Money Bag: Unnecessary Investment Loans, Optimizing RRSP, Underspending in Retirement, and More
Welcome to the Money Bag, where I answer questions and address comments from readers on a wide range of money topics, myths, and perceptions about money. No question is off limits, so hit me up in the comments section or send me an email about any money topic that’s on your mind.
Today, I’m answering reader questions about borrowing to invest, optimizing your RRSP, market timing, the reluctance to spend in retirement, and switching from dividend stocks to index funds.
First up is Andrea, whose financial advisor is trying to talk her into setting up an investment loan. Take it away, Andrea!
Should I borrow to invest?
My advisor suggested using a HELOC, paying only the interest, and using the rest to invest (obviously in hopes of gaining a higher return than the cost of the HELOC interest). Do you think this is a wise idea?
Hi Andrea, I’ve recently helped several clients extract themselves from unnecessary investment loans. It’s one of those ideas that looks good on paper but is not so great in real life.
Interest is tax deductible, yes. But that’s a one-time savings when you file your taxes. You still need to service the loan interest each month.
What are you investing in? It should be high enough exposure to equities to give you a higher expected investment return than the loan interest, but not too risky (betting on individual stocks) and not too expensive (what kind of fees are you paying to your advisor?).
Stocks can fall sharply (34% in March 2020, or down 12-18% in 2022 depending on the index).
How would you feel about a $140,000 market value when your loan is $200,000?
Investment loans are great for investment advisors because they get a loan on the books and an investment to manage (from which to extract fees).
Finally, are your other goals being fulfilled (optimize RRSP, maximize TFSA, prioritizing other goals like living your best life)?
All more important than creating a tax deductible investment loan.
What does it mean to optimize your RRSP?
Next up is Tim, who wanted clarification on my suggested way to optimize your RRSP contributions when you have an employer matching RRSP.
In a recent Weekend Reading edition, you suggest to ”contribute enough to max out the match, but no more” when it comes to employer matching savings plans. Why not contribute more?
Let’s say someone earns $100,000 per year and can contribute 18% of his income to RRSPs. At work, five percent would come from the employee and five percent would come from the employer’s match, for a total of 10%. But what about the remaining eight percent? Why not maxing out the RRSP with the employer only? What are the cons with this approach?
Hi Tim, the answer is a bit nuanced. First of all, it might make sense to contribute the extra 8% but I would only do that in the context of my next point, which is to “optimize” your RRSP within your marginal tax bracket. Take the free money with the match, yes, but the extra contribution is either warranted or not. If not, maybe TFSA makes more sense.
If it does make sense to contribute more to the RRSP, my point is that most people should do that in a personal RRSP that is not tied to the group plan. Remember the group plan often limits its members to a narrow menu of investment options, which most of the time will be higher fees than an ETF that you can buy on your own.
So, the idea is that you’ll take the free money and max out your employer matching plans, then possibly contribute more to your RRSP, but do that in a personal RRSP and invest in lower cost ETFs.
Is a market crash coming?
Next, we have Adam who is feeling nervous about a post-election market crash and wants to know what to do about it.
Hi Robb: I keep reading about the impending market downturn after the election glee is over.
That said, since my wonderful foray into VEQT (with your encouragement,) should I be taking steps to secure my portfolio by moving say half of VEQT to a more balanced fund? Will you be writing about this in the near future?
Hi Adam, you’ll find no shortage of opinions on when the market is going to crash (and how bad). Whether it’s the election, or aftermath, or the next big thing that people are nervous about there will always be a reason for panicky investors to sell.
Your investing strategy should not change based on market conditions.
Meaning, if you are investing for the long haul and are in an asset mix that you’re comfortable with, then stay the course and ignore punditry and short-term price fluctuations.
Moving half of your VEQT into VBAL just creates VGRO (an 80/20 portfolio). If an 80/20 portfolio allows you to more comfortably stay in your seat then that might be a prudent move.
