Battle of the generations?

QDo you know why the government doesn’t allow those who receive NZ Super to receive the $521 per year contribution into KiwiSaver if they deposit over $1,042? My husband and I still work through necessity so are contributing well over that amount each year.

AYikes! Do you want to start an all-out intergenerational war? Many younger people argue that the baby boomers have already got the best financial deal, and they may well be right if we look at data like house prices relative to incomes when we boomers were young.

I wasn’t sitting around the table when KiwiSaver was dreamt up, but I’m sure the thinking would have been that over 65s already receive thousands of dollars a year in taxpayer money through NZ Super.

When KiwiSaver started, people over 65 couldn’t even join, although if you were already in before that age, you could stay in. Since 2019, though, anyone can join at any age — a great change, as KiwiSaver can be a good spot for retirement savings.

But asking for further taxpayer support after 65 seems a bit over the top to me. Sorry!

P.S. I do hear, though, that many employers continue to contribute after an employee turns 65, even though they don’t have to. If you’re not getting that, perhaps point that out to your boss.

An excellent point

QI have the greatest respect for your financial advice, and have followed your column for a number of years. For the first time ever I find myself in profound disagreement with your advice to the person querying whether they should borrow to go to an overseas wedding.

By coincidence, I find myself in the same position, but my reason for not going is not financial, but purely environmental.

I don’t know if you saw Guterres’ recent speech on climate change, or if you had seen this report about individual’s transport emissions in the UK, or the recent news of the highest ever year-on-year increase in CO₂ emissions.

I feel that advising people to travel abroad for a social event is irresponsible, but I do realise that trying to explain the reasons is a bit like explaining teetotalism to a room full of alcoholics.

Please don’t be offended by my criticism. I do understand how your work means that you tend to see the world through a set of financial binoculars, but I hope you can put them to the side for a moment and see some of the other consequences of your advice.

AYour email brought me up short. You make an excellent point, and I should have thought of it. While the environment has not in the past been an inherently financial issue, it has to be these days.

Just a couple of weeks ago I was at Mindful Money’s annual conference. Their website rates KiwiSaver and other funds on their performance on environmental issues and fossil fuel investment as well as human rights, animal cruelty, weapons, and social harm.

There was much discussion at the conference about how the environment and the dollar interact, and it was impressive to see how many people are offering investments and products that tick many environmental boxes as well as performing well. This is now a mainstream financial issue, and we’re all need to take environmental effects into account in our financial decisions.

Anyone who questions that might want to read your thought-provoking links.

So where are we with destination weddings — ceremonies held away from where the bride and groom live? Of course last week’s correspondent may have been talking about the marriage of a couple who live overseas, and most of their guests live nearby. But when the bride, groom and pretty much everyone else attending has to travel, there are several concerns, including the expense for the guests.

I’ve heard more than one person express their annoyance, or even anger, at the presumption that they are happy to spend that money. Maybe they can tack it onto a trip to that area anyway, but maybe it’s not the right time, workwise, to take a break.

Add to that the really important issues you raise, and perhaps engaged couples should rethink their plans. If you want to wed somewhere different, how about a marquee at a nearby beach or park?

All this raises the question of not just flying to weddings, but overseas trips in general. Should we stop them altogether? Or ration ourselves? New Zealanders do, indeed, tend to be travelaholics. There are no easy answers.

Keep walking

QI felt vindicated by your encouragement last week to spend on doing what you love.

I am 75. My 66-year-old partner and I have planned the Tora Coastal Walk in November, the Hollyford guided walk in December and to cycle the Alps to Ocean in March. I have also booked a Canada ski holiday for February (my seventh since I turned 60).

I have a very small part-time (writing) income and from this year will take $20,000 out of KiwiSaver every year to help fund my fun, meaning it should run out when I am 90, and leave me with about $100,000 spare plus a mortgage-free property (or equivalent) worth just over $1 million.

I spend a lot of time and some money ensuring I am fit and healthy so the fun can continue. Having no children allays the guilt that I feel inhibits people from spending the kids’ inheritance. Am I being profligate or just making the most of the life I have left?

AGo for it! It sounds as if you’re fine financially. And — in light of the previous Q&A — most of your fun activities don’t involve much travel. But perhaps from now on stick to New Zealand for your skiing.

Protecting income

QWhen we were expecting our firstborn, my husband took out income protection insurance. Cover was at 80 per cent of his gross salary. Yearly premiums can be claimed as a tax expense.

In 2004, after the birth of our second child, my husband, age 41, was diagnosed with a brain tumour. His income protection kicked in after an 8-week standdown. Two years of surgeries, chemo and radiotherapy resulted in him permanently giving up work. The cancer prognosis was grim.

