My wife and I live in a very nice 182sq m home in an excellent suburb of Whangarei.
The home is worth $800,000. I am 60 and the only income earner. My wife is 63 and can't work for health reasons.
Our mortgage is $180,000. I am a real estate agent and have earned between $150,000 and $175,000 over the past few years since I have become established.
We have $65,000 jointly in KiwiSaver, which we still contribute to.
I can buy a section and build a 140sq m home, which is an ideal size for us.
We have one child and grandchildren who live in Whangarei so we don't need a large house for visitors. Two bedrooms plus an office is perfect.
We could build this smaller new home including the section for $550,000.
We would then have some money to buy a caravan for our getaways, have no pressure to earn so much, and we would be protected against any downturn in the property market.
Is our reasoning sound? Our current house — which we built with the same company we will use again — is in a better area, next to native bush, and is therefore a better investment, but there is a cost attached.
Your reasoning seems sound to me — except your assumption that your present house is a better investment because it's in a better area.
Good investments aren't about which property starts out worth the most, but about which one grows the most — and if it's a rental property, which one brings in the most rent per dollar invested. And, quite often, the cheaper ones perform better.
Crunching the numbers in a recent property report in the Herald shows:
• In the 12 suburbs where the median value in November 2015 was more than $1.5 million, the average gain in the three years since then was 15 per cent. And if we exclude Whitford, which had an extraordinary 36 per cent gain, the average was 13 per cent.
• In the 12 suburbs where the median value in November 2015 was less than $500,000, the average gain in the three years was 19 per cent.
And that period includes a rapidly-growing property market as well as a stagnant market.
It's the same story with shares. Higher-priced shares aren't necessarily the best ones to buy. I'm not saying high prices, for property or shares, don't tell us that these are nice places to live or well run companies. Of course they do. But the prices may not rise much more.
Meanwhile, the value of investments in areas that see improvements or become "in" places to live, or in struggling companies that get a break, may zoom up.
As US investor and author Benjamin Graham put it: "A great company is not a great investment if you pay too much for the stock."
What does all this mean for you?
Basically your one concern about your plan, that your newly-built house might not be as good an investment as your current house, may not be valid. In any case, you have several good reasons to go ahead. I particularly like the caravan idea, and less pressure to work so hard. Go for it!
Top marks to TSB
TSB doesn't require 30 days' notice to break a term deposit. Please publicise this as it is a New Zealand-owned bank and, as a loyal customer, I would like to see more New Zealanders use it.
Keep the profits in New Zealand!
I went through the same process as your reader last week with my ASB term deposits a month ago.
In the end it wouldn't break them, but would immediately lend me the same amount at 5.8 per cent for the month until the deposits could be broken. Not a bad solution. But better to put the money with TSB in the first place.
As I said last week, the big four Aussie-owned banks, ANZ, ASB, BNZ and Westpac, require customers to give a month's notice if they want to withdraw early from a term deposit. That's because of Australian banking rules that arose from the global financial crisis.
But that doesn't apply to New Zealand-owned banks such as Kiwibank and, as you point out, TSB.
"A customer can break or close their term investment at any time with our approval," says Justine St John, general manager customer and marketing at TSB. However, she adds:
"Customers who close their term investment early or make a partial withdrawal will see a reduction in interest paid."
On your experience with ASB, a spokesperson for that bank says: "Due to regulatory requirements introduced on April 1, 2015, 31 days' notice is required to withdraw funds from a term deposit before maturity unless exceptional circumstances apply. ASB will support customers who cannot provide the required notice and need immediate access to funds, which will be considered on a case-by-case basis."
Its solution for you meant you were paying considerably more interest than you were receiving. But, as you say, it wasn't a bad solution.
Protecting my Super
I retired last year at age 65 and now receive NZ Super. I have received an inheritance lump sum, the interest on which is taken into account, of course, by Work and Income when it reviews our NZ Super every April.
Can I put this lump sum into my KiwiSaver, essentially to avoid having the interest being means-tested? I would prefer an independent opinion before I possibly contact Work and Income.
Your letter puzzled me at first, as NZ Super is not means tested. Every eligible person gets it regardless of their wealth or income — although it is taxed, so those on higher incomes receive less Super after tax.
