A: There are two unusual elements in your letter: you\u2019re giving up home ownership in retirement. And your friends are getting returns of 9% to 10%-plus \u201creasonably consistently\u201d.<\/p>\n
Not many New Zealanders would consider selling their home at your age. Most retirees fortunate enough to own their home like the security and the freedom to do what they please with it. <\/p>\n
But hey, why not sell up if those issues don\u2019t loom large for you? I often say it makes sense to sell a rental property in retirement so you can enjoy spending the money on travel and luxuries. The same could be said about your own home.<\/p>\n
But please don\u2019t count on returns on your money being any more than an average of around 5% after fees and tax.<\/p>\n
I expect your friends are taking a short-term look at their returns. Sure, they may have been high in the last three years, with sharemarkets growing strongly. Or maybe they\u2019re in other investments that have had a good run. But you don\u2019t get returns at that level without also suffering losses some years.<\/p>\n
If your friends haven\u2019t seen some downturns, I suggest they look into whether they are caught up in a scam, with reported returns that are not real.<\/p>\n
Okay, now let\u2019s get to your question! If you feel confident running your own finances \u2013 putting money you plan to spend in the next two or three years in a low-risk fund, mid-term money in a middle-risk fund, and money for your 80s and 90s in a higher-risk fund \u2013 there\u2019s no reason you can\u2019t do it all yourself, through KiwiSaver.<\/p>\n
But if you would like some guidance, find a good adviser. For help with choosing one, see www.maryholm.com\/advisers<\/a> on my website.<\/p>\n Buy home or rent in 50s?<\/p>\n Q: My partner and I are in our early 50s. Is it better to buy a home (we need to stay in Auckland and could afford a maximum of $750,000 for a home) or continue renting for the rest of our lives?<\/b><\/p>\n We are in KiwiSaver, and that, combined with other investments, would likely result in a $1 million lump sum at age 65 if we keep renting.<\/b><\/p>\n Using our KiwiSaver for a deposit would make a serious dent in our savings. We have been approved for a 30-year mortgage for $550,000, which we would obviously need to pay off in 15 years, not 30, due to our age.<\/b><\/p>\n Should we keep renting or buy? Which is the better financial option?<\/b><\/p>\n A: You\u2019re sort of in the opposite situation to our previous correspondents. And I\u2019m afraid there\u2019s no clear answer to your question.<\/p>\n It depends on several factors, including how fast house prices grow from now on; how high your mortgage interest, rates, insurance and other home ownership costs would be; how much you would pay in rent; and what returns you would earn in KiwiSaver \u2013 all of which are impossible to forecast with accuracy.<\/p>\n Whenever there\u2019s no clear advantage one way or the other, it\u2019s often best to simply do what you want to do.<\/p>\n As mentioned above, most people would go for home ownership. But if you\u2019re happy renting, there\u2019s no good reason not to stick with that choice \u2013 especially as you should have plenty of retirement savings to cover rent for the rest of your lives. And if you change your minds later, you can always buy then.<\/p>\n Use KiwiSaver for first home?<\/p>\n Q: I\u2019m looking for advice on whether to use my KiwiSaver for a first-home purchase or keep it invested for retirement. Many of my young friends are also trying to consider their options.<\/b><\/p>\n I\u2019m in a stable, good-paying job and currently live with my parents, which keeps my expenses low and allows me to save.<\/b><\/p>\n I have about $60,000 in KiwiSaver and am considering buying a lower-cost home in South Auckland (possibly \u014ctara), with the balance funded through a bank mortgage. I would live in the property and rent rooms to flatmates to help cover repayments.<\/b><\/p>\n My intention would be to hold the property for roughly three years before selling.<\/b><\/p>\n I\u2019d appreciate your advice on:<\/b><\/p>\n A: Staying with your folks has the clear advantage of reducing your cost of living. And leaving your KiwiSaver alone means your balance will be higher at retirement.<\/p>\n On the other hand, getting into the housing market now probably means you\u2019ll have more wealth in housing at 65.<\/p>\n Just as in the last Q&A, there\u2019s no way to forecast which move is better. So do what you prefer, which seems to be buying a house.<\/p>\n Having flatmates is a great way to make it more affordable \u2013 as long as you and they can negotiate the rather tricky situation of landlord and tenants living together.<\/p>\n On owning a house for just a while, be aware of the bright-line test. Basically, it says that if you sell a rental property within two years of buying it, your profit is taxable. Could this apply to you?<\/p>\n Inland Revenue addresses the issue in a publication that asks: \u201cIf a person lives in their home and rents out a room to a flatmate and then sells the land within two years of when they bought it, can they qualify for the main home exclusion to the bright-line test?\u201d<\/p>\n The answer is yes, although if you have several flatmates it might not be so clear-cut. Check with an accountant. Or simply hold on to the property for more than two years \u2013 as you plan.<\/p>\n For other tax info on having tenants \u2013 or boarders \u2013 in your home, these are helpful:<\/p>\n Every situation is different, of course, so I suggest you talk to an accountant anyway.