NZ Herald 17 October 2015

AWell done for acknowledging your “weakness”. That’s an important first step to changing any behaviour.

It would be real pity to squander this opportunity to make your retirement much more comfortable.

My first suggestion is to put the money in a bank term deposit for a month or two — to keep your sticky fingers off it while you make a longer-term plan! And here’s what that plan could be:

Step 1: Set aside one or two thousand dollars to enjoy — maybe on a modest kitchen update or trip.

Step 2: Put the rest into repaying your mortgage. You’ll be better off in retirement with the mortgage lower or gone than with drip-fed money.

If all or part of your mortgage is fixed-rate, there might be a penalty for paying it off early. If that’s significant, you could put the money in a bank term deposit to mature when the fixed-rate period ends, and then pay off the mortgage. Ask your bank to help you work out which option is better.

Step 3: Tell your bank that you no longer want to be able to add to your mortgage in future. They should support you in that.

Step 4: If you have any money left over after paying off the mortgage, put it in your KiwiSaver account. That way you can’t access it until you turn 65.

Step 5: At 65, ask your KiwiSaver provider to set up a drip-feed to you. If they won’t do that, switch to a provider that will. Last time I asked, a few years ago, the following providers offered that service: AMP, ANZ, Civic, Fisher, Kiwi Wealth, Medical Assurance, Milford, NZ Anglican Church, SuperLife and Westpac. Others may have since started doing this.

A worry: In retirement you can always withdraw more KiwiSaver money than the drip-feed. But hopefully by then you’ll be used to thinking of that money as untouchable.

If not, you could take the money out of KiwiSaver and put it in a range of term deposits — say a three-month one, a six-month one, a nine-month one and so on, for years into the future — so you can spend each lot of money only at maturity.

By the way, I think your husband’s attitude to advisers is too harsh. The Info on Advisers page on www.maryholm.com tells you why I think some advisers are more trustworthy than others. There’s a list there of advisers you might consider using.

AYou’re right. Unlike the previous correspondent, your daughter and partner might find the loss of access to their KiwiSaver money is a negative.

If they like their KiwiSaver funds, they could set up automatic transfers into similar non-KiwiSaver funds offered by the same providers. They should look for funds with lower or similar fees to KiwiSaver.

AA two-part answer. Part one: Directly answering your question.

I’m a bit worried about the message from the man on TV. It’s true that — in the last few years — most people would have made more in KiwiSaver than in bank term deposits. But will that continue? Nobody knows.

In a low-risk conservative KiwiSaver fund, you will probably earn a bit more on average, after fees, than in the bank. But there will be some periods in which you’ll earn a bit less. It may not be worth moving your money to such a fund, given that you lose access to it.

In a higher-risk KiwiSaver fund, on average you should make a fair bit more. But the price of that higher return is that in some periods your account balance will fall. And in growth and aggressive funds some of the falls will be big. You need to have the stomach for that, and not switch to lower risk after a downturn.

Let’s assume for now that you can cope with volatility. Should you put most of your $25,000 into KiwiSaver, and transfer the lot into a higher-risk fund if you’re not already in one? That depends on when you expect to spend the money.

The rule is to use a high-risk fund only for money that you plan to spend more than ten years later. That gives you time to recover from a downturn. It’s rare that a high-risk fund doesn’t grow over any ten-year period.

In your case, you’ve got ten years before you gain access to your KiwiSaver money, at 65. If you expect to spend the money soon after that, there may not be a lot of point in moving into high risk now and then reducing risk in the next year or so.

But if you plan to spend the KiwiSaver money over several decades, you’re in a position to take more risk.

One possible strategy is to invest in two KiwiSaver funds with the same provider. Put the long-term money in high risk, and the shorter-term money in a medium-risk balanced fund.

Now let’s assume you’re not tolerant of volatility. In that case, stick with a balanced fund — or even a conservative fund — throughout.

You may have noticed that I said “most of your $25,000 into KiwiSaver” back there. While you don’t expect to need the money in the meantime, it’s always good to keep at least a couple of thousand dollars readily accessible.

Part two of my

ADespite what you say, it would be great to see you buy your own home.

It can be fine to still be renting when you retire, but only if you’ve saved heaps to pay for accommodation throughout retirement. There are still the problems of landlords kicking you out, and having less control over your home environment, but some people can live with that.

But for you, setting a goal to own your own place by the time you retire may be the best way to go. And it can be done if you aim for a modest home outside Auckland.

Last year, this column included a Q&A about a man who expected to save $60,000 to $70,000 by age 60, and wondered if he could get a mortgage at that stage. The situation is similar to yours, and the short answer was “yes”. To read the Q&A, see tinyurl.com/homeat60.

AGiven your expertise in the area, I appreciate your comments. Readers interested in exploring this topic further will find the website useful.

AI’m not sure where you’re coming from. Is this a case of ageism amongst pensioners?

I don’t choose the pictures, but I thought the old woman in the photo with last week’s column, clearly looking at a portrait of herself as a younger woman, was rather lovely.

Her name is Emma Morano. She lives in her apartment in Verbania, Italy, and she’s 115 years old. Associated Press, who supplied the photo to the Herald, say, “Morano and Susannah Mushatt Jones, also 115, of the Brooklyn borough of New York, are believed to be the last two people in the world with birthdates in the 1800s.”

The picture is clearly appropriate, given that I was writing about the possibility of living past 100.