NZ Herald 5 April 2025

AYes — but not because you’re not saving, and not because your house value is going nowhere. It sounds to me as if you’re being too tough on yourself.

In one way it’s great that you’re paying off your mortgage so fast. People often end up paying twice as much as the original loan, because of interest over the years — as any online mortgage calculator will tell you. If you repay your mortgage quickly, that slashes the total interest bill. In the long run, you’re much better off.

But I don’t see anything labelled “fun for me” in your spending list. If you were fairly close to retirement, I would applaud an all-out effort to slay your mortgage, knowing you would soon have the time for self-indulgent stuff. But that’s not you.

I suggest you reduce your mortgage payments and do two things with that extra money:

• Plan some treats.
• Set up an emergency fund of several thousand dollars. Perhaps keep that money in an account that offsets your mortgage one way or another. Discuss that with your lender.

I presume you’re in KiwiSaver and contributing 3% if you are an employee, or $1,042 a year if you’re not — so you get the maximum from the government. That should take priority over mortgage payments. Apart from that, don’t worry that you’re not saving. Repaying a mortgage or any other debt is equivalent to further saving.

On the value of your home, forget about it. Over the years it will almost certainly gain value. Even if house prices go nowhere — which is extremely unlikely — you’re already in the housing market, so it doesn’t matter much.

Now, what’s your first treat going to be? That’s also a question for the couple discussed in the next Q&A.

AYou make some excellent points. Many couples are too careful with their finances in their sixties and early seventies, when they are healthy enough to enjoy travel and other activities, only to find as they get older that they have plenty of money but less energy.

Counter arguments are:

• They might want to leave inheritances. But often their heirs don’t really need much of their money.
• They might need savings for rest home or similar care in a place of their choice towards the end of their lives. However, few people end up spending more than, say a total of $200,000 on this, and usually it’s considerably less. This can often be funded by a reverse mortgage or selling your home.

One comment on your plan: The couple’s $320,000 in KiwiSaver should last longer than eight years if they withdraw $40,000 a year. That’s because the money still in their funds will be compounding in the meantime.

If the savings earn 3% a year after fees and tax, the money will last more than nine years. And if they invest in somewhat riskier funds with the money they won’t withdraw for a few years, so the average return is 5%, it will last more than ten years.

I haven’t allowed for spending to increase because of inflation. As discussed in this column lately, people tend to spend less as their retirement progresses.

One more point: The wife doesn’t need to retire for them to enjoy life! If she likes working, that’s great. And it will only strengthen the couple’s financial position.

AIt seems you’ve misunderstood Heartland’s policy. While interest is calculated daily, it’s compounded monthly, the bank says. There’s a video explaining this on the reverse mortgage calculator page of their website.

This is standard practice for reverse mortgages, and it’s similar for other mortgages, says Bruce Patten a mortgage adviser at LoanMarket.

On whether a reverse mortgage is more or less risky for a lender than an ordinary mortgage, the fact that the loan balance grows rather than diminishing clearly makes it riskier. More on reverse mortgages next week.

AYou did, indeed, say in a 2014 Q&A, “It is difficult to do better” than Berkshire Hathaway. And Warren Buffett’s firm has certainly performed extraordinarily well over recent decades.

BH is a US-based investment company that buys shares in other companies, so it’s not unlike a managed fund. But one of the big differences is that the managers of actively managed funds buy and sell investments, whereas Buffett is famous for choosing shares carefully and simply holding them for decades.

While the company’s investments are diversified, geographically and in different industries, only a few companies make up most of the portfolio. Apple is a huge 23%, and Apple plus American Express, Bank of America and Coca-Cola make up 57%. In fact, just nine US-based companies make up more than 78% of the investments.

Those companies have, for the most part, been great investments. But what if fortunes change for several of them? While BH’s investments have had a great run most of the time, and maybe that will continue, maybe it won’t.

Another worry is that Buffett is 94 and no longer running the investments, and his sidekick Charlie Munger died in 2023. Will their successors be as clever?

On your question about why anyone would consider other investments, I would! There will always be shares that perform better than low-fee global index funds. But which ones?

As I said in the 2014 Q&A, “The irony is that Buffett himself has often praised index funds. For example, in his 2013 letter to shareholders he writes about money he is leaving to his wife. “My advice to the trustee could not be more simple: Put 10 per cent of the cash in short-term government bonds and 90 per cent in a very low-cost S&P 500 index fund.

“I believe the trust’s long-term results from this policy will be superior to those attained by most investors who employ high-fee managers”.

By the way, I don’t regard the S&P500 (an index of large US companies) or the NASDAQ (a US index heavily weighted towards IT companies) as the major world share indexes. That title goes to the MSCI world index, which covers large and medium-sized companies in many countries.

AThe scheme, which guarantees deposits of up to $100,000 per person, will cover deposits already held in eligible accounts, says the Reserve Bank.

AIf two people have a joint account, each of them is covered for up to $100,000. So yes, a joint $200,000 deposit is covered.

On who is taking part, “The DCS covers eligible depositors of banks, building societies, credit unions and finance companies that take retail deposits — known as ‘deposit takers’ — that are registered or licensed in New Zealand and offer eligible products,” says the Reserve Bank. “Overseas-owned deposit takers that operate in NZ as branches (rather than as locally incorporated subsidiaries) are unable to offer protected deposits.”

There are lists of registered banks and of licensed non-bank deposit takers on the Reserve Bank’s website. The website will also publish a list of eligible deposit takers before July 1.

AYou’re right, KiwiSaver, other managed funds, shares and bonds are not included. The only exception is certain PIE accounts offered by deposit takers.

“The scheme is designed to cover standard banking products like current accounts, savings account and term deposits,” says the Reserve Bank. “The scheme is not designed to cover market risk, which investments, including KiwiSaver, are exposed to. This is in line with practices of similar schemes overseas.”

That makes sense to me. But do keep up your managed fund investments.