NZ Herald 24 November 2018

AI get crabby about people putting the word out that you need $1 million to retire comfortably.

I even heard recently of a financial adviser who said people need $4.2 million, not including their house. That’s beyond ridiculous.

Could that adviser, and others in the financial industry who make similar claims, possibly be motivated by something other than the welfare of the people they are talking to?

It’s generally not bad for people to save more. But there are three worrying effects:

• Some people save too much, depriving themselves of a pleasant life in the meantime.

  We’ve had a few letters from “over-savers” in this column. Interestingly, they are nearly always women.

• Others worry unnecessarily.

  A money coach wrote to me recently, “Some of my work is with people who are on the cusp of retirement. These clients have all done well, most of them have investments (usually residential property investments) valued at around $1 million. All of them are concerned that they don’t have ‘enough’.”

• Still others look at the numbers and just give up.

  It’s impossible for them to save that much, so they put the whole subject of retirement savings out of their minds, and quite likely end up saving less than they otherwise would.

  Whenever you set a goal, it’s important that it’s achievable. If you want to lose 10 kgs by Christmas, and start out eating only lettuce and drinking only water, you might last a day if you’re lucky. But if you want to lose 5 kgs by Christmas next year, and cut back on naughty foods, you could very well make it.

  Similarly, if you realise you need to save half your income to get to a million bucks at retirement, you might succeed for a week or so. Set your sights lower, with a reasonable and flexible savings plan, and you’ll get where you want to be.

So how far would $100,000 go? There are several rules of thumb about this. The simplest one says that if you’ve saved $X,000 and you retire at 65, you can spend $X a week through retirement. That means with $100,000 you could spend $100 a week in addition to NZ Super. If you retire at an older age, you could spend a bit more.

This of course depends on how your retirement savings are invested, and how long you live. But it gives you a rough idea. Your savings will probably last until you die, although if you live past your late eighties, you might not have much left. Many people say, though, that at that stage NZ Super is enough.

How much is NZ Super? Currently, for a single person living alone it’s $463 a week before tax, or about $24,000 a year. For a married couple who both qualify, it’s $702 a week before tax, or about $36,500 a year. Super is taxed the same as other income.

There’s also a new tax-free winter energy payment. Singles get an extra $20 a week, and couples get $32 a week.

NZ Super is adjusted each year to match the increase in average wages — which is usually higher than inflation. Of course we don’t know how Super will change over time, but it will probably buy as much in future as it does today.

To put all this in perspective, a 2017 report found that 40 per cent of singles over 65 have virtually no other income except NZ Super, “60 per cent report less than $100 per week from non-government sources, and 75 per cent have more than half their income from NZ Super.”

Couples over 65 are better off. “For example only 30 per cent of couples report less than $100 per capita per week from non-government sources — but most couples are nevertheless still highly dependent on NZ Super, with 55 per cent having more than half their income from NZ Super.”

So there you have it. Someone spending $100 a week from their savings is currently better off than 60 per cent of singles and 30 per cent of couples. Not too bad.

AYou wrote this note after I last used that expression, and since then I’ve been trying to come up with an alternative, but no luck so far, sorry.

Besides which, Wikipedia casts doubt on that origin. It also says, “Its earliest (1685) appearance in print comes from a posthumously published collection of sermons by Scottish preacher James Durham: “Many profest Christians are like to foolish builders, who build by guess, and by rule of thumb (as we use to speak), and not by Square and Rule”. That doesn’t seem to have anything to do with wife beating.

If we start banning words and expressions of dubious origin that are no longer used in an offensive way, our language would be much poorer.

Okay, back to financial stuff.

AThat book was published back in 2006, but the advice still stands, and always will. Contrarian investing — doing the opposite of most other people — usually beats copying everyone else. But the wisest strategy is to get your investments right and then largely leave them alone.

Could I cheekily suggest, though, that you get a copy of my new book? Among other things, it includes KiwiSaver, which was just a twinkle in Michael Cullen’s eye back in 2006.

AGood thought, given the correspondent says she’s not keen on being a landlord.

However, there are two problems with using a property manager. One is working out who is good — which may not be easy without trial and error. The other is the cost. Contrary to what you say, I do every now and then mention using a property manager. But it does eat into your returns.

Still, you obviously find it’s worth the money, and the correspondent might too. Thanks.

AYou’re referring to the assets the Ministry of Social Development includes when it’s deciding whether someone over 65 qualifies for the residential care subsidy.

If your asset total is below a certain amount, the government helps to pay for your hospital or rest care costs. If the total is higher, you pay for your own care until your assets fall to the threshold level.

To answer your question, I’ve gone back to our expert at the Ministry.

“While it is true that the legislation does not include jewelry in the assessment of assets for Residential Care Subsidy, there is also legislation that allows the Ministry to use discretion to include deprived assets or income into a financial means assessment,” says George Van Ooyen, group general manager client support services.

“Applications are considered on a case-by-case basis and therefore a definitive answer cannot be given in this forum.”

In other words, when MSD is deciding whether you’re eligible for a subsidy, it can look at steps you’ve taken to reduce the assets or income that would be counted, and effectively undo those steps. In this example, it might include the value of your jewelry.

I can’t see this happening often, but you never know!

Van Ooyen adds, “The Residential Care Subsidy is government assistance and is therefore funded by the taxpayer.” Good point. And it might not hurt for readers to realise the government is much more generous than it used to be.

Not so long ago, before 2005, the asset threshold was $15,000 for a single person, $30,000 for couples and $45,000 for couples with one in care. Now it’s way higher, as outlined in the last two columns.