We spent all our savings in early retirement and now regret it – Mary Holm

We have travelled a lot in our early retirement. Photo / 123rf

Good on you!

Q: I thought I would tell you my story of not being careful with money.

We sold a property in Auckland 10 years ago. We came down to the Coromandel and thought it would be a nice place to live. We bought a two-storey house in a lovely town, which left us with $200,000 in the bank. We had a lot to do in the house, everything was old fashioned, so we did use up some money making it nice.

My husband had always wanted to go on a cruise, so we did that, but we had to break our term deposit to pay up front, which cost us $400. Then we wanted to go back to England on a coach trip to see our remaining relations and friends, as well as parts of the UK that we hadn’t seen. We also had a coach trip around Italy.

When our daughter moved to Australia we had a couple of trips over there.

We also had problems with the house – so many water leaks – because the pipes were old. In the end we had to have the pavers dug up and a whole new lot of pipes installed.

In 2018 we were flooded, along with everyone else in our area. We had to renew items that the insurance didn’t cover, and change the carpet up the stairs, plus three rooms, so it matched the downstairs.

Then we realised that the $200,000 had dwindled so much in the 10 years that we had to take out a reverse mortgage in order to live the rest of our lives in comfort. We are in our early 80s.

I don’t know why we didn’t seek the advice of a money expert. I guess, having never had spare money before, we just went a bit mad.

If only we could have that time back again, we would be so much more careful.

A: I’ll probably get shot for saying this, but I don’t think you did much wrong!

Sure, you should have kept better track of your financial situation. And paying a break fee on a term deposit seems a bit silly. Couldn’t you have waited until it matured?

Also, I can’t help but wonder whether it really mattered that the carpet upstairs was different from downstairs. But hey, if it would have kept on annoying you, you did the right thing.

My main point is that it seems you’ve had a good time in the years you’ve been well enough to travel and to see distant family and friends. Quite often, I hear from older people wishing they had spent more in their early retirement.

Now you have a reverse mortgage, which some would frown on. But I think that’s fine, given you’re in your 80s. Unless one of you lives to well past 100, there aren’t all that many years for the debt to compound. And, despite the current trend, house values will surely rise over time, too.

Having that loan does mean you probably won’t leave a large inheritance. But I don’t think that should drive people’s retirement spending.

A note to other readers: My encouragement to spend up large does not extend to younger people, unless you can easily afford it!

Really, minister?

Q: I’m responding to your KiwiSaver Q&A last week about some employees no longer having any incentives to be in KiwiSaver.

I have written to the Government on two occasions raising arguments in line with yours. The last such correspondence was following the May 2025 Budget changes.

After those changes, a little over 20% of staff in the business I work for applied for savings suspensions. And upon discussion with them, their choice in most cases was solely due to our remuneration being inclusive of employer KiwiSaver contributions, and the government contribution no longer applying to them, as they earn more than $180,000.

The response from ministers was limited, with Simon Watts being the only respondent. The letter received under his signature did not address my concerns and simply brushed issues aside on the basis that the issue lies with employers and employees to resolve. It referenced a members’ bill in the name of Dr Tracey McLellan, which did not proceed.

Effectively, this appears to fall into the too-hard basket or is not a priority for Government. Until it is addressed, KiwiSaver will continue to underperform through people having either no incentive to contribute or not being forced to save. A very shortsighted approach by those in charge.

A: It’s disappointing to hear of people suspending their KiwiSaver contributions because they no longer get input from the Government and their employer contribution effectively comes out of their pay.

Even for the majority of employees, who earn less than $180,000, getting only the recently halved government input and no genuine employer input is hardly a big incentive.

You sent me a copy of the letter you received from Minister of Revenue Simon Watts dated July 11.

It includes this: “As you are aware, employers and employees are able to agree that KiwiSaver employer contributions are to be deducted from an employee’s gross salary or wages. Employment contracts designed in this way are known as ‘total remuneration’ contracts.

“I appreciate that employment contracts are frequently technical in character. Accordingly, I believe it is important that prospective employees carefully review the terms and conditions of their contracts and seek professional advice if necessary. Doing so ensures that all parties are fully informed of their rights and obligations before entering a relationship of employment.”

What planet are you on, Minister Watts? Sure, executives negotiate contracts. But – especially with jobs so hard to find these days – is it realistic to expect someone offered a lower-paying job to take the employment contract to a lawyer? And then to expect the lawyer to be up with the play on how total remuneration packages affect KiwiSaver incentives? And then to expect the job applicant to bargain with the employer over this?

The KiwiSaver Act of 2006 was set up “to encourage a long-term savings habit and asset accumulation by individuals who are not in a position to enjoy standards of living in retirement similar to those in pre-retirement”.

“The act aims to increase individuals’ well-being and financial independence, particularly in retirement, and to provide retirement benefits.”

