely on numbers it looks to me like CPP isn’t really any better than a balanced portfolio from a cost benefit standpoint. It might even be a little worse based on historical performance. But it has two advantages over a B&D portfolio. First, if all hell breaks loose and the CPP faces a shortfall, the government would backstop benefits for my wrinkly butt with the blood, sweat, tears and tax money of sweet, young workers. Second, it seems likely voters will support continuing to enhance the benefits. It seems like a net benefit to voluntarily contribute to ensure I retain maximum benefits, but I would appreciate your thoughts.”

Sure, continue to contribute. Why not? The CPP is, in fact, a balanced and diversified portfolio supporting a defined-benefit pension plan. Benefits will never be rolled back and could, as you wisely surmise, continue to be enhanced. To gain the max amount, you need to contribute for at least 39 years between the ages of 18 and 65. So, pony up. Or not. We’ll still hate you.

Oh man, here’s another one…

“I have accumulated a $1 million RRSP and a $500,000 LIRA,” writes Harry. “I am about to retire at 65 and am looking for a meltdown strategy of my registered accounts. You have advised to delay conversion to a RRIF until age 71. I can do this since I will live off CPP, OAS, and dividends from my non-registered accounts until 71.

“My questions: How do I meltdown my registered accounts while minimizing taxation and not incurring clawback of my OAS? Thanks for all you do with your blog and the pain of the greater fools comments.”

There is no reason whatsoever to convert a RRSP into a RRIF before you have to. They’re identical, with the exception that a bit of income must be taken out of the RRIF. They can hold the same assets, generate identical returns and be equally available for withdrawals. Just be aware if you don’t convert at age 71, the RRSP may be deemed fully taxable in your hands.

As for a meltdown strategy, it is cumbersome and marginally effective. It involves taking an investment loan, buying a portfolio with it and using registered plan withdrawals (taxable) to make interest payments on the loan (tax-deductible). In any case, that would not alter your taxable income or the impact on OAS.

Remember, Harry, there’s no clawback if your income is below about $91,000, and you don’t lose the while thing until you bring in $148,000 a year. Besides, OAS is just $727 a month. On this blog, that’s Uber money.

About the picture: “Full grown husky with a full grown wolf,” writes Glenn. “People don’t think of wolves as all that large because Hollywood uses huskies to portray wolves in movies and TV. Those of us lucky enough to get up close to wolves in the wild know the difference tho… Use it or just enjoy it.”

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

Source: https://www.greaterfool.ca/2024/11/20/dr-garth-50/