Saving for retirement isn't in the frame for many young Kiwis but buying a first home is. Photo / 123rf
OPINION
Q: I’ve just heard the news that the first-home grant has been scrapped. For the last 2.5 years, I’ve been paying 3 per cent of my earnings into KiwiSaver, so that I’m eligible for the grant. Now I think I’ll reduce my payments down to the minimum to get the government contribution.
Is this stupid? I’m feeling the recession and haven’t had any pay rises so I’d like to keep my money in my pockets.
A: It was really disappointing to hear the KiwiSaver first-home grant is no longer happening. I’m sure it was a major attraction for many young people in KiwiSaver. Telling a 20- or 30-year-old they should save for retirement is like telling a child on their first day at school they should work hard so they can go to university. It’s just not on their radar. But home ownership can be.
Note, though, that you can still withdraw all but $1000 of your KiwiSaver savings to put towards a first home, after you’ve been in the scheme three years. And I can’t imagine any government taking that away. Think of the reaction! And it doesn’t take money directly out of government coffers.
But the grant was the yummy icing on the cake.
Still, it would be stupid – to use your word - to stop contributing 3 per cent to KiwiSaver. That gets you to not only the government’s $521 a year, but also 3 per cent of your pay (minus tax) from your employer. That makes a big difference to how fast your savings will grow, whether you use the money for a first home or retirement.
It’s also worth checking if you qualify for a government-backed mortgage with just a 5 per cent deposit. See Tinyurl.com/NZFirstHomeLoan
On feeling the recession, read on.
Q: Here are three helpful readers’ letters on keeping costs down:
My doctor visits dropped from $58 to $19.50. Other health-related services such as physiotherapy can offer an additional discount up to 30 per cent - on top of any Gold Card discounts. Readers who are feeling the pinch may want to download the Community Service Card application form from the MSD website. As you fill it out you will see whether the card will benefit you.
Our power bill went up about $40 a month. Our Leaf goes about 100km between charges, which is more than enough for my commute. I just plug it in to a normal plug in our garage every night and it is fully charged again by midnight. We have another car for long trips.
A: Thanks so much for some great ideas.
Q: On fear of job loss, when I faced a similar challenge, I decided to be completely honest with my then 13-year-old daughter.
Rather than seeing a teenager as a drain on resources I asked for her help. Your reader might be surprised at how resourceful her teenagers might be. Not only do you have the satisfaction of teaching them a life lesson but you know that no matter what happens in the future, they will cope admirably.
Now 47, my daughter has a home bought and paid for, no debts, a good pension fund and the willingness to take on extra work for the luxuries in life.
A: A good idea. While we don’t want to burden young people with their parents’ financial woes, your suggestion should work if it’s presented as a challenge. You would need to take care about worrying younger children.
Q: I’m a medical professional working in both the public and private health systems. I’m always somewhat surprised by your attitude to health insurance. You seem to see it as a necessity, similar to house, contents, life and income protection insurance, i.e. your life, or your family’s life, could be ruined if you needed it but didn’t have it.
I believe health insurance is a “nice to have” but not a necessity. We have a decent public health service, which handles life-threatening medical problems speedily and very well - things like serious trauma, cancer, and sudden cardiac events.
Last week you mentioned a correspondent with health insurance who had a mitral valve replacement. That sort of surgery, if required urgently, would happen quickly in the public system, in facilities as up-to-date as the private hospitals, and would most likely be performed by the same surgeons and anaesthetists.
There are benefits to having private health insurance, especially not having to wait as long for the “non-life threatening” operations, and also having a private room in hospital with a somewhat better menu.
But any potentially ruinous medical problem (assuming you have income protection cover) will be treated as well, if not better, by the public hospital.
Perhaps the only exception I would recommend is insurance for drugs that Pharmac does not fund, as effective but very expensive cancer immunotherapy drugs are becoming increasingly available.
A: You’re right that health insurance differs from other insurance. If you don’t have it, there’s a backup. And, as you and others say, the public system often works well.
