Q&As

  • Couple in 70s plan to sell house and rent. Why not?
  • Stay conservative if you don’t know when you’ll need the money
  • Member of bank KiwiSaver scheme watching his balance too closely
  • Future government unlikely to limit KiwiSaver withdrawals in retirement

QWe are a couple in our mid 70s, with a pension of $1450 a month on top of NZ Super. We own 57 per cent of our modest home, with a rateable value of $800,000. The rest is owned by the charity we both served for 40 years.

We are thinking of selling up, paying off a mortgage of $30,000. With net $350,000 to $400,000 in funds, we could rent a nice modern apartment for $550 to $600 per week. That compares with current housing costs — rates, mortgage and insurance — of $100 per week.

Our funds would last at least fifteen years. By then we are unlikely to need an apartment for two.

We would be free of worries about repairs and improvements. We would be free to move to another address with minimum cost. Our children are not worried about a reduced inheritance.

It seems we could rent an apartment we could not hope to purchase. Is there something I am missing here?

ANot really — other than the possibility that you will both live well into your nineties. But if that happens you will probably manage on NZ Super and your pension. People at that stage usually say they just don’t spend much.

Most retired people would think your idea is pretty radical. They value the security of home ownership, the ability to do what they want with their house and garden, and the lack of hassles with a landlord — including the possibility they will be turfed out if the landlord wants to sell the property.

But you may be able to get a long-term lease. And, as you say, you have no worries about maintenance, and it’s much easier to move elsewhere.

What’s more, as you also point out, you can live in higher-quality accommodation. That’s because you are effectively using up the equity in your house by selling it and spending the money. But why not?

I’m not sure exactly how you came up with your money lasting 15 years. You need to allow for rent increases, which could be quite substantial over that long a period. But if you invest your $350,000 to $400,000 wisely, it should grow to allow for that.

Your plan should include investing part of it — the money you don’t expect to spend for ten years or more — in a higher-risk investment such as a share fund. The money you’ll spend in three to ten years should be in a balanced fund or similar, with the shorter-term money in bank term deposits.

If you feel you can’t cope with the volatility of a share fund, put all but the short-term money in a balanced fund. But your money probably won’t grow as much, so you would be wise to dial down your plans a little. Perhaps rent a somewhat cheaper apartment.

QWe are mortgage-free and debt-free in our early 60s and have a modest amount of retirement savings. We are about to receive $170,000 from a trauma insurance payment. We don’t want to put it with our other retirement PIE funds.

My husband will have surgery, and plans to return to work. He will retire in about four years. We want to invest the insurance payment in case he is unable to return to work as soon as we expect, or needs to retire early.

Best case scenario we don’t need the money and it could be used for a retirement trip and add to our retirement funds.

We would appreciate your advice on investment options, which are accessible if required.

AThere’s a big question mark hanging over when you will be spending the $170,000. It seems it could be anywhere from a few months away to quite a few years away.

I hate to be pessimistic, but it’s best to work through a worst case scenario — that your husband is unable to get back to work.

If that were to happen, how much of the $170,000 would you need to spend in the next year, how much the year after and so on? Make a plan that would see you through until you receive NZ Super, and perhaps beyond that.

Just as in the Q&A above, if there’s any money you would expect to spend in more than three years, that could go in a balanced fund, in or out of KiwiSaver. But most of the money will be for the shorter term, so it should go into bank term deposits, maturing when you would need the cash.

That might disappoint you. But it’s not wise to go into riskier investments, as the markets might fall just when you need the money.

Here’s hoping the plan proves unnecessary, and you can blow the money on a trip and other fun stuff.

QI noticed that the money I have in KiwiSaver is dropping quite a bit these days. I am with one of the big banks. Not sure what this means and what is going on?

Can I change where I have KiwiSaver? Another bank for instance?

I think I am in the conservative bracket. Would appreciate any advice. Bit concerned KiwiSaver is taking a big drop?

AThey say the four meanest words in the English language are “I told you so”. But I’ve been saying for years that the banks shouldn’t show their KiwiSaver members their balances every time they use online banking. That’s great — until it’s not.