I’m happy to report, 20 years later, that he is cancer-free, still unable to work, but fortunate that his policy is to age 65.

We have had nothing but good outcomes in the public health sector, and our money was much better spent having income protection insurance than having health insurance.

AFor someone in your husband’s position, with dependants, income protection insurance is essential really. And in your family’s case, it certainly turned out to be a good move.

On the tax situation, Inland Revenue says, “You can claim the cost of income protection insurance if the insurance payout would be taxable. Ask your insurance provider if your income protection insurance is deductible (can be claimed as an expense). This is also called ‘loss of earnings’ insurance.”

On the comparison between health and income protection insurance, in both cases if you don’t have cover you get help from the government. But I agree that in your circumstances, income insurance ihas been more important.

Oh, and it’s great to read about your husband’s recovery.

Lucky grandkids…

QI am a lucky grandfather to just three and I would like to help these kids with their first home, through my will.

Can I make it a condition that the amount left to each grandchild goes directly to their KiwiSaver? That means they can use it for the purchase of their first home or for retirement savings.

AYes, you can specify that the money is to go into each grandchild’s KiwiSaver account — and I assume you’ve checked that they have accounts. A Q&A last week pointed out the problems that can arise if they don’t.

However, you can’t specify how they spend the money down the track, an expert tells me. But there are usually only two options anyway — first home or retirement — unless the account holder gets into serious financial difficulties.

It’s not easy to make a “significant financial hardship” withdrawal. And I assume you would feel okay about a grandchild using the money in that case anyway.

… and more of them

QJust read the letter about someone using a windfall for grandchildren. I had a similar thing, about $20,000, and three grandchildren. Rather than KiwiSaver, I decided to make it accessible for their education by establishing three term deposits that roll over annually, compounding the interest.

The younger ones will get progressively more as the investment continues for longer. Hopefully, this will counter rising costs as years go by. And their mother can supervise when I am not around.

AA good idea, although I suggest you be flexible about the definition of education. Some of the young ones may not be academic, and might instead need cash for other training. You might want to stipulate who decides what spending is eligible.

Another suggestion is to move to longer-term deposits. Usually they pay higher interest — your reward for tying up the money for longer. And I gather the grandkids won’t be spending it for a while.

True, in these unusual times, three-year rates tend to be a little lower than one-year rates. But if you go with three-year deposits, I would be surprised if you don’t find, in a couple of years, that that was a good choice, because one-year rates have dropped.

On staying ahead of inflation, most of the time over the past 20 years, term deposit rates have been comfortably higher than inflation. However, since 2020, there was a period when inflation was around 1.5 per cent and one-year deposits earned less than 1 per cent — hard to believe now! And then inflation zoomed to 7.3 per cent while deposits also zoomed, but “only” to 6.15 per cent.

But we’re now back to the usual, with deposit rates higher than inflation, and that will probably continue most of the time.

Plan at 78

QI was a teacher and when I retired my managed fund was worth $52,000. Now 14 years later it is only worth $92,000. It had been in the balanced fund but three years ago I changed to 49 per cent in the lower-risk stable fund and 51 per cent in cash.

Because it is a teacher fund I am not allowed to put money in, so I don’t get the advantage of buying when the market isn’t performing. My other money is in term deposits so I’ve always kept my managed fund to have diversity.

Because I haven’t been able to deposit, am I at a disadvantage? And would I be better withdrawing my money and choosing another fund that I can add to, or investing in another term deposit. I’m 78 years old.

AWhen you say you miss out on the advantage of buying when the market isn’t performing, do you mean:

  • You would like to try to time markets — buying more in downturns, or
  • You would like to drip-feed in a steady amount all the time, knowing your dollar goes further when the markets are down?

If it’s the former, don’t bother. Most people get market timing wrong most of the time. But the latter is a good strategy. And there’s nothing to stop you opening an account in another fund, in or out of KiwiSaver, and drip-feeding into that. But is that your best move?

I suggest you think about when you expect to spend your savings. You want money for the next three years in term deposits or your cash fund, and longer-term money in your stable fund or another lower-risk fund.

On average you won’t get as high returns as in a higher-risk fund, but your balance will be less volatile. And I sense that’s what you want.

An alternative is to move all your money out of the teachers’ scheme and into KiwiSaver funds of a similar risk. If you choose a low-fee provider — by using the Smart Investor tool on — you’ll probably see more growth in your savings because less is taken out in fees.

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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a director of Financial Services Complaints Ltd (FSCL) and a former 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.