My husband is worried our $4m isn’t enough to retire on - Mary Holm

OPINION

Q: My husband is 69. He is starting to have a few health issues and I want him to retire. He thinks we can’t afford it and that I’ll be penniless and living in my car if he dies.

I want us to sell up. We will have a mortgage-free home and about $4 million in the bank. I think this is enough. Please advise.

A: I sometimes get complaints from readers that too many letters in this column are from wealthy people, despite the fact that I try to favour letters from people with average wealth or less. But – and please don’t be hurt by this – your letter takes the cake! Or rather, your husband’s attitude takes the cake.

Perhaps he was raised by parents who went through hard times in the Great Depression of the early 1930s, or he faced hardship earlier in his life. But clearly that no longer applies. While some people have too much of a “she’ll be right” attitude to funding their retirement, your husband is way too cautious.

A fairly conservative way to estimate how long your retirement savings will last is: for every $100,000 you have saved, you can spend $100 a week. For example, if you have saved $300,000, you can spend $300 a week, and your savings should last as long as you do. That’s on top of NZ Super.

That calculation assumes you both stop work at 65. Assuming you are both older than that, you would have more to spend each year.

But putting that aside, you have 40 lots of $100,000. So you could spend 40 times $100, or $4000, a week. That is indeed enough. Time to put your feet up, hubby!

Time to give the banks a break?

Q: Poorly informed people, including politicians from minor parties, keep advising us of the main trading banks’ excessive profits. As a long-term shareholder in one of those banks (ANZ), I do have to wonder where all of these supposed profits are going.

In 2014, the average ANZ share price was around A$32; in 2023 it is around A$24. In 2014, the annual dividend was A$1.75. Over the past 12 months, the annual dividend has been A$1.55.

Is it possible that some of the banks’ profits have gone into meeting the more stringent reserves requirements imposed upon them by legislation? They are certainly not going to shareholders.

Meanwhile, a company such as Fisher & Paykel Healthcare, which profits from people’s ill health, has increased its share price from around A$36 to A$60 over the same period. Is it not time to give the banks a break?

A: You’re right that banks have not been a particularly great investment in the last 10 years, says financial advice provider Brent Sheather.

“ANZ has returned 5.6 per cent a year in NZ dollar terms versus 11.4 per cent for the world stock market. Westpac shares have done even worse at just 2.3 per cent a year. But returns haven’t always been that low – since 1969, which is as far back as my data goes, the annual return on ANZ shares has been 11.1 per cent a year,” he says.

He adds that the ANZ annual dividend is a little less than it was back in 2014. “This reflects the fact that earnings per share have been largely flat, and volatile, over the period. This is likely to be at least in part a function of the highly geared nature of bank balance sheets.”

Sheather goes on to say, “As your writer points out, the last 10 years has been a particularly bad time for the Australian banks, as it has been for banks all over the world. That’s probably due to a combination of low interest rates, bad behaviour (as became evident in Australia’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry) and the inevitable response from regulators.

“For a stockbroker in the 1980s, the Australian banks were seen as a solid, safe reliable investment which we bought for lots of clients. Today, however, they look a lot less compelling.”

Is it time to give the banks a break, as you suggest? Sheather’s view: “Given the finance sector’s size and importance to the economy, the potential liability they represent to taxpayers given their extremely low levels of equity, and the extent to which their debt costs are subsidised by taxpayers via ‘too big to fail’, the government and regulators preoccupation with the sector is entirely justified.”

I have to agree. And by the way, it’s not really fair to say Fisher & Paykel Healthcare profits from people’s ill health. Let’s say it profits from helping people with their health problems.

Doing it yourself

Q: I was interested in the recent letter from the reader who has no time for fund managers. I share that view. The fund managers I have encountered seem to do little to earn their fees.

I certainly would never take investment advice from them; I prefer to make my own mistakes, thank you. I have built up a small portfolio of investments. I leave them alone and never invest more than I can afford to lose. Yes, I have had the odd “disaster”, but overall I am ahead of the game. For me the pleasure is monitoring my investments; much more exciting and interesting than handing over money to a fund manager. I realise that this approach is not for everyone, but there is something very stimulating about doing one’s own research and above all the joy of outperforming the professionals. Possibly I use a better dartboard when selecting my shares!

A: Indeed! Research quite often finds someone choosing shares by throwing darts at a list of company names does better than many professionals. In one study, a chimpanzee outshone many experts.

