NZ Herald 13 May 2023

AThanks for writing, but I’m afraid your comparison is just not valid, for several reasons. Let’s start with three little stories:

• We’ll say you have two daughters, one blonde and one redhead. In a primary school running race, the redhead beats the blonde. Does that mean all redheads are faster runners?

  Moral of the story: Drawing broad conclusions from single experiences doesn’t work.

• Five years later, things have changed. The blonde daughter has been training, and she can now outrun her sister.

  Moral: Timing is all. You’ve owned your rental property through an extraordinary boom. Say, for example, you had bought it a year or so ago, when prices were at their peak. Your return a decade from now might not look quite so good.

  As we’ve seen from recent letters, in some periods rental property wins, in other periods managed funds win.

• Some years later, the girls are in a jungle and need to cross a river in which crocodiles lurk. People can usually swim across, but some are maimed and every now and then someone dies. The blonde decides to take her chances and she swims across, unharmed. The redhead walks a kilometre downstream, crosses a bridge, and walks back upstream. The blonde took considerably more risk but got there sooner.

  Moral: Those who take calculated risks often come out winners — although not always, and sometimes they lose spectacularly. Meanwhile, the more conservative person will almost certainly reach their goal, even though it takes longer.

Investing in a widely diversified KiwiSaver fund, even in a growth fund, comes with considerably less risk than investing in a single rental property.

There are plenty of stories of individual properties losing heaps of value, perhaps because they were leaky or were used as meth labs. Or — these days — the houses were built on flood plains. What if you had bought in the Esk Valley?

Also, you took on a sizable mortgage on your property. To make a more valid comparison between your daughter’s and your investments, you would have borrowed to invest in the KiwiSaver fund too. Then you would get growth — or losses — on that borrowed money as well as the original $1,000.

And you would need to deposit extra into KiwiSaver every time you put extra money into your property to top up mortgage payments, and every time you paid rates, insurance or maintenance over and above the rental income.

And how about the work and hassle of your rental? We could value your time at, say, $50 an hour — maybe $100-plus for the really stressful stuff, like finding and checking out tenants, chasing up unpaid rent, or coping with a maintenance emergency.

Investing several hours into looking after a rental is the equivalent to investing extra money into KiwiSaver. So — if our comparison is to be fair — whenever you spend time on the rental you should put money into the KiwiSaver account.

I wonder where all that would leave you? These comparisons are not straightforward.

A few more points:

• It seems you actually invested nothing in your daughter’s KiwiSaver. It all came from the government. If you had invested just $1 extra, your investment would have grown more than 2,000-fold. By investing nothing, the growth is actually infinite. Wow!

  But that’s a whole separate issue. Let’s just say “well done” for taking advantage of the free kick-start for your daughter, while it lasted.

• You’re right, of course, that these two types of investments are for the long term — a point I make in the Q&A you refer to — and all the time actually.
• For more on putting a dollar value on your time, read on.

AYikes. Not sure I want to be a missile! But I like the point you are making. That’s a great way of thinking about what something really costs you.

ALet’s take this one step at a time.

Once you start getting NZ Super, you will no longer receive the Jobseeker Support, says Graham Allpress of the Ministry of Social Development.

But you may still be able to get additional support, like the Accommodation Supplement and Temporary Additional Support payments.

For the Accommodation Supplement the cash asset limit for a single person is $8,100 and for a couple or sole parent it’s $16,200.

For the Temporary Additional Support payments the limits are $1,279.35 and $2,131.73.

(How do they come up with such numbers? They must be the result of inflation adjustments, but couldn’t they round them at least to the nearest dollar?)

For more on the Accommodation Supplement see here. For more on Temporary Additional Support see here

However, once you can access your KiwiSaver money it’s included in asset testing, and returns on the money are included in income testing. For more on this see here.

This would seem to put an end to your supplement and support payments from June. But I sent another question to Allpress: “The person who wrote the letter has debts — his mortgage, and $20,000 to his daughter. What if, the day he gets access to his $18,000 of KiwiSaver money, he uses it to pay most of the debt to his daughter, or makes a lump sum payment on his mortgage? If he has no other cash assets, will he then be eligible for the WINZ payments?”

His reply: “If a person withdraws and uses KiwiSaver funds to pay back debt, they may still qualify for Accommodation Supplement and Temporary Additional Support.

“There may be some cases, where MSD may ask for information about the debt that is being repaid to determine eligibility.”

He adds, “We encourage anyone who is unsure of what they can get to come in and see our staff or call our NZ Superannuation team on 0800 552 002.”

If I were you, I would do that.

APeople under 65 can’t make withdrawals from KiwiSaver — including investment returns such as interest and dividends — except to buy a first home or in financial hardship and so on.

However, a KiwiSaver provider could distribute dividends to members over 65. And a non-KiwiSaver provider could do it for everyone. But hardly any do. The only provider I know of who offers this is SuperLife. This service can work well for retired people who want to regularly move some of their savings into cash for spending.

Any other providers who also offer this option please let me know, and I will publish their names.

Meanwhile, take heart. Your losses are not continuing. As I’ve said before, 2022 was one of only three years in the last 100 years when both international bond and share prices fell — so balanced funds were hit particularly hard.

But Morningstar says your ANZ fund reported an annual return of 4.4 per cent in the first three months of this year. It’s 10-year average annual return is 6.2 per cent. Your Kiwi Wealth fund’s returns will probably be similar.

For other readers, no mainstream KiwiSaver funds reported losses in the first quarter of this year. There were just a few negative numbers in some specialty fixed interest, property and Australasian equity funds.

Everyone thinking of moving money because of recent KiwiSaver losses should hang in there. The same goes for you — although you might consider moving to balanced funds with lower fees.

A Reader’s Story

Since mid April, to mark the 25^th anniversary of this column, we have run some readers’ stories of how the column has helped them over the years. Here’s another.

AYou’ve done so well. And I love the 21^st presents.