After the mortgage it’s time to celebrate
Have a little splurge once you make the final payment — but then be sure to boost your savings
My partner and I are both 63 and plan to retire from full-time work when we reach 65, although we may continue to work part-time. We will have our mortgage paid off very shortly.
This question is on behalf of my partner. His weekly contribution to the mortgage has been $250. His KiwiSaver payment is 4 per cent whereas mine is 8 per cent. His salary is $66,000.
Would it be better for him now to increase his KiwiSaver payment to 8 per cent because he can afford to, or to save elsewhere the $250 no longer going towards the mortgage?
I always say that in the first month after you’ve paid off your mortgage, you should blow what would have been your mortgage payment on something that’s fun. It’s celebration time!
Right after that, though, it’s a really good idea to set up payments of that amount into an investment, before you get used to spending the extra cash.
Let’s say, for now, that your partner decides to put the money into his KiwiSaver account.
It seems that you think the only way to increase his contributions is to raise them to 8 per cent of his pay. But there are two other options:
● He could set up automatic payments of any amount directly to his KiwiSaver provider.
● As of the first of this month, he could put 6 or 10 per cent of his pay into KiwiSaver — along with the old 3,
4 or 8 per cent.
That change will make it easier for people who want to gradually increase their KiwiSaver contributions — a great way to really get savings growing.
A rise from 3 to 4 per cent of pay would be fairly painless for most. For someone who earns $40,000 before tax, contributions would rise by less than $8 a week. On $70,000 it would be $13 a week, and on $100,000 it would be $19 a week.
After that, if someone wanted to jump from 4 to 6 per cent, or 6 to 8 per cent, or 8 to 10 per cent, their contributions would rise by twice those amounts — $15 a week on $40,000, $27 on $70,000 and $38 on $100,000. These are still pretty minor increases.
To change your rate, just ask your employer. You can always move back later if you’re struggling.
The next question for your partner, and others, is whether KiwiSaver is the best place for extra savings.
If you have high-interest debt such as credit-card debt, it’s always best to use any spare money to reduce that to zero. The next priority for anyone who has a mortgage is probably to pay that off as fast as possible — while continuing to contribute enough to KiwiSaver to get the maximum government and employer contributions.
I say “probably” because you might do better putting all the extra money into a higher-risk KiwiSaver fund. But paying off the mortgage is a very low-risk “investment”, so it suits most people better.
If you don’t have any debt, go for KiwiSaver or a similar non-KiwiSaver fund. If you want to keep things simple, KiwiSaver is your choice. Ditto if you need to lock up your money so you’re not tempted to spend it.
Otherwise, a non-KiwiSaver fund has the big advantage of being accessible at any age. You never know when you might need money, perhaps to help out family members.
In choosing a non-KiwiSaver fund, keep a sharp eye on the fees charged. High fees really eat into returns over the years, and fees are often higher on non-KiwiSaver funds.
Even though you’re looking beyond KiwiSaver, use the KiwiSaver Fund Finder on sorted.org.nz to work out what type of fund you should be in. Then check the fees on funds of that type. The providers that charge low KiwiSaver fees are likely to also offer similar low-fee non-KiwiSaver funds. Once you’ve chosen a fund, arrange for automatic transfers into it.
But priority No 1 is deciding on your $250 End of Mortgage Celebration. Let me know how it goes.
Too much property?
My wife and I are in our mid-50s and have secure combined personal income totalling $200,000 a year, with 8 per cent going into KiwiSaver.
Our home and future retirement house are both paid off and have a total value of $2.1 million. KiwiSaver totals $200,000.
We have two two-unit rental properties worth $2.1m. Their weekly income is $1950, but these are mortgaged at $1.7m. These properties are in a high-growth area, Mt Maunganui, and they are in a break-even position.
I think there is too much risk in one sector, property, and not enough exposure to shares. My wife thinks otherwise and wants to keep the status quo for another 10 years or so.
I certainly wouldn’t want that much of my savings in property. House prices do sometimes fall considerably, as the graph with this column a few weeks ago showed.
Share prices fall sometimes too, of course, but you reduce your overall risk if you have some money in each type of asset.
And shares often do better than property. Maybe you should show your wife some numbers released this week by the New Zealand Stock Exchange. Over the past 10 years, the S&P/NZX 50 Gross Index — our main share-price index — almost quadrupled. Meanwhile, the House Price Index grew 82 per cent.
The comparison includes dividends but not rent income, so some would say it’s unfair. And who knows what the future holds? But still, it’s a big difference.
A good compromise for you two might be to sell just one of your rental properties and put that money in a share fund. But if your wife won’t budge, it’s probably not worth battling over it. You two are pretty well off. Even if your property values plunged, you would still be comfortable.
