Blessed by the Potato

Retiring on a low income, particularly where you expect to get GIS, changes a lot of conventional wisdom about saving for retirement. An RRSP can work against you, as you face a high effective tax rate for withdrawals due to GIS clawbacks. For more on retiring on a low income, listen to the Because Money podcast with John Stapleton.

A while ago I showed you how to defer taking your RRSP deduction, but in most cases it’s not worth doing. Could the case of someone expecting GIS be an exception?

The scenario: someone in the lowest tax bracket (let’s use 20% as a nice round number) put money in their RRSP before hearing that it might not be a good move for them. They haven’t claimed the deduction yet, so should they defer taking it until GIS starts and they withdraw from their RRSP?

Option 1: Take the deduction right away. Let’s assume this person will be grossing up their RRSP contributions when taking the deduction to make things a little more comparable. So $1000 in the RRSP thanks to that (but only $800 if they had not taken the deduction or were using a non-registered account).

Over time with investment growth, they have $2,000 to withdraw. But now their effective tax rate is 70% (20% base rate plus 50% GIS clawback). So a $2,000 RRSP withdrawal turns into just $600 in spending power — less than the $800 in after-tax money they put there in the first place, despite doubling in nominal value!

Option 2: Defer taking the deduction. That means the “government’s portion” won’t be growing along with their funds, and isn’t there to gross-up the contribution, so to be comparable there’s only $800 in the RRSP to start. With investment growth doubling the value as before, that turns into $1,600 to withdraw in the future. They can then withdraw that, but have $800 in carried-forward deductions to use against it, so only $800 is left as taxable income. Again at a 70% effective tax rate on the taxable part, that leaves $1,040 to spend. In this case deferring the deduction did help compared to taking it right away.

Option 3: Bail out. If you haven’t yet claimed the deduction, another option is to just bail on the RRSP. Withdraw the following year, use the deduction to cancel that out (no time yet for growth to have happened, so the deduction is approximately equal to the contribution), and invest in a non-registered account (we’re assuming the TFSA is full). So you invest $800 in a non-registered account and again have it double over time to $1,600 (assuming all deferred capital gains for simplicity). Then in retirement you sell the investment. Half of the gain gets added to your income: so of the $1,600 total value, $800 is principal and tax free to spend; of the $800 gain $400 is taxed. At the 70% tax rate, that’s $280 in tax, leaving $1,320 to spend.

Conclusion: While this is a scenario where deferring the deduction works out better than taking it immediately, it really just underscores that RRSPs are terrible vehicles for people who expect to get GIS. You’re likely going to be better off just melting down the RRSP while you’re still working and investing in a non-registered account before retirement.

This was a quick back-of-the-envelope post, but my intuition at the beginning of the question was that bailing on the RRSP and using a non-registered account would be the better choice for someone expecting GIS in retirement. Please let me know if you have corrections to the math or assumptions.

Post-script: RRSP Meltdown. So this all suggests that if you had made RRSP contributions as a low-income earner expecting GIS in retirement, you could be better off melting down your RRSP while you’re still working. If you can withdraw those funds and pay tax at a 20% rate, then invest in a non-registered account, it may work out better paying a high tax rate on the growth than waiting and paying a high tax rate on the entire withdrawal (even if you get some further tax-free compounding). Proof left as an exercise for the reader.

I had a fairly arbitrary goal for losing weight in 2018: about 2 pounds per month, or 24 for the year. It sounded do-able without being drastic. The first half of the year didn’t go so well, and I ended up cutting the price of the course in response. Then I got serious, and lost a lot of weight in the third quarter, mostly by doing what I should have been doing all along: tracking what I ate.

This quarter featured many food-centric holidays: Thanksgiving, Halloween, and Potatomas, as well as my birthday. So I eased up on the diet and the pressure to lose weight. However, it also marked the beginning of the curling season, so overall things weren’t too bad. In the end I lost 8 lbs this quarter, which is a marked decrease in the rate from last quarter, but still better than the 2-lbs-per-month pace I was targeting for the year. It means that even though all the progress was crammed into the last half, I did manage to meet (exceed!) my 2018 goal, losing just over 30 lbs in total.

