Mary Holm: Over-saving for retirement? Try live a little while the living is good

OPINION:

Q: How do you over-save for retirement?

A: The smart aleck answer is by setting aside heaps of money.

But I’m guessing you read last week’s letter from pension researcher Michael Littlewood and my reply, which touched on the idea that some people might save too much for their retirement. How could that happen?

Over the years I’ve received letters from quite a few people – often women, especially single women, but not always – who seem to be over-saving. They deprive themselves of pleasurable activities and purchases during their working lives, and then have more money than they want and need in retirement.

The ideal is probably to have much the same standard of living throughout your adult life. Okay, you might be content with struggling a bit financially in your early adulthood, knowing things should get easier by middle age. But it’s a pity to miss out on some of the joys of life in your 40s, 50s and 60s so you can have a luxurious retirement.

For one thing, there are probably diminishing returns from spending beyond a certain point. My guess is that moving from box wine to a $20 bottle probably brings more happiness than moving from a $20 bottle to a $40 bottle. Making do with box wine through your middle age so you can quaff expensive vintages later on probably won’t maximise your lifetime happiness.

Ditto, living in a humble home now so you can move to somewhere flash in retirement. Or rarely eating out so you can dine finely (is that an expression?) later. Or doing minimal travel now so you can spend half your life on the road in retirement – assuming Covid settles down.

Too often, people with plans like that find health problems prevent them from living the high life after they stop work.

And will they spend up large anyway? Those who are used to being frugal often report that they can’t break those habits after they retire.

Remember the 82-year-old multimillionaire who wrote to this column in May? He buys only the cheap beer, even though he dislikes it, and is unwilling to pay RSA prices for wine.

There are other people to consider, too. If you economise too much on doing things with your kids – or the neighbour’s kids – while they’re young, you might find that by the time you’re ready to splash out in retirement, the young ones are too busy with their own lives.

The trouble with saying all this, of course, is that some readers are doing the opposite. They spend too much and save too little throughout their working lives and then struggle in retirement.

If that’s you, I’m not encouraging you to spend more. But I suspect most people know whether they are saving too little, about the right amount, or too much.

One indication for many is the relatively new information in KiwiSaver annual statements, which are sent out in April, May or June. If you are 18 to 64, your statement should estimate your expected savings total at 65 and how much you should be able to spend aweek until you’re 90. Both numbers are adjusted for inflation. After 90, many people find NZ Super is enough.

In retirement, most people will also receive NZ Super, and many will have other savings. The retirement calculator on sorted.org.nz will help you take all that into account.

If, after reviewing your situation, you’re not sure whether you are saving enough, you should probably save more. But if you seem to be an over-saver, how about splashing a few dollars around on fun.

Compulsory super

Q: Michael Littlewood’s reference last week to Australian research showing compulsory super paid by employers leads to lower wage growth for employees has been questioned by, for example, the McKell Institute etc.

It notes that employers may pass on costs to consumers, take lower profits, increase productivity by attracting better employees etc.

Even if some wage growth is lost, isn’t the point of super to defer short-term gratification for long-term gains? And that is still being achieved with compulsory employer super contributions.

A: Good point. