Q: In a recent letter to your column the writer wished to withdraw their $20,000 KiwiSaver balance and spend it on a new car. Shriek!! Bad, bad, bad move! And you didn't say don't!
One should always try to be the second owner of a car. That way the heaviest depreciation is avoided and one still gets a nice car.
New cars make sense for corporate fleets, but a private owner would only get value if the vehicle is kept for at least 10 years, preferably more.
I'm surprised anyone would need to ask a financial adviser about doing this, when the results would be so obvious. Do it for emotional reasons maybe, but not for wealth.
A: I read "new car" as new to the reader — but perhaps he did mean "brand new".
When people retire they often like to update their car and perhaps also their appliances, put in a new kitchen or bathroom and set themselves up for the next decade or two. I suspect that's what this reader is doing.
If he is indeed planning to buy a brand new car, then I agree with you. They say a new car loses 20 per cent of its value the second you drive it off the showroom floor.
Still, as you point out, buying a car isn't always rational. If someone reaches retirement and has always wanted to own a sparkling new Lamborghini, Porsche or whatever — and they can afford it — why not?
Q: I am a 31-year-old with $65,000 in deposits and a stable business and at present I am boarding.
I am confused about whether I should buy in South Auckland, rent in South Auckland (as this boarding place is getting congested) or send this $65,000 to Fiji where my father can get around 8 per cent return by investing. What should I do?
A: There are two concerns about sending the money to Fiji. First, it's important that you understand how the return is being generated. Don't just take Dad's word that it's low-risk. Any investment offering 8 per cent must have a fair amount of risk.
Second, whenever you invest in another country, you take currency or foreign exchange risk. If the Fijian dollar falls against the New Zealand dollar, you could lose a lot.
The reverse is also true, of course. If the Fiji dollar rises against ours, you'll gain. But there's no good way to predict currency movements.
If you decide to send your savings to Fiji then, be prepared for your money to perhaps double or halve over a few years. Depending on the nature of the investment, it might even go to zero. Could you cope with that?
Buying a house also has some risks. Prices in this toppy Auckland market might fall. But that shouldn't matter too much if it's your home, as opposed to a rental property - as long as you don't borrow heavily against the house for your business. Just stay living there and after a while prices will probably rise again.
These days, you generally need a 20 per cent deposit, so you should be able to buy a house for up to about $325,000 — which might still be possible in South Auckland. Do spend money on getting the house checked out by an expert before buying, though.
If nothing in your price range appeals, rent somewhere and save for a bit longer. But either way, get out of that crowded boarding house.
You are pretty well off for your age, and might as well have pleasant accommodation.
IRD KiwiSaver delays
Q: At this time of the year my provider (ASB) is advising us to top up our KiwiSaver contributions to $1043 so we can get the maximum tax credit. I am happy to do this and it is easy to check our contributions online through the bank website.
However, I am less than impressed with the IRD, which throughout the year credit our account only monthly with our contributions, but in June has not done so at all so far.
We therefore may have to contribute a bit more than planned to cover what IRD is holding on to. We can't wait until the last minute without risking that the money is not credited by the end of June.
Why does it take IRD so long to credit KiwiSaver accounts when it is all electronically credited?
A: If I were mean I would say, "Diddums! You may put a tiny bit too much into your KiwiSaver account — money that is still yours and will grow for your retirement. If that's all you've got to worry about ... "
Given that I'm not mean, I agree that it does take a long time for employees' contributions to reach their provider. Why?
"Every payday your employer deducts KiwiSaver contributions from your salary or wages," says the website www.kiwisaver.govt.nz. "In most cases, your employer needs to send this money to Inland Revenue by the 20th of the following month." This is so the money can be handled at the same time as PAYE tax, to keep employer costs down.
Inland Revenue then has to check the information, and sometimes follow up with the employer, before forwarding it to your provider.
While Inland Revenue has the money, it pays you 1.57 per cent interest. That's hardly going to make you rich, but it's only for a short time.
The inconvenience of the system to you needs to be balanced against the convenience for employers who are, after all, contributing money and admin to KiwiSaver.