It’s cliché to say, but this has been a good thing. I have more physical energy, and I’m more flexible for curling. My heartrate hasn’t improved meaningfully since the update last quarter (~2 bpm, which is less than the week-to-week variance in FitBit’s graph), but that improvement was still a big one and puts me in a much healthier range. My snoring is mostly gone, though I’m still not getting enough sleep (but that’s not a function of poor sleep — I think the sleep I am getting is good, I just need to get better about turning off the world and just going to bed in the first place).

One downside is why I emphasized physical energy above: a big mindset change was not letting myself eat because I wanted to use food as substitutes for emotions or because I was bored, etc. But that means that sometimes when I’m stressed, I’m adding to my mental burden as I fight the old habit of eating through the stress. I’ve noticed it’s made hitting peak productivity a little harder when writing.

I’m not sure yet what the ultimate goal for 2019 should be. In my last update I said the next goal would be to get to the “overweight” BMI range (from “obese”) by June, but even at my slower “I can have a few Halloween-sized chocolate bars” pace of Q4, I’m already halfway there and on track to hit that point by April.

Getting to a weight that starts with a 1 would have been unfathomable a few years ago, but I know I probably shouldn’t stop there. I just don’t know what to target for the year: 2 lbs/mo again? Maybe take it a month at a time and not set a goal for the year?

I know one thing to make explicit is to not backslide: many people who lose weight do go back and put it on again, so I’m going to be conscious of that even as I don’t feel as much pressure to lose so much so quickly anymore.

2019 Goals:

• Lose just over 7 lbs in the first quarter (same pace as Q4-18).
• No backsliding through the year!
• Keep ~2 lbs/mo pace through to end of Q2 and re-evaluate?

It’s hard to believe, but Blessed by the Potato is now 20 years old!

In internet terms, the site is old. Older than Google (at least without the “beta” on the homepage), YouTube, and even the word “blog” (it was a “homepage” back then).

I’ve had a blog longer than I had my own cell phone. Longer than I’ve had a girlfriend. Longer than I’ve had high-speed, always-on internet. And the crazy thing is that it’s still going (though at a much slower pace than in the early years when I posted multiple times per week).

I had lots of ideas for how to celebrate this anniversary: a new WordPress theme (maybe mobile-friendly! Maybe with SSL!), a complete rebranding (maybe take it seriously!), or a long-term strategy beyond “I’ll post stuff on whatever I like whenever I like.” But, I’ve been busy and haven’t done any of that. Perhaps the truest form of tribute is perhaps to stay consistent with that 20-year history and throw something together at the last minute and post the first draft in the middle of the night.

A Brief History of BbtP

Winter, 1996: a high school student brings a raw potato in as an exam aid because he is silly and sleep deprived (and did we mention silly?). He aces the test anyway and must therefore have been “blessed by the Potato”. Hmm…

1997-ish: plans are lazily talked about for a new humour website that will, like, be just the funniest [spoiler warning: it was not]. Like if Douglas Adams and Dave Barry worked to make something that talked about everyday experiences, overlaid with an assumed understanding of a shared fake religion. People would be falling over themselves to read more and/or date the author [they were not].

December, 1998: the site is quickly created in Notepad and put up on the free hosting included with my internet package [remember when that was a standard feature?].

Summer, 1999: Our Last, Best Hope is shut down [despite the Babylon 5 quote, it was neither of those things] and all focus is put on BbtP.

Summer, 2000: The encyclopedia project begins. Abandoned a year or two later as Wikipedia shows that crowd-sourcing material and being actually serious and informative is a much better way to build an internet encyclopedia.

November, 2001: After years of the address bar being filled with ISP domains (mainly Rogers), tildes, slashes, and sub-directories, the holypotato.com domain name is secured.