<\/p>\n On market shifts, who knows where house prices will go from here? If you expect to buy another property once you sell the first one, you may be buying and selling in the same market, so it won\u2019t matter much. But be aware that price movements can be quite different, even within the same city.<\/p>\n The way around this is to stay flexible about your timing. <\/p>\n Who charges tiny KiwiSaver fees?<\/p>\n Q: I am keen to find out where these funds with fees under 0.1% are that you mentioned recently in your column.<\/b><\/p>\n A: If you use the Smart Investor tool on sorted.org.nz, you can sort KiwiSaver funds and, separately, non-KiwiSaver managed funds, by \u201cFees, lowest first\u201d.<\/p>\n There are three KiwiSaver providers and two non-KiwiSaver fund providers that offer funds with management fees of less than 0.1%. Note that I\u2019m not saying 1%, but one-tenth of 1%. Dirt cheap! They are:<\/p>\n I asked the providers: \u201cHow do you make a profit on those funds?\u201d<\/p>\n InvestNow\u2019s very low-fee funds are Foundation Series Funds, that provide \u201cexposure to popular offshore ETFs [exchange-traded funds], including to the Vanguard S&P 500 ETF, Vanguard Total World Stock ETF, Invesco Nasdaq-100 ETF, alongside ESG and dividend options\u201d.<\/p>\n It\u2019s important to note that each of these funds charges a 0.50% transaction fee each time an investor buys or sells units. \u201cThis is how we are able to cover the costs of managing the funds,\u201d senior portfolio manager Jason Choy says.<\/p>\n So are you better off paying fees as your money goes in and out, but then paying a really low ongoing management fee? It works best for people staying in the funds for five years or more and not moving their money in and out.<\/p>\n This is partly because \u201cannual management fees are charged on your entire fund holdings, whereas the transaction-based fees are only charged on the amount you buy or sell\u201d, Choy says.<\/p>\n InvestNow also points out that \u201cinvesting in the PIE structure of the funds provides additional tax efficiency compared to investing into the equivalent offshore ETF directly, due to the capped 28% tax rate of PIE funds (versus up to 39% marginal tax rate applied for direct ETF investments)\u201d.<\/p>\n \u201cFor multi-year investors (which pure equity\/aggressive investors should be anyway), the annual fee and tax savings compound significantly and more than offset the one-off 0.50% transaction-based fees that are levied,\u201d Choy says.<\/p>\n At NZ Funds, the passively managed Balanced Fund has no management fees.<\/p>\n \u201cWe thought (and continue to think) that encouraging as many New Zealanders into KiwiSaver as possible is in New Zealand\u2019s interest (and in our interest as a New Zealand-owned-and-operated investment organisation),\u201d principal Geoff Motion says.<\/p>\n \u201cWe had found that a number of New Zealanders were frightened of joining KiwiSaver because of past experiences with payday loans, credit cards or other financial products whose fees they did not understand.\u201d<\/p>\n NZ Funds uses sophisticated financial technology that \u201cmakes the cost of managing the fund nominal (cheaper than using an ETF)\u201d, Motion says.<\/p>\n If balanced fund investors transfer to their other funds or services, they would pay a fee. But \u201cthis is not our primary motivation\u201d, he says.<\/p>\n The provider adds: \u201cWe offer a range of free investment services across all our products, including free UK Pension Transfer, free Australian Super Transfer, free investment management of any service (including KiwiSaver) for under-18s, free management during parental leave and one-year free management following a hardship withdrawal.\u201d<\/p>\n I should add here that other providers may well offer some similar free services. If so, let\u2019s hear from you.<\/p>\n The Sharesies situation is somewhat similar to that of InvestNow.<\/p>\n \u201cOur US500 fund is a passively managed index fund, so there are no portfolio managers or analysts researching or making investment decisions,\u201d head of KiwiSaver Matt Macpherson says.<\/p>\n \u201cIt holds the Vanguard S&P 500 ETF, which has a 0.03% fee. The extra 0.06% covers our custody costs and things like operations of the scheme, auditing etc.<\/p>\n \u201cBecause the fund is unitised in US dollars and contributions arrive in NZ dollars, most members pay the 0.5% fee to convert into US dollars when buying units. However, we offer other US dollar funds too, so if you are rebalancing from another US dollar fund, you don\u2019t need to convert currency.<\/p>\n \u201cWhile the currency conversion fee adds to the cost, the longer you hold, the lower your costs become.\u201d<\/p>\n As I said above, the BNZ Term PIE that appears in Smart Investor\u2019s Managed Funds section, with zero fees, is odd. Several other banks also offer Term PIE investments that are not included \u2013 although probably all of them charge no management fees.<\/p>\n Asked how its Term PIE makes a profit, BNZ says: \u201cWe lend out money that investors deposit with BNZ and earn interest from those loans, so therefore we don\u2019t need to charge a management fee.\u201d That\u2019s how banks work!<\/p>\n Readers should note that there are many other funds on Smart Investor that charge management fees of 1% or less \u2013 as opposed to the 0.1% we\u2019ve looked at. <\/p>\n But the first thing to consider when choosing a fund, in or out of KiwiSaver, is that it\u2019s at the right risk level for you.<\/p>\n * 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\u2019s 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 <\/b>mary@maryholm.com<\/b><\/a>. Letters should not exceed 200 words. We won\u2019t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice. <\/b><\/p>\n\n
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