Mary Holm on investing

Mary Holm is a personal finance writer

Mary Holm: When young and old battle it out

34 comments
Arguments over intergeneration differences are best avoided. Photo / Thinkstock
Arguments over intergeneration differences are best avoided. Photo / Thinkstock

I'm fed up with young people like the former student in last week's column calling superannuitants a burden on society. Retirees like myself have earned their superannuation by paying taxes for 45 years.

Taking a student loan is a choice, but retirees can't work indefinitely, and most retirees I know don't lead lives of luxury.

In my day only a privileged few could go to university and most people were resigned to working in lower-paid jobs.

Taking a student loan provides an opportunity to earn a well-above-average salary in the future. It's an investment and therefore should be paid back. Taxes actually pay for approximately 70 per cent of the tertiary education cost and expecting students to contribute 30 per cent of the cost is very reasonable.

By age 25 my daughter had paid off her student loan (including interest) as she was able to secure a well-paid job because of her university education.

At age 28 she was able to buy a house in Auckland. She also travelled extensively. She accomplished this through working in part-time jobs while at school and at university.

Younger people have greater choices today and have to make their way in the world as we had to.

Young people may see retirees as a "burden", but one day their generation will be even more of a "burden" as the retiree population proportionally increases.

Oh dear. Phrases like "I'm fed up ..." and "In my day ...", and accounts of how well your daughter did are hardly likely to make younger people receptive to your thoughts. Then again, if you're fed up you may not care.

This is why I said, three weeks back, "Let's not get into intergeneration comparisons. They're horribly complicated, and just lead to parents and kids saying nasty things to one another."

But because your letter and others raise some interesting issues, I've decided to publish some - for a limited time only, as they say in the ads for sales.

However, I've got quibbles with some of what you say:

While a smaller proportion of the population went to university in the past, I'm not sure they had to be privileged to go. Until relatively recently there were virtually no fees.

And unemployment was almost non-existent in the 1950s and 60s when - as somebody quipped - the prime minister knew every unemployed person by name. The unemployment rate remained really low until the 1980s, which made it easy to get jobs while studying.

Your daughter's story, and your comment about greater choices today, may anger some of today's young, who struggle to get well-paid work or buy a house. Sure, your daughter earned her success, but she probably did so in luckier times.

The proportion of the population that is retired will certainly grow in the next decade or two, as the Boomers retire. But that doesn't mean that trend will continue. It depends how many children the current young generation end up having.

Sorry about that rather long list. You do make some good points, so thanks for writing.

Retirees paid more

I had a giggle over the accusation that Baby Boomers and other "old" people don't take their responsibility to decline NZ Super when they turn 65. I thought that in addition to your response it should be pointed out that people like me who have turned 65 have another view:

* We have actually paid a great deal more in tax over our working lifetimes than we will ever get back, on an average lifetime expectancy.

* The great benefit of NZ Super is that it is a pay-as-you-go scheme, so that dollars taxed this year have the same value as the dollars paid out to superannuitants. There is no requirement to pre-fund or to "invest" funds for the purposes of future payments.

* NZ Super helps prevent poverty among elderly people in New Zealand far better than any other scheme in the world.

* It really is only a token payment, as to live on NZ Super alone would be almost impossible without many other grants.

* And finally, some of us actually use what we get from Bill English to help pay for our grandchildren's university education. So what comes around goes around.

Having a giggle beats being fed up, so that's a good start.

It's not necessarily true, though, that retired people have paid more in tax than they get back, adjusting for inflation.

Don't forget about all the government services - education, roads, police and on and on - that you've used over the years.

Still, some people are bigger users of government services than others.

If you do end up getting less from the Government than you contribute over your lifetime, that's cause for celebration. It suggests you've had an easier life than people who have received lots of government support.

Another thing: your third and fourth points seem a bit contradictory, so I went searching for some facts, and found that apparently it is quite possible to live on NZ Super alone.

The Ministry of Social Development says in its July 2011 report on household incomes in New Zealand that 40 per cent of New Zealanders aged 66 and older "have virtually no other income source" than government transfers. And for the next 20 per cent, about 80 per cent of their income comes from government transfers.

