This article was published on 25 April 2015. Some information may be out of date.

Q&As

  • Leave Auckland — and calculate how far your freed up money will go
  • Transferring money early to Australia is not a good bet
  • Court decision raises questions for KiwiSavers in financial trouble
  • A way round the 3-month KiwiSaver wait, if you’re a big contributor
  • KiwiSaver scheme offers wide range of investments

QI am the person who wrote to you a little while ago about the advantages of asset-rich, cash-poor people shifting to Tokoroa.

The couple in last week’s column who have the home worth the best part of a million bucks are sitting on the proverbial golden egg. I think they have to ask themselves if they really need to live in Auckland.

There are plenty of properties south of the Bombays and no doubt north of the end of the motorway past Orewa that are in good condition and can be had for $300,000 to $400,000 and even less. I think south of the Bombays would be the best bet as the Waikato Expressway will be completed by the end of the decade, and travel to Auckland will be very easy.

If they sold up they could have at least $550,000 in investments. They ought to be able to get at least 4 per cent after tax. They then could draw down $40,000 a year, which would last them 19 years. If they were to draw $35,000 a year, it would last 23 years.

Better still, invest $650,000 at 4 per cent, withdraw $40,000 a year and it will last 25 years.

For the life of me I am unable to understand why a couple in their situation would want to get “into the residential real estate game”, as their daughter suggested, especially with the warnings about the possibility of a major collapse of the housing market.

AIt’s easy for someone who lives outside Auckland to say, “Why don’t Aucklanders move out?” People often have family, friends and all sorts of activities near where they live.

Still, you’re right. There are properties for less than $300,000 within an hour and a half of the Auckland CBD — when it’s not that rush hour. So it’s not as if an Auckland escaper can’t pop back on frequent visits.

And your calculations on annual income — which would be supplemented by NZ Super once the couple turn 65 — look about right to me.

Other readers wanting to make similar calculations — perhaps to see how long a retirement nest egg would last — can use the calculator at tinyurl.com/howlongwillmoneylast. To keep it simple, I suggest you set the marginal tax bracket at zero, and where it says “Annual before-tax return on savings” put your expected after-tax return.

The trickiest part is picking an after-tax return. You’ve chosen 4 per cent, but to get that after tax you would probably have to invest your savings in a share fund, or a fund that holds largely shares. Your actual returns would sometimes be much higher and sometimes much lower than that, but 4 per cent might be a fair average.

For those who would prefer a more conservative investment — perhaps in a low-risk fund or bank term deposit — 2 per cent is probably more accurate.

Note, too that you can include annual withdrawal increases in the calculator. It may be a good idea to put, say, 2 per cent in there so that your income would go up with inflation. However, if you’re planning your retirement spending, there’s an argument that you should make no allowance for inflation. Many retirees report that they’re content to spend less and less as they get older.

On your comment about a possible collapse in the housing market, the proposals discussed last week were about buying investment properties outside Auckland. Their prices don’t look bubbly. In Auckland, who knows?

QOur daughter is studying for several years at medical school in Australia. She cannot access a student loan there so we have organised for her to borrow money secured on our property. (Don’t worry, readers, she’ll be paying it back, including the interest!)

Because the exchange rate is so good at the moment we’re wondering if she should transfer a lump sum into Australian dollars now (even though that will incur interest) to use for fees, living expenses etc in coming years. This is looking ahead to the exchange rate “worsening” in the next year or so.

Obviously you don’t have a crystal ball, but is there merit in this idea? If so, could you recommend the best way to do this?

ALet’s do what we did in a Q&A last week — start by imagining that you and your daughter live in the same country so there’s no foreign exchange issue.

Would it then make sense for her to borrow in advance? As you mention, there are problems with interest. She can deposit the money in a bank and earn interest until she spends it, but it will almost certainly be at a lower rate than the interest she’s paying on the loan, especially after tax. So she’ll be going backwards.

The question then is whether she’s likely to gain enough from foreign exchange movements to more than make up for that.

It’s possible. But, given that our dollar could just as easily rise further against the Aussie dollar as fall, I certainly wouldn’t bet on it.

You might come back to me in five years and say I talked you out of a strategy that would have worked brilliantly. Then again, you might come back and thank me profusely.

In the meantime, take comfort from the fact that your daughter is transferring money steadily over several years, so not all of the transfers will turn out to be at the worst time.