Sounds like a good idea to me. So why would a Government make changes, and allow employers to set up their pay systems, that prevent KiwiSaver from working?

No to index funds

Q: My children were given $10,000 each by their grandparents at a time when term deposit rates were close to 6%. So they have only ever known the good times.

They have KiwiSaver accounts, but as they are getting close to leaving university they don’t want to lock the money up long-term as they may want to call on it.

What would you suggest they do with the money? Would an index fund be a good option?

A: No! Index funds – low-fee share funds that invest in all the shares in a market index, or occasionally all the bonds in a bond index – can be a great investment, but only for money that you don’t expect to spend for 10 years or more.

Over a shorter period, there’s a chance the balance will have fallen when you withdraw.

If your children might want to use the money within the next few years, it’s best to put it in bank term deposits – despite recent lower returns – or a cash fund. For more on cash funds, read on.

What are they?

Q: I’m looking for a cash managed fund and I’m having trouble with the terminology.

I asked a provider about its NZ cash fund, “Approximately what proportion is currently in cash and what proportion is in bonds?” The answer was obscure (to me at least): “The NZ Cash Fund is 100% cash and cash equivalents.”

How do I differentiate between a fund’s cash and its cash equivalents, and what are cash equivalents? Or does none of this matter to a lay investor like me?

A: Any fund that is called a cash fund will probably invest only in cash or cash equivalents.

Cash means bank savings accounts, term deposits and similar – possibly at higher interest rates than you or I would get because the fund has much more to invest.

Cash equivalents are easily converted to cash, and include high-quality bonds that mature within three months – although some definitions say within a year. Kernel, in a good blog about cash funds at tinyurl.com/KernelCashFunds, says the investments can include short-term debt securities issued by ”large share market-listed companies, partially or fully state-owned enterprises, regulated banks, or Governments".

These investments are also found in other low-risk funds, often called bond or fixed interest funds, but those funds also invest in longer-term bonds. And, as many people learned a couple of years ago, funds that hold longer-term bonds can lose value when market interest rates rise. That’s because many of the bonds in the fund were issued at older, lower interest rates, so they are no longer worth as much.

Eventually the funds recover, but it can take a while. If you want to withdraw your money in the meantime, it’s not good.

In cash funds, the investments shouldn’t ever lose value – or certainly not much. Says Kernel, “Due to the daily revaluation of assets, it is possible to experience small negative returns (less than 0.05%) for a day or two from time to time, but these are very unlikely to be frequent or long-lasting”.

Over two years, Kernel says, its cash fund reported no weeks with negative returns. Basically, a cash fund investment should pretty much always grow.

For how a cash fund compares with term deposits, read on.

Cash funds v term deposits

Q: My wife and I are fully retired and have downsized. Following previous advice, some of our money is in KiwiSaver and non-KiwiSaver growth funds, and some is in laddered Kiwibank term deposits.

These deposits now yield less than 4% for 6- and 12-month terms, and I am considering moving them back into low-risk managed funds.

Can I safely assume that the return on a cash fund will at least equal (or even possibly exceed) the return on our term deposits?

A: Comparing returns on cash funds and term deposits is tricky.

For one thing, cash fund returns are often quoted after fees and tax, while the advertised returns on term deposits are before tax.

This makes a big difference. If you’re in the 33% tax bracket, a term deposit paying 3% interest will give you only 2% after you’ve paid your tax.

What’s more, cash funds are PIEs, which means lower tax rates for most people than on ordinary term deposits, though not on term PIEs.

Note, too, that when checking cash fund returns, you are looking back in time – at how the fund performed over the last year, or five years or whatever. But term deposit returns are what you’ll get in future.

When interest rates are trending downwards, term deposits will probably look less appealing than historical cash fund returns. However, the returns in cash funds are likely to also decline in the months ahead.

Of course the reverse is also true. In times of rising interest rates, term deposit returns will look better. But you can also expect cash fund returns to rise in the near future.

Looking beyond returns, there are two clear advantages of cash funds:

• You can get money out within a couple of days. With a term deposit, you generally have to wait until it matures or pay a penalty.
• You can set and forget a cash fund investment. But term deposits mature and, if you’re wise, you look around to see where next to place the money.

On the other hand, most term deposits are protected by the new Depositor Compensation Scheme run by the Reserve Bank. If a covered deposit taker defaults, you get compensation of up to $100,000 per person.

Cash funds have no similar cover – although, because they hold lots of different investments, the failure of one company might not have a huge impact. And generally, cash funds make only pretty rock-solid investments anyway.

Which to choose? It depends which of the above factors matter more to you.

To find a cash fund, in or out of KiwiSaver, use the Smart Investor tool on sorted.org.nz. Go to Defensive Funds, but note that these include funds investing in longer-term bonds.

Look for the word “cash” in the name, and then check the fund’s major investments, which are listed on Smart Investor.

* 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.

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