Spend as much as you can comfortably afford, while also saving, Mary Holm says. Photo / 123RF
OPINION
I always read your Q&A page with interest, and you provide great thoughts and advice to your readers. However, as a 40-something with a long history of depression, I believe it is really important to balance future financial security with living in the now.
With all the stresses of modern life, we all need to treat ourselves, and such treats, invariably, cost money. Please can you comment on striking the balance to fund both the present and the future. Nga mihi.
A: There are many treats that don’t cost money, or very little. Getting out into nature can greatly lift your mood. Ask yourself whether you ever come home from a walk wishing you hadn’t gone out. Spending time with positive people is also a great pick-me-up.
And helping a person can be a huge mood lifter. If you don’t know of someone who could use what you have to offer, go to seekvolunteer.co.nz. It will help you find a suitable volunteer role in your area, in the type of work that interests you, and at the level of commitment you can offer.
Still, it’s true there are also lots of treats that come with a price tag. The trick is to spend as much as you can comfortably afford, while also saving. No magic formula. Each person has to find what works.
It’s common for people to save too little. A recent survey by the Financial Services Council found 39 per cent of respondents couldn’t access $5000 to fund an emergency within a week, without going into debt. I don’t imagine being in that situation makes for true happiness.
On the other hand, some people spend too little. Read on.
Q: Not sure if I need a counsellor or a financial planner!
I’m a retired 67-year-old woman, living on my own. I have $70,000 in term deposits, laddered, and in an on-call account. Also $80,000 in my KiwiSaver balanced fund, $240,000 in Simplicity Balanced Investment account, and $50,000 in Quay St Income Fund.
I had some financially difficult times when I was younger, and being frugal is a habit. Due to the market instability in the last year, I lived just on my NZ Superannuation, which I was comfortable with.
I think I can afford to spend more. But I feel anxious. I own a nice home and have all I need. How can I relax and change the habits of many years?
A: It’s not easy changing money habits. I’m sure many of us find ourselves going out of our way to reduce spending or save resources in ways that can be rather silly if looked at rationally.
For example, I’m a bit ridiculous about not wasting food. If I have leftovers that can’t be frozen, I might eat them three days in a row, until I’m heartily sick of them.
But such habits do no real harm — as long as you also splash out on treats.
You are in a much stronger financial position than the majority of retired people — with not far from half a million in savings.
As a rough rule of thumb, someone who retires at 65 with $100,000 in savings can spend $100 a week, and it should last until they are about 90, assuming they keep the money invested wisely. After 90, if the money has run out, most people find they can live comfortably on NZ Super — and that’s especially true if you have a mortgage-free home.
That means that you, with your total of $440,000, can spend $440 a week. And given you are 67, not 65, you have a buffer there. What’s more, you’ve already shown you can live on just NZ Super, and at an age when you probably go out much more than you will as a 90-year-old.
So the money is there. How might you get into more of a spending habit? It doesn’t have to mean buying more clothes or expensive food or a flasher car — although there’s nothing wrong with those for someone in your financially comfortable situation.
Some other ideas:
The more you get into any or all of these, the more you’ll see opportunities to spend your savings. Go for it!
Q: I’ve been trying to find out what happens to government KiwiSaver contributions when someone permanently leaves New Zealand — except when they go to Australia.
It’s pretty clear that once you’ve lived overseas for more than 12 months, everything except government contributions can be withdrawn. But what happens to the government contributions? Are they returned to the government or do they stay in your account until age 65?
Even the legislation only stipulates that government contributions cannot be withdrawn. It doesn’t comment on what happens to them.
A: It’s an appealing idea that the money would be sitting in New Zealand, growing for your retirement. But no.
“When a member makes a permanent emigration withdrawal (to a country other than Australia) their account is closed by the scheme provider, and all the annual government contributions are returned to the Crown,” says an Inland Revenue spokesperson.
“The member does not have to return their kickstart or fee subsidies if they received either of these.” Gosh, that takes us back!
