Q: I am a 72-year-old single retired woman. I rent a house, paying $350 a week, and have $490,000 in two term deposits.
The owners of the property I rent have decided to sell and offered it to me. If I am unable to buy they won't sell, but borrow from their family to bridge a gap till their present home sells. They are building.
We have agreed on a private sale price of $440,000. My daughter has topped up her mortgage and she will give me $40,000. I have a wonderful daughter and I am so grateful.
That would leave me with $90,000 in bank term deposits for 18 months at 2.7 per cent.
How can I get the most out of the $90,000 in these uncertain times?
Also, I am to receive a $5000 inheritance from a friend and have $6000 in an online saver. Plus my bond to be refunded.
Maybe I am better off just continuing to rent? But owning would certainly remove my current insecurity.
The property is two years old and I love it.
A: Not many people get the chance to try before they buy a property. And your last sentence is what swayed me. Go ahead!
I understand why you're worried about being left with just $90,000 in savings. On the other hand:
• Owning your home in retirement gives you a base that nobody can kick you out of.
• A nearly new house should, hopefully, need little maintenance.
• You will no longer pay the weekly $350 rent.
That adds up to "yes".
What should you do with the $90,000? First, use what you need of the inheritance and bond money until the term deposits mature.
Then set aside $10,000 for emergencies. Keep that either in bank term deposits, invested so some money matures each month, or in a low-risk defensive KiwiSaver fund, which you can now join at any age. Choose a fund with low fees, using the KiwiSaver Fund Finder on sorted.org.nz.
Then I suggest you assume that by the time you're 85 you will manage on just NZ Super.
Many people do at that age. So the $80,000 needs to last about 11 years.
How do you make that work? A simple way is to first divide $80,000 by 11, which gives you $7273 — or $140 a week — to spend in the next year, on top of NZ Super.
It's not a lot, but you will no longer be paying rent. And it's more than most superannuitants spend. A 2017 report on people 65-plus said, "40 per cent of singles have virtually no other income source" than NZ Super. And "60 per cent report less than $100 per week from non-government sources."
A year from now, divide your total savings by 10 for that year's spending, and the year after that divide by nine, and so on.
If your money was making no return, you would have the same amount to spend each year. But with returns added, your spending will rise, helping you keep pace with inflation and giving you a buffer beyond your $10,000 rainy-day fund.
The size of your returns will depend on whether you take a bit of risk. Higher risk brings higher average returns.
First, put about three years of money — say $21,800 — in the defensive KiwiSaver fund and make your withdrawals from that.
If you had lots of savings, and experience with investing, I would suggest you put your medium-term money in a balanced fund and your longer-term money — to be spent 10 years or more from now — in a higher-risk KiwiSaver fund.
But I sense that you might worry if your balance fell a fair bit sometimes. So perhaps put the rest in a conservative fund at the second risk level. And each year move one year's spending from there to the defensive fund, so you can keep withdrawing from the latter.
PS: Well done to your daughter! I'm sure you've done heaps for her over the years, and it's great to see her reciprocating.
Oh so modest
Q: I always look at your column on a Saturday. I mainly enjoy the letters from folk who've done well against the odds. And I gain entertainment value from the ones who have clearly written in to spout off about how well they've done — and their false modesty fools no one.
For example: Dear Mary, We have an unencumbered home worth $15 million, a beachfront holiday home, a little bolt-hole in the south of France and, of course, our chalet in the Alps. But we have been careful to diversify, so we have another $27 squillion in 34 different managed funds.
Naturally, we keep a cash float of around $5 million as a rainy-day fund. We've worked hard and been frugal, Mary, but we just can't seem to get ahead. Any advice would be appreciated to get us on track before it's too late — we're getting close to 40.
But I digress. In your column last Saturday was a letter about getting rid of debt. You've been doing this for years and you've got the gong from the Queen, so it's highly likely you know more than me. But I just couldn't quite believe the answer you offered that bloke.
I do not reckon he needs your six-point plan. Just a one-pointer: he should borrow the $7000 he needs to square away those annoying little debts via a first mortgage on his home.
Even though his wife is, for reasons unknown, unco-operative in assisting the cause, he should surely be able to borrow against the home even if he has to agree that the repayments are solely his responsibility.
