‘Have I got enough?’

QI quit my job to look after my terminally ill husband. I am 62 years old. We have a mortgage-free house worth $1.1 million and $530,000 invested.

Will I have enough to retire or will I have to go back to work full-time, although I have only worked part-time for the past 20 years? Do I get boarders? I do not spend a lot, but with insurance, rates and car repairs etc I worry about my future.

I just checked a New Zealand website and it suggested I need $1.1 million in the bank to retire comfortably.

AYou’ve got enough else to think about without worrying about your finances. And you probably don’t need to.

I get cross with statements that you need a million dollars to retire comfortably. Take a look at who is saying these things. It’s almost always someone who will gain if you use their products or services to grow your savings — or in some cases not grow your savings, as not all the “help” out there is good.

If the million-dollar estimate were correct, a huge proportion of New Zealand retirees with much smaller savings would be miserable. And they’re not.

In 2019, Massey University reported that while people aged 50 to 64 were quite often anxious about having enough in retirement, most retirees “rated their current level of income adequate to fund their desired retirement lifestyle.”

“Despite the concerns of pre-retirees, the good news is it’s likely the majority of Kiwis will hit retirement having done enough if they remain focused on saving,” says Massey’s Dr Claire Matthews. “They obviously need to remain focused on saving for retirement, but most retirees, when they get there, are saying they are actually ok.”

So how much do you really need? Massey’s Fin-Ed Centre publishes numbers each year. They vary widely depending on whether you are a one- or two-person household, whether you live in or out of the city, and how luxurious you want your lifestyle to be.

For example, they say a two-person household needs between $120,000 and $831,000.

The best way to get an idea of where you stand is to use the retirement calculator on sorted.org.nz. That website is run by the Retirement Commission, not someone trying to get your business. It takes into account NZ Super and 2 per cent inflation. I think you’ll find that you are not badly off.

Note, too, that you could add to your savings by moving to a smaller home, or to a lower-priced region. Or, as you say, you could take in a boarder. Another option is a reverse mortgage to free up some of the value in your house — although I recommend you spend most of your savings first. For more on this, search reverse mortgages on maryholm.com.

By the way, you don’t mention KiwiSaver, so maybe you’re not a member. If so, I suggest you join — perhaps in your bank’s scheme. Generally I prefer the lowest-fee providers, which tend not to be banks. But let’s make it easy for you.

Then I strongly suggest you set up auto payments into your KiwiSaver account of $20 a week. That will get you the maximum government contribution of $521 a year until you turn 65.

Let’s say you are 62 and a half. You’ll receive government contributions totalling about $1,300 by the time you turn 65. And then you can spend the money whenever you want to. It would be a pity to miss out.

You might find the next Q&A encouraging.

‘Stop wanting things’

QI bought an apartment, no mortgage, for $400,000 in 2005. It was leasehold. The value plummeted, and I was obliged to sell it in 2021, netting $115,000. No way could I buy a house, and no way would I buy another apartment (“Living Hell”), so I am renting a studio apartment in central Auckland.

I have no car, but at 82 I get free public transport, the radio is free, I have the internet, libraries are free, walking is free, hospital care is free, meeting friends for a coffee is affordable. I have my pension, and some savings. My rent is $375, but if it goes up even by $100 a week, that’s only $5,000 a year, and my savings will handle that over the few years I have left.

I read your letters where people have so much money, but feel poor. Most of them will never ever spend the money they have invested. Turn the radio on, go for a walk, borrow some library books. Life doesn’t get much better.

By the way I have had open heart surgery, I have a pacemaker and atrial fibrillation, and I have a retinal disorder that means my vision is very limited (RP). I have no family in NZ — they’re in North America. I enjoy my days.

AWhen I first read your letter, I hadn’t noticed that the subject of your email is “stop wanting things”. So at the end of your first paragraph I thought, “Here comes another unhappy story.”

But no. Despite your considerable health problems, and your lack of local family, you clearly lead a contented life. And that’s largely because of your wonderful positive attitude. I take my hat off to you.

Borrow or raid KiwiSaver?

QMy sister needs a back operation. As the waiting time in the public system is too long and her pain too severe, she has to choose between drawing down the required $50,000 from her KiwiSaver or taking out a loan.

She is 60 and planning to keep working until she is 65 to finish paying off her mortgage. She believes that KiwiSaver does allow you to withdraw some funds for extenuating circumstances. Which option do you advise?

AIt’s tough that your sister feels she has to take these steps. But unfortunately it may not be an uncommon situation these days.

Her first step should be to find out whether she can, in fact, withdraw from KiwiSaver. She should ask her provider for a form and some advice.

“To withdraw savings you will need to provide evidence you are suffering significant financial hardship,” says Inland Revenue. One of IRD’s examples of such hardship is if you need to “pay for medical treatment for yourself or a dependent family member.” So that looks promising.

