Alternative investments: Gardening offers more than just savings – Mary Holm

Gardening in retirement offers more than just a hobby. Photo / Hero Images

A different investment

Q: Alternative investments – and I don’t mean crypto, gold, vintage cars or whisky! As I spent the afternoon bottling fruit from my trees, I was feeling grateful and happy for the abundance in my life. Then I started to think about the process. The skills of gardening and preserving fruit. The sharing of extra produce with good neighbours and the help they give me. The outdoor exercise and healthy food. These are the results of my “investments” of time, energy and some dollars at the garden centre.

There is a lot of talking about dollars needed or wanted for happy retirement. I don’t see as much discussion of other ways of reducing costs or improving quality of life. I’m interested in your and other readers’ thoughts. What can you “invest” in through your life to help in the retirement years?

A: Experts say one of the keys to a happy retirement is spending time with other people and building relationships.

Another is developing satisfying hobbies or pastimes – not just time-fillers but activities you really enjoy. And exercise gives you another big tick, as does eating healthily.

Added to all that, you’re presumably saving some money on food purchases, even after you allow for the garden centre buys.

For some people – and I have to include myself – gardening is a chore. But you are clearly among the many who love it. Well done you! Other readers might come up with other ideas.

Do ‘rules’ cover this?

Q: Do retirement spending rules take into account the possibility of going into residential care, considering that quality accommodation can cost $10,000 per month?

The Winz Residential Care Subsidy takes into account the income and assets of applicants, with the current threshold being $284,636. Any gifting in previous years is also scrutinised.

A: Good point. Despite the fact that most people spend less as they go through retirement, many suddenly spend large amounts towards the end of their lives because they need care beyond what they can get in their own homes.

The spending rules you’re referring to are the ones discussed in this column in February and March this year.

One is that, if you retire at 65, you can spend $100 a week for every $100,000 you have saved, and your savings will probably last your lifetime. The New Zealand Society of Actuaries has written a short report for non-experts on some other, similar rules. See the report at tinyurl.com/NZRetire.

Do these take into account residential care costs or similar? Not specifically. Nonetheless, many people using one of the rules will have money available for such care. It depends on the age you retire, how long you live, how you invest your retirement savings and so on. The rules just give you a rough idea.

How likely is it that you will go into residential care? A Society of Actuaries report says this:

• “Around half of retirees, more likely to be female, are expected to spend some time in a residential care facility. The estimated likelihood that people aged 65 and over will use residential care at any time before they die has been projected to increase to 53% by 2040.
• “Half of those age 65 and over are likely to die in residential care (or in an acute hospital setting, having been transferred from a residential care facility).”

So the odds are pretty high. Ideally, you might set aside $10,000 a month for these expenses.

For how many months? The society says, “Retirees move into residential care on average aged 85 years, with [the] median stay 18 months.”

If you’re being conservative, make it two years. That brings that total to $240,000.

If you are a couple, does it need to be twice that? In many cases, no. If you are the second partner to need care and you own your home, you can probably sell it to raise the money. And single people can of course also do that.

Note, too, that if you set the money aside when you first retire, you will earn returns on that money over the years. Setting aside two-thirds or three-quarters of the total may well be enough.

Still, this will not be possible for many people with lower savings. If that’s you, you may be able to sell assets. Or, if you have a mortgage-free home, there are a couple more options:

• Get a reverse mortgage or home reversion – discussed recently in this column. You’ll probably be able to access several hundred thousand dollars. Arrange to get the money gradually, as you need it, rather than in a lump sum.
• Move to a lower-priced home, which might be smaller or further from a central city. Or you could look into subdividing your land, or see if your council offers rates postponement – again written about in recent columns.

If none of these works for you, use the Winz (Work and Income New Zealand) Residential Care Subsidy. As you say, there are asset and income limits for this. And you’re correct, they will look into amounts you have given as gifts in recent years.

You won’t get as much choice of facility as those who pay their own way and you won’t be in luxury surroundings. But you will be cared for. For more on this, see tinyurl.com/NZResCare.

‘Banana oil’

Q: A lot of what is said about retirement funds is banana oil. Life in most cases does not turn out as you plan. My wife and I are in our late 80s and have savings that would keep Prince Harry for a few years. My wife has a stroke; the hospital gave me 24 hours to find a rest home with full hospital care.

I find a nice one and ask the manager how many pingers per month. A reasonable $9880, she says. Picking myself up off the floor, I say we will take it. My wife arrives by ambulance an hour later. She has been there now nine months.

I go home, ring the government department and ask what home help is available to me now l’m home alone. He puts me on hold and rings the IRD. Comes back and says: “Nice try, mister.” So from then on, any help I get is $35 to $45 per hour.

