Mary Holm: Ripped off, renting and 65-plus — don't give up

Building a tiny house on a piece of land is one way to get back into the property market when your means are modest. Photo / Getty Images

OPINION:

Q: We're retirement age. I'm 72 and my husband is 65. We didn't fare well in the 2008 crisis. Tried to make it up — made silly mistakes — then we were scammed five years ago, not only left with credit card debt but lost our house and a small fortune. Fifty years of hard graft down the gurgler.

It took us two to three years to come to terms with the predicament. I was totally suicidal as we had had beautiful houses.

We can't get a mortgage at our age, and when my husband retires from building, we're looking down the barrel of moving into a council flat. We are renting at $500 a week.

We only have a window of, say, 10 years to make enough money to buy a house.

Quite frankly, I think we are stuffed, but I remain upbeat for both our sakes. We are in great health and ready to work hard for the next 10 years. I don't want to die without owning a house. What would you do?

A: It's horrible the way people who are already down financially are hit by scams. Too often we see someone who has been ripped off falling for an offer to get their money back — if they pay a bit more. And that's the last they see of that money too.

In your case, I expect you were feeling desperate about money and somebody waved a magic wand in front of you. How can people be that despicable?

Anyway, here you are now. And I really like your attitude. Being ready to work hard for 10 years at your ages is admirable. Determination goes a long way. So what are your best moves from now on?

Unfortunately, you're probably right that it would be hard to get a mortgage.

"I really feel for these people," says Bruce Patten, a mortgage adviser at LoanMarket. "They have clearly worked hard, but just had some bad luck.

"Their biggest challenge is with all the legislative changes, any lender, main bank or not, has to view a client's servicing ability based on their years to retirement, so it will be very challenging for them."

However, Patten has two suggestions for you.

"Given the husband is a builder, what about building a tiny home, and siting it on some land like a lease? I have clients in similar situations that have done this, they get their own home for a minimal ground rent per week. Might be more affordable to do this as well."

I love this idea. There are some extraordinary ways to maximise the use of space in a tiny home, with every cubic metre justifying its existence.

You would probably have to get rid of some of your stuff. But that's a popular thing to do these days anyway. As William Morris said, "Have nothing in your houses that you do not know to be useful, nor believe to be beautiful". I would add that something can be beautiful because of who made it or who gave it to you.

Don't dismiss the tiny home idea because of lack of space. Little can be lovely.

Patten's second suggestion is to "join forces and purchase a property with other family members? We have lots of children that buy with their parents, then they can pool their incomes and buy and live together."

That's another possibility. Either way, though, you need to build up some savings first.

There are basically four ways to do this:

• Reduce spending. I'm sure you're not squandering money now, but a financial mentor will probably help you cut back further. You can find a free mentor through moneytalks.co.nz

Alongside that, you could seriously challenge everything you spend money on. You don't want a life with no treats, but perhaps go only to events you really love. Do you need all the clothes you buy? And could you do creative things with cheaper food?

People in the FIRE — financially independent, retire early — movement save as much as a third or half their income. If you Google FIRE, you might find some tips on how to live on much less.

• Increase income. You don't say whether you are employed. If not, you may be able to find work, given the tight job market at the moment — although it's not as easy for older people.

But many over-60s create their own small business. Could you tutor children or adults?

Are you good at altering clothes, or decorating cakes? Could you cook meals or run errands for someone who has difficulty getting around? Talk to friends about what you're good at, and who needs what services and could pay you for them.

Meanwhile, your husband's building will be very much in demand, before he starts work on your tiny home!

• Sell some of your stuff. It's surprising what some items will bring in on Trade Me or in another local market. Maybe you have inherited jewellery that you feel you couldn't sell. But wouldn't the original owner prefer you to have the home you long for?

Finding new owners for your furniture, books, pictures and so on will kill two birds with one stone — reducing the stuff to store in your tiny home.

• Invest wisely. Nobody can achieve high returns without taking risk, and you're not in a position to do that. However, you could save in a low-fee KiwiSaver fund at a medium risk level for a few years, and then switch to either a KiwiSaver cash fund (more on that below) or bank deposits when you are within two or three years of spending on a tiny home or shared home.

One last point. It's great that you are both in good health. Do what you can to make sure that continues. It will make a huge difference to how well you can forge ahead to make your dream come true. I'm sure everyone reading this column will be backing you.

When gold doesn't shine

Q: On September 3 , 2011 you were challenged in your column about the validity of our trading bank credit ratings. The writer also championed gold as an investment.

He told you to hold on to the article so he could "remind you and everyone else a year from now, why you and everyone else should have all removed our money from the trading banks." See tinyurl.com/OldColumn.

