I’m a retiree with $900k cash but no home. How do I make it last? - Mary Holm

There's no need for your 80s to be sad. Photo / 123RF

A way out

Q: I am a twice-married woman of 70. I have not come out of either marriage settlement well. For six years now, I’ve been living with a friend in a large, comfortable home.

However, it is not a great situation and I really need to be out of it. My problem is that I have three children with families who all live in the Auckland area, and I would like to be located so that I can see them easily.

They all lived offshore for a long time and now they are all here. I am so lucky. I have all up around $1 million, although $100,000 is on loan to my daughter to enable her to buy a home.

My only income is the pension (I guess you’ve heard this all before!), but I am hopeful of living these next few years as I would like to live.

Clearly, my 80s look sad. I am English-born, lived in Australia and met my Kiwi husband and moved to NZ. My 20-year marriage ended, and five years later I met my second husband.

We had a business together which was successful, but he mismanaged our funds (he being the only director) and then left to live a nomadic life!

My circumstances need to be addressed. I do not know if renting is wise as I’d hate to continually move, and my money would only allow me to buy something tiny anywhere near my only family in NZ.

Is there any solution to this? I have been harbouring this problem for far too long, and I must move on.

A: Let’s set you on a more positive path – not just for now but for your future. There’s no need for your 80s or beyond to be sad.

I think renting, rather than tying up your savings in a small property that doesn’t appeal to you, is the way to go.

You’ve got $900,000 available now. If you plan to live on that from now until you’re 90, you could spend $45,000 a year – in addition to NZ Super - even if you were earning no return on the savings.

But if you earn 3% a year, after fees and tax, you could spend $60,000 a year – or $5000 a month - according to an online regular withdrawal calculator.

What about when you’re 90? Many people report they can live comfortably on just NZ Super at that stage – although they tend to be homeowners. But by then, it would surely be reasonable for your daughter to repay your $100,000 loan, which you could use to supplement your Super.

There are a few issues to consider here:

• What about inflation? The NZ Society of Actuaries says retired people tend to spend less as they move into later retirement, so it’s probably safe to ignore inflation. While your $60,000 a year will buy you less as the years go by, you’ll need less.
• Where would you invest? If you put the spending money for the next three or four years in term deposits or a cash fund, it might earn less than 3% after tax on average. But that could be supplemented by putting the rest of the money in a low-fee medium-risk KiwiSaver or other fund. Your account balance would fluctuate, but your average return after fees and tax would probably be higher than 3%.

If you prefer to just put the lot in bank deposits, your return would probably average above 2% a year after tax, and you could spend $4500 a month.

• What about the issue of being a tenant and perhaps having to move frequently? There are more long-term leases these days. Check online, and also ask prospective landlords if they are willing to sign up for several years. You would be a desirable tenant, and I imagine some landlords would love such a deal.

You can make this work!

Footnote 1: Cash-poor retired homeowners might want to consider selling their homes and renting in much the same way. Many people wouldn’t dream of doing that. But they would have considerably more spending money.

Footnote 2: In your story, there is a message for other women whose husbands run the money side of a joint business: Be involved. Please.

Rents in one apartment block

Q: I write regarding last week’s letter about landlords being charitable for too long and needing to raise rents.

Landlords need to remember that their market is individuals with limits on what they can pay in rent. These individuals are not a charity to support indigent landlords. Of course, landlords can raise rents, but they may not find tenants.

I see this in the apartment block where I own my home. Rents range from $500 per week for a studio to $750 for a two-bedroom.

Lovely tenants moved out because the landlord raised the rent at lease renewal time. Apartments have been vacant for weeks until landlords got more realistic and reduced the asking price, in at least one case to below the previous rent.

My renting neighbours are professionals on good incomes, the only people who can afford to rent here. I am a single superannuitant and could not afford to rent an apartment in my building. As an owner, my outgoings are around $6500 per annum, which I can afford.

Obviously, a landlord’s outgoings also include mortgage repayments. But with the substantial rents my neighbours pay, I am surprised that landlords can’t cover their costs, particularly now that interest is tax-deductible.

Possibly some landlords didn’t look carefully at risks and returns and are too highly geared, but I don’t see why tenants should pay for landlords’ poor business decisions.

A: Your observations are interesting.

A key factor in how well a rental property investment works for the landlord is the size of their mortgage. With no mortgage, most rents would easily cover expenses, but with a large mortgage, the interest payments can kill the short-term profitability.

On the other hand, the bigger the mortgage, the bigger the long-term return the landlord stands to gain on their original investment – as long as property values rise. That’s the risk highly geared property investors take. Usually it works, or certainly has in the past. But if property values fall or stagnate, landlords with big mortgages they are struggling to pay are sometimes forced to sell at a loss.