QWith the recent decision by the Court of Appeal to not allow the Official Assignee (OA) access to a bankrupt’s KiwiSaver savings, what’s to stop someone in financial strife selling all assets and putting the money in their KiwiSaver fund for safekeeping and protection?

If they haven’t bought a house yet, they can presumably still access those funds to purchase property once discharged from bankruptcy. Would be interesting to hear the OA’s thoughts on this.

ATo get other readers up with the play, the Court of Appeal recently said that if someone goes bankrupt, the OA — who’s in charge of the administration of bankruptcies — can’t take money out of the person’s KiwiSaver account to pay creditors.

This applies not only to withdrawing the money now, but also when the KiwiSaver member gains access to the money in retirement.

“The Court focused on the purpose of the KiwiSaver Act to protect assets and encourage long-term savings,” says DLA Piper New Zealand partner Rachel Taylor.

In answer to your first question, a spokesperson at the Ministry of Business, Innovation and Employment says, “There are provisions in the Insolvency Act and Property Law Act that may allow the Official Assignee to recover irregular transactions made into a KiwiSaver account by an insolvent debtor before they are adjudicated bankrupt.”

My interpretation: If you started contributing more than usual to KiwiSaver in the run-up to going bankrupt, that money could be taken back out and given to creditors.

That puts a bit of a dampener on your idea. Still, your question about the purchase of a first home is relevant to the person’s other KiwiSaver savings — the money that the OA can’t take out.

A KiwiSaver provider says a former bankrupt could withdraw money to buy a first home — and get a first home subsidy — in the same way anyone else could, as long as they qualified.

There’s another issue here. It seems to me that if someone in KiwiSaver is in “significant financial hardship” that’s likely to lead to bankruptcy, they may be ill-advised to ask for a financial hardship withdrawal from KiwiSaver.

If they do go bankrupt, any withdrawn money would become available to distribute to creditors — unlike money that has stayed in their KiwiSaver account.

Taylor points out that this depends on the circumstances. “The KiwiSaver Trustee (or supervisor) is required to exercise discretion in relation to each application. For example, payment of a benefit may avoid bankruptcy to the benefit of the member. In other cases, it may be better for the member to become bankrupt, but preserve their KiwiSaver savings.”

She adds, “Once a member is bankrupt, any payment made to the member — including KiwiSaver employer contributions — is available to the Official Assignee as part of the member’s property.”

What happens if an undischarged bankrupt who has been in KiwiSaver at least five years reaches NZ Super age, which means they can withdraw their money?

That money will be available to the OA if withdrawn, says Taylor. “They are not, however, required to make a withdrawal, and the funds may remain in the scheme.”

QI am increasingly frustrated that is takes up to three months for my contributions to hit my KiwiSaver account.

Would I be better off paying the minimum percentage from my pay, and top up the remaining amount each payday as a bank transfer? I think my money would be added to my KiwiSaver quicker that way. The level of interest that the IRD give is hardly worth bothering with.

AYou’re right. The 1.57 per cent interest you get while your money is with Inland Revenue is nothing to write home about. So yes, what you’re proposing is a good idea, especially if you’re making substantial contributions.

While you’re at it, you might want to do what I suggested last week, and instead put the money into a similar non-KiwiSaver account with a different provider. That gives you not only provider diversification but also the flexibility to take out the money whenever you want or need to.

Then again, some people don’t like having access to their long-term savings, as they can’t resist spending the money.

By the way, for an explanation of why it takes three months for your contributions to reach your provider, see tinyurl.com/kscontrib.

QOur (Craigs Investment Partners’) Select KiwiSaver account provides access to many different fund managers and ETFs based in New Zealand and internationally. Your article last week has overlooked this.

ALast week’s reader was interested in spreading his KiwiSaver investments over more than one provider, and he can’t do that — with Craigs Investment Partners or anyone else.

That means he can’t diversify against any problem that could arise from the way the provider runs its scheme. Such problems seem fairly unlikely, given that KiwiSaver schemes are monitored. But, as I said last week, KiwiSaver does not have a government guarantee.

However, you’re thinking of another issue — diversification of the investments offered by a provider. It’s true that some providers give investors exposure to only one approach to investing, while others are broader. And Craigs is perhaps the broadest of all, letting you invest in a wide range of funds and also individual shares.

Mind you, it’s debatable whether investing with many different fund managers is any better than investing in a single broadly based index fund — which invests in all the shares in a market index. This is especially true after taking into account fees, which are almost always lower in index funds.

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding 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.