KEY POINTS:
Q. I have done a number of calculations on the various retirement calculators on the web and have discovered a strange result. In particular, one said I should save minus $490 per month. This seems to indicate that I should be actually spending more than saving, based on my forecast investment position.
I am a prudent spender, buying what I want after thinking carefully what will give me pleasure and will last a while.
I have some luxuries in life, like a high-performance car which costs a bit to maintain, flat screen TVs, computers and still go on holidays (including overseas) just for the break away from it all.
However, I feel that you cannot have too much money saved, after the past horrors of what rampant inflation can do to your money reserves. While I agree, the reserve banks today seem to have had a handle on controlling inflation now for the last 20 years, will they be so lucky 20-30 years hence? In addition, in times of uncertainty you could also lose your job and need to call on those reserves until you find another one.
If in the end I have actually saved too much, I can always pass it on to my family who may end up less fortunate than myself.
A. In some ways saving is like exercising, studying or eating fruit and vegies. They're all good for you, but you can have too much of them. The difference with saving, though, is that there's a trade-off - between spending now and spending later.
Online calculators tend to assume that people are best off having a fairly even standard of living for the rest of their lives. And that's logical.
Let's look at two options:
* Your income will be $500 a week until retirement, and then $3500 a week.
* Your income will be $2000 a week all the way through.
I'm sure everyone would prefer the second choice - and not just because they would get the good stuff earlier, or because they might be hit by the proverbial bus and never make it to retirement.
There's also the relationship between money and happiness. At low income levels, more money clearly makes people happier. At higher incomes, that's not necessarily true. Someone struggling on $500 a week could improve their wellbeing much more with an extra $1500 than someone on a higher income.
Website calculators are more complex than this, taking into account returns on saved money, inflation and so on.
But the principle is the same. The goal is to have a steady inflation-adjusted income - often building in a buffer for some of your worries, such as faster inflation.
And apparently, given your age, gender, expected retirement age and so on, the calculators show you've already saved more than enough to receive a steady lifetime income.
Most people would be thrilled at that result. It's telling them, "Go out and have fun!"
I remember one retired couple who wrote to this column a few years back. They had big savings and could clearly spend more, so I said that.
Some time later they wrote again, saying they were having a ball.
It seems, though, that such a message makes you uncomfortable. You want to keep on saving, and why shouldn't you? You're not depriving yourself in the meantime.
And you're quite right, nobody can be certain about job security or future inflation. To some extent, returns on your savings should rise if inflation increases. But it's always possible that we could return to a situation like the late 1960s to early 1980s, when inflation was higher than bank interest rates. Other worries include lower than expected returns on savings, big future health expenses or the possibility of living to 110.
Still, why not keep an eye out for the occasional self-indulgence? Prudence is not the be all and end all.
By the way, I suspect there are many New Zealanders like you.
The media tend to focus on those who save too little, but research suggests there are also many who over-save.
Q. I happened to see your column again recently, and it was with a pang that I realised that I have stopped reading something that I used to look forward to. But like your "Can we have a break from KiwiSaver" writer, I too have switched off. Enough already!
Of course you have to follow your readers, and it seems that I am one of a very small minority who find the whole KiwiSaver thing nauseating.
"People missing out on thousands of government dollars"? I see it as being invited to give some of our currently disposable dollars to a financial institution, in which case the government will credit our accounts with some more dollars subject to it being withheld from us until we turn 65.
The money, theirs and ours, is to be locked away for 20, 30, 40 years and - providing nothing nasty has happened to the chosen financial institution, no intervening government has rejigged the rules to its benefit, nothing unforeseeable has happened to the financial world in general, and that no personal opportunity has been missed through lack of access to our own capital, then one day we may indeed be grateful.
Is it really so obvious that "practically every New Zealander under 65" should sign up? Perhaps you're getting so many questions because so many people have a nagging feeling that something is wrong here. Whatever, I look forward to your return to planet Earth one day so I can resume enjoying your column.