Just know that if VGRO existed during the great financial crisis it would have fallen 33.89% from June 2007 to March 2009 (45 months). So it’s not like 80% stocks is substantially less risky than 100% stocks (which fell 42.06% during that same time period).
Finally, know that the US market is not THE entire global market. It’s why you’re invested in VEQT (14,000+ global stocks) and not VFV (500 US large cap stocks). You’re taking risk, but you’re diversifying that risk around the world.
Stocks will absolutely fall at some point. But they’ll also recover eventually and make new all-time highs. That’s the nature of investing.
Market timing is a great way to end up poorer and drive yourself mad.
Why don’t retirees spend their money?
Next we have Darlene, who wants to know why retirees are so reluctant to spend their money.
Hi Robb, you mention retirees don’t spend up to their capacity. What’s driving this reluctance to spend down to zero, and what are they holding on to the money for? And do they really need to spend to zero?
Hi Darlene, the reluctance to spend comes from a fear of running out of money, either from a bad market crash, higher than normal inflation, high expenses on healthcare as they age, or from a higher-than-normal life expectancy.
A good retirement plan can help alleviate those fears, showing a range of outcomes using conservative assumptions on spending, inflation, longevity, and rates of return.
I don’t think anyone should be planning to truly die with zero – you need a margin of safety – but in my experience most retirees are not spending nearly up to their capacity due to the above fears and concerns.
I like to give my retired clients a spending range. A comfortable spending floor (typically what they’re spending now) that they could easily stick to in good times or bad, and then a safe spending ceiling that they could spend up to if desired without worrying about running out of money.
Related: Putting together your retirement income puzzle pieces
That range might look like an annual spending floor of $60,000 after-taxes, and an annual safe spending ceiling of $72,000. In reality, the sweet spot might be somewhere in the middle at $66,000, giving them a bit more spending capacity to enjoy retirement without causing too much anxiety that they’re overspending.
From dividend stocks to index funds: When to pull the trigger?
Finally, here’s a question from Jean about switching from dividend stocks to index funds.
I’ve been a successful dividend investor for about 20 years now and have been thinking of switching to indexing for a while. One of the main reasons for me to switch is that I’m getting older and losing the patience to manage my portfolio. Also, my family is not into it at all, so teaching them indexing would be much easier.
I have a pretty good idea what my final indexing strategy will look like. Something like VEQT with sprinkles of VCE/VV. Quite basic and simple!
My dilemma now is how to accomplish the transition? When and how do I pull the trigger?
Setting a date and doing it all at once seems to be the play like you did. But then, how do my manage my holdings till then? I’ve always had a long term approach and managing till the switch would be a pretty short term thing, hence a great part of my dilemma.
Any thoughts on all of that?
Hi Jean, you’ve listed some pretty compelling reasons to make the switch to indexing. As fun and interesting as it can be to manage your own stock portfolio, in my experience the juice is just not worth the squeeze anymore now that you can buy a single global index fund for the low price of 0.20% and get market returns without any effort.
No need for sprinkles, either. VEQT (or XEQT) has everything you need. Don’t overthink it!
Jean, this is a bit like getting into a cold pool or lake. Best to just jump in at once rather than stress about it and inch your way in.
Think of your portfolio as if it’s in cash right now. Would you buy all of your individual stocks again, or would you just buy your index fund?
Because that’s the exact same thing as selling all of your stocks at once and then immediately buying your ETF. You’re out of the market for a hot minute, and right back in with a globally diversified fund (minus some transaction fees, depending on your brokerage platform).
Pick a day – why not Monday at noon? The market is open, you can sell all of your stocks, and immediately buy your ETF. Done. No need to manage anything in the short term.
This is not like timing the market or anything. If you’re going to do it, best to get it over with and do it right away.
My only caveat to all of that is if you have large unrealized capital gains in a taxable account. More careful consideration needs to be taken there, likely with a financial planner or tax professional. I’ve worked with clients to sell their taxable holdings over a period of 2-3 years to spread out the capital gains hit.
