No home, retirement not far off — what’s the plan?
Now is the time to try earning more, spending less and investing better
Q: I am less than 10 years from retirement. No home, never had one; $75,000 in a savings bank, $30,000 in KiwiSaver. Part-time seasonal worker. How can I optimise my finances for retirement?
A: It’s great that you’re looking at this now, while there’s still time to make your retirement considerably more comfortable.
It’s also great that you already have more than $100,000 in savings — which is more than many New Zealanders have.
Research by Te Ara Ahunga Ora (the Retirement Commission) found that 40 per cent of people 65 and over have virtually no other income besides NZ Super, and another 20 per cent have only a little more.
However, some of them will have their own homes — which makes a big difference.
So let’s grow your savings. There are many ways:
● Increase your income
Find more work, or year-round work, or higher-paid work. Unemployment is low at the moment, and there are many employers struggling to hire people.
You could also plan to work beyond age 65 — full-time or parttime. This is becoming increasingly common. Te Ara Ahunga Ora says 27 per cent of over-65s surveyed continue to work for pay. This gives you a double advantage: you have more years in which to save, and fewer years of retirement to fund.
● Reduce your spending so you can increase your savings
Or maybe we should put it the other way around: increase your savings — perhaps by setting up regular transfers to your savings account — which means you will have to reduce your spending.
If your pay were cut, you would have to manage on less spending money, so do it anyway.
Keep track of what you buy for a few months, and think about what you could cut back on. Practically everybody has some unnecessary spending.
Saving just $20 a week, at 2 per cent interest after tax, will grow to $11,500 over 10 years.
● Invest your savings so you get higher average returns
Ask your bank about putting your money into bank term deposits, which pay quite high interest these days.
Beyond that, it doesn’t sound as if you would be comfortable in a higherrisk KiwiSaver or non-KiwiSaver fund, where the balance will sometimes fall a fair bit — even though it will grow more in the long run.
But you could use a medium-risk fund, assuming you are not in one already. Even in those funds, your balance will sometimes go down for a while. But the average returns are higher than in bank deposits. Your KiwiSaver provider should give you information on its funds, both within KiwiSaver and outside the scheme.
● Spend time on the sorted.org.nz website
There are many other websites that also give you tips on how to make the most of your money. But sorted is run by Te Ara Ahunga Ora, so you know it’s not pushing any products to enrich it, rather than you. And there are all sorts of tips and tools on there to help you handle your money well.
Single & saving
Q: I’m a single woman in her early 60s who has life savings of $40,000. I own my house (worth about $1 million), and intend to work for a further few years.
I am an immigrant and do not have KiwiSaver, but will be entitled to a full pension. I don’t consider myself to be that financially savvy, but read your column with interest — no pun intended. How can I maximise my savings to live comfortably?
A: First, see the above Q&A. Also, join KiwiSaver straight away. If you are eligible for NZ Super, you are surely eligible for KiwiSaver, too. You just have to be entitled to live in New Zealand indefinitely.
If you’re an employee, you’ll need to contribute 3 per cent of your pay, but that doesn’t amount to much. And your employer will also contribute the same amount, although their contribution will be taxed.
Whether or not you are an employee, the government will put in
50 cents for every dollar you put in, up to a maximum of $521 if you put in $1042 or more in a KiwiSaver year, which runs from July 1 to June 30.
In your first year, the government’s maximum will be proportionate to how much of the July-June year you are a member. So if you join on March 1, for example, you will belong for four out of 12 months. Therefore, the government’s maximum in your first year will be
4/12 of $521, which is about $174. But after that you will be eligible for the full $521 a year.
The government contribution stops when you turn 65, and employers are also allowed to stop contributing then. But many continue.
All of this could amount to quite a few thousand dollars by the time you are 65, or whenever you retire. It would be pity to miss out.
One more thing. When you are, say, in your late seventies, consider a reverse mortgage. This makes use of the money you have tied up in your house. Basically, you borrow it and make no repayments until you leave the house or die.
In the meantime, the interest you pay compounds, so your loan grows over the years. That’s why I suggest you don’t take out a reverse mortgage early in retirement. Use up your savings first.
But over time the value of your house will also grow — even though it doesn’t seem like that these days! So borrowing against the house makes sense. For more on reverse mortgages, see this page on my website: maryholm.com/topics/reverse-mortgages
Gone to Oz
Q: My son is moving to Australia to live.
If I deposit $1042 every year into his KiwiSaver account, does he receive the $521 government contribution each year, despite him living there, and his wages aren’t going in any more?
A: Nice idea, but he won’t get the government money while living overseas — unless he is a New Zealand government employee or volunteering or working for a specified charity for token payment.