A. Sorry to have turned you off. I try to include at least one non-KiwiSaver Q&A each week. But readers "vote" on topics with their questions, and the KiwiSaver flood continues - with the vast majority of questions not about doubts, but details of how the scheme works.
Having said that, I quite agree that the locking away of KiwiSaver money is a drawback for many - although some acknowledge that it's the only way to stop them frittering away their savings.
Still, those of us who would like a comfortable retirement are setting aside money anyway, so the lock-up is no big deal.
Let's look, then, at your scary list of things that could go wrong.
It seems unlikely that a KiwiSaver provider will get into enough trouble that people will lose money from its demise without any warning in the media. Providers will be under considerable scrutiny as people's KiwiSaver balances grow. Obviously it's wise to start with a provider you trust. Later, if you smell trouble, you can always switch providers.
Government changes? Well, yes, a future government could do anything. But given that this is a democracy with hundreds of thousands of KiwiSaver members already, it's hard to imagine too much tough rejigging. And if a government change does make KiwiSaver unattractive, members can always take contributions holidays or just stop contributing.
Can anyone suggest a feasible government change that would make people who had already joined KiwiSaver wish they hadn't?
As for unforeseeable changes to the financial world, they would affect all savings, not just those in KiwiSaver. And history has shown repeatedly how markets adapt to huge change and keep on growing. You could just not save at all - in any savings vehicle - if you're paranoid, but most of us won't join you.
I do agree, though, with your point about missed opportunities because capital is tied up in KiwiSaver. That's why I suggest everyone contributes as little as they need to get the full advantages - 4 per cent of pay for employees and $87 a month for others.
And clearly, if you were planning to start a business that needed capital, you might stay out of KiwiSaver. Or if you were already in, you might stop contributing and save elsewhere.
However, many businesses won't make as high a return on your money as KiwiSaver, because of the government contributions. Bearing in mind the iffy track records for new businesses, I reckon many people who start businesses will end up glad that some of their savings are in KiwiSaver.
The same goes for any other investment. The only way to do better than KiwiSaver with all its incentives is to take on considerable risk. And that's much more likely to lead to regrets than KiwiSaver is.
All in all, I'm sticking with "practically every New Zealander should sign up". And I'm not the only enthusiastic one. Read on.
Q. It's imperative that you continue chipping away at the NZ psyche regarding home ownership being an investment panacea.
We've just returned home after 12 or so years away and have been disappointed with many myopic views of life and the role a house must play in it. Thank goodness for KiwiSaver (better late than never), both as a product as well as acting as a catalyst in discussions on investment decisions.
The $1000 kick-start was a very wise move in hindsight; it would have made your job slightly more difficult in making the numbers work otherwise.
We'll end up buying a "home" at some point, but are happy renting until we decide to set roots somewhere. We also need some economic "planets" to align for us (lower house prices, lower interest rates, leading to a more favourable pound:dollar exchange rate to bring some funds home). We may be waiting a while.
So please continue your advocacy for KiwiSaver and other balanced investment initiatives.
A. I feel a bit uncomfortable with the way you put it. I'm not an advocate for KiwiSaver, nor an opponent of property investment. But I do agree that New Zealanders tend to overdo property and under-appreciate shares, bonds and so on.
And KiwiSaver - complete with the kick-start that has certainly helped get the scheme past an unlucky start - will indeed reduce the imbalance.
On your situation, it's great to rent right now, given how low rents are relative to house prices.
But if you get to the point that you really want to buy a house for non-financial reasons, I suggest you don't wait for the numbers to improve. House prices might fall, but they might just plateau. And interest rates and foreign exchange are anyone's guess. Your "while" could turn out to be many years.
Mary Holm is a seminar presenter and author. Her website is www.maryholm.com. Her advice is of a general nature, and she is not responsible for any loss a reader may suffer from following it. Send questions to mary@maryholm.com or Money Column, Business Herald, PO Box 32, Auckland. Letters should not exceed 200 words. We won't publish your name. Please provide a (pref day) phone number. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.