By the way, if you move to Australia, you can’t withdraw your KiwiSaver money, but you can transfer it to an Australian superannuation scheme, although you don’t have to.
I’m often asked whether you should move the money, but there’s no clear answer. It might do better in this country, but it might do better in Oz.
Q: I have been researching and reading a lot about KiwiSaver funds. I have always been conservative. Lately I have branched out and moved my KiwiSaver to a slightly higher risk.
Does someone with nine years left until retirement put their KiwiSaver into a high-growth fund at this point? Or is it too late, and therefore I should just remain in a less risky balanced fund?
A: Good on you for doing the reading, and making the move to a middle-risk fund.
Whether you should go one step further, and get into, say, a growth fund, depends on two factors:
1) When you expect to spend the money. If you’re likely to spend most of it soon after you retire — perhaps to pay off a mortgage or take a big trip — you’d be wise to keep the money where it is.
And when you’re within about three years of spending, I suggest you move to a low-risk fund. This reduces the chance that a market downturn will hit you hard not long before you withdraw the money.
But if you plan to spend these savings throughout your retirement, it makes sense to put the money you expect to spend in more than 10 years in a growth fund. Over the long run, it will probably grow considerably more there.
Note that you can be in more than one fund with your provider, so you could have short-term money in low-risk, medium-term money in medium-risk, and long-term money in higher risk.
2) Your tolerance for market volatility. If you made your move to a balanced fund more than a few months ago, you will probably have seen your balance fall, when both shares and bonds lost value. In that case, you’ve already shown you can put up with some ups and downs.
But if your move was more recent, it’s crucial that you understand your balance will drop — sometimes quite a lot — in a balanced fund, and even more so in a growth fund.
Let’s say your balance is $100,000. If it dropped to less than $70,000, what would you do? You must be able to promise yourself you would stay put before you choose a higher-risk fund.
Q: In our mid-60s, my wife and I are well prepared for the future, each with KiwiSaver, a Jarden-held stock portfolio of our choices, rental properties and a few term deposits. Despite your advice to the contrary, I do love checking our stock prices regularly and don’t worry about downturns as we have a long-term view.
But how about a new topic: health insurance?
Five years ago we had full Southern Cross cover (except for dental and optometry). When the premium increased to over $1000 per month, after some deliberation and considering how little we were claiming — being healthy without risk factors and living an extremely healthy lifestyle — we decided to quit the insurance, instead investing $1000 a month in our own fund.
It’s perhaps timely to declare where we are now placed. We hold around $50,000 in cash deposits and have transferred $5000 into stocks recently. Although we remain otherwise very healthy, one of us needs a hip joint replacement at $32,000. So, we’re still well ahead, but we have counted up how many hips and knees we have between us and extrapolated the potential future liability!
A: It seems every second person around retirement age is saying: “My health insurance costs have soared. I’m thinking of self-insuring” — which is what you are doing.
Is it a good idea? Well, it’s a gamble. The reason premiums rise so fast as we get older is that more and more of us make more and more claims. And while healthy people with healthy lifestyles are less likely to claim than others, all you have to do is look around at friends who have suddenly and surprisingly become seriously unwell.
So far, you’ve been lucky. But what if you had needed to spend $32,000 in your first year after dropping the insurance?
Who knows what tomorrow holds? And the last thing you need — when you have just received a difficult diagnosis — is to also worry about money or long waits for treatment in the public system.
A good way to cut the costs of health insurance is to get cover only for the bad stuff. Don’t insure for GP visits, and choose high excesses on other cover. But for people who can afford it, I recommend continuing with health insurance.
P.S. On your comment about checking stock prices, I don’t think doing that is bad. If you invest using share funds there’s no need to monitor what’s happening — as long as you don’t need the money for at least 10 years. But if you enjoy picking shares, that’s cool — as long as you are widely diversified and you don’t get into expensive frequent trading.
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 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 mary@maryholm.com. 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.
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