He's probably getting clobbered with 15 to 20 per cent interest on those debts. But if he lumps them together, borrows the $7000 at 2.65 per cent fixed for two years, and pays it off over that period, it's only about $70 a week, which he can surely afford from his $800-plus a week net income.
And, once he's accustomed to allocating $70 a week, he can keep it up as a modest savings habit that accumulates enough for five nights somewhere warm every winter. He only needs to pay for himself as his wife clearly doesn't deserve to participate!
Well, that's my two bob's worth.
A: And it's good value, indeed. I can't explain why I didn't think of it!
When someone has high-interest debt and a mortgage, I often suggest adding to the mortgage to pay off other debt — as long as you get rid of the extra mortgage in a few years, so you don't just replace high-interest short-term debt with lower-interest but longer-term debt.
But because last week's reader had paid off his mortgage, I put it out of my mind. I was concentrating on his question: "How to adopt a way of living, a philosophy of life, that motivates me to get rid of debt, live frugally and save?"
The one worry with your idea is that the reader's house is probably jointly owned, so getting a mortgage on his own could be tricky. But perhaps a promise that the wife can join those warm holidays would win her over.
We don't need to reject all my six steps (she says defensively!). It's still important to: acknowledge the problem, cut future spending, reward progress, and set up a rainy-day fund. It's just the middle steps where your idea beats mine. But that's an important part of the plan. So thanks for writing — and to the other reader who made the same point.
And you've certainly broken my loose 200-word maximum for letters. But I love your rich person's letter!
Q: I would like to raise another point about NZ Super being reduced by the amount of some overseas government pensions.
What, then, is the motivation for an individual to register for an overseas pension on retirement, if there is no gain to be had? Would it only be applicable to those whose overseas pension exceeds their NZ Super?
I, as I imagine were many others, was overseas for a few years early in my career, so those overseas pensions would likely be well less than NZ Super.
Why would I bother to register for my overseas pension, when every dollar paid is simply deducted from my NZ Super?
A: You don't get a choice about whether you apply for an overseas pension. When you sign up for NZ Super, the Government asks you if you have worked overseas, and where and when. It then asks you to apply within a certain time for any overseas money coming to you.
You could, of course, not disclose your OE. But the Government presumably has records of when you've left this country and returned, the years in which you have paid taxes, and who knows what else?
When you're lining up to receive many thousands of dollars in NZ Super throughout your retirement, it would be foolish — as well as dishonourable — to fib.
Dealing with Winz
Q: From your last column, it looks like, if you are dealing with Work and Income, it can be hard to do the right thing!
My son had a contract for one year at Z Energy for work experience before his last year of study. Now that is finished, he has to wait seven weeks before going back to studying.
He was told by Work and Income that he cannot receive a student allowance or the benefit unless he fills in the forms whilst lying that he is "looking" for a full-time job, along with having to go to interviews when they say so!
And my daughter was told by Work and Income that she has to provide pay slips from four weeks of kiwifruit picking here in the Bay of Plenty (after coming back from London) to prove that she has been working. But the subcontractor is not giving payslips to the holiday pickers and won't return her calls after she asked for them!
So no money for either. This is hard on our savings and not fair. Thanks for listening.
A: You've probably paid taxes all your adult life, and when your family finally needs help, you can't seem to get it. Frustrating!
But it wouldn't work for the Government to hand out money to everyone who asks without checking their eligibility and setting some rules.
The Ministry of Social Development says it's unable to respond to your children's specific cases for privacy reasons.
But I have to say that it doesn't seem unreasonable for your son to try to get work for seven weeks — while telling employers he's available for only that short time. At least he will practise job interviews!
On your daughter's situation, "When applying for a benefit, clients may need to provide some supporting documents including proof of any before-tax income for the last 52 weeks from wages," says Kay Read at the Ministry of Social Development. "This enables us to accurately assess the application and the date the from which the person is entitled to support."
However, she adds, "We encourage anyone who may be struggling while applying for a benefit to contact us." So perhaps your son and daughter should ring Work and Income.
As stated in last week's column, the best times to call are early in the morning, from 7am on weekdays or 8am on Saturdays. Or you can use its call-back service.
Note that the workandincome.govt.nz website has lots of information on its Jobseeker Support page. And you can go to tinyurl.com/NZStudentAllow for info on student allowances.
- Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former director of the Financial Markets Authority. 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 email@example.com. Letters should not exceed 200 words. We won't publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.