Q&As
All in one pool
QMy husband and I have both come from financially illiterate and working class families, but have spent the last seven years learning more each year about managing money.
Your column and your books have been hugely influential, and frankly we couldn’t have done any of this without the free advice — even if it all made absolutely no sense to start with.
Situation: We have downsized houses to avoid long-term debt. This will leave us with about $200,000 in hand but a house that needs renovation. We have about 15 more years before retirement (assuming that’s still 65 when we get there).
We had thought that we could invest four lots of $25,000 in rolling term deposits (quarterly) so that we always have something available for funding renovations, but also not just sitting in an account. This leaves $100,000 to invest longer term.
Should we keep some of the mortgage active in revolving credit? If we were to retain a mortgage of $25,000, we could invest $125,000 longer term?
Also, if we invest, is it better to add to our existing KiwiSavers, or diversify into a different managed fund? We won’t need to draw on this sum in the short term.
And can I make a recommendation to anyone starting out on this journey: no matter how old you are, just keep reading other people’s questions, and get the books from the library — it eventually starts sinking in a little.
AWell done to get to a considerably stronger financial position than many people aged around 50!
I like your plan with the term deposits. But I’m not keen on your keeping the revolving credit mortgage.
If you borrow money and also have investments, you are borrowing to invest — even if you think they are two separate lots of money. They are all in the same Our Money Pool.
To make that worthwhile, the return you receive, after fees and tax, has to be higher than the interest you are paying.
Let’s look at an example. Revolving mortgage interest rates are mostly just under 6%, according to interest.co.nz. And your average return after fees and tax in a higher-risk fund might be 7%.
After subtracting the mortgage interest you’re paying, you would be ahead by a mere 1% — just a trickle into the pool. And if your fund return was lower, which is quite likely, you would be losing water.
It’s not worth the risk. I suggest you invest the $100,000 only.
Should it be in KiwiSaver?
I assume you are both already getting the maximum $261 a year from the government. If not, put at least $1,043 a year into each of your KiwiSaver accounts to make that happen. What should you do with the rest of the money?
If you might want to spend it before you reach 65, a non-KiwiSaver fund should work well. But if you plan to use the money for retirement, it would keep your finances simpler to add to your KiwiSaver funds. Also, I tend to favour KiwiSaver because I think the government watches over it more closely than other investments.
Thanks so much for your kind comments. It’s really encouraging to read that the column and books are helpful.
Footnote for the many people contributing to KiwiSaver who also have a mortgage: Aren’t you also borrowing to invest?
Yes you are. But government and, if applicable, employer contributions boost KiwiSaver returns enough for the water level in your pool to usually rise. Other investments don’t get that boost.
Note, though, that if you are contributing extra to KiwiSaver — more than $1,043 a year for non-employees or 3.5% of pay for employees — it’s probably better to use that extra money to pay down your mortgage faster.
Skip the mortgage
QI just turned 65 and am retired and have $1.7 million in investments and $170,000 in KiwiSaver. I’m currently renting in Auckland after selling my mortgage-free home in 2021.
I wish to buy a home outside Auckland in the next 12 to 18 months. Although I can pay cash, I was wondering if you have any advice as to what my options are on securing a loan with a large deposit, say $500,000. That would enable me to leave as much as possible invested, as my investments are a five-year plan for me. Is anyone likely to look favourably at a loan with only my pension as income?
Your advice is always spot on, so any guidance gratefully received.
AWow! What lucky timing — if you sold your house near the end of 2021, when prices hit their peak. You will be buying again when prices around New Zealand are about 15% lower, according to QV data.
On the other hand, if you sold near the start of 2021, you’ll be getting back into the market when the average NZ house price is somewhat higher. It just goes to show the extraordinary price growth in that one year.
But I’m getting distracted! It doesn’t sound as if you’ve been trying to play timing games — which is just as well, as so often that goes wrong. Regardless of when you sold, you’re comfortably placed. Moving out of Auckland usually means you get more house for your dollar.
On getting a mortgage, you may well be able to, given your investments. You could ask a mortgage adviser. But I don’t recommend that plan. As I said above, if you have investments and also a loan, that amounts to borrowing to invest — which doesn’t usually work very well.
I suggest you break the five-year plan and get on with buying the new home with cash. After all, it’s a house buyer’s market right now.
Super suggestion
QSeems to me that like it or not — and I don’t like it — superannuation eligibility means-testing is going to be unavoidable in the future.
Given that looming prospect, why wouldn’t our lovely government just get on with it like this:
- Shift the age for universal super to say age 70 (this could be done progressively).
- Offer means-tested super to people from age 65 in certain circumstances who cannot work, with quite strict criteria.
That way, people at 65 in dire straits still have a lifeline, and people like me who could have gone a bit longer past 65 before retiring, would likely do just that, and the tax burden eases.
