Q: Without exception, our New Zealand friends of similar age follow the standard Kiwi retirement-funding model, built upon a mix of Super and spare houses.
But houses are lousy investments if you want ready cash from them. There isn't a faucet in the garage wall to run off $30,000 for a holiday, or $40,000 for a new car. From the rent, by the time you deduct rates, insurance, maintenance and taxes, there isn't much left.
Like all Kiwis, our friends are quick to talk about the value of their properties. They are all millionaires but, in reality, some thrifty lifestyles tell a different story.
KiwiSaver growth is the only other reliable retirement income source, but growth is relatively slow due to annual taxes and high fees.
If the Government really wanted to encourage investment in KiwiSaver — and they should — they would follow the US model of allowing some level of pre-tax investment, and move to curb currently excessive management fees.
A: Try to tell someone that rental property has been a lousy investment in recent years, and they will laugh heartily. And yes, many people waste no time in telling you around the barbecue — if Covid lets you have one — how the value of their property has soared. It's odd, really, in a country so reluctant to discuss incomes.
But you're quite right. New Zealanders' obsession with investing in property often doesn't work well in retirement for two reasons:
• You may have perfect tenants, but there are still hassles with property maintenance, local government issues, and so on. And how many landlords have perfect tenants for years and years? You can hire a property manager, but that further erodes your profits.
• Even if the mortgage is paid off, other expenses eat into your rental income, as you say. Someone sitting on a million-dollar-plus asset might enjoy few luxuries.
Of course some people enjoy fixing blocked drains or rotting decks. And some have enough savings that they don't need much income from their rental property.
Others can, of course, sell the property at any time and invest the proceeds in managed funds — in or out of KiwiSaver.
But the hard part can be knowing when to sell. Everyone hopes to get out at a market high, but nobody knows when that is until months later. It's wise to ignore the market and sell when you need the money.
I agree that KiwiSaver is the best other way to save for retirement. Managed funds in general give diversification, simplicity and good long-term growth. And the government and employer contributions make KiwiSaver managed funds extra good.
But it's not correct to say KiwiSaver growth has been slow. The Financial Markets Authority's recent KiwiSaver annual report says the total money in KiwiSaver — called funds under management or FUM — has doubled since 2017, to $81 billion.
Some of that growth is because people have continued to contribute, but most is because of unusually strong rallies in New Zealand and world sharemarkets.
But that won't always happen — any more than rental property price growth will always happen. And you're arguing for a tax break on contributions and lower fees to attract more participation.
On tax breaks, we have to consider what else the Government could do with money that belongs to everyone. Personally, I would rather see benefits increased. I think the KiwiSaver incentives are already pretty good.
On lowering fees, read on.
Q: The providers for KiwiSaver receive fees and commissions based on the value of funds invested. As the value of the national KiwiSaver combined funds under management increases, is there a plan for the fees to be charged at a lower rate? The cash inflow from fees is going to get substantial as time progresses, given that more are joining KiwiSaver and we are each contributing as we are able. Is the skill of index fund managers going to be increasing at the same rate as the fees they receive?
A: No, the skill probably doesn't increase much for the managers of either passively managed index funds or actively managed funds — although you could argue that managers sometimes have problems buying enough of some of their chosen investments as their funds grow. So they have to adapt to that.
But your main point, I think, is that most KiwiSaver fee income comes from fees that are a percentage of the member's balance. So that income grows as the funds grow. And grow they certainly have, as outlined above.
Providers' fee income hasn't grown as fast as fund balances. In the year ending March 31, the total money in funds grew 32 per cent while fees grew 21 per cent, says the FMA. But still, that fee growth is considerable.
On the positive side:
• Fixed fees — typically around $20 to $40 a year — have recently been reduced or eliminated by some providers. And the new default providers, taking over from December 1, have all eliminated fixed fees on their default funds.
• Percentage fees have also been reduced recently by some providers. And they have gone down over time. Research by Melville Jessup Weaver (MJW) found that KiwiSaver fees as a percentage of assets have fallen from an average of 1.56 per cent in 2009 to 0.93 per cent this year (see graph below). For default providers, the average is 0.78 per cent, and this is expected to fall further. The two new default providers will charge just 0.2 to 0.4 per cent on their default funds.
Still, some providers continue to charge plenty.
MJW says the following providers had the highest KiwiSaver fees as a percentage of average assets in the year to March 2021 — in descending order: Fisher, Amanah, Milford, Pathfinder, Craigs, Christian and Generate. "Fisher Funds and Amanah charged over 2 per cent in fees on average," says MJW. It adds that these seven providers' funds are generally actively managed.
