War veterans' surviving spouses are eligible for a pension. Photo / Supplied
Q: A friend mentioned that his mum was receiving a Veteran Spouse Pension. My mum is the wife of a war veteran who died 44 years ago, in his 59th year. It disturbed me greatly that for the past decades, Mum would have been eligible to receive the veteran spouse pension but no one - not her accountants, lawyers, WINZ case managers, friends or spouses of returned servicemen - ever raised this matter with her. I immediately looked into the application process and assisted Mum to apply for a payment that rightly she should have been receiving for years.
I hope my letter will be read by others who are unaware of their eligibility to receive this payment. My Mum turned 102 in February. This has been a small victory, but it is long overdue. By the way there is no arrears payment.
A: What a pity about the lack of back payments – and, indeed, that nobody told your mum about the pension much earlier. Still, it’s great that she receives the money now. And congratulations on her recent birthday!
On the Veterans Affairs website it says spouses and partners of people who served before April 1, 1974 or in Vietnam, or served after that date on “Qualifying Operational Service”, may be eligible for the Surviving Spouse or Partner Pension. It pays $204.95 a week.
Other readers can go to the website to apply. Thanks for drawing our attention to this. It would be lovely to hear from anyone else who finds they qualify.
Q: My wife and I are in our 70s, continue to work part-time, enjoy good health, and have very little in the way of financial commitments.
However, we were both late starters to KiwiSaver, and have a mere $50,000 or so each. Our property is valued at around $1 million – probably more.
Is a reverse mortgage a viable concept? If we decide to retire in the near future, and don’t make repayments on such a loan, does this accumulate, as in interest on interest?
A: Yes, a reverse mortgage does grow over the years. You usually make no repayments until you sell the property or die, so interest on the loan compounds at what can seem an alarming rate.
Let’s say you borrow $100,000 when you’re both 75. The useful reverse mortgage calculator on Heartland Bank’s website tells us that when you’re 90 the loan would total roughly $378,000 – assuming interest stays at the current 8.89%.
Sounds alarming. But people often overlook what’s happening to their house value in the meantime. The calculator estimates your $1m house will be worth $1.56m by then, if its value grows at 3% a year. So you would still have plenty of equity - the difference between the house value and the loan – for further borrowing or to leave to heirs.
If you delay borrowing until you are 80, the loan would grow to $242,000 by the time you’re 90, while your house value grows to $1.34m.
So, despite the compounding of the loan, a reverse mortgage can still work well. And it doesn’t make a lot of sense to have little to spend in retirement and then die with a property worth heaps.
My rules for reverse mortgages:
Next week: A good alternative to a reverse mortgage for those who don’t need a huge amount of extra money.
Q: Nice to see house prices coming down, said one reader of your column. But is it?
Let’s say you were a first-time buyer a few years back. Kids on the way. You bought your dream home. Interest rates were low.
A few years on, our Reserve Bank has decided to squash the economy – you lose your job. Interest rates go up. They restrict lending and you can’t go interest-only easily.
Okay, sell. But developers have overbuilt townhouses. House prices crash. So now you’re stuffed. You are in negative equity territory. You lean on your parents. They help, which impacts their retirement plans.
Eventually you want out. You look overseas. They want you. You go. You are never coming back. The loan from your parents is never repaid.
I have three kids. Two have left New Zealand, and one is getting ready to. House price drops are not good. We need a stable economy. We need greater productivity by investing in New Zealand. We need wage increases via the above. Volatility only benefits a small number of speculators. The rest of us suffer.
A: Hang on a minute. If house prices keep falling, it would help your children to buy homes in New Zealand!
Sure, some people – often property investors – are caught out when prices drop, if they had counted on a quick sale at a gain. But most home owners – including those who bought at peak prices - ride through a downturn. Banks don’t want to foreclose, so they usually let struggling borrowers pay interest-only, or extend their mortgage term to reduce payments, or even pay nothing for a while.
Those are not great solutions because total interest increases. But the vast majority of borrowers manage and come out the other side smiling – and, hopefully, repaying any loans from their parents in due course!
I agree that steady house prices work better than prices that zoom up and then fall. But markets do that. The alternative – government control – would never work.
Q: I wonder about the second letter last week on living on New Zealand Superannuation – and saving.
Do these people not have rates, power nor water to pay? Are their house and car not insured? No dental, hearing nor sight issues? No faulty appliances nor house maintenance? Let alone Netflix and the NZ Listener! Their weekly $100 savings seem unobtainable!
A: Perhaps you and another reader with similar questions overlooked last week’s correspondent’s lump sum for “fixed expenses”. Anyway, I asked him for more details, and he kindly replied:
“Our fixed expenses fortnightly: insurance (house, contents, car and life) $211; power $125; car (rego, warrant and service) $19; internet and mobile phones $70; St John Ambulance $4; professional fees and donations $45; rates (district, water and regional) $201; medical alarm $53; Netflix $4. That totals $732. Add food and petrol at $500, and it comes to $1232. This fortnight we had $214 in incidental expenses.