Summer, 2005: “Internet home page” and “web log” and “online diary” have all given way to a mighty neologism: blog. WordPress is a thing, so you don’t have to hand-code html in notepad and FTP documents up. Also, Rogers is shutting down the user homepage hosting. BbtP migrates to WordPress, hosted on an old computer under my desk. The old content is — wisely — not migrated.

2007: Focus shifts noticeably toward personal finance. Theme flips from white-text-on-black to more conventional black-text-on-light-background. No further changes to the theme will come for over a decade [though maybe soon?].

2008: Global financial crisis hits and site transitions almost fully from personal homepage to personal finance blog. BbtP is migrated from under-the-desk server to an actual commercial host. holypotato.net domain is secured.

2011: First investing book is launched, and my secret identity is revealed after years of pseudonymity!

2014: Value of Simple is launched. Including book revenue, BbtP finally makes more than its hosting costs [excluding book/course revenue, the site on its own has never monetized into the black]. There’s now a picture of me online, and the last vestiges of pseudonymity falls away.

2018: Site turns 20, to little fanfare. Deliberations are held surrounding the massive branding failure that is BbtP and opportunities to update the site, but they all sound suspiciously like work.

Or more concisely: when I first got the idea for this site, I was a sleep-deprived high school student. When a less-awesome and significantly less-popular version than I had in my mind’s eye first launched, I was a sleep-deprived undergrad. When I switched over to WordPress and a more codified blog format (and “blog” became a word), I was a sleep-deprived master’s student. Now look at me: a sleep-deprived dad/science editor/finance author!

Posts of the Past

There are a total of 1,301 published posts (plus this one), and that’s just since moving to WordPress. There isn’t much from before that point that’s worth mentioning, but even the WP era has too much in the archive to comb through (full list here). If you’re just stumbling here recently, some posts to check out might include:

Personal Finance Reading Guide.
TFSA vs RRSP Decision Guide.
Capital Gains Tracking Sheet.
CPP Calculator.
Rent vs. Buy: the Investment Spreadsheet and the associated The Rent vs Buy Decision.
A five-part series on how to handle your taxes as a freelancer in Canada.
Asset Location gets REALLY Complex.
The Opportunity Cost of Higher Education — showing that economically speaking a PhD will never pay off for many people.
The Advisor vs Adviser Silliness.

It is a personal blog, of course, and some personal milestones over the years included:

Wayfare getting sick (kicking off permanent change in the household).

I had a baby girl! And it was crazy!

I graduated with my PhD.

They broke Kraft Dinner, and I switched to the PC version (yes, a major life event).

Before my PhD, I graduated with my MSc. In the notes for both I talk about losing weight. That would not happen for another 12 years. Plus boring stuff like vacations, conference reports, my car getting stolen, and marveling at my office-mates’ hijinks.

I had thought of doing a “then and now” feature, like John Scalzi did for Whatever’s 20th anniversary. But really, the then and now is then I was a kid and now I’m a grown-up. In short, a lot has changed in 20 years, to no one’s surprise. One big change is in my writing: ellipses are out, but em-dashes are forever. Moreover, I spend more time on drafts, and kill more posts, which is a big part of why the posting frequency dropped over the years (and why the post counter is 2152 but there are only 1301 published).

Though perhaps to provide an example how things have changed, “Scuba” and “Heavy Gear” were top-level headers on the first iteration of the site. I haven’t been diving in ~17 years, and while I’m still a bit of a geek for games, getting the webpage done was pretty much the death knell for that particular hobby. My style has shifted, too: back then my goal was to avoid editing as much as possible — I’d copy-edit as I went, and then hit post, often without even reading the whole thing. I still do HTML mark-up live as I compose (what’s WYSIWYG?), but don’t tend to compose in notepad or WordPress — I spend more time in Word and read what I wrote at least once. And hey, my job is as an editor now.

There’s also social media now, so a lot of the “here’s what I did on my vacation” type of material gets put up on Facebook or Google+ (ha ha, no one believed that even for a second).