There are no tax implications at all for selling stocks inside your registered accounts (RRSP, TFSA, and LIRA).
Do you have a money-related question for me? Hit me up in the comments below or send me an email.
I am a Canadian approaching the age where I will be required to convert my RRSP’s to a RIFF. Based on your experience, what are your recommended strategies to convert in general and specifically to minimize income tax.
Thank you
Hi Janice,
There are two excellent posts on this process from last year:
https://boomerandecho.com/weekend-reading-when-to-rrif-edition/
and
https://boomerandecho.com/your-ultimate-guide-to-rrifs-strategies-pitfalls-and-the-secret-sauce-to-retirement-income/
It’s pretty straightforward and there should be no tax implications in the conversion.
As ‘practice’ there is the option of transferring enough to a small RIFF and drawing $2000/year (starting in the year you turn 65) up until the forced conversion at 71 in order to qualify for the Pension Income Tax Credit. If you Google ‘pension income tax credit’, you should get lots of ‘hits’ to explain it.
Hi Janice, Max has you covered here with his replies (thank you, Max!).
Hey Robb!
Capital gains tax changes from 50% to 66.7% seem on hold and possibility not happening at all.
Hurrah! Right?
Robb.,
My wife & I have maxed out oldest grandson’s (he’s 15) RESP and we would like to help him start a savings account that will head him in the correct investment direction. His mother (our daughter) would have to open up a joint account I understand. Can this be in an aggressive EFT that will grow over time. We would start this off with C$1,000. Can you give us your recommendations on how to proceed?
Hi Brian, first of all kudos to you and your wife for helping max out your grandson’s RESP – your daughter must be extremely grateful for that kind of support.
Brian, I strongly encourage you not to proceed down this path for a 15-year-old. I get the sentiment, but it opens up a nightmare of complexity (read this: https://www.linkedin.com/pulse/unknown-dangers-in-trust-for-itf-accounts-mcgrath-cfp-cim-clu-/)
A minor cannot open an investment account, so your options would be an informal trust or for you or his parents to open a non-registered account in your own names. Investment income would be attributed back to you until your grandson reaches the age of majority. Not ideal.
My advice: Wait until he turns 18 when he is eligible to open a TFSA and an FHSA. Assuming post-secondary costs are taken care of, extra funds can be gifted so that he can contribute to and max out those accounts ($7k to the TFSA and $8k to the FHSA – although the TFSA limit is likely to rise to $7,500 or $8,000 by the time he turns 18).
Help him fund those accounts for a period of time ($40k lifetime limit for the FHSA – $8k x 5 years) to give him a leg up.
We all have this idea of turning our little Janes and Johnnys into the next Warren Buffett if we just get them to start investing as they exit the womb, but it’s just not practical.
Help them fill up registered accounts as much as you can, when you can, and help them graduate debt-free so they can hit the ground running in their 20s instead of in their 30s or 40s like the rest of us.
Hi Robb
I’ve a registered 2nd mortgage against someone’s home (PR) they used to borrow against a few years ago.
The loan is now due with interest but they’ve asked for additional time to pay back the principal plus interest.
What should my action be in this situation – should I allow the couple days/maybe weeks of interest-free delay in payment?
This is a contractual 2nd mortgage and I’ve found based on todays value, the equity in the said property covers both the 1st and 2nd position. So force of sale is an option.
Or, what is the right interest rate to charge the borrower per day for the delay?
When does the mortgage lien against the property drop? Is this a legal action the lender (me) needs to exercise when the borrower does pay back?
Hi Rick, I couldn’t even begin to answer that question for you – I have no idea. Not my area of expertise at all.
Rick, you need to talk to the attorney who prepared the loan documents for you. There should be provisions in there for all the issues you’ve raised.
I’m recently retired and spending more time watching my investment accounts.
When I compare my dividend payments from my non-registered account (All Cdn dividend payers) to my registered accounts (all diversified in Index ETF’s) I noticed I’m receiving a higher percentage payout (yield?) from my non-reg account.