“Before we retired, we bought new appliances and re-roofed the house, and a small late-ish model second-hand hybrid car, which is very fuel-efficient.
“My daughter and I can do most maintenance around the house and appliances. My son also does some work for us. My daughter does the lawns and gardens mainly. We also painted the house soon after retiring. My daughter buys some groceries and puts petrol in the car when needed for her use.
“Our power will need adjusting with the new rates which I haven’t done yet. With the car rego, I allowed a bit extra for a service, this will need increasing soon. Glasses and dental come out of incidental expenses as they are very irregular. However, we do need to be vigilant with the incidental expenses.”
That seems to cover everything.
Q: I read with interest last week’s question on living on NZ Super and saving. My first thought was: why don’t they enjoy it a bit more? Maybe a new book here and there, a takeaway, new underwear, a lunch out, a movie, a new puzzle etc or magazine.
An activity out with their daughter, like the zoo or a movie. Why are they living so frugally? They don’t travel and that’s fine. I’m sure they are happy and that’s fine too. But I thought they should be enjoying a few treats too. Life is short! They deserve it!
I’m in my 30s so a different generation.
A: That concerned me too. But, says last week’s correspondent: “We have friends visit several times a week and we go and visit them. We are also involved with our church community, so have lots of social contact. We grow strawberries, raspberries, rhubarb, silver beet, tomatoes, carrots, capsicum, plums, oranges, grapefruit, mandarins, cucumber etc.”
Sounds like contentment to me.
Q: I find it strange that last week’s retired couple would be eligible for a disability allowance as well as NZ Super. If they have an excess of $200 each fortnight to save, it seems to me that this allowance should have been removed when they retired!
A: What a meanie! The disability allowance – all $155 a fortnight for the couple – “is a weekly payment for people who have regular, ongoing costs because of a disability”, says Jayne Russell of the Ministry of Social Development. “These could be visits to the doctor or hospital, medicines, extra clothing or travel.”
Do you really want to see older people with a disability being deprived of help with their extra costs?
To get the allowance, a couple’s income must be less than $1225.95 a week, which includes NZ Super if they receive it. “The couple would be eligible based on information provided in the letter,” says Russell.
Q: Several times you have mentioned that it is possible for a person in their 90s to live on NZ Super only with no other income. I would be very interested if you would please publish a budget on how one would live.
A: See the Q&As last week and above about the couple who not only manage on NZ Super, but save. They list their spending.
Importantly – and I think I always say this – a person probably needs a mortgage-free home to make it work. But that would apply to the majority of people currently in their 90s.
Beyond that, I’m quoting comments from other correspondents over the years. Also, as noted in the February 8 column, the New Zealand Society of Actuaries reports that New Zealanders spend less and less as they get older – with reduced purchases of clothing, transport, recreation and culture in particular. Their data comes from Stats NZ’s Household Expenditure Survey. But read on.
Q: I am a 95-year-old widow owning my small home and in the previous five years, I have needed the services of electricians, plumbers, roofers, painters, builders, odd jobbers and locksmiths, whilst cleaners and gardeners are needed on a more regular basis. On top of that, I have spent increased time with the dentist, audiologist and optician.
Wouldn’t this increase in the last years be true for many, and wouldn’t it have been worth a mention in the comparison tables?
I’m glad my savings prevent me from having to worry. That’s what they’re for, and I feel lucky to be still enjoying my retirement.
A: Goodness, you’ve employed half the neighbourhood lately! Home owners inevitably have to hire various tradespeople over the years, and apparently, you’ve had a spate of problems lately. That can happen at any stage in someone’s life, and for you, it happens to be in your 90s.
Obviously, there will be many exceptions to the “rule” that life is cheaper the older you are. More on that in the next weeks. But, as I said above, the data show it’s true for most people.
Q: Last week you said, “The New Zealand Society of Actuaries has written about four Drawdown Rules of Thumb, two of which work well for any retirement age”. Do these calculations you list include NZ Super?
A: No. They are about how you spend the savings you have when you retire. You can assume you’ll receive NZ Super as well.
I prefer these rules over the Massey University Fin-Ed Centre’s numbers on how much you need for retirement. The actuaries’ rules work for everyone, whether you retire with tiny savings or millions – rather than leaving people feeling like failures for not reaching pretty high savings goals.
The rules simply tell you: if you retire with $X, you can spend $Y each year – over and above NZ Super - and your money will probably last Z years.
The volatile markets of the past week have many people looking anxiously at KiwiSaver and other balances. Please don’t! Go for a walk or read a light novel instead.
If you’re in a medium or higher-risk fund, wobbles happen. People who bail out in times like these end up being losers.
* 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.
OPINION: You need to consider interest, taxes and fees.