Secrets of Longevity

Lots of blogs start up then flame out after a few years. I think part of it is that they have goals in mind, goals that are hard to hit. BbtP does have a few ads, but it’s clearly not about the money here (I’ve never done a sponsored post, and indeed, ad revenue on average doesn’t cover the hosting costs). I posted multiple times per week early on, but most of those posts were ephemeral, and not worth linking to in a retrospective like this. In short, I write mostly for the sake of writing, and the blog is how I do that. There are lots of good reasons to write a blog, but hoping to get famous (or worse, to get rick quick) has been a sure sign that a blog’s going to flame out.

Of course, doing it badly and not caring is not a great tip for blog longevity, so also remember that someone had to be one of the early adopters and continue to be the survivor, so take it all with a grain of salt.

Thank You for Reading!

And finally, a thank you to all of those who have read along over the years! The site gets about 2000 visitors per month, a figure that has been remarkably consistent ever since I slapped on Google analytics. It’s a tiny fraction of what some sites get (which is why they do crazy things like make money at it), but my readership is the stickiest! (Uhh… phrasing) Hopefully you’ll all still be here in another 20 years!

Passiv is a tool to help you manage your investments more easily. It’s still a DIY idea: you make your own investment choices, pick your own funds, and have to press a button to execute the trades, but Passiv makes it all easier to manage on an ongoing basis. In a nutshell, if other robo-advisors are like chauffeurs for your portfolio, Passiv is like cruise control. Passiv doesn’t pick any funds or your allocation for you, and there are no advisors to call or email to answer questions about your plan or risk tolerance, but it helps make investing easier.

How it Works

Very simply, Passiv connects to your Questrade account to get the information needed to help manage your portfolio in a more intuitive way. You set your own allocation and pick your own products.

But Passiv helps bury some of the complexity of investing in ETFs: it lets you drag a slider to set your allocation in percentages, instead of having to look up the prices and figure out how many units of each fund to buy yourself. It does the rebalancing calculations for you, and will figure out how much of each ETF to buy with new money, and you can choose whether to only rebalance with new purchases, or to include selling funds.

It will send you an email when new cash arrives in your brokerage account, providing the prompt needed to go in and set up your trades — not quite fully automated, but getting pretty close. Indeed, while I personally feel like I was doing fine unaided, this feature alone is cool enough that I’m going to keep using it (because then I don’t have to keep in the back of my head that I should check Questrade 3-5 days after I send money via a bill payment).

And it can even set up a series of (market) orders to execute it all for you in just one click. That’s a paid feature, but at just $5 $3.33/mo [new pricing as of summer 2019 with their Questrade partnership] it can take a lot of that last lingering complexity out of the picture that might be scaring someone away from using a brokerage account and ETFs. And the cost is low enough that you don’t really need to worry too much about the precise break-even point for this versus Tangerine or e-series or whatever.

The way it simplifies investing in ETFs while giving you full control is kind of like having a robo-advisor in your pocket.

Suggested Pairing: All-in-One Funds

Combine with VGRO/VBAL to make something that’s cheaper than e-series (for portfolios of ~$30k+) and almost as easy (not quite automated, but close). The automatic trade feature buries a fair bit of the complexity associated with buying ETFs, and an email prompt to log in and press one button is approaching (but not quite the same as) the behavioural goodness of automation. While you can also choose a 3- or 4-ETF portfolio and have Passiv smooth over the complexity, it’s even fewer things to track if you want to use an all-in-one fund, and also has the benefit of hiding the relative performance of the constituent parts.

Behind the Scenes

Passiv uses what’s called an API to access certain information about your Questrade account from Questrade, and (with your permission) to send orders. If you’re not familiar with how APIs work, what you need to know is that there’s a special way for Questrade to securely hand off some information, but that you are not providing your password to Passiv nor full access to your account. At the moment, Questrade is the only brokerage Passiv interfaces with.