It’s interesting that you compare yourself with fund managers, rather than with broad share market indexes, such as the NZX50.

Over time, most fund managers who actively choose investments perform worse than the market indexes. They might beat the relevant index some years, and occasionally a manager will “outperform” over a decade, but research shows almost all underperform over the long term.

That’s why for many years I’ve advocated investing – in KiwiSaver or otherwise – in passively managed index funds. These funds follow the performance of an index. They usually do slightly worse than the index because they charge fees, but the fees are low because the funds are cheap to run.

You might want to monitor your performance against that of an index fund. But, even if you don’t do as well as that fund, I doubt if you would give up your DIY investing.

And that’s fine. You’re enjoying the challenge. And it sounds as if you follow two important rules for DIY investors:

• You buy and hold, rather than trading shares, and that’s usually a far more successful approach.
• You own quite a few different shares, so a disastrous one is not a big deal.

Getting kids into investing

Q: I have children of a similar age to your correspondent in your final 2023 column. They are 13, 13 and 12. I’ve spent a tonne of time researching how best to get them involved in investing.

I think there’s a much better way than share trading platforms such as Sharesies and Hatch. I personally want to actively discourage my kids from individual share picking and frequent trading and the “gamefication” of investing. This would probably be a disaster for them financially. And although they would probably learn from it, I would much rather they hit their 20s with a financial head start as well as an education in finance.

I think one of the most powerful things we can teach kids is the power of regular investing in low-cost diversified index funds, and leaving the money alone for a long time (and I’m sure you would agree).

InvestNow is more appropriate, but hard for kids to use, with high minimum deposits. We tried it and then ditched it for the kids, although I remain a customer. And many of their funds are high-fee. The InvestNow platform is not that appealing to kids and doesn’t offer a lot of education.

I have found Kernel to be hands down the best platform for kids. They can invest as little as a dollar. They offer low-fee index funds, and their website is filled with educational resources and blogs. Their funds are described in ways that teenagers readily understand and in a way that appeals to them.

My kids auto-invest regularly, through an auto payment from their bank account after they get their pocket money. And then Kernel auto-invests it in their choice of funds. They’ve been amazed at how their money has grown quietly behind their backs (although I also made sure to show them some of the down times over the past couple of years).

They’re learning about volatility and compound growth. Kernel also has a cash fund and a notice saver account, which are great options for teens who want to move their savings out of everyday view.

Kernel isn’t paying me, I promise, and I personally use a number of providers.

A: I’ll take your word for it on the plug for Kernel! And you’re quite right, I do “approve” of investing regularly in index funds, and leaving the money alone – as noted in the previous Q&A.

But the correspondent in the last column said their son wanted to learn about the share market, and mentioned a share trading account as a possibility. That’s why I suggested he use an online trading platform, adding, “If he chooses just one or two shares, or he wants to trade frequently, let him!... He will almost certainly learn some valuable lessons while there’s not too much at stake.”

It sounds as if you are doing a great job with your teens’ financial education. Good on you! But I wonder if they are missing out on learning from making unwise choices. Maybe encourage them to trade shares with a small portion of their money, if that appeals to them?

As James Joyce put it, “mistakes are the portals of discovery.” Or how about Richard Branson? He said, “You don’t learn to walk by following rules. You learn by doing, and by falling over.”

Life insurance rip-off

Q: The first question in your last column of 2023, about ‘lost money’, was a useful public service, but it was the numbers that caught my attention.

A 2,000-pound life insurance policy in 1957 became $15,000 in 2023.

According to the Reserve Bank’s inflation calculator, 2,000 pounds in the second quarter of 1957 was the equivalent of $121,098 in late 2023. If that was really for his funeral, I would have liked an invitation at the time!

But the only winners in that transaction were the life insurance company and the commission agent who sold the policy.

A: Killjoy! That letter was about a family who had long forgotten about the insurance policy, and so were delighted when they were given $15,000.

Still, I’m sure you’re right. The 2000 pounds in 1957 – or $4000 in today’s currency - has grown by 2 per cent a year to reach $15,000. That’s pathetic, given interest rates soared into the high teens for parts of the period. The low growth suggests someone was taking more than their fair share in commissions each year.

There are many sad stories of people being ripped off by insurance policies in decades past. I don’t think that happens nearly as much these days though.

- 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.