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Q: I'm 56 and a member of a National Provident Super scheme. My employer and I have been contributing 5 per cent each into the scheme.
Is it worth it, can I, and how can I join KiwiSaver but leave my other super going?
With the Government's subsidy, it looks like money for jam, and all I have to do is pay the minimal amount needed to get this subsidy.
A: It's about time for this message again. Many lucky people can have their cake and eat it too - by being in not only their work super scheme, but KiwiSaver as well.
You probably won't get icing on both cakes, in the form of employer contributions. But it's still money for jam, to use your expression and hopelessly mix our metaphors!
Every permanent New Zealand resident under NZ Super age can join KiwiSaver. If you can't sign up at work because your employer offers another scheme, go to a KiwiSaver provider directly.
As an employee, for the first year you'll have to contribute 3 per cent of your pay to KiwiSaver as well as contributing to the other scheme. But in your case, you'll get access to that money in nine years. And younger people should keep in mind that it's building up their retirement savings.
After a year if you wish you can take a contributions holiday to stop the 3 per cent. But try to keep contributing at least $20 a week or $87 a month or $1043 a year - perhaps automatically from your bank account. That will get you the maximum tax credit of $521 each year.
By the time you reach 65, you'll have more than $4000 of government contributions, plus returns. A yummy bonus.
Q: I wonder if you could help with this rental property investment question.
My partner and I own six rental properties and we have our own family home. In the last two years, however, despite our best efforts to vet tenants, we have had a run of bad tenancies who have caused considerable damage.
We face two court hearings to recoup some of the costs incurred (and recouping any money is not guaranteed), and have incurred further debt to cover repairs and maintenance. Much of our spare time is taken up in maintaining and administering the rental properties, a generally stressful lifestyle.
We have two young children and neither my partner nor I work in high-income jobs; at times we struggle to make mortgage payments. We are both in retirement schemes, however, we do not have any savings, and any unexpected expenses leave us further in debt. I feel we are walking examples of the "asset rich, cash poor"! (Hence, we cannot afford to pay for a financial advisor!).
Should we sell the rentals, which would most likely leave us mortgage-free and with around $100,000 to put towards our retirement? My partner thinks we should "stick out" the hard time because - if we manage to pay off our considerable mortgage by the time we retire (we are in our early forties now) - we will then have our rental income to fall back on.
I also suspect that by the time we hit retirement it is highly likely means testing will mean having an "income" will rule out our eligibility for superannuation. Further, every time we incur expenses from the rentals, we go further into debt, and I see there will be a point we cannot service it.
Can you persuade my partner that considering selling is perhaps a good option?
A: Bad tenants, court hearings, little time to relax, the likelihood of further debt - along with the joys but also the strains of young kids. Who needs it?
Not you. It sounds as if you're in a strong enough financial position to escape all that stress.
Sure, you could persevere and live comfortably off rental income in retirement - assuming you do manage to pay off the mortgage by then. But you could also do just fine if you sell up and invest your $100,000. You'd have a mortgage-free home, two work retirement schemes and more than two decades left to make further retirement savings. You're well ahead of most people your age.
You could even put some of the time, money and effort that currently goes into running the properties into some other simpler money-making activity, but you don't need to. How about instead putting the time into the children, the money into savings, and the effort into sitting on a beach with a good New Zealand novel?
What might you do with the $100,000 - and other future savings?
It seems that you're not in KiwiSaver, probably because your employers contribute to your other schemes. But you can still join - as outlined in the previous Q&A.
If you have to eat into your $100,000 so you can make the 3 per cent KiwiSaver contributions in your first year - or even the ongoing contributions to get the tax credit - it's well worth it. The rest of the $100,000 could go into an emergency savings fund and a lump sum into KiwiSaver.
Given you've got more than 20 years until retirement, you could choose a KiwiSaver growth fund, which holds mainly shares. But if you feel you can't tolerate the ups and downs of such funds, choose a lower-risk, lower-return fund. You should still have enough for a comfortable retirement.
