Q: I am 40 this year, a single mum with young kids and have been bad with money until three years ago.
Since then, I have invested in KiwiSaver and in two ETFs (exchange traded funds), one international and the other local. With a frugal lifestyle for the last three years and these investments I have managed to save about 5 per cent for a $750,000 house.
I am based in Auckland and unlikely to move as my current employment pays me well. I rent a small place to save, but as my kids grow up I am thinking of a bigger place.
With my current age, I feel less confident in securing a house while saving for my retirement and my children's future. Should I still try to save for a house, or should I just find a bigger place to rent and save for retirement and my kids' education?
A: Don't give up! Sure, house prices are still ridiculously high, but mortgage rates are ridiculously low. And you're doing really well with your saving. It's not easy being frugal with little ones and work demands, but you're making it work.
It seems you're thinking of home ownership and saving for retirement as two competing demands. While it's quite possible to retire comfortably without owning a home — as long as you have enough savings to cover rent for the rest of your life — for most people the retirement plan includes owning a mortgage-free home. And for people with children, in particular, it usually works better to own your home.
I suspect you and many others don't know about the various ways the Government helps would-be first home owners — and also previous home owners who are now renting and don't have lots of assets.
I often hear people dismiss this assistance: "The only places you can buy — because of the house price caps — are horrible, or in bad neighbourhoods, or too far from work." But we're talking about first homes here. They're not meant to be perfect. Once you're in the market — on the ladder — you can move up.
Have a look at what government assistance is on offer, and see what might work for you — perhaps including a newly built home.
Go to kaingaora.govt.nz and click on Home Ownership. I suggest you start with the First Home Decision Tool, which asks a few questions about your situation, including your income and membership in KiwiSaver.
That tells you whether you might be eligible for a first home grant of up to $10,000, a first home loan with just a 5 per cent deposit, KiwiSaver or KiwiBuild assistance, and other possibilities.
Income maximums for the grant and loan are $85,000 for singles and $130,000 for two or more buyers. But for KiwiBuild they are higher, at $120,000 and $180,000.
The Government also recently announced some other assistance for people to become home owners, through what it is calling Progressive Home Ownership.
That can take three forms:
• Shared equity or ownership, where a household owns part of the home and gradually buys the rest from a provider or the Government.
• Rent to buy, where part of the rent might go towards a deposit on the home, or similar.
• Leasehold, where the homeowner owns the house but not the land.
These programmes are expected to start in early 2021 — although, of course, that could change depending on the outcome of the election. Keep your eye out for more information. It's all there online.
You sound to me like a strong young woman, and there's no way 40 is too old to buy a first home! I bet you can do it.
P.S. In your circumstances I wouldn't worry about saving for the children's education. New Zealand has excellent state schools and the children can do tertiary study with interest-free student loans. I bet they need a less-stressed Mum more than they need expensive education!
Living the high life
Q: I wanted to comment on last week's letter writer with a multitude of unfortunate experiences with his money over a good number of years.
One might suggest that as he is in his 70s, the likelihood of spending $1.5 million on fast cars, travel, or faster women, is growing seriously unlikely.
He makes no mention of family, but it can be really fun to dish out a few thousand every year to the kids. And if he doesn't have family, there are a lot of really appreciative charities. My favourites are the Auckland City Mission and Starship. Spend it, I say.
I hope your writer perks up. Spring is coming, the birds are singing, and we seniors are well looked after in these troubling times. Not much to complain about, really.
A: Hear, hear — except the bit about being in his 70s limiting his activities!
Bank on it
Q: I think that you are probably right with your third suggestion last week that the person with $1.5 million in the bank should probably leave it there, given that person's past history of investment losses and resultant scepticism.
However, dare I suggest that the past history, showing little diversification of investments, might mean all of the money is now invested with one bank? And perhaps it's one of the banks with a lower security rating paying a slightly higher interest rate, where some of the money could be lost if the bank fails.
I hope that you will publish additional advice suggesting that the $1.5m, if it remains invested in the bank, should be invested in more than one bank.
I did like you highlighting how long the $1.5m would last, even if earning no interest ($75,000 a year for 20 years). My experience is that many people with significant wealth do not do this calculation, yet it is an entirely valid way to look at how money might be used.
A: Let's not go back into Q&As about whether New Zealand banks are likely to fail. We had enough on that earlier this year. In short, it seems pretty unlikely.