For the Core-and-Explore Crowd

If you can’t help but dabble in individual stocks (or sector ETFs or whatever), Passiv lets you exclude some items from calculating your rebalancing needs. That is, you can focus on keeping your core in line (and in one click deploy new cash to those ETFs) while still playing around on the side, and not have to worry about an automatic calculation deciding that you need to plow more money into your loser picks (or trim your winners) in the name of re-balancing.

And the Passiv team has created a special offer for BbtP readers: a 10% discount on Passiv Elite.

Disclosure: I did not receive any payment for this post — I know it sounds like an ad, but I genuinely like the tool. At the time it was written there was no conflict-of-interest with Passiv. However, we are talking about working together somehow, so there may be a conflict in the future. I do not receive any compensation if you use the link for the special offer.

It’s a buyer beware world when it comes to your finances in Canada, with lots of high fees and a fractured regulatory system where we’re lucky if they even close the barn door after the horse has left (hi there FSCO).

And it won’t get better any time soon: as Sandi points out in this Twitter thread, the Ontario government is strongly signalling that this is going to be the case for a while. Financial literacy may not be the best answer for how we would arrange our society given the choice, but at this point it is our last, best hope.

So happy financial literacy month!

So how do you get financially literate? As loud as the call is to add this stuff to the curriculum, it’s too late for anyone reading this to be helped by a developing mandatory program for high schools. Besides, just-in-time education seems to work better. Though that means you will have to take it upon yourself (or hope that whoever is already financially literate and reading this post has forwarded it to you) to seek out appropriate resources and learn before it’s too late.

There are lots of ways of doing that. You could subscribe to blogs like this one and follow along for a decade or so. You could hit up the reading guide. You could take a course. You can hire someone (but then you need enough to know that good advice costs money and isn’t free at your local bank branch).

I love blogs — I have one! — and follow many. But if you’re just starting out, I think there’s value to some structure, so books or courses are likely the better way to go.

I have a course on investing. I think it’s fantastic, but it’s not the only option. In a recent episode of the Canadian Couch Potato podcast Dan Bortolotti did a good take-down of the consumer-focused CSI course on investing (the segment starts at about the 37:50 mark), and I thought that the points he mentioned that a course should cover were really good, and also something that I think my course covers.

Need some other options?

In Toronto, Ellen Roseman and Teri Courchene teach courses through UofT’s School of Continuing Studies, with multi-day evening options (winter, fall), and a one-day workshop ($225).

Your local college or university’s continuing education department may have some offerings. Plus there are one-off seminars, like at the Toronto Public Library (and I’ll be presenting in the winter/spring).

And if you have a business (or are part of one), a somewhat common thing is to have lunch-and-learns, or other non-work-related educational seminars, where a someone comes in to speak to the group, which can be a good way to help improve your employee’s financial literacy. Sometimes these take the form of a sales pitch from the big banks and mutual fund companies (which you don’t want), but for a modest fee there are lots of independent people who will do this (I don’t advertise it but have done it once or twice, and know lots of others who do or would be interested if you can’t find someone).

Back to the online courses, Kornel Szrejber (Build Wealth Canada) has How to Invest (for Canadians), an online course focusing on ETFs ($125). Bridget Casey (Money After Graduation) teaches the online Six Figure Stock Portfolio (~$495 CAD) which includes trading as well as passive investing. Aman Raina (Sage Investors) has two How to Invest in ETFs for those looking to take a passive approach ($149), and a more expensive one for would-be active investors. And those are just the ones on investing — I’m not sure I could catalogue the books, challenges, programs, and courses out there for budgeting.

And a final tip for financial literacy month that comes from Sandi Martin: “Start talking to other people about money. Normalize conversations about the choices we make about our investments (beyond “I’ve got a guy” or whatever it is people say) and spending. If we imagine the bad/lazy/corrupted actors as the enemy, our job as the resistance is to conspire with each other by sharing information and overcoming the urge to either feel shame (because we’re not doing the “right” things and want to wait before we share until we are) or shame others.”