Family Planning



The bungalow must have been fetching back in the day. Lately it’s little more than dozer fodder, which is why a couple of west end developers have been sniffing at the bushes. Anna won’t sell and take the money, however, not while her Mikey’s still at home, feeding the washing machine, emptying the table and borrowing the Toyota.


Anna and her husband, Sergei, have a grand total of $90,000 in a taxable payment coming from a former employer’s pension plan. That’s it, plus his CPP and some part-time wages. In their mid-sixties, they obviously need to dump the house, invest the money, move and punt Mikey. After all, he’s 26.

“What were you doing at twenty-six,” I ask her. “Married and working,” she says. Exactly my point.

Anna says it’s different now. Mikey can’t afford rent on the money he makes, so he’s going back to school. He’ll be there when he’s thirty and finds his first gray chest hair. I ask the parents if the kid understands their precarious financial position, and the fact they’re running out of money.

But I know the answer. Most families would rather share a disease than talk about money. So the parents inch towards penury, the thing in the basement feels entitled to meals and laundry service, and the future goes untended. Just another household on the edge, prisoners of their own destructive emotional baggage.

My encounter came to mind yesterday as I read through what can only be called a shocking report from the Ontario Securities Commission’s educational arm. The OSC’s Investor Education Fund interviewed 1,500 homeowners, all over 50 and half retired, about their houses and their preparedness for the rest of their lives.

If you’re a clinger like Mikey and think Boomers are the chosen tribe, think again. Here’s what the regulators found.

  • 20% of these fifty-plus people have no idea how much they’ve saved.
  • Half think their savings, whatever they are, will be gone within 10 years of the last job.
  • 40% have less than $100,000. How long will that last?
  • 41% say they’re not willing to sell their house, borrow against it, downsize or rent.
  • A quarter expect to retire with debt, a third of whom have no idea how they will pay it off.

Now, remember what I told you yesterday? This year (first time ever) there will be more wrinklies than kids. Over 70% of Boomers don’t think they can retire at 66 and three-quarters plan on working, sucking up jobs their kids want. This is a social and economic tsunami in the making, and at the heart of the mess is real estate.

Simply put, this is what happens when an entire nation goes horny for houses, does next to no financial planning, confuses investing with gambling, equates property with security, swallows huge amounts of mortgage debt and is financially illiterate. At this point there’s nothing which will rescue most Boomers, or deflect the spray about to hit their kids. Real estate values will decline, the economy will stumble and demographics will taketh what it gaveth. This is precisely why smart people will break from the herd which is now thundering busily towards the cliff.

Here’s what I suggested for Anna and Sergei: List the house immediately, since the third week in February constitutes the ‘spring season’ in Toronto, as it does in Vancouver. It could be the last decent one for years to come. Don’t cheap out with a FSBO, but go full-bore MLS to ensure the place is marketed properly by the best agent in the hood.

Rent a nice two-bedroom condo for two grand a month and be done with endless repairs, property taxes and insurance (and Mikey). Invest the house proceeds in a balanced portfolio (half growth assets and half fixed) which includes ETFs, preferreds shares, REITs and some fatter corporate bonds, with lots of geographic and sector diversity. Better still, get a smart person to do it for you and deduct the fees from your new income.

Dump $51,000 of this in two TFSAs, taking taxable assets and making them tax-free. Put another $25,500 in a TFSA under Mikey’s name, on the condition you’ll tell his parole officer about the carjacking if he touches it. Ensure you have a tax-efficient monthly income stream coming in to pay the rent (if set up as return of capital, and it’ll be tax-free).

Now you have balance, diversification, liquidity, tax avoidance, wealth, freedom – and you live in a better place.

As for Mikey, he can start a blog on parasites.


avatarGarth Turner - The Greater Fool posted Monday, February 25th, 2013.

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