Expecting tenants to rescue them by paying rent above market rates is unrealistic.

Same number of houses

Q: You get lots of letters from landlords that focus on the social service they are doing by having properties that people can rent.

There is no question that we need a stock of rental properties, but there are two points that many seem to miss.

The first is that landlords, when they purchase properties to rent out, add demand to a limited supply of properties, and help raise the price.

Secondly, when they threaten to leave the market, they will argue that there will be fewer properties for people to rent. That’s not true if the property is bought by another landlord.

And if it’s bought by someone moving from rental to home ownership, then there is also one less person looking to rent. Unless they decide to leave the property vacant - highly unlikely - the total number of houses does not change when a landlord exits the market.

A: You’re quite right on both points.

If someone wants to own more than one house – so they can rent one property out – that must push up demand, and therefore prices.

Several other readers also made your second point. One added that, if a previous tenant is able to buy a house from a landlord who has left the market, “from an overall societal perspective, this is a very good thing”. Also, she says, “I understand that the new healthy homes regulations are persuading some landlords to sell. Brilliant.”

More on landlords and tenants next week.

Biased and socialist?

Q: Many years ago, I would read your weekly NZ Herald Q&A commentary (back in the days when the paper was known as conservative Granny Herald). Your bias against residential rental property was evident.

You pushed for a capital gains tax and now quite possibly want a wealth tax in NZ. I also recall that your underlying views appeared to be somewhat socialist.

Beyond this, I appreciate that you were giving advice to those who were not as financially literate as yourself.

Over the many years my rental properties have appreciated in value, and now that, at retirement, I am mortgage-free, I have plenty of income and the benefit of capital gains. Also excellent long-term tenants and nicely renovated properties.

Landlords have been particularly demonised in the last 10 or so years, and a culture of envy has developed against those who work to get ahead. We now have so many on a benefit (including NZ Super) that we have become unproductive as a nation. So the few work hard to support those who either don’t want to work or who can’t.

I chanced upon an item online from your column back on February 24 last year asking the question, “Should we, the uber-rich and ‘chauffeured’!, be retiring ... at 85!” - whilst I was researching how I can financially help family by setting up a super fund for them, here and in Oz. Surely you are taking the mickey and invented this story? Otherwise, the couple must have dementia or cognitive impairment to write this nonsense to you.

If, by some stretch of the imagination, there was some truth to what this couple wrote, the only purpose in publishing it was to engender envy and hatred, or dismay at best.

It is great to stir the pot of green envy in NZ, as the left need the support of their “besties”, the media, including columns like yours, to further their agenda.

Also, no wonder trust in the media, as revealed in recent polls, is at an all-time low, including distrust of our institutions and politicians, who also introduce legislation by stealth. Not to mention experts whose comments are all “politicised” today, and a left-biased judiciary and universities. Constant cherry-picking, an unbalanced distortion of the facts, running to their own narrative and pushing their agenda.

There are still more than a few of us who are immune to all the propaganda and were educated in free thought. I do fear many will be departing our shores, though, given the push to greater socialism and redistribution of wealth in this country, and the racial divisions and subsequent erosion of democracy.

A: Gosh. It must be hard being unhappy with beneficiaries, people who get NZ Super, the media, institutions and politicians, the judiciary and universities.

You’ve well and truly broken the 200-word limit for letters, but you raise some interesting points. My comments:

• Can you tell me, please, when I have shown a bias against rental property? It works well for many, and I often acknowledge that.
• Yes, I support a capital gains tax, drawing from the best CGTs in other countries. But it should be on all assets, including shares and other investments. Why should gains not be taxed when income from hard work is taxed?
• I don’t support the idea of a wealth tax.
• I’m no socialist. You can’t be if you hold an MBA in finance from the University of Chicago, where the free market is king! True, since I studied there, I have modified my views. Things don’t work well without support for less fortunate people. But in many situations, I still think market forces work best – as mentioned last week when the column looked into artificially raising rents or capping rents.
• The letter from the couple with the chauffeur was real. I never make up letters. But I think it was written in fun, as was my reply. The following week, I ran a complaint letter about it, but also the following feedback from a reader: “The ‘paying the chauffeur’ Q&A was my first belly laugh of the day. Glad you put this one in, so much doom and gloom nowadays.” Financial columns need all the fun they can find!

You acknowledge that some people can’t work. Along with setting up financial help for your family, it would be wonderful if you donated to charities that support these people. It might make you happier – I mean that sincerely.

* 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.