How do they calculate dividend payments for ETF’s (VUN, VCN, XEF, XEC, VAB)?
I’m considering switching to an all-in-one ETF in all my accounts, to make selling and withdrawals easier, but I don’t want to miss those nice dividend payments from the non-reg account. Am I missing something or just watching my accounts too much?
Thanks!
Hi George, dividends are just part of the total return. Once you wrap your head around that you should feel indifferent to receiving a dividend or selling the equivalent number of shares. It’s like taking a dollar out of your right pocket versus taking it out of your left pocket – it’s still a $1.
I don’t see why the dividend yield would be higher in your non-registered account.
If you’re looking to make a switch, maybe start in your registered accounts – or maybe first in your TFSA where perhaps you won’t be making regular withdrawals. The switch is painless and without any tax implications in that account.
Fantastic Q&A today, Robb!
Thanks so much, Mark! Glad you enjoyed it.
Hey Rob:
Now I’m getting confused.
Reading about indexing to me suggests Index Funds such as PWL’s Dimensional Funds. Yet your readers use the word Index interchangeably with EFTs.
A former “broker” friend just this week told me that Index Funds were in fact Mutual Funds.
Another friend, a DIY investor disagreed saying, “In my view, they are quite different in so far as mutual funds generally seek to actively manage and at considerable cost while index funds invest in the broad markets at very low cost. Furthermore, numerous studies have confirmed that index funds consistently do much better than mutual funds over the long term.”
You have probably tired of explaining the differences and settling disagreements like these.
What’s the truth?
Hi Tom, index funds and ETFs are often used interchangeably (even by me!) but they are not the same.
A mutual fund can follow a specific actively managed strategy (i.e. a Canadian equity mutual fund with the goal of beating the performance of the Canadian stock market).
Or it can simply follow an index, like the TSX.
With the actively managed fund, there are often much higher fees because you need to pay for the fund manager’s “skill” and expertise to try and pick the winning stocks, and to pay for the researchers and analysts to support that goal, not to mention the marketing of the fund and the sales channel that it’s being sold from (the bank).
With the index tracking mutual fund, the fees are much lower because you’re simply following an existing index and not trying to pick the winners and losers. No need to pay for a skilled manager and his team of researchers and analysts.
A funny example is of a Nevada pension fund, which invests in low cost index funds and pays one administrator to manage the fund: https://www.wsj.com/articles/what-does-nevadas-35-billion-fund-manager-do-all-day-nothing-1476887420
An ETF is a mutual fund structure that trades on a stock exchange (exchange traded fund).
Like mutual funds, an ETF can passively track an index or it can have a more active mandate to beat a particular index.
Just as it’s not right to say all mutual funds are actively managed and high fee, while all ETFs are low fee and passively managed, it’s also not right to say all mutual funds are bad and all ETFs are good.
Dimensional Funds are an example of good low fee mutual funds. TD’s e-Series mutual funds are also good low cost index funds (they track an index with no active management).
Global X’s Crude Oil Inverse Leveraged Daily Bear ETF would be an example of a bad (well, risky), high fee ETF.
There you did it again. The PWL literature that I’ve seen don’t call their Index funds Mutual Funds.
ETFs are publicaly traded on exchanges (TSX, NYSE, etc) in real time – can be active or passive funds. Mutual funds are not “traded” on open markets. Mutual funds and ETFs are essentially the same, generally speaking, but how to access them (and the mechanics) is where the difference lies (although in Canada MFs tend to come with slightly higher costs, even for indexed).
PWL (now OneDigital) uses funds that are not found on the TSX, meaning I cannot go on Questrade and buy shares myself, so they’re MFs because I need to go through PWL to access them.
Any views / starter points for US cash flow focussed investments?
Feels like the US market and economy I general is the one with largest upside coming four years.
We’ve thought starting with buying a cash flow positive property, franchising, ETF listed in the US – but not a clue where to start.
Hi Rick, you’ve asked these types of questions before and I’m not sure what you’re looking for. You want me to suggest buying a Subway franchise, an apartment complex, or a chain of car washes in the United States?
