Dr. Garth

The waiting room is full. The emotional support dogs have been deployed. Nurse Jiggles is comforting the afflicted. And, freshly back from lunching with the global elite cabal at the WEF, the Dr. is in!

Who’s the first victim?

“Long time reader and adherent to your excellent free advice,” sucks Brandon. “I have a question related to your post about marriage. The wife (33, 80k/year) and I (32, 150k/year) have maxed both our RRSPs and TFSA accounts, and we have sizeable non registered accounts, one for each of us.

“I want to combine our non registered accounts as you have recommended to simplify portfolio management and have shared access to the money in the event of an untimely death. However, all the tax advice says interest/dividends/capital gains must be attributed proportionately based on how much each of us has contributed. Well, all of our income flows through a single joint bank account. How are we supposed to track which dollar belongs to whom when they are all mixed together through a shared account? Or do you suggest having individual accounts that transfer money into the shared account? Seems like an annoying extra step. Am I just whining about having to track everything? I was hoping we could go 50/50 on everything and call it good enough.”

Good question, B. Too many people only open registered accounts, which have tax advantages but also some warts. TFSA contributions are limited and non-deductible. RRSPs yield taxable income, added on to other earnings which can push you into a higher tax bracket as a wrinklie. So a non-reg (sometimes called ‘taxable’) account is flexible with no contribution limits, no attribution of withdrawals and – as you point out – and no delay or cost in becoming the entire property of a spouse when the other one kicks. Also recall that if a non-registered account generates capital gains and dividends, the tax hit is relatively minor.

And, yes, you can split investment gains for tax purposes between you. In the CRA’s rarified world, gains are supposed to match the funds each person deposited. In the real world, that never happens. Not with married folks who comingle their finances. Not when the money flows from a joint bank account. And not when an audit (which will never happen) would be hapless to sort it out. But you must stop calling her ‘the wife.’

Collin has a nice MSU. “Long time reader and big fan of your blog (and your political career),” he says, which is sweet since I was a political disaster.

“Emailing to ask if you know any banks that still facilitate non-arms length mortgages? I read about them years ago when rates were super low so it didn’t make sense and i didn’t have enough in the RRSP anyways. Now that rates are up and my RRSPs have grown I can’t find a single bank that will do these – even though it’s still officially allowed under the tax act etc. Have $200k remaining on principal residence and with renewal in site this year, paying myself via rrsp mortgage instead of the banks strikes me as no brainer (especially as part of an overall portfolio. However seems impossible to do. Appreciate any thoughts or suggestions you have.”

You’re right, Collin. When mortgages were 2% or less it made little sense to direct investment funds there, since you could earn a ton more in other assets and home loans cost less than inflation – free money. Now with posted rates in the 6% range, an RRSP mortgage may make sense. You can make payments to yourself and earn a decent return at the same time. Win, win.

But it’s not easy. The rules are fairly strict – for example, you cannot grant yourself a rate which differs from those in the market. The loan must be insured by CMHC. There are legal costs involved. And, yes, the mortgage must be administered by a financial intermediary. Most want nothing to do with it, since the bother outweighs the fees. But I suggest you start here.

And here’s Peter, infected with insurance anxiety. Like most Canadians, he was guilted into coverage by parenthood and now, in his 60s, wonders if it’s time to bail.

“Where life insurance fits into the picture for someone nearing retirement with a reasonable asset base to maintain income when work finishes?” he asks. “My gut tells me that with no dependants, this is an expense better discontinued and the money invested elsewhere.”

“In our case, my wife and I have term life insurance that we started many years ago when the children were dependants.  Now the monthly cost is $420 for about $500K each and we are 62 and 61 respectively. Maybe you could touch on this subject in a future post to provide how best to assess whether this is an expense worth maintaining for those near or presently retired.”

For most people, term insurance is the best choice. (Be very leery about the Porsche-driving, slick salesguy peddling universal or whole life.) It’s relatively cheap, lasts a defined period of time. Pays when needed – which is hopefully never.

But the older you get, the more it costs. And once the kids are gone – with other family assets accumulated – it may be a needless piddling away of cash flow. That sounds like your case, Peter. Over four hundred a month in after-tax income, year after year, is not a minor expense. Think of all the scotch that would buy. As you age, the next renewal will bring even stiffer overhead.

So, if there are sufficient assets in your real estate and investment portfolio to look after your spouse when you reach the Finish Line, dump it. And Glenfarclas is always a good choice.

About the picture: “Thanks for all you do,” writes Brett. “I’ve been reading your blog for years. The secret to enjoying a post is not reading the comments! Here’s a photo of Lucy, demanding belly rubs. Take care.”

To be in touch or send a picture of your beast, email to ‘[email protected]’.