NZ Herald 23 November 2024

ATime to clamber into the hammock with a good book. You have way more than enough money to switch to lower-risk investments that will bring in more than the $175,000 annual income you want.

A basic rule of thumb about retirement spending is that for every $100,000 of savings, you can spend $100 a week — or $5,200 a year — and your money should last until you die. And if it doesn’t last quite that long, many people report that by the time they get to 85 or 90, it’s easy to live on just NZ Super. If worst comes to worst, homeowners can get a reverse mortgage, which won’t grow too much from compounding interest at that stage in life.

You have $4,675,000 in savings, so you could spend $4,675 a week, or $243,100 a year — and that’s before adding NZ Super. What’s more, that rule applies to someone retiring at 65. At your ages, you two could spend more.

Note that the rule doesn’t allow for your spending to rise with inflation. But NZ Super payments are adjusted each year to match either inflation or wage growth. And it’s common for people to spend less and less as their retirement goes by.

If you want more precise calculations, see the NZ Society of Actuaries’ Drawdown Rules of Thumb. They present four rules, and discuss their pros and cons and which ones suit which people.

They assume a person invests in a KiwiSaver balanced fund. These funds hold between 35% and 63% growth assets, usually shares, with most of the rest usually in bonds.

That’s not an ideal retirement investment plan. I recommend holding money you will spend in up to three years in a cash fund or bank term deposits, money for three- to ten-year spending in a bond or balanced fund, and longer-term money in a growth or aggressive fund — so there’s time to recover from downturns. But the total returns would average out similarly to a balanced fund.

I suggest you use KiwiSaver funds. Their fees tend to be a bit lower than other similar funds, and they tend to be more closely regulated.

Note to other readers: I know, I know, this reader is way better off than most people. But please don’t complain. I tend to answer fewer letters from wealthy readers, but every now and then they should have their turn. And this reader really does need a push out of his stressful job!

AFirstly, I was writing last week about tax on KiwiSaver and other funds. Almost all of these are PIEs (portfolio investment entities), which have the special tax rules I described.

But it’s different for gains on other share investments. In many cases, if you buy shares with the intention of selling them, your gains are taxable and losses deductible.

And I’m afraid the same applies to gold. “Where the investment is purchased with the intension of disposal (dominant purpose) the resulting gain is taxable or loss is deductible against other income,” says an Inland Revenue spokesperson. The length of time you’ve held the gold is not relevant.

While people sometimes try to avoid tax on share gains by saying the dominant purpose of buying them was to receive dividends, there’s no similar argument for gold, on which there’s no income until you sell.

This could, of course, be comforting news for you if you end up selling your gold at a loss, which you can deduct. As our graph shows, there have been quite long recent periods — from 2011 for 8 years and from 2019 for 3 years — over which gold has lost value. But it seems highly unlikely the price will have dropped below your 1990s purchase price when you sell.

Still, Inland Revenue says, costs of your gold investment may be deductible, “such as interest on money borrowed to purchase the gold, insurance premiums, and storage costs.” That might help a bit.

I asked Inland Revenue, “what happens about the fact the reader has no record of what he paid?”

The reply: “Maybe your correspondent has information on the year of purchase (30 years ago) and could be using the average price of gold for that income year to ascertain a cost price. Gold is a commodity and will have a daily posted price. Alternatively talk to Inland Revenue to seek agreement on an acceptable method to ascertain the cost price in the income year that the gold was disposed.”

For more information see here.

AI’ve also heard comments like that. There will always be people who spend lots of time and energy thinking up ways to not pay tax. Earlier in my career as a business journalist, I often interviewed captains of industry, corporate lawyers, accountants and the like. It wasn’t uncommon to hear that it’s a challenge to “beat” the tax system. It was almost like a sport.

In recent Q&As, several readers have also commented on how many people support taxes that don’t affect them. But not everyone is selfish. Last year, nearly 100 wealthy New Zealanders told the Government, in a letter, that the wealthy should pay more tax. Maybe I’m naïve, but I think most New Zealanders are fair about these things.

Your letter also commented on US income tax and CGT on homes. But I decided not to include that. Making fair international tax comparisons is incredibly tricky. On income tax rates, for instance, we need to take into account America’s state income taxes and sales taxes, and our GST.

Rather than making comparisons, I would like New Zealand to learn what works well in other countries — including alternatives to a CGT. Read on.

ANot sure I can cope with more anti-tax roaring. But a land tax does seem to pop up as an idea from the experts every now and then.

It has its problems too, though. For a start, it’s tricky to work out how to fairly cope with both Maori land and agricultural land.

AAccording to Investopedia, “The Tobin tax is a tax levied on spot currency conversions, with the intention of disincentivizing short-term currency speculation, named after economist James Tobin.

“In contrast to a consumption tax paid by consumers, the Tobin tax is meant to apply to financial sector participants as a means of controlling the stability of a given country’s currency.”

Wikipedia adds. “The proposed tax rate would be low, between 0.1% to 0.25%.” So I suppose a tax on all transactions wouldn’t impair most people’s financial dealings much — just those who trade frequently.

But I’m not the right person to judge this. And while I could consult experts, I’m not sure this would enthrall many readers.

Let’s just say that it would really good to see New Zealand consider not just CGT but other alternatives — including a land tax, a Tobin tax, and an inheritance tax, as discussed on October 12.

In that column I quote Victoria University lecturer Jonathan Barrett, who writes about the heirs of home-owning boomers receiving “a currently untaxed bonanza. Ignoring this unprecedented transfer of wealth from people who no longer need it to people who haven’t earned it would be absurd.” Good point.

AGosh, that certainly is different from here. Presumably rents are lower, to compensate for fewer landlord obligations.

But I’m not convinced that no New Zealand tenants would like that way of operating. It would be good to see it as an option.