My recommendation on health insurance is aimed mainly at people who can afford it but cancel because of the rising costs.
Q: My wife and I had medical insurance for many years without making any claims. Several years ago I was diagnosed with cancer that had spread to my brain and most of my organs. The public system could not offer the drugs I needed.
I was referred to a private oncologist who assured me there was hope, albeit slight. My medical insurance claim was declined, as the drug and treatment were not funded by Pharmac. We spent $240,000 on treatment that worked so well my file is closed and I have been cancer and drug-free for seven years.
I still get very annoyed that I paid so much into insurance that did not stand by me when needed, and I’m concerned that I’m alive only because I was able to pay for treatment, which is wrong for a country like New Zealand. Needless to say, we no longer have health insurance.
A: Gosh, you’ve done well health-wise. And I can understand your annoyance. So much comes down to luck in this area.
Q: It was great to see last week’s comparison between public and private health treatment, highlighting that public health can deliver well, albeit I hope that the person going public did not have too long a wait for the surgery.
I regret that a friend can relate the contrasting story between public and private covering two separate treatments, where the public health service did not meet the private health provider standards.
A: Enough! We could go on for weeks with stories to and fro. In conclusion: the public health system seems to be usually good, and sometimes better than the private system - except for those stuck on waiting lists for less urgent but sometimes really painful problems.
Q: Here is my two penneth worth on retirement living costs for a couple who are either in a retirement village or their own home.
Outgoings will be around $550 to $730 a week. We are running one small car so our $550 includes only $20 a week for petrol and $20 a week for car insurance. Not including the winter fuel allowance of $31.82 a week from May 1 to September 30, our combined NZ Super income is just on $800 a week.
In short, income exceeds outgoings, although that allows nothing for holidays or asset replacements or other costs.
For our budget, outgoings comprise: dental/medical, newspaper, cafes/restaurants, groceries/meat/fruit, petrol, electricity, phone/internet, Sky television, village fees (if not in a retirement village, replace these with house insurance and rates). Other people’s will differ, but this is the way to compare projected income with projected outgoings.
A: Thanks for some good practical info. While I reckon there’s no likelihood that NZ Super will stop in the decades ahead, younger people should perhaps assume it won’t be as high, in inflation-adjusted terms, as it is now. So keep saving everyone!
Q: My wife and I are now 87 and have been retired for 20 years. When we retired we sold our two rental properties to make life easier and invested the proceeds in about 18 equities and bonds. That gave us a nest egg of about $550,000 and sufficient extra income for a comfortable retirement with a new car and overseas trips etc.
Unfortunately, about 10 years ago my wife showed the first signs of Alzheimer’s. We went through all the stages of home help and outside help until it became impossible for me to look after her. She has now been in care for over two years with severe dementia and, as you have previously covered in your column, we have to cover the cost.
Currently our nest egg is down to about $330,000. In the last financial year the care costs were $80,000 but our combined disposable income was only $52,000. So we have to sell off the nest egg bit by bit until what we have left matches the figure at which Government aid kicks in. Even then we still have to pay the accommodation charges of $15 to $40 per day.
So what can I say on how much is enough to retire on? Look after your health, both physical and mental, as best you can, be lucky, and when you do retire, make the most of it. And whatever you think is going to be enough for your nest egg - double it.
As an aside Mary, I would just like to give praise to the carers and nurses who look after the residents such as my wife.
A: You’ve had a hard run. And you raise a really good point. For people who find themselves in your situation, retirement costs can be pretty high.
Q: In last week’s column there was a guy living permanently in Cambodia but still receiving full NZ Super. MSD advised there are certain overseas countries where we can do this. Can you publish the list please?
A: The rules are complicated, and I don’t want to go into all that here. It’s hardly exciting weekend reading for most people. I suggest you go to tinyurl.com/NZSuperOverseas
Also, Our Man in Cambodia has written again, saying it wasn’t easy to get NZ Super. If interested readers email me with the subject “Cambodia” I will forward you his letter, without his ID.
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 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.
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