However, you can still contribute, to keep his account growing.
Who could resist!
Q: Hello. TREAT AS CONFIDENTIAL. I’m (name given), with Deutsche Bank here in Brussels Belgium. I sincerely seek to present you as the next of kin to a late client, who left behind $145.5 million in a fixed deposit account in my bank before his demise.
The British-born client was into diamond and gold mining and died without a next of kin. I shall obtain the legal documents that will give you legal rights to make this claim legitimately. I am willing to share the funds 60/40 with you and this will be completed within 72 hours.
With the legal documents, the bank will approve you as the next of kin and pay out this amount to you within three working days. I considered the funds would be of better use to both of us instead of allowing corrupt politicians to confiscate the funds.
Please reach me as soon as possible with your full name, address, direct contact number and occupation for the processing of the legal documents, if you are interested and can be trusted to return my own share when you have received the funds in your bank account.
Best Wishes, (name and position), Deutsche Bank, Brussels, Belgium.
A: Wow. This is my lucky day! I googled your name, and sure enough, you are a senior officer with Deutsche Bank. And your email address, with gmail.com, includes your name, with some numbers after it.
Something does smell a bit fishy, though. Would a top banker really be happy presenting a stranger as next of kin? And why wouldn’t you ask for more than 60 per cent? I would still be pretty happy with 10 per cent of $145.5 million.
I’m not too sure your argument about corrupt politicians would go down too well in court, either. And I wonder if my bank might raise a red flag if that much money landed in my bank account, and then I shipped a big chunk of it out again.
The biggest question of all: if it’s such a safe deal, how come you can’t find any family or friends to do it?
Perhaps I’ll give this one a miss — as should anyone else presented with any proposal like this.
Better banking
Q: 365-date banking — in your last column — is good news.
Other good news I’d love to hear from banks is name checks when we make online transactions.
In many developed countries, when we make an online transaction, we can see the recipient’s name once we type their bank account number.
One country I know first-hand is Japan. The UK and Holland adopted the same system, and it reduced mistaken or fraudulent payments greatly.
It makes us feel secure in making transactions and may help to prevent some financial fraud.
A: That does sound reassuring. And you sent me an Australian Financial Review article that says a similar system in the UK “has led to a 35 per cent drop in mistaken or fraudulent payments. The scheme is now being extended to almost all payment participants.” And Dutch banks introduced a name check service in 2017, “which led to an 81 per cent drop in reported fraud and scams.”
Feeling hopeful, I approached New Zealand banks about this.
ASB’s reply was pretty positive. “The ideal way to introduce a name check service in New Zealand would be through an industry-wide initiative, where all banks confirm account owners via their software — similar to the ‘confirmation of payee’ technology used in the UK. ASB is supportive of Payments NZ’s work to scope this for New Zealand,” says a spokeswoman.
“Last week our parent company CBA launched a new, in-house name check feature which provides customers with a prompt if the account details they have entered on a new payment don’t look like they match the intended recipient. This helps customers make sure they are sending funds to the correct account, and prevents business email scams and mistaken payments. ASB is closely following the rollout of this new feature to understand potential benefits for our customers.”
However, another bank said, “Given any changes would need to be standardised across all banks, and the rules and standards are set by Payments NZ, they are best placed to answer.”
At Payments NZ, the response was disappointing. “Payee confirmation is not something Payments NZ is currently working on with the industry, although we are aware that those types of services are offered in other countries,” says Jane-Renee Retimana, general manager strategy and corporate affairs.
“We encourage New Zealanders to be proactive and diligent when it comes to checking the details of the party they are sending money to. If they’re unsure about any details, contact the other party directly to double-check before making the payment.”
She adds that “Payments NZ is working on a number of other major payment system initiatives which will greatly benefit consumers,” and lists two of them:
● Open Banking
This means “banks will, at the request of the customer, make that customer’s data and payments available to a trusted third-party provider”. Payments NZ and the banking industry have worked for four years in developing this. “There are currently eight banks and 17 third parties registered as standards users with the API Centre and the ecosystem is growing all the time.
“For consumers, this means they will be able to choose from a growing range of businesses with innovative products and services underpinned by our open banking systems to empower their financial wellbeing — for example through services like personal finance budgeting apps, payments wallets etc.”
● Real Time and Modern Payment Systems
“Fundamentally, real-time capabilities enable people and organisations to make an account-to-account payment where funds transfer from the sender to the receiver almost immediately (literally in seconds).”
This all sounds good. But I have to say I would like to see the name checks system set up in New Zealand too.
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.
Research . . . found that 40 per cent of people 65 and over have virtually no other income besides NZ Super, and another 20 per cent have only a little more.