NZ Herald 4 November 2023

AGood on you. Exercise is undoubtedly good for you not just physically but also mentally. And I’m not just referring to endorphins from exercise but also research that shows a healthy heart helps to curb dementia.

I hope you acknowledge, though, that it’s easier for some than others. Over the years you have had the time and been in the circumstances to be able to run. Also, you were probably born with good genes for health, and raised in a healthy environment..

Just don’t get too cocky. I know plenty of older people whose health has suddenly deteriorated. Still, being fit when that happens must be a plus.

ANice try, but no. Firstly, the game isn’t over. The markets he moved from might rebound over the coming year. Will he time his return well? It’s tricky. But even if his move does look good in late 2024, that doesn’t mean much.

People who choose when to get in and out of the markets will of course sometimes get it right. But they will also sometimes get it wrong. And buying and selling units or shares or bonds or whatever generally costs money — as well as hassle.

History shows us that market timers usually do worse than those who get into suitable investments and stick to them.

US financial market research firm Dalbar looked at 30 years of data ending December 2022. It found that the average US share fund investor earned a return of 6.81 per cent a year, while the S&P500 index earned 9.65 per cent.

That’s because many investors moved in and out of funds, trying to time the market or chasing high performers. If they had stayed in a low-fee index fund that followed the S&P500, they would have earned close to the 9.65 per cent.

Translated into dollars, if the average investor started out with $100,000, they would have almost $722,000 after 30 years. Not bad. But if they had stuck with the S&P500 index, they would have $1.586 million.

Note that while the return is not nearly twice as high — 9.65 per cent versus 6.81 per cent — the savings total is well over twice as high. That’s the way compounding works. The higher the return, the faster the growth.

In a different context, it’s why being in a growth or aggressive KiwiSaver fund lets your savings grow so much faster than in a low-risk fund, despite the ups and downs.

AGood thinking. And yes, it can be done with some providers.

As I’ve said so many times, it’s not a good idea to move your KiwiSaver risk level because of market movements. If, for example, the markets are down and you switch from a growth fund to a balanced or conservative fund, you are selling units when the price is down, or “locking in a loss” as you put it.

If you’re reducing or increasing risk for other reasons — because you’re approaching withdrawal time or because you’ve decided you can cope with more volatility — you will sometimes lock in a loss and sometimes lock in a gain, depending on market movements.

But running that risk is not ideal. Your idea — of just leaving your money where it is but moving to a new risk level with money you contribute from now on — would work well in some circumstances.

Nobody is allowed to be in more than one KiwiSaver scheme — with two different providers. But the rules certainly permit being in more than one fund with the same provider — such as a growth fund for long-term money and a conservative fund for money you expect to spend soon.

There are just three providers that don’t allow members to be in more than one fund, according to a Retirement Commission survey. They are AE, Juno and Simplicity.

What about allowing a member to leave their present savings in one fund while putting future contributions into another one — as you suggest? Three more providers, Kernel, Kiwi Wealth and Koura, don’t permit that, but all the others do, the survey shows.

Now let’s take this a step further. The survey asks providers, “For members in more than one fund, do you allow withdrawals from just one fund?” This is what many people in retirement will want to do.

Providers who said yes — the champions of fund flexibility — are: AMP, ASB, BNZ, Fisher, Generate, Kernel, Mercer, Milford, NZ Defense Force, NZ Funds, Nikko AM, Pathfinder, Summer, SuperEasy and SuperLife,

If you want to make the most of the flexibility but you’re not with one of those providers, you can easily move. Just contact the new provider and they will shift your money for you.

AGosh, there’s a fair bit of anti-lawyer feeling out there!

But yes, it’s a good idea to make a list of questions in any situation where you’re meeting with an expert, and to note down their replies.

And yes, executors — the people who make sure the dead person’s wishes are followed — should be treated equally, although no doubt that’s trickier if some live elsewhere.

The number of executors is usually one or two, although if there is just one a lawyer tells me he always recommends a substitutionary executor in case that person can’t or won’t do the job.

Having three executors is possible but unusual. It might get cumbersome, the lawyer says, “and would result in higher admin costs, in getting each executor to sign off on admin documents.”

On a guidebook, I wrote last week that you can get info about the process from Community Law here..

ASays George van Ooyen of the Ministry of Social Development, “The applicable thresholds apply regardless of whether a couple are in shared or separate care accommodation.”

That seems tough, but that’s the way it is.

AIndeed. It’s worrying to see older people being really generous to their family and then struggling financially when it comes to good-quality care.

Families need to take note, too, of how making gifts might affect the older people’s ability to get help from the government. See the next Q&A.

It’s wise to also warn offspring that they shouldn’t count on inheriting a share of a family home. That might need to be sold to fund care.

AYou can always do what you like with your income or assets.

It’s just that if you apply for a residential care subsidy, the government will look at the total value of most of your assets — in some cases including the value of gifts made in the past. If the total is higher than a certain amount, as explained last week, you won’t get the subsidy.

It doesn’t matter whether the gifts come out of your income or your savings or the proceeds of selling an asset. And, in reply to another correspondent, it doesn’t matter if the money is used for grandchildren’s school fees.

The rule is there to prevent people from making themselves poorer so that they qualify for government help. You might, for example, give lots to your children with the expectation that they will then help to look after you.

Nor can you get around it by selling something at a low price to, say, a family member. If the sale was within five years of applying for the subsidy, Work and Income will check that the sale price is reasonable.

It all makes sense. But sadly it can curb generosity.

Still, you won’t be affected if:

• You gave away no more than $27,000 worth of assets in any one year, more than five years before applying for thesubsidy.
• And you gave no more than $7,000 worth of assets per year, in the five years before applying for the subsidy.

In most circumstances, these totals also apply to couples. Usually it’s not okay if each of you gives away $27,000 or $7,000.

For more info see here.

The “safest” approach is to stay within the $7,000 limit. But if it seems unlikely you will need care within five years, you might want to risk it and use the $27,000 limit — perhaps until your health deteriorates.

Or you could just say, “We want to give away the money anyway. If it means we end up with less government help, sobeit.”