Trouble signing up Thank you for your column two weeks ago. Like the correspondent, I am in the teachers’ retirement scheme and until yesterday I hadn’t signed up to KiwiSaver.
Earlier this year I contacted ASB Bank to join, once I realised that I was missing out on the Government’s yearly contribution. (I had wrongly assumed that I was entitled to the same benefits in the teachers’ scheme.) I was told by ASB staff that because I am turning 65 in June, there was no benefit at all in joining KiwiSaver.
After having read your recent column, I took the newspaper cutting into an ASB branch on Monday. This created much confusion as the staff member spent half an hour trying to convince me it wasn’t correct. She then contacted the KiwiSaver helpline and spent another 15 minutes discussing the article.
It was only after I asked to speak to the helpline desk and got them to reference your article, that
I was able to convince them that it was not too late for me to join.
It certainly would seem that even the professionals could be better informed by reading your articles.
It’s disappointing to read your letter, given that ASB Bank is one of the biggest KiwiSaver providers and also a default provider, and is therefore expected to give investors particularly good service.
I pointed out to ASB that it has always been good to strongly encourage those aged 60 to 64 to join KiwiSaver, as (until July 1, 2019) they get five years of tax credits and compulsory employer contributions.
So I asked: “How come your staff are telling someone aged 64 that there is no point in joining?”
ASB’s head of KiwiSaver, Aidan Vince, responded: “I am really proud that our people have given KiwiSaver advice to over 130,000 Kiwis over the past two years. Clearly, however, your reader was not one that we were able to help on the day, so please apologise on my behalf.”
He added: “The implications of KiwiSaver can be more complicated for savers who have an existing workplace savings scheme — with possible double employee contributions, etc.”
It’s possible those issues complicated the situation. But still, you say you were initially turned away because you are soon turning 65.
I also asked ASB: “Even the helpline desk seems not to have known how good KiwiSaver is for 60 to 64s, if they had to read my column first. How come they didn’t know that?”
Replied Vince: “Our KiwiSaver helpline team do know this. However, unfortunately this did not come through to your reader on this occasion. If you are able to provide me with a little more detail, I can follow up with the ASB teams involved.”
I then got your permission to give your details to ASB. Meanwhile, you reported having difficulties signing up online, which continued for several days.
Finally, you sent me this: “I thought you might be interested in the feedback from the ASB. They are still working on trying to sort out my online application!
“In the meantime, I called into Westpac bank this afternoon (five minutes before closing) and I am now signed up with it. Although most of my banking is done with ASB, I also have an account with Westpac.
“The process of joining KiwiSaver
You don’t have to join with a bank you do business with — or any bank, for that matter. Many of the providers with the lowest fees, best customer service and good returns are non-banks.
was very easy. The personal manager was extremely helpful and knowledgeable — she was very aware of what you had written about in your article and I left the bank within 15 minutes having signed up and been given a hard copy of an informative document — Westpac KiwiSaver Scheme. To be honest, the difference between service was like chalk and cheese!”
To be fair to ASB, the technical difficulties with your sign-up may have been a one-off. But anyone who is signing people up for KiwiSaver should know the rules for different age groups.
One more point: you don’t have to join with a bank you do business with — or any bank, for that matter. Many of the providers with the lowest fees, best customer service and good returns are non-banks.
I encourage you and everyone else to use the KiwiSaver Fund Finder to find the best provider for you. It’s easy to move. You just ask your new provider to do it for you.
Fees for kids Email from ANZ communications manager Tony Field:
I read your piece in the
Weekend Herald about kids and KiwiSaver and wanted to let you know about some recent fee changes at ANZ.
From April 1, we have removed the membership fee ($2 a month) for KiwiSaver members under 18 years of age, and have reduced the membership fee for all other members from $2 to $1.50 a month.
PS: I should have added that as well as the membership fees, we still have management fees.
That’s good to know, especially as ANZ is the biggest KiwiSaver provider.
Your PS raises an important issue. Almost all KiwiSaver providers charge a fixed membership fee plus a management fee that is a percentage of your balance.
Management fees vary considerably. So a provider that drops its membership fee for children but charges a fairly high management fee may not be as cheap as a provider that gives no breaks for kids but charges a lower management fee.
As noted above, the KiwiSaver Fund Finder ranks KiwiSaver funds by fees.
Mary Holm is a freelance journalist, ● a director of the Financial Markets Authority and Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. Her latest book is “Rich Enough? A Laid-back Guide for Every Kiwi”, and her website is www.maryholm.com. Her opinions are personal, and 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. Sorry, but Mary cannot answer all questions, correspond directly with readers, or give financial advice.