A year isn't enough, so I wrote a note to follow up a decade or so later.

Back then gold was US$1883 an ounce, the NZX50 was at 3303 and the NZ dollar was US$0.847. If you had more than $50,000, the big banks were offering around 4.5 per cent. Now:

The trading banks are all still standing.

If you bought gold back then, your annual return (compounded to now) would be minus 0.8 per cent in US dollars or plus 2.1 per cent in NZ dollars.

The NZX50 increase is equivalent to around 12 per cent annual (compound) return, despite the recent correction.

Congratulations!

A: Thanks — and for bothering to keep track of this for 11 years.

The original column — written as we were emerging from the global financial crisis — was largely about the safety of New Zealand banks. The angry letter you quote from was the third Q&A on the subject that day.

We did actually revisit the issue a year later. Another reader pointed out then that the man's predictions had not come true — the banks were fine, the NZ stock market had risen, and the gold price had fallen.

Despite that, the man also wrote a letter in that column that said, "Just because it hasn't happened, doesn't mean it won't ... Financial system collapse is inevitable ... an unprecedented tipping point is fast approaching."

As you say, it hasn't happened yet. I think we can be satisfied now that that particular reader's forecasting credentials are a bit dodgy.

By the way, you mention the New Zealand share market NZX50 index having fallen this year. It's interesting to note, though, that since its low in June, the index has risen a very healthy 9.4 per cent in less than three months. Who know what's next? But it's funny how much more noise people make when the market falls than when it rises.

Splitting the KiwiSaver

Q: Your explanation in last week's column about the amount of time before a surviving spouse can access the deceased's account set my wife and me thinking.

We are retired, my wife 73 and I about to turn 70, both in good health. We have (a fluctuating) $163,000 in a conservative KiwiSaver fund (in my name) and $42,000 in a term deposit, as well as $10,000 in an easily accessible savings account. We live carefully and have not needed to dip into our KiwiSaver or term deposit since retiring.

My question is, given the extended time needed to access KiwiSaver on my possible death, and the fluctuating nature of KiwiSaver itself, would we be better off pulling our money out of KiwiSaver and putting it into some other sort of savings account which would not suffer the fluctuations KiwiSaver is prone to? And if so, what would you suggest? (We are investment babes in the woods, by the way.)

A: There are two issues here: your concerns about your KiwiSaver balance fluctuating, and worries about your wife's access to that money if you die first.

On the fluctuating account, conservative KiwiSaver funds usually hold lots of bonds and a fair few shares, both of which lost value earlier this year. That considerable drop in investors' balances was fairly unusual — although it will happen every now and then.

If you want to get rid of fluctuations, you can move to a KiwiSaver cash fund. If your provider doesn't have one, find a fund through the Smart Investor tool on sorted.org.nz.

Look at Defensive Funds, and sort by "Growth assets (lowest first)".

Take care, though. Some funds with "cash" in their name also hold bonds. By clicking on "Details" under "Mix", you can check that a fund invests only in cash. That's what you want.

The average returns in a KiwiSaver cash fund will tend to be higher than in a savings account. However, they will usually be lower than in your current fund. If you don't expect to spend some of your KiwiSaver money for several years, it would be better to leave that portion in a conservative fund, and put up with a few wobbles. Almost all providers will let you be in more than one fund.

On access to the money, you're the perfect example of a couple who would benefit from my suggestion last week. Your wife can open a KiwiSaver account, and you can transfer half the money in your account to hers — all easily doable for people over 65.

Then, when one of you dies, the other can withdraw their own money whenever they want, even if their spouse's KiwiSaver account is inaccessible for a year or so.

6-year-old's $40,000

Q: My 6-year-old granddaughter has been given $40,000 from an inheritance for her future education. I have no idea how to invest this in her best interests. Your advice please.

A: Lucky girl! If the money was intended for a first home purchase, I would recommend KiwiSaver. But your granddaughter won't be able to withdraw KiwiSaver money for education, so what are other possibilities?

It's likely she won't spend the money for 12 years or so. If you can cope with seeing the balance fluctuate in the meantime, it will probably grow healthily, most years, in a higher-risk low-fee managed fund outside KiwiSaver. Look at the aggressive or growth funds listed in the Smart Investor tool on sorted.org.nz and sort them by "Fees (lowest first)".

When the girl is within nine or 10 years of spending the money, move it to a middle-risk balanced fund — to avoid being hit hard by a long-term market downturn. And when there are only two or three years to go, move it to a cash fund. See the above Q&A — the same comments apply to non-KiwiSaver managed funds.

If you couldn't cope with fluctuations, go for a lower-risk managed fund for the whole period. But your granddaughter will probably end up with less.

- 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, or give financial advice.