The providers with the lowest fees as a percentage of average assets — starting with the lowest fees — are: SuperLife, Select, Simplicity, BNZ, Nikko, Westpac and Supereasy. Their funds tend to be passively managed.
Says the FMA of the downward trend: "Over time we are looking to see this approach to value for money continue, so the current trend of KiwiSaver managers as a whole earning strongly increasing income from fees should slow and stabilise."
But there is no plan for the Government to force fees down. It hopes competition will incentivise providers to make the cuts. KiwiSaver members can contribute by pressuring their providers or, better still, moving to low-fee providers.
On the Smart Investor tool on sorted.org.nz you can rank KiwiSaver funds at different risk levels by their fees.
As old as you feel
Q: Loved last week's story about the little old lady from Pasadena. Your correspondent must enjoy life with that attitude. This is nothing to do with investments but it reminded me of an amusing incident in 2003. I retired from the "corporate world" in 2001 and after two years I had enough of not working.
Being practically inclined, I saw an advertisement for a handyman at a retirement village in East Auckland. I got the job and thoroughly enjoyed the interaction with the residents for two years, when I then moved out of Auckland. One day I was asked to check on a non-functioning lock on an apartment door. Arriving at the appointed time, I met a delightful woman who I guessed to be about 10 or more years older than me. I ascertained what was required to fix the door lock and explained this to the resident. "Good" she said, "I'll check my mail while you do the job".
I expected her to sit down in a lounge chair with a Victorian letter opener. I was so wrong. She opened a beautiful oak roll top desk, sat down and turned on her laptop. A few days later I discovered she was 96 and still driving! I hope she was careful driving on Auckland's equivalent of Colorado Boulevard, Tamaki Drive.
A: Indeed! But unfortunately, not everyone finds getting older easy. Read on.
Q: Last week your column said, "you can choose how much of your spending is essential" and looked at the possibility of the woman's husband working well into his seventies.
Yes, it's a thing these days that if you are not working or not fit and well into your 90s you somehow did it wrong and it's all your fault. My husband died recently at 72; he wasn't able to work for the last 12 years before. He had type 1 diabetes, artery disease and other health issues (not from high sugar, he never had that!). Pneumonia finished him off. I cared for him and it killed my (IT) career. I'm younger, now 58. But I can't work much either. I have severe arthritis, and a couple of hours hard gardening really messes me up.
So what job can I get? Not cleaning, not orchards, not professional care giving (I do it for aged mum), nothing that involves being on my feet really. I have tried but they take a look at me, my wrinkles, my way of walking, and I get the "we found a better fit" rejection, if I get a reply from interview at all ... usually not. I don't choose my essential spending. Being on a benefit as a carer means I pay my board, car expenses, phone and it's almost gone already. Doctors, clothing (yes, I buy off Trade Me), any other things I need, it's a struggle. Saving, that's a distant dream.
A: Gosh, you've had it tough, as did your husband. And it's clearly not your fault that your work options are limited.
It's infuriating how employers often won't consider older prospective employees. Older workers are said to be more reliable and less likely to call in sick. They switch jobs less often and tend to have a strong work ethic.
What's more, many companies are selling to people in their fifties and older, and it can be useful to have the perspective of employees in that age group. Come on employers, give older workers a chance.
Another possibility for you might be starting a small business. Think of what would make life easier for people you know.
For example, if you used to be in IT, you could perhaps help retired people — like the 96-year-old in the previous letter — with their basic computer problems. I know plenty of oldies who find many younger computer support people impatient and condescending.
Try putting a notice advertising your services in neighbours' letterboxes. It's something you could do part-time — and really help your clients.
Or perhaps you could cook or bake for others, or repair clothing. Think about your skills and what you enjoy doing. I wish you all the best.
P.S. Could everyone who is recruiting people of any age please at least send unsuccessful applicants an email? That is so easy to do.
Keep on working
Q: Your correspondent last week, writing about working past 70, raised an interesting subject. I find it fascinating that New Zealand has one of the highest rates of people aged 65-plus still working (24 per cent).
I still work, but I work for myself and have plenty of flexibility. It gives me a reason for getting out of bed each morning and a sense of achievement.
The income is less important but the opportunity to give our intellectually handicapped, 50-year-old son a job is a real bonus.
A: Thanks for adding one more reason to stay in the workforce. I suspect family issues figure in quite a few people's decisions.
Take that, boomer
Q: May I congratulate you on your excellent and well-modulated response to last week's boomer whose landscaping remains untended.
How out of touch he or she is about out-of-reach property prices these days. It is quite outrageous. "Toughen up and just go do it" is not at all helpful. The boomer must be living under a rock in his or her garden.
From a Generation Xer who feels for anyone trying to buy a first home now.
A: I feel for them too, and I'm a boomer!
- 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 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. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.