Many people in KiwiSaver schemes run by banks welcome this feature. They love watching their balance — the amount they have in KiwiSaver — grow. And most of the time it will indeed grow, because:

  • The investments in KiwiSaver funds grow more often than not.
  • Most people are making regular contributions to KiwiSaver.

Reasonably often, though, some of the investments in your fund will lose value and your balance will fall. That’s been happening more just lately, with the markets being more volatile. And if you’re not expecting that, it can be worrying.

If you are in a higher-risk growth or aggressive fund, your balance will fall more often — and the falls will be bigger. But even lower-risk funds will have some ups and downs.

The balances will rise again. They always do, although it can take a while — sometimes a year or more.

In your case, you’re not sure of your risk level. Have a look at the name of the fund on your statement, or phone or email your provider to ask them.

If your hunch is right and you’re in a conservative fund, the downturns will usually be quite moderate. But most conservative funds hold lots of bonds, and while they are not as volatile as shares, their value does drop sometimes — bringing members’ balances down.

If that worries you, you might want to move to a defensive fund. They have the lowest risk, and balances will probably never fall more than a little.

You do pay a price for that peace of mind, though. Your savings will almost certainly grow less over the long term than in a riskier fund.

Should you change provider as well as risk level? Maybe. I suggest you go to the KiwiSaver Fund Finder on www.sorted.org.nz, and do this:

  • Work through “Find the right type of fund for you”. That will tell you whether you should be in a defensive, conservative, balance, growth or aggressive fund.
  • Let’s say that tells you to be in a defensive fund. Put that in the “Select the type of fund you’d like to look at” box. (It will probably already say that, as that is the default position on the tool.)
  • Work through “Compare funds in three important ways”. That will show you which providers’ defensive funds have the lowest fees, the best service, and the highest returns.

I suggest you take note of the half dozen or so providers with the lowest fees. Then see which of those provide good services. Check out their websites to see if you like what they offer.

I wouldn’t take much notice of which ones have higher returns — except to exclude any that have done really badly. This is because the funds that have done well in the past won’t necessarily keep doing well. They move around all over the place.

A recently released Morningstar KiwiSaver report illustrates this.

Looking at the five default funds for which there is ten-year info, the fund that did best in the year ending September 30 2018 came fifth — dead last — over the ten-year period. And the fund that came last over the single year came first over the ten years.

At the other end of the risk spectrum, there are four aggressive funds with ten-year info. The fund that did best over the recent year came third out of four over ten years. And the fund that came last over the recent year topped the ten-year list.

It’s not always that way. Some funds keep doing well over considerable periods. But how do we know in advance which ones will do that?

That’s why I say choose a fund with low fees and good services and switch to that fund. To make the switch, go to the provider’s website and contact them. They will take care of telling your old provider and Inland Revenue.

And by the way, I wouldn’t necessarily favour banks. They are the biggest providers, but many smaller ones are just as good if not better.

Footnote: Hey banks — how about making it a bit harder for your KiwiSaver members to see their balances? While we all want members to take an interest in their savings, it’s not a good idea to watch and worry about frequent wobbles.

QI have read with interest a couple letters from readers who were collecting NZ Superannuation and had also invested their savings into their KiwiSaver accounts.

My partner, who is nearing retirement, and I have savings on bank deposit, but feel we could achieve a much higher return if we invested it with our KiwiSaver provider.

My only hesitation is a fear that the Government will legislate against eligible KiwiSavers being able to withdraw lump sums. Do you have an opinion on this?

ANobody can guarantee what a future government will do, but I can’t imagine any government stopping people in retirement from withdrawing KiwiSaver money — in regular payments or lump sums.

The age at which you can withdraw is the age when NZ Super starts, currently 65. So if the Super age rises, which is quite possible, then the age of gaining access to KiwiSaver would probably also rise.

But there would be lots of warning, and I very much doubt if any government would ever arrange it so that people already in retirement were affected by the change. That would be too big a vote loser.

Note, though, that if you’re expecting to make much more in KiwiSaver than in bank deposits, that suggests you’re investing in a higher-risk KiwiSaver fund. As I say in the previous Q&A, that means your balance will sometimes fall a fair bit.

Which gets me back to a message that keeps arising in today’s column: don’t use a riskier fund for money you’re expecting to withdraw in the next few years. Short-term money should be in a low-risk fund or term deposits.

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.