Despite already paying more than twice the apartment’s value, Raffray’s family remains legally bound to continue the monthly payments, with the obligation passing to future generations if necessary.
A: This is a frequently told “Don’t count your chickens” tale – much loved, I suppose, because the old lady triumphs over the younger male lawyer.
Versions of the story differ in details, but the point is the same. Wikipedia quotes Calment as saying, in her advanced old age, “in life, one sometimes makes bad deals”.
Other quotes attributed to her:
She is said to have enjoyed a cigarette and a glass of port until not long before she died.
Another interesting point for New Zealanders with our short-term rental leases: Calment lived in her apartment for 98 years.
What to do with deposit
Q: I have a large sum coming off term deposit this month and had planned to put it in a managed fund.
Since the Iran war started I see that share values are falling and am concerned that I would lose money if I make this switch, particularly when you consider fees also need to be paid for managed funds. What would you recommend?
A: It doesn’t work well to try to time when you invest in a managed fund, either in or out of KiwiSaver. Nobody can always – or even mostly – predict what markets will do next, especially in today’s volatile world.
It sounds as if you would worry too much in a higher-risk fund that holds mainly shares. But you could perhaps put some of your money in a low-risk defensive fund, where losses are unusual and tiny, and average returns after fees and tax tend to be a bit higher than in term deposits.
And, if you’re feeling brave, perhaps put longer-term spending money in a middle-risk conservative or balanced fund. The balance will fall somewhat every now and then, but should grow more than in term deposits, after fees.
When to move the money?
Q: My Irish husband and I are in the process of selling our Christchurch home and moving to Ireland. We’re very excited and looking forward to being closer to his family. We’re very fortunate and expect to end up with around $200,000 in cash after repaying the mortgage and all the various fees.
What should we do with that money in the interim before we’re able to buy in Ireland?
We know we’ll use a lower-risk option so that when we’re ready to buy in Ireland it’s not subject to the ups and downs of the market. But what we’re unsure of is whether to leave the money in NZ and move it over when we’re almost ready to buy, or move it across fairly quickly.
A: If you look at a graph of the NZ dollar against the euro – the main currency in Ireland – our dollar has lost value over the last 10 years.
That suggests you’d do better to move your money to Ireland sooner rather than later.
However, there have been quite long periods when the opposite happened. And online predictions suggest the trend could be changing.
The truth is that nobody knows. Currencies are as hard to predict as shares. What’s more, they don’t benefit from shares’ long-term upward trend. On average, currencies fall just as much as they rise.
In situations like yours, I think it works best to divide your money into three or four lots, and move some now, some in a month or two, and so on.
When you look back, you’ll wish you had moved all the money at what turns out to have been the best time. But you’ll also be glad you didn’t move it all at the worst time.
I suggest you set up a plan, stick to it, and give it no more thought. You have other much more interesting things to focus on. Enjoy your new home.
‘We’re earning 10%’
Q: I have read you and other advisers talking about how to calculate annual spending amounts after retirement, to make your savings last until you die.
Typically, the recommendation is “calculate a spending rate at 5% (or 6%) a year of your savings when you retire, and your savings will see you through”. So, retire at 65 with $1 million and you can draw down $50,000 a year.
All good – except our KiwiSaver accounts are making, on average, over 10% a year, after fees and taxes. So if we draw down 5% a year, the savings will still be growing, won’t they?
If our plan (with no descendants) is to use our savings up, can we be a bit more generous – say draw down 9% a year, and assume even with swings and roundabouts years, we’ll probably have enough to last us?
A: Firstly, a couple of clarifications.
Those rules of thumb apply if you retire at about 65. If you’re younger, you may run out of money well before you die. If you’re older when you retire, you can spend more.
A different rule for people who stop work when they’re older is to simply divide your money by the number of years you want it to last.
Let’s say you’re 70, and you want your savings to last 20 years. In the first year spend one twentieth of the money, in the second year spend one nineteenth, and so on. In the second to last year you spend half the money, and in the last year spend the rest.
Under all of these rules, there’s no guarantee that your money won’t run out before you do. What if you’re the next Jeanne Calment? Still, most people aged over 85 or 90 say they spend considerably less than in early retirement. As long as you have a mortgage-free home, many people say NZ Super is enough at that stage.
Meanwhile, you are seeing your KiwiSaver money growing by 10% – or at least you were in January when you wrote to me!
That suggests most or all of your money is in higher-risk growth or aggressive funds that invest largely in shares. And since January you may have seen not just lower returns, but perhaps losses at times.
