Sad lottery winners

QWe read very sad outcomes for those who were fortunate enough to win the lottery, irrespective of the country.

Could we read in your columns of any meaningful possibilities for the fortunate ones, say to win anything upwards of $30 million, and begin to trust that at least they could live to tell a good story about such winnings?

Indeed, many play the game in our nation and elsewhere, with the hope of one day making it. One thing I read classified such winners as very lonely, overwhelmed and, for some, on a predetermined pathway to ruin, with all due respect to those who have done well.

Could laddering a sizable chunk of it be a way forward, after clearing debts and allocating some for any planned expenses?

AI saw a hilarious black comedy in the recent French Film Festival called Lucky Winners. There were no happy endings. And you’re right, in the real lottery world that’s often the case too.

In one survey, a year after their big win most people were about as happy as they had been before the win. In other words, negative people stay negative. But I think it could be hard for positive people too.

Many of your whanau and friends may well expect to be given some money, and whatever you give may seem too little to them. They are also likely to expect extreme generosity when you entertain or spend time with them. But socialising with people who are way poorer or richer than you can have its problems.

And what about every new acquaintance? Would they be as interested in you without your wealth? Loneliness after winning is not all that surprising.

You could try to keep your win quiet. But then it would be tricky to upgrade your home or car, or to travel lots, without raising eyebrows. What would be the point of winning?

It’s for all these reasons — rather than the fact that lottery tickets are not great investments — that I don’t bother.

But if I were advising someone who did win, I would suggest giving the vast bulk of the money to charities. This might involve research, and you might want to hire someone to help with that.

It would be reasonable to keep, say, a couple of million dollars. And yes, the number one priority would be paying off any debts. After that, there’s the list mentioned above: a new home — or buying your first home — and perhaps buying toys such as a flash car, boat, campervan or whatever appeals.

As I’ve said, gifts to family members, and perhaps others, might be called for. Unless there’s a compelling reason for giving differing amounts, it would be best to give, say, all siblings the same sum.

Beyond that, hiring a good financial adviser — one whose only income comes from clients as opposed to from fund managers and others — should help you to invest in ways that make the money last.

Low volatility for short term

QMy parents have downsized and very generously gifted me $100,000! Such a privileged position in this cost of living crisis, that we are really unsure of how to make the most of it.

My initial thoughts were to split it, say half to balanced managed funds and the other half to growth — a bit of caution and some risk! Or does this amount of money justify going to a financial advisor?

We are frugal types and debt/mortgage free in our late forties. We have been keeping our eye out to move to a property with more land, so this could really help with the transition. But we aren’t in a hurry and quite particular about what we would like, so may want to access the money next week, or it could be a couple of years away.

Or perhaps we should treat ourselves to an overseas holiday with some of it!

AYou’re indeed lucky. And yes, do spend a bit on a holiday or other treat.

Using the rest of the money to buy a bigger property is a fine thing to do. For one thing, it’s a way of getting pleasure out of the gift soon — and your parents may enjoy visiting the new place.

In the meantime, given that you might withdraw the money in the short term, park it in an investment with low volatility. You don’t want to find yourselves with less to withdraw because the markets are down, which could happen in a balanced or growth fund. Suitable options are bank short-term deposits, a bank short-term PIE fund, or a non-KiwiSaver cash fund.

Unhappy boomer

QIs it over the top for a baby boomer to ask for government KiwiSaver contributions after age 65, as you said last week? No, under the top sorry!

Baby boomers paid tax willingly to pay, amongst other things, for super that their parents were receiving who lived through a depression — a generation where women worked in the home unpaid and did hours of voluntary work.

In 1983 we had one income which was taxed at 60 cents in the dollar. With the remaining 40 cents we paid our mortgage as a priority, cut our own lawns, cleaned our own house, only spent money on materials to undertake all our own maintenance; cut our cloth to balance the budget.

Our mortgage interest was 14 to 18 per cent, up to 22 per cent for those that could not get a bank mortgage. It’s all relative. As a mother returning to part-time work in 1998, I was paid $10 per hour, with some at work receiving $7 per hour. No super scheme, no KiwiSaver.

Holidays destinations were simple, no expectation of overseas jaunts to the sun or offloading the children to daycare. Family benefit was paid by the Government at $7 per week per child. Paid maternity leave, dream on.

Baby boomers did not see their homes as an expected source of capital gain to be turned over at someone else’s expense; they were a nest of security to bring up a family.

I feel for those that passed young from hard work, worn out and did not even get to collect super. Get off our case.

AGoodness! All I said was that we — I’m a boomer myself, and said so last week — had a pretty good run for the most part. I see other greater needs for government money than KiwiSaver contributions for over 65s.

Sure, in some ways our lives were tougher than for later generations, but there are just as many ways in which life was easier.

And to put some of your comments in context:

  • The bulk of your income was never taxed at 60 cents in the dollar, just the amount you earned above a threshold. Also, the 60 per cent top tax rate wasn’t there for most of a boomer’s working life.
  • Yes, mortgage interest was very high some of the time. That was because inflation was well into the teens from the mid 1970s to late 1980s. But most of the time our pay grew even faster.
  • Historical wage rates are misleading. Your $10 hourly wage in 1998 is equivalent to about $24 now, according to the Reserve Bank inflation calculator. And it’s similar for the family benefit.

I’m not saying you didn’t go through some hard times. But most people do at some point in their lives. There’s heaps of research done — notably at the University of Auckland’s Pensions and Intergenerational Equity research hub — about which generation has had the best deal. Suffice to say it’s not clearcut.

But more importantly, I don’t know many people who care only about their own welfare. Most of us are also concerned about our parents, children and grandchildren if we have them, and — more broadly — people older or younger than us. So let’s not get into a battle over this.

KiwiSaver for self-employed

QNearly all financial and retirement information is based on the assumption of salary earners. “Start young!” “Automatically deduct!” “Set and forget!” are all the incantations across all media.

I haven’t had an income for 7 months as a public sector contractor, such is the rollercoastery financial life of the self employed. For those of us not getting someone else “topping us up” with free money (employer contributions), is it still sensible to contribute more than $1,042 into KiwiSaver?

For example, since 2017 on a $38,000 balance, I’ve had a $5,000 return on my ANZ KiwiSaver account. I assume it’s better for me to invest in my own retirement savings via shares like index funds over the next 20 years. Is this a sound judgement?

AThose messages in your first paragraph apply equally to the self-employed. But should the money go into KiwiSaver or some other investment?

For most people — regardless of their employment status — it’s best to put as much into KiwiSaver as it takes to get the maximum contributions from elsewhere. For employees that’s usually 3 per cent of their pay to get the full employer contribution. For others it’s $1,042 a year, or $20 a week, to get the maximum $521 government contribution.

Beyond that, I suggest putting further savings into a non-KiwiSaver fund, so you can withdraw the money any time you need to. However, some people prefer to put the extra into KiwiSaver for one of two reasons:

  • They like the simplicity of having just the one long-term savings account.
  • If they had access to the money they might be tempted to spend it.

You’re disappointed with your recent KiwiSaver returns, but you would probably have found similar results in another diversified share investment, such as an index fund. The markets have been rocky. But if you stick with investments like these, they will grow in the long term.

From now on, by all means use an index fund for savings above the $1,042 to KiwiSaver. In your current situation you might not be able to afford automatic regular deposits into it, and might even have to make withdrawals, although try not to. When you have regular work it’s a really good idea to set that up.

Term PIE decision to come

QWith regard to your response two weeks ago that Bank PIE funds will be covered by the Depositor Compensation scheme, I have a query about BNZ Investment Services (BNZISL), whose PIE term funds I am invested in.

I recently received advice from BNZ that BNZISL is no longer owned by BNZ and is now owned by Harbour Asset Management. It did state that the Term Pie Funds offered by BNZ will continue to be invested only in NZ dollar deposits at BNZ. However, does this change of ownership mean that BNZ Term Pies might not be covered by the proposed depositor compensation scheme?

AIt seems nobody knows yet. Says a Reserve Bank spokesperson: “It is proposed that ‘Bank-sponsored PIE funds’ will be included as a ‘relevant arrangement’ and be protected under the Depositor Compensation Scheme.”

But will BNZ PIE funds be included, given the change of ownership? “It’s too soon to answer your reader’s question at this stage because the rules for the proposed Depositor Compensation Scheme are still being decided,” says a BNZ spokesperson. “Once the regulations are finalised, banks will be able to provide clear information about which of their products are covered by the scheme.”

So where are we in the process? “This proposal is covered in a recent consultation on which products are eligible under the DCS,” says the Reserve Bank. “This consultation closed on 10 May. Final decisions are subject to our advice to the Minister of Finance following submissions, and finally, Cabinet approval.”

Who knows when that will be — although it will have to before mid 2025, if the Scheme is to come into effect then, as scheduled

Meanwhile, you might want to use term PIEs that expire before the middle of next year, so that if they turn out not to be covered by the Depositor Compensation Scheme you can move the money to a bank term deposit, which will be covered. Or if you want to invest for longer, go with a bank term deposit from now.

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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.