I appreciate you reading the blog, but if you’ve read my stuff for years and haven’t figured out that I’m a “buy the total stock market for as cheap and simple as possible and move on with your life” kinda guy then I’m not sure what to tell you.
Hi Rob
I have half of me RRSP in US Dollars. Most of it is in individual stocks. I would like to move these funds into a USD$ broad market account like VEQT. Can you recommend a USD$ market account like CDN$ VEQT
Hi Doug, forgive me if I read your question in an Irish accent 😉
Jokes aside, the answer to your question would be Vanguard’s Total World Stock Index Fund (ticker symbol: VT).
Hi Robb,
I recently sold an index fund from more than 20 years ago in a non-registered account. I kind of ignored it over that time, but it was reinvesting its dividends and I wasn’t recording the details. I have the book cost as given by the discount broker, but that’s it. Is there a way to get the data (drips, roc) beyond the seven years my broker offers? I have some of the old statements, but probably not all. Also, the fund name changed classes at some point from CIB519 to CIB132, so that complicates things further.
Hi Botan, that’s a tough one.
ChatGPT gave me as good an answer as I could come up with on my own:
If you don’t have records of your adjusted cost base (ACB) in Canada, you can try these steps:
– Check your records: Look for records of when you acquired the asset, such as purchase receipts or broker statements
– Contact your brokerage firm: They may be able to provide information about your ACB
– Use a website: You can use a website like ACB Tracking or Adjustedcostbase.ca to calculate your ACB
– Use information from the company: You can try to find the stock price when you bought the shares using information from the company or financial websites
– Use information from the TSX: You can try to find the stock price when you bought the shares using information from the TSX
– Contact the CRA: You can contact the Canada Revenue Agency (CRA) for help
Hi Robb,
I’ve got a mortgage I’m looking to pay off at end of term from a non-registered account, but as you mentioned in your previous response to Jean, I’m looking to spread the capital gain from the large stock sale over two or perhaps three years.
My methodology would be as follows:
Two year spread: use TFSA funds to pay 50% of the mortgage balance alongside 50% of non-registered funds to complete the payout. (Note: this payout would occur in late August) 4+ months later, ( January 2 of the next year) do an in-kind transfer of assets from the non-registered account to replenish my TFSA balance thereby triggering a capital gain on the second tranche of funds in the next year.
Three year spread: use TFSA funds to cover 66.6% of the mortgage payout along with 33.3% coming from non-registered funds. In each of the next two new years, replenish half of the TFSA withdrawal to spread it over three tax years.
The two concerns I have would be (perhaps there are more that I have missed):
1. Opportunity Cost – effectively half of the funds headed back to the TFSA could appreciate outside of the TFSA for four months while the remainder would be ‘outside’ for 16 months thereby incurring additional capital gains.
2. Given that as of January 2026 the TFSA lifetime contribution limit is likely to be around $109K, if I were to remove $130K could I only put back $109K or the full amount of $130K.
If I were to extend the spread over four years or longer, does the opportunity cost (assume it is all invested in XEQT and my gross annual income as a retiree is $60K) start to outstrip the tax savings?
Thanks in advance.
Hi Alan, thanks for this. You would get the entire amount that you withdrew from your TFSA added back to your lifetime contribution limit (plus the new year’s annual limit) on January 1st.
I’ve drained my TFSA twice before and have something like $128k in room now. That’s not a hack to get more contribution room, btw, I would have had more than that if I kept the funds invested in my TFSA to begin with.
Which brings me to my next point. Financially, you might be better off simply paying off the mortgage on a regular schedule. The fact that you are worried about opportunity cost of temporarily removing funds from your TFSA suggests to me that leaving your investments intact and continuing to make regular mortgage payments might be the most optimal decision.
But since you asked I assume you want to pay off your mortgage faster, in which case you are accepting the trade-off that it might not be optimal (versus earning a higher return investing) and want to do it anyway.