So readers, how do your calculations look now? In most cases, you are going to need far more than you think.

A: Gosh, a tough story. And a good example of what we’re talking about in the Q&A above. At least you can afford your choice of care for your wife.

This is one of those twists in life that can hit you hard. It’s never easy. I do feel for you.

A revised and updated edition of Mary Holm's book Rich Enough? A laid-back guide for every Kiwi.

This is the final of three excerpts from Mary’s revised and updated No 1-bestselling book Rich Enough? A laid-back guide for every Kiwi, published by HarperCollins Aotearoa New Zealand.

The Stock Picking Game

Earlier in the book, I mentioned that I taught a financial literacy course at the University of Auckland for five years, from 2009 to 2013.

When I first planned the course, I realised that most of the students, fresh out of high school, wouldn’t know much about the sharemarket. How could I give them an idea of what a share was? Out of that question was born the Stock Picking Game.

At the start of the course, I gave the students one-page summaries from a stockbroker of about 25 New Zealand shares. Each student had to choose a share they thought would perform well over the 14 weeks of the course. I also assigned each student another share. Then I divided the 25 shares into five “portfolios”, or groups of shares, and each student was assigned to a portfolio.

So, at the beginning, each student had: their chosen share, my chosen share for them, and a portfolio of five shares. Then we set it all aside until the end of the course.

Before I go any further, many of you will be saying, “Hang on a minute. You’ve been telling us shares are a 10-year-plus investment. Now you’ve got students ‘investing’ for 14 weeks!” Good point – a point I made repeatedly to the students. And, if I’m honest, I would have preferred it if the New Zealand sharemarket had fallen during those 14 weeks, to underline how risky short-term investing can be.

No such luck – except in 2010, when 16 out of the 25 shares lost value, even after including dividends. In the other four years, the average return (including dividends) ranged from 6% to 15% – very healthy returns for just three months.

Thank goodness in most years I could refer back to unhappy 2010! And in every year there were several shares that lost value, so that helped.

But on we went. There was lots else for the students to learn. Some of the lessons:

• Most students were lousy stock pickers. In 2011, for example, the most popular share was Fletcher Building, probably because students expected it to benefit from the recent Canterbury earthquakes. But in the 14 weeks, its performance ranked 20th out of 25. And the second-most popular, Air New Zealand, came dead last. Meanwhile, the top-performing share, NZX, which was chosen by just three students out of 400, produced an astonishing best return of 55% in just three months.

Then in 2013, the third-to-last share in popularity, Xero, came top with an even more astonishing return of 70%.

Of course, the quality of the student choices wasn’t always that bad. But most years, the most popular shares tended to perform worse than the least popular ones.

• Information affects share prices more or less immediately, and amateurs can’t benefit from it after that. The popularity of Fletcher Building – because of the earthquakes – illustrates that. By the time the students were picking their stock, in March 2011, the experts had long since calculated how much that company was likely to benefit from the quakes rebuild. That information had already pushed up the share price.
• Don’t judge a share by its short-term return. Despite the fact that the students “invested” for only three months, we also looked at the longer-term performances of the shares.

In 2011, for instance, while Fletcher Building and Air New Zealand did poorly over the three months, Air New Zealand had gained nearly 13% a year over the previous 10 years. And Fletcher Building had averaged more than 20%. Their recent performances were far from typical.

• A single share can be very volatile. NZX, the top performer in both 2009 and 2011, came 22nd out of 25 in the year in between. Mainfreight, top in 2010, came dead last in 2013. And F&P Appliances, top in 2012, had come 20th out of 25 in 2010.
• Perhaps most importantly: diversification smooths out the ride. When we looked at the portfolios of five shares, it showed how “owning” more than a single share reduces the highs and lows.

In 2011, for example, the return on one share was minus 14% while on another it was plus 55%. But on the portfolios, the range was much smaller. The worst portfolio’s return was plus 1% while the best one got plus 22%. The same thing happened every other year, and of course it always will. The highs and lows are watered down.

Footnote: the students didn’t feel so bad about being lousy stock pickers after I told them about Lusha, the Russian circus chimp. Lusha was given the choice of 30 cubes, each with the name of a company on it. She chose eight.

A year later, her “portfolio” – which included banks and mining companies – had grown a truly impressive three-fold. Lusha had done better than 94% of Russia’s investment funds, according to Moscow TV.

Other stories tell of people throwing darts at newspaper stock price tables, buying whatever stocks the darts land on and beating most of the experts.

* 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 mary@maryholm.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.