Anyone who is worried can get the Reserve Bank's info on different banks' strength at tinyurl.com/NZBankStrength. However, it's a good idea to spread large bank deposits over several banks anyway, to help you keep track of who is offering the best interest rates.
Use interest.co.nz to find the different rates.
Q: My husband and I are in our late 60s and we have the bulk of our savings, over $500,000 each, in a moderate KiwiSaver account with the same bank.
Is it crazy for us to use the same provider, putting all our eggs in one basket?
A: This seems like the same issue as above, but bank KiwiSaver accounts are different.
If the bank failed, its KiwiSaver funds probably wouldn't be greatly affected because they hold a wide range of investments — unless the funds invest heavily in the bank's own securities. Last time I looked, some did.
To find out, you can sometimes see your fund's main investments on Sorted's Smart Investor tool. However, sometimes that just says the fund invests in yet another fund. If it all gets too hard, email and ask the provider for the info. If they don't reply, fire them by switching provider — preferably to a low-fee provider.
Beyond the issue of bank failure, it's a bit like the situation in the Q&A above. It's good for a couple to be with different providers so you can compare fees and services, keeping track of some of the competition.
Who gets the assets?
Q: I would like to reframe the headline on your column last week from "Women left locked out by their partners' family trusts" to "Man left locked out by their partner's will".
In 2012, I left a 25-year marriage and since have provided all of the hands-on care for three teenage children and simultaneously rebuilt my career. I had entered the marriage with the same qualifications and income as my partner but had spent most of our time together supporting their career and raising the children.
On separation, I came out with a poor income, (it took my spouse three weeks to earn my annual income) and 50 per cent of assets, which was enough to buy a modest townhouse without a mortgage, and modest maintenance support for kids until their 18th birthdays.
Through sheer hard work, grit and some good luck, I have retrained and now have 15 times the income I had on separation, and increased my overall wealth by 80 per cent.
In that time, I have also had a five-year relationship which recently finished. That person was also separated for a similar time, and had not made any decisions about buying property or organising KiwiSaver, and downsized their career to live a "better life".
While we were together I did provide a nice home. They paid some contribution to everyday living costs only. We wrote an agreement stating that any assets previously owned or bought by one of us while in the relationship would not be shared, and any gain in asset value stays with the owner.
The letter in last week's column implies somehow that just because we live together the partner could expect to "push for a name on the house" or some other "relationship property". On what level is any expectation, legal or otherwise, that a partner can access any of my finances or assets even over five, 15 or 50 years?
A: I put your question to our expert, trust and estates lawyer Rhonda Powell. She starts with the basic law.
"The first point to establish is whether the relationship 'qualifies' for the equal sharing regime under the Property (Relationships) Act 1976," she says. "As a general rule, de facto relationships qualify for equal sharing after three years. Marriages qualify immediately.
"As a general rule, pre-relationship assets remain your separate property, as do gifts and inheritances, and these are not subject to division. Assets acquired during the relationship are relationship property to be split equally when the relationship ends.
"As an exception to this, the family home is always relationship property, if either party to the relationship owns it. Family chattels (household items for family use) are also always relationship property."
Powell adds that if your ex moved in with you, and lived there for five years, he probably has a right to 50 per cent of the value of that home.
But what about the agreement you two had — which presumably stated that the family home would remain your separate property, despite the fact that both of you were living there?
"A contracting out agreement is a formal legal document that can only be completed after both parties have independent legal advice, and the lawyers certify the agreement too," says Powell.
"So, if that is the sort of agreement you wrote, you are probably okay. If you wrote one yourselves at home, then it will have no legal effect."
She adds, "Most general practitioner lawyers can prepare a contracting out agreement, but you can also do it yourself online, as long as you still get independent legal advice before signing it." Go to tinyurl.com/NZRelationshipAgreement.
Enough on trusts
In the last few weeks, a lot of people have written to me about trusts. Some have described situations that have worked out well for all. Others point out various injustices. A lot depends on your perspective.
I plan to run a couple more of the letters next week. But please don't send in any more on this subject. Enough!
The news of Bonus Bonds' demise broke on the day of my column deadline. I received several emails about this, but I expect the questions will have been answered elsewhere by the time this column is published. But if readers still have questions, they are welcome to send them.
- 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 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.