If that’s true, then it depends on your unrealized capital gain in your non-reg account and also your lender’s pre-payment privileges versus the balance owing.
It also depends on your total taxable income and whether triggering a large or a modest capital gain makes sense.
All tough to answer in the comment section here without knowing those details in the larger context of your finances.
In any case, your rationale makes sense to use your TFSA in some capacity to pay off the mortgage while spreading the capital gains over 2-3 years to refill your TFSA.
Another wrinkle is that the market could tank between now, this summer, and January 2026.
Hi Robb,
Thanks for this. I was wondering if perhaps I was asking a bit much for this forum and I must stress my appreciation for the amount of guidance you are willing to give for free! I expect that everyone who follows you would feel the same.
For a little more context, my mortgage is at 2% and is likely to renew at a somewhat higher rate. On the other hand, if there were a significant economic downturn, I would consider re-upping at 2-3% should the rates go there.
Notwithstanding the details of my proposed scenarios, it’s great to get validation of the method of using the TFSA to spread the capital gain over 2-3 years. FWIW I need to consider clearing the capital gain off the books before I reach 70 (currently 66) in light of potential pension clawbacks. Thanks again!
My pleasure, Alan. Your strategy makes good sense – you’re thinking ahead, and also willing to change your approach if the facts change by the time summer rolls around.
It’ll never be perfect, but you make the best decisions you can with the information you have at the time.
Thanks, Robb – it was a lot of fun to read this Q&A!
I believe I (will) qualify as someone who is afraid to spend down their retirement savings, although I’m not retired yet. The two major things I fear are (1) longevity and (2) climate change inflation.
My longevity fears are somewhat founded, in that I have one relative on each side of my family who has lived into their 100’s, and the retirement calculators often end at 100. And given my healthier lifestyle than said relatives, I imagine it is not at all unlikely that I will live a very long time, which makes planning difficult. I have yet to see statistics on safe withdrawal rates for 60 or 70 years of retirement!
And then there’s climate change – while it’s possible in 40 years that house insurance won’t be available or affordable anywhere (they’ve already started withdrawing from Florida & California), what happens if my house suffers a direct hit by weather? Or indeed what if food becomes much more expensive because of large swaths of farmland suffering drought or flood? (I read in a climate report that this is quite possible in my lifetime!)
So all that rolling around in my head makes me nervous to spend luxuriously just to meet a target on paper. And yes, I grew up in a household that tried to hoard pennies and dimes, but I don’t think it’s unreasonable to try to plan for my future self’s comfort when the climate is angry.
I don’t imagine that any retirement plan for normal spending patterns decreasing as I age will be reasonable, and instead, I suspect it will get much more expensive to live with just the basics when I’m in my 90s and 100s. And 110s. 😉
Any advice for someone like me to manage the psychology of retirement drawdowns?
Hi Jennifer, thanks for your comment. For longevity fears, a no brainer move would be to delay CPP and OAS to age 70.
If you have a large RRSP or LIRA then you can also consider turning a portion of it into an annuity – even several times such as at age 65, 75, 80. If you live past 100 you’d certainly extract much more income from the insurance company than you could have reasonably managed on your own.
As for climate risk, you’re right that this is already becoming a reality in coastal areas and even areas like interior BC due to fires and floods.
There’s an easy solution here, which might not sound palatable – rent. Let someone else take the ownership risk.
Unfortunately, worrying about all of these things will mean underspending in retirement. But if leaving a larger margin of safety eases your fears then it’s probably an acceptable trade-off.
With regards to collecting dividend payments vs selling shares for income, if I am in the lower income bracket , would it be better to move all funds into ETF’s for tax purposes as well as not impacting any potential benefits? If I collect 1,000 in Dividend payments , that is 1000 in income whereas if I sell shares worth 1,000 and the capital gain on that is 30% then would it be 700 as return of capital and 300 income so that won’t impact me as negatively? For context, I will get very little is both cpp and oas and no survivor benefits so this is my main income.