Q: I have always considered myself as self-employed. I pay provisional tax not PAYE, and was planning to join KiwiSaver and just make the minimum payment each year for maximum tax credit.
But my bank's account manager informed me that as my company is limited I will have to make employer contributions to myself, which I would prefer not to do. What is the case here?
A: The bank's information is wrong.
The standard rule is that an employee who is paid a salary subject to PAYE, and the details are included on the Employer Monthly Schedule (EMS), has both employee deductions and employer contributions to KiwiSaver, says an Inland Revenue spokeswoman.
How does this apply to the self-employed? Sole traders and shareholder employees who pay provisional tax — including you — don't need to make employer contributions. They simply contribute to KiwiSaver directly through their provider.
But if a shareholder employee is paid a salary that's included on the EMS schedule and subject to PAYE, there will be employer and employee contributions to their KiwiSaver account.
"The type of company does not determine whether they are liable for employer contributions or not," adds the spokeswoman.
Q: Can I say that I also seriously considered writing to you about the seeming drought of anything else other than KiwiSaver articles in your column lately — but realised that if a large number of people obviously wanted to know about it and this also gave you an opportunity to perhaps increase their overall financial literacy, then it was all to the good.
When we were scrabbling frantically up the retirement ladder, the most worrying thing was the extremely nebulous nature of the destination. Just how much was "enough"? We tried to talk to other people who seemed to have successfully "arrived", and found the great silence. Like sex and politics, people really didn't want to share details about their financial affairs.
The arrival of the internet was fantastic for detail-freaks like me. Being able to easily download and crunch all your bank records in Excel (or get your geeky brother-in-law to do it) and really see where your money came and went, showed we needed about $50,000 a year in our hands to maintain our lifestyle.
Take away the after-tax NZ Super figure and the remainder is the gap you try to fill from investments and/or plan to nibble away from savings. Bung your current savings on an online calculator and you start to get a darn good idea of your retirement plan. Even if the result isn't quite what you hoped for, trust me, anywhere up the ladder is better than the bottom.
At 70 years young, life is good — phew! Your advice — like the need to have a freehold house, and access to enough money to double the pension figure — we found to be spot on. Save anything you can no matter how small, invest prudently, spread the money around, don't give up, time is your best friend and so on.
Thank you so very much for giving us information about all of these over the years, along with the faith to keep going.
So don't worry, we do still love you and will continue to eagerly devour your page every week — but just a few less KiwiSaver articles would be really, really nice.
A: How could I say "no" to such a kind letter? Only trouble is there are so many important KiwiSaver questions to answer.
A typical comment from another reader: "Just read the complaint about too many KiwiSaver questions in your column. I disagree — I think there's huge public interest in it, particularly leading up to the election."
Still, I really will try to get on to more non-KiwiSaver topics as well. Promise.
On working out how much you would need in retirement, the retirement planner on www.sorted.org.nz is a good place to start.
Q: They say a picture is worth a thousand words, so what do you think the picture you used at the head of your KiwiSaver column last week says to all of us people over 65?
It says: "Here I am hovering over my keyboard, poking at the keys with one finger, and unsure if I can see what I am looking at, and unsure if I know what I am doing, sitting in a way that would shock any health and safety person."
Do you sit at your keyboard like that? I did away with my computer seat and extended the legs of my table so I stand when using my computer.
I admit to being only 69, so I am not that old.
I think the picture sums up a bad attitude to the elderly, and this during elderly awareness week.
A: No, I don't sit like that. Nor do I choose the pictures. But I'm sorry if that picture — which I thought was quite fun — offended you.
PS. I noticed your "KiwiSaver column". After last week's correspondent suggested I call my column KiwiSaver Kids Korner, I'm thinking of starting a Krabby Komplaints Korner at the end of each column. Yours could be letter number one!
PPS. A note to puzzled online readers: the Herald ran a different picture on the website.
• Mary Holm is a freelance journalist, member of the Financial Markets Authority board, director of the Banking Ombudsman Scheme, seminar presenter and bestselling author on personal finance. 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 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.