Over time, we get good at means testing, and the mechanism is in place. The eligibility ages and criteria can be progressively adjusted in line with changes in society, lifespans and general healthcare trends.
ANot silly. But we would still have the high cost of running means testing, and the likelihood of people beating the system. It’s hard to weigh up all this.
Vehement disagreement
QI enjoy your column and for the most part am in total agreement with your views. However, I am vehemently of a different opinion on the universal right to collect a pension.
It is abhorrent that wealthy people can still collect a pension. No wonder so many of the younger generations see baby boomers as greedy. How difficult is it to simply decree that anyone earning over “x” or owning capital greater than “y” not to be eligible for a pension?
There will always be dishonest people who hide the truth under the cover of trusts (so why not include the wealth hidden in trusts), or other mechanisms invented by clever lawyers and accountants. It doesn’t mean that we shouldn’t try to be fair. Isn’t that the basic premise of the taxation system?
You said last time that “experts around the world praise NZ Super for its simplicity and universality. Many regard it as a national treasure”. I find it a national disgrace, too difficult to change because there are so many votes tied to its continuance.
Tell me why so few countries employ it — and certainly none of the mainstream western economies? Even our wealthy neighbour cousins have means-tested pension.
AI understand where you’re coming from. But I’ve lived in other countries where cheating means testing is regarded as a challenge by some wealthy people. It’s almost a game. “If the government can’t write laws well enough to stop me cheating, that’s their problem!”
Meanwhile, those on middle incomes, who can’t afford the slickest lawyers, lose out. That, to me, is more abhorrent.
On how other countries run their superannuation, every scheme is different — often surprisingly so. On overseas attitudes to what New Zealand does, read on.
NZ on world stage
QI liked your response to your correspondent last time who questioned why NZ Super should be paid to everyone.
Did you know that the libertarian Cato Institute in the US supports an NZ Super-style of replacement for US Social Security?
I was involved in a 2024 seminar that Cato ran in Washington in 2024, and the book reviewed in my email attachment was the result.
AThis letter is from Michael Littlewood, for many years a respected researcher and thinker about retirement income issues, who has given me permission to name him.
The material he sent me includes this — discussing the US system:
Experts “convincingly argue that the main redistributive goal of Social Security should be poverty alleviation. A universal flat benefit — set above the poverty line — is narrowly targeted to achieve this goal, and it does so both at a lower cost and more effectively than the current system (which does not guarantee seniors a poverty-line benefit).
“A model here is New Zealand, which pays a flat benefit to all age-eligible residents.”
In other contexts, the OECD says, “New Zealand’s retirement-income system is one of the simplest in the OECD.”
And a 2021 Retirement Commission paper says, “In terms of coverage, replacement rates, pension wealth or elderly poverty rates, New Zealand retirement income policies compare well with other OECD countries.”
‘Migrant savings confiscated’
QYour praise of NZ Super in your last column added to my “much-needed laughs” for the weekend.
While I agree with your point about the reason and intention of NZ Super, when it comes to simplicity, universality, and fairness for that matter, I suggest you inform your readers about the Direct Deduction Policy (Section 187 of the Social Security Act 2018).
Surely you understand the difference between pensions funded by employer and employee contributions, and non-contributory benefits funded by general taxation.
NZ chooses to ignore the difference and confiscates overseas savings of many migrants (unless the foreign country doesn’t have a formal state pension scheme based on contributions — then these savings are considered “private”).
It would be interesting to find out how many NZ Super officials spend their time checking up on migrants and making sure that every single dollar of savings from abroad is deducted. The procedure is not simple, not consistent, and by many considered a form of legalised theft.
I would very much appreciate hearing about your take on the DDP.
ASigh. Not this issue again! But it’s been a while, so let’s take another look at it.
When someone turns 65 and applies for NZ Super, they are asked if they have lived in another country. If yes, and they are eligible for a pension from that country’s government, they are obliged to apply for it. And the amount they receive from overseas is deducted from their NZ Super.
Without this policy, “those who have lived, and worked in overseas countries may be entitled to a greater overall level of government retirement support than those who had solely resided, and worked in New Zealand,” says the Ministry of Social Development.
I can’t see how anyone can argue with that policy.
What has caused controversy is that some people say their overseas pension is more like KiwiSaver than NZ Super, because they have contributed to it over the years. So they should be able to receive that money in addition to NZ Super.
Work and Income’s website makes this distinction: “Voluntary contributions are extra payments you make into a country’s pension scheme. If you make voluntary contributions, the voluntary amount is not counted as part of an overseas pension.”
That sounds fairly clear cut. But because every country’s pension scheme is different, there have been disputes over the years about which overseas money should be treated which way.
Sometimes the system has, indeed, seemed unfair and has been changed. But I haven’t heard of recent grievances.
By the way, your comment about many officials checking on overseas pensions strengthens my argument that we don’t want many many more of them involved in means testing!
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Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints Ltd. 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]. 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.