Assuming a KiwiSaver withdrawal is an option, your sister should compare:

  • The interest she would pay on a loan.
  • The returns she would be missing out on in KiwiSaver if she withdraws the $50,000.

If the interest is less than the likely returns, go with the loan. If not, withdraw the money.

The trouble is your sister can’t know what her future KiwiSaver returns will be. But here’s what sorted.org.nz assumes in its KiwiSaver Calculator: Defensive funds 1.5 per cent a year, Conservative funds 2.5, Balanced funds 3.5, Growth funds 4.5, and Aggressive funds 5.5 per cent a year. That’s after tax at the top PIR rate of 28 per cent. For people on a lower tax rate, the returns will be a bit higher.

On loan interest, a good first stop would be her mortgage lender. They may let her add the loan to her mortgage — which would probably be at a lower interest rate than a separate unsecured loan.

She could also go to moneytalks.co.nz and discuss her situation with a free financial mentor. They might suggest other sources of lower-interest money, and also perhaps ways she can reduce her spending so she can repay a loan faster — or increase her KiwiSaver savings after the operation if she has gone the KiwiSaver withdrawal route.

Whichever choice she makes, I hope it goes well.

One for the tax expert

QFurther to a recent letter saying realized gains on gold and crypto assets are taxable, I have both bullion (silver and gold) and crypto assets purchased as a hedge against the collapse of fiat currency. If fiat retains some value in my lifetime, the bullion and crypto are willed to my grandchildren.

What is the tax situation for the grandchildren in the event that a grandchild wants or needs the cash?

AThis is one for the experts, so I asked Terry Baucher of Baucher Consulting.

“It’s a bit of a grey area, because as the grandchildren inherited the bullion and crypto they arguably cannot be said to have acquired it with a purpose or intention of sale,” he says. As has been discussed in this column lately, if someone buys an asset with that purpose, they pay income tax on any gain they make when they sell.

“However a future sale could be taxable if the grandchild had already developed a pattern of buying and selling bullion and crypto,” says Baucher.

“With regards to the base value used for calculating any gain, then it would typically be the value at the time the bullion and crypto is inherited.”

He adds, “BTW, questions like this are why I think a capital gains tax would actually simplify matters, because the tax treatment would be much clearer.” I couldn’t agree more.

Gains tax worries

QI agree that an investment property should be taxed on capital gains as it is a form of income, but I do wonder how it would be calculated.

If you bought a house for, say, $800,000 and spent $200,000 fixing it up over the years, how would the taxman work out your capital gain if you sold it in 15 years? You might sell it for $1.5 million. Have you made $700,000? Have you even made $500,000 because of inflation?

ACapital gains taxes typically let you allow for money you’ve spent improving an asset, and I expect a New Zealand tax would too.

On allowing for inflation, as I said a few weeks ago it’s common for countries to tax gains at a lower rate than wage income because of that issue. Again, this country would probably do that.

My big skite

QI am not convinced you have the skills or qualifications to offer your finance thoughts.

It is a very complex area needing expertise not imagination. Otherwise you can be misleading people.

AGood on you. It’s always a great idea to check out the credentials — and motivations — of people offering advice or suggestions.

My main qualification is an MBA in finance from the University of Chicago. I took several courses from Nobel winner Merton Miller, who taught me — among many other things — about the relationship between risk and return, index fund investing, and how the financial markets work. I graduated in the top 15 per cent.

At the time I was on an extended OE, working as a financial reporter for the Chicago Tribune. Later I was a reporter for the Australian Financial Review and the NZ Listener. I have also been business editor of the Auckland Sun and the Auckland Star. And in recent years I’ve been a personal finance columnist, regular interviewee on Radio NZ, and a seminar presenter.

A few years before the MBA, while doing an MA in journalism at the University of Michigan, I learnt plenty about “needing expertise not imagination.” And over the years — and there have been quite a few of those! — I’ve learnt heaps more by interviewing experts, captains of industry and politicians; reading the latest research; talking with industry participants; confronting financial scoundrels; attending talks and conferences — and being challenged by readers if I get something wrong, or just different from the way they see it.

I’ve also picked up knowledge as a director of the Financial Markets Authority, the Banking Ombudsman Scheme, and Financial Service Complaints Ltd.

Other people seem to find my credentials good enough. Three of my seven personal finance books topped the NZ bestseller list. I’ve served on several government advisory groups, lectured on personal finance at the University of Auckland, and won a few journalism awards. And in 2020 the Governor General appointed me an ONZM for services to financial literacy education.

But, of course, it’s up to you whether you want to read this column.

P.S. Apologies to other readers for the big skite!

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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 [email protected] or click here. 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.