Most retired people – even those who can cope with volatile markets – invest their shorter-term spending money in low-risk funds. But if you decide to stick with only higher-risk funds, then yes, your returns may well keep averaging more than 5% after fees and tax. And it sounds as if you can cope with volatility.
If I were you, though, I wouldn’t count on 9%, but perhaps 6 or 7%. In your 80s, you don’t want to be worrying unnecessarily about running out of money.
By the way, I’m a journalist, not an adviser!
KiwiSaver at 65
Q: Could you please describe what happens to your KiwiSaver funds when you turn 65?
Is the money automatically deposited into your bank account on your 65th birthday, or do you have to fill out masses of paperwork to get the cash?
A: Somewhere in between. There’s not a lot of paperwork, but a bit of hassle. And perhaps a time of reckoning for a few people!
Just for the record, the age at which you can freely withdraw KiwiSaver money may not always be 65. It’s set at the age NZ Super starts, so if that changes, so will the KiwiSaver access age.
But if you’re over 60, I would be astonished if the NZ Super age will rise for you before you turn 65. And if you’re over 50, it would be surprising if it rises by more than a year or two.
The other change at NZ Super age is that Government contributions stop. In the year you turn 65, the maximum you can get from the Government is proportionate to how much of the KiwiSaver year – July 1 to June 30 – you are under 65.
Let’s say you turn 65 on October 1. You’ll be eligible for three out of 12 months, so your maximum will be a quarter of the annual maximum of $261, or about $65.
Also, when you turn 65 your employer can stop contributing to your account – although many continue contributions.
To get your money out, ask your provider for a retirement withdrawal form. You then need to go to a JP or a solicitor to make a statutory declaration, taking with you some ID and evidence of your bank account.
The declaration asks if you have lived overseas for some of the time since you joined KiwiSaver, and if so, what dates.
“Is that to check that you were not incorrectly receiving government contributions during the time you lived overseas?” I asked Inland Revenue.
The reply: “Yes – the purpose is to confirm eligibility for government contributions”.
With a few exceptions – government employees or people volunteering for an approved charity – the Government doesn’t contribute to KiwiSaver for people living offshore.
But if you haven’t told your provider you are overseas, and you keep putting money into KiwiSaver, the provider won’t know not to apply for the Government input.
I then asked, “Does IR then check if govt contributions were, in fact, made at that time?”
The reply: “Inland Revenue relies on KiwiSaver scheme providers to correctly report when government contributions should be paid.
“KiwiSaver scheme providers must submit revised claims if information changes, and it is their responsibility to make sure the number of eligible days is correct. Once a revised claim is submitted, Inland Revenue’s system automatically updates its records and, if needed, recovers any overpaid amounts from the KiwiSaver Scheme Provider.”
The overpaid money is withdrawn from the member’s account. “Inland Revenue doesn’t request interest or charge interest on this transaction, and no penalties are applied. This is treated as a correction.”
Obviously, somebody could “work the system”, deliberately continuing to receive government contributions while living overseas. They would lose that money when they start retirement withdrawals, but they would still have earned returns on the money, compounding in the meantime.
We’re really talking peanuts here, though. And would you want it on your conscience through retirement?
Okay – back to the main story. The vast majority of people turning 65 either haven’t lived overseas since they started contributing to KiwiSaver, or stopped receiving government contributions while offshore.
For all of these people, the first withdrawal will be a bit tricky, and the money probably won’t land in your bank account for two or three weeks.
But after that, it should be easy to set up regular payments to your bank account and/or occasional withdrawals. The latter will probably take a few working days. If your provider doesn’t offer the withdrawal service you want, switch to one that does.
Withdrawals are tax-free.
How much should you withdraw? If you have higher-interest debt, it’s a great idea to repay that as soon as possible. Many people also like to pay off their mortgage.
Beyond that, though, don’t rush to empty your account. KiwiSaver funds at appropriate risk levels can be a good place for your retirement savings for the rest of your life.
You can also continue to deposit, either regularly or one-offs. Let’s say you receive an inheritance. KiwiSaver can be a good place to park it while you decide when and how to spend it.
Footnote: There’s nothing to stop anyone from continuing contributions to KiwiSaver while living overseas. It’s often a good idea. You’re just not supposed to get government money during that period.
* Mary Holm, ONZM, is a freelance journalist, a seminar presenter and a bestselling author on personal finance. She is a former director of the Financial Markets Authority, the Banking Ombudsman Scheme and Financial Services Complaints. 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.
Catch up on the debates that dominated the week by signing up to our Opinion newsletter – a weekly round-up of our best commentary.