Reluctant to tie up the lump sum until NZ Super age? Put it into a similar non-KiwiSaver fund, perhaps run by the same provider.
On your point about means testing of NZ Super, yes, it might happen by the time you retire. Who knows? But whether you stick with rentals or invest elsewhere, under means testing you would get less NZ Super because you have assets and income. The only way to avoid that would be to go into retirement with no savings, and that would be a crazy choice to make.
Q: Through tea breaks at work, during boom times - my young wife approving - we started investing in shares conservatively and then with more risk. Made a few dollars, lost some also! But gained a good working knowledge.
We could have been millionaires! My wife said immediately, "Buy Brierley shares!" But look at the media statements. He was shot down as a ''corporate raider'', naughty, naughty, Mr Brierley! But it's common practice these days. We never did buy the shares. Such is life!
A: Ah, the one that got away. But you would have had to sell at the right time too. With hindsight we could all be not just millionaires but billionaires.
Q: A recent correspondent to your column said, "The question arose because my daughter-in-law recently received an inheritance and asked me whether they should use it as a deposit on a "renter" or sell their modest home and buy something more upmarket."
Mary, anyone who receives an inheritance and questions whether "they" should do anything needs sound legal advice. An inheritance is not matrimonial property and remains the sole property of the recipient unless it is merged into matrimonial property as is being proposed here. If the relationship turns to custard she has lost half of that money.
It may be possible to protect it by being tenants in common with prescribed shares, but she needs a lawyer promptly. If the money is in a joint account at present, get it out now and put it into something in her name alone.
Please pass this on to the enquirer urgently.
A: Thanks for the pointing this out, but I didn't forward your letter. The only email address I have is for the woman's father-in-law, and I'm not sure that we can expect him to help his daughter-in-law make sure his son doesn't share the inheritance!
In any case, the woman may be quite happy for the money to become joint money - on the assumption that she and her husband are together for life. Some would say that's naïve, but others would say it's a gesture of good faith.
Still, it doesn't hurt to remind everyone about the legal situation.
An inheritance "is separate property and does not get divided on divorce," says Deborah Chambers QC. "This is a great feature of our Act in terms of overall fairness.
"However, the Act also has provisions that basically mean that if the gift is used for the benefit of the couple - or so intermingled with relationship property that it is unreasonable to continue to regard it as separate property - then it becomes relationship property. The separate gift must stay separate from the couple's joint financial enterprises."
In this case, if the couple uses the inheritance as a deposit on a rental property held in joint names, it would no longer be separate property.
Chambers doesn't totally go along with your prescribed shares idea. "The Act also provides that all property owned jointly or in common in equal shares by the married couple is relationship property. Registering the property as tenants in common in unequal shares may make a difference. There are some cases where the courts found tenants in common in unequal shares meant the property remained separate, but there are conflicting decisions (of course!). I suggest to rely only on this structure is too risky," she says.
How about the woman buying the rental in her name only? Complications will arise if relationship property is used towards mortgage payments, "or to pay outgoings or to make improvements, or there is a non-financial contribution by the husband," says Chambers.
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"This will have the effect of making the increase in value on the rental property, relationship property. The original inheritance could still be separate property, if it is still clearly identifiable and traceable at separation."
Chambers agrees with your suggestion about money in the bank. "If the money is already in a joint account it is still traceable as separate property. But the daughter-in-law would be wise to remove her inherited funds into an account in her sole name, so that it is clearly identifiable and could therefore be agreed to have reverted back to her separate property. Given that the couple haven't separated it is not too late to do that. Property in general is categorised at separation."
She concludes, " The most obvious way for the daughter-in-law to protect her inherited property as separate property is to have a written agreement with her husband under the Property (Relationships) Act 1976, signed and certified by independent lawyers that the inheritance is to remain her separate property.
"In the process she will get proper legal advice as to whether she should be charging interest or not. The agreement can deal with issues such as intermingling with relationship property and contributions of relationship property to increase the value of the rental property."
A couple of years ago we had lots in this column about relationship property. So let's not open the floodgates to more letters on this topic. I've already got too many other good letters queuing up to be answered.
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