But then I thought perhaps you're one of the fairly small number of people with partners under 65 who are included in their NZ Super payments. Under this arrangement, you end up with more money if your combined income is less than $28,520 a year.
A couple in this situation "may earn $100 a week of income without this affecting the rate of payment; any income over this limit reduces their NZ Super by 70c for every $1 earned," says Matt McLay, acting group general manager client experience and service at the Ministry of Social Development. For more on this NZ Super option click here.
Another possibility is that you receive additional financial help from the Government.
"We do means test some other forms of support we provide, such as the accommodation supplement and disability allowance, and we review a person's entitlement to these every year," says McLay.
"We means test accommodation supplement in terms of assets and disability allowance in terms of income." For info on this support, click here.
McLay adds that reviews of eligibility don't necessarily take place on April 1.
"Generally, they fall on the anniversary of the date we started granting the payment, or when there is a change in the person's circumstances."
If any of these situations apply to you, how would putting your inheritance into KiwiSaver affect it?
Because you're over 65, and therefore have access to your KiwiSaver money (unless you've been a member for fewer than five years) that money is included in the tests.
"Any interest on the fund has to be considered as income and the fund itself as a cash asset," says McLay.
So there would be no point in moving the money — unless of course it's a good place to put it anyway. Nor would it be wise to try other tricks with your inheritance.
"We're mandated by the Social Security Act 1964 to make sure people use their own resources before seeking our support," says McLay.
"For that reason, we may still consider income on assets where someone has changed their financial arrangements to put themselves at a financial disadvantage, if that's led to them qualifying for assistance or for assistance at a higher rate."
He adds: "If anyone wants to check how their assets or income might affect the support we're giving them, our online eligibility guide is free, anonymous and confidential."
You can find it at check.msd.govt.nz.
My parents are in the unfortunate position of not owning a home and have whittled away any cash assets down to around $30,000.
They are both well into their 70s. My dad runs a small business that is probably worth $20,000 if he sold it. It gives them a supplementary income above the pension but it's becoming stressful for him (and I'm beginning to doubt how much extra income it provides after all the expenses).
My mum works in a factory five days a week, and her health is deteriorating.
They rent a home for over $500 a week, but because of their income from the business and her wages, they don't receive any extra financial help. It's wearing them out fast.
I'm trying to convince them to sell the business and for her to stop working because they will immediately be entitled to an accommodation supplement.
They want to, but they don't believe me about the accommodation benefit.
Can you please help clarify what their entitlements would be?
It certainly sounds as if it's time for your parents to slow down.
The links in the Q&A above should give them the information they need.
Paying for care
My experience with my mother-in-law, who did not qualify for government rest home or hospital care, was interesting.
As soon as rest homes and hospitals knew she was paying herself, there was no "waiting list". She could get into the home we felt was most suitable to meet her needs immediately and with no difficulty.
The price that the home could charge was fixed at the same rate as the residents who were state-funded, although she was charged for every extra service such as outings.
She also had all her NZ Super to help towards the payment and was therefore only paying the balance between NZ Super and the charge of the hospital care.
Although the cost was not cheap, she was not in care for long.
I believe that trying to evade paying for care through divestment of assets may have unanticipated effects outside of the financial.
You make some interesting points. Thanks for writing. Okay, I think that's enough on this topic.
Health is wealth
I intend to give up work shortly at the age of 55. It's only because I have no debt, no dependants, own my home, have substantial savings, and joined KiwiSaver four years ago, without getting employer contributions, but still worth it as a long-term saving scheme.
I also have a substantial family investment, and have been in a generous private pension fund for 25 years on a high income, which will pay me $43,000 a year tax-free, including other benefits if my situation changed.
First and foremost, your health is your wealth, and how much money does one need in this life — keeping it simple and being a content fulltime lifestyler? But Mary, what are the flaws in this plan, please?
None that I can see. Just as the title of my new book says, you're rich enough! It seems that life has so far treated you well, so if you get bored, you might try some volunteer work.
- Mary Holm is a freelance journalist, a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a 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 firstname.lastname@example.org. 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.