True, the transfers include other payments in addition to NZ Super, which you refer to as "other grants".

But, apart from the veteran's pension, these other payments - disability allowances and accommodation supplements - total only about 2 per cent of total government transfers to the 66-pluses.

Basically, then, about half of older New Zealanders live on NZ Super and not much more. On the other hand, the report confirms your point about not many elderly living in poverty.

It says that a smaller percentage of 65-pluses live in low-income households than people in all other age groups. Sadly, children are the worst off.

I like your final point best.

This is where intergenerational squabbling falls apart. Many better-off younger people support their elders, and many better-off older people support their children and grandchildren.

Transfer best option

I agree with your reply to the person in last week's column, who was wondering whether to buy a New Zealand house now while she still lives in the US. People seem to underestimate the impact a rising interest rate environment will have on house prices.

And it will come again, making a mortgage more expensive to support in a period when salary increases may be limited.

But as you say - best to dollar-cost-average out of the US dollar into the NZ dollar, as interest rates are that much more appealing over this side of the world.

Who knows where mortgage interest rates - and house prices - will go next?

There are so many factors that feed into them. It's worth remembering, though, that just four years ago floating mortgage rates were above 10 per cent - and at some banks above 11 per cent.

On a $300,000 30-year mortgage at 6 per cent, monthly payments are almost $1800. At 11 per cent they would be more than $2850. So yes, a big interest-rate rise would be sure to dampen enthusiasm.

It's also true that deposit interest rates are higher here than in the US. In theory, that suggests our dollar will fall against the US dollar. But in practice who knows? Again, so many factors feed into exchange rates.

Overall, last week's correspondent will probably do better by transferring her savings over the years to New Zealand.

Manager needed

You suggested last week that an overseas landlord would probably need to use family or a paid manager to oversee the rental property. It is required by law that if a landlord is to be out of New Zealand for more than a few weeks that a New Zealand-based manager be employed.

Andrew King, president of the Property Investors' Federation, more or less confirms what you say.

"The Residential Tenancies Act now says that any landlord who is out of New Zealand for three or more weeks needs to appoint an agent to act on their behalf. This does not need to be a property manager, as it can be a friend or relative. Associations around the country are helping members to buddy-up and look after each others' properties while they are overseas."

The change in the rules was mainly "to ensure that tenants who gave notice while you are overseas would not be kept waiting till your return to get their bond back," says King.

If you are a landlord, before you leave the country you need to write to the Bond Centre "with the change of landlord details for each property. The Bond Centre then records the new agent as the landlord and writes a confirmation letter. When the original landlord returns the whole process has to be reversed."

King adds that, "It is quite an undertaking for everyone, including the Bond Centre, who are already stretched. We don't think it is very efficient and will be suggesting modifications to streamline the process but still keep the intention of the legislation." Fair enough. But the new rule does makes sense from the tenants' point of view.

Sound idea

My friend - a KiwiSaver member but not currently contributing - wanted to put a one-off sum of $1043 into her KiwiSaver account, hoping to get $521 from the Government.

But she was told in the bank she couldn't do that, but needs to begin contributing $20 weekly - which, as I understand, won't make $1043 till June. I failed to find such a rule anywhere in KiwiSaver rules. Is this true?

No it's not. Anyone can contribute any amount at any time to their KiwiSaver account.

What your friend wants to do is legitimate and a good idea.

Many non-employees find it easier to automatically contribute $20 a week or $87 a month, to get their $1043 into the account relatively painlessly each year.

Drip feeding also means they make some contributions when prices are high and some when they are low - which is better than putting the lot in when prices happen to be high.

But as you point out, it's too late for your friend to do that this year, so she should try again with her $1043 contribution.

If she is knocked back, I suggest she changes provider.

I'm sick of hearing about providers' representatives giving out basic KiwiSaver information that's wrong.

Mary Holm is a freelance journalist, part-time university lecturer, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. Her website is www.maryholm.com. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary's advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.

- NZ Herald

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