NZ Herald 7 December 2019

AAll three of your ideas are brilliant. And the second and third ones also work well for people who want to boost their savings.

As you note, over time the interest component of your mortgage payments gets smaller and smaller, and the debt repayment larger and larger. In the last few years, it’s great to see how fast the debt disappears.

I should note here that, in these days of low mortgage interest rates, there’s an argument for investing any spare cash rather than paying off your mortgage faster.

But for that to work well, the investment needs to earn more, after fees and tax, than your mortgage interest rate. That means being in a riskier investment, and sticking with it through market ups and downs.

Even if you cope well with volatility, there’s still much to be said for getting rid of your mortgage first. It means you can get on with serious retirement saving, and can probably borrow again if you hit tough times.

AYour first question is a classic “how long is a piece of string?” one. Who knows? Because of that, I suggest you go only halfway with your plan.

You never know what complicated health issue might arise — something that would put you on a long waiting list in the public health system or would cost a heap if you pay yourself. You might need to see several specialists or have several rounds of surgery — and it might go on for years.

If bad health strikes, the last thing you’ll want is money worries as well. So it’s better to have insurance for, say, surgery and specialists’ fees. While you might use it only rarely, you’re not just buying cover but also peace of mind.

However, as long as you have enough money, it’s fine not to insure for GP visits and minor health expenses. That will make your premiums considerably cheaper. If I were you, I would use some of the inheritance to pay those premiums.

How much should you put aside? You can roughly estimate your premiums over the years by looking at rates for different age groups. You will also have a rough idea of how much you’re likely to spend on GPs. Don’t allow for inflation, as investment returns should cover that.

How should you invest the money? Just put it with your other savings. Have money you plan to spend soon in lower-risk investments, and longer-term money in higher-risk investments if you can tolerate volatility — as outlined often in this column and in my book, Rich Enough? A Laid-back Guide for Every Kiwi.

P.S. I hope you also spend some of the inheritance on treats.

AYou’re so right. Thanks for giving us all a stats lesson.

ATrue. But these types of accounts are complicated. Take, for example, ASB’s Savings Plus account.

“You can make one withdrawal within the first five days of each quarter and lose no interest. You can also make one other withdrawal per quarter and lose only some interest. If you make more withdrawals, you get only base interest,” which is just 0.1 per cent, says an ASB spokeswoman.

“Balances above $2 million earn base interest only. We also proactively send customers with the Savings Plus account communications advising them if they have not earned reward interest in the previous quarter and giving them tips on how they can achieve full reward interest in the future.

“In addition, if customers transfer funds from these accounts we provide a warning to them that they may lose some or all of their reward interest.”

It’s nice that they send tips and issue warnings. But if the rules were simpler, they wouldn’t have to.

A recent Newsroom article about all the big four banks’ bonus savings products says, “by the banks’ own calculations, somewhere between 20 percent and 33 percent of customers miss out on their bonus interest rate every month because they don’t meet the criteria.”

Over all, Newsroom calculates that “a third of all money that Kiwis put into New Zealand’s big four Australian-owned banks is paying a 0.1 percent interest rate or less.”

Presumably that’s because there are too many rules around products that offer more.

Newsroom adds that New Zealand-owned Heartland Bank offers a flexible savings product paying 1.6 per cent, with unlimited withdrawals.

One other point to note: the Bonus Bonds’ average return of 0.75 per cent is not taxed. So that should be compared with after-tax returns from the banks.

AThis is a free ad for your service, but why not! You are not-for-profit, and while I know nothing about Community Foundations, it seems from your website that you do good work.

AAgain, I know nothing about this organization, but it seems worth looking into.

Okay, enough letters about charitable giving. Thanks for all your suggestions, including some that didn’t make it into the paper.

It seems that many New Zealanders are generous. Said one correspondent: “Although my wife and myself are reliant on National Super for about 65 per cent of our joint income, between us in the year to March 2019, we made 72 donations.” Wow.

I’ll just add one last idea from a friend in America. At the start of each year, he puts aside, say, $2000. Then throughout the year, if he has an unexpected expense — maybe a dental bill or parking ticket or car breakdown — he uses some of that money. At the end of the year, his favourite charity gets the rest.

It makes the bills painless — even if not the toothache! And over the years the charity does well.

AFirstly, I don’t screen out letters because of the writer’s situation or point of view. The more diversity, the better.

Also, I think you’re a bit harsh. The correspondent said, “I am also helping pay for pensions and benefits for those of my generation who did not have the foresight and/or ability to save.”

I agree with you that it’s easy for people who learn financial skills and get support from their parents to save, and harder for others. But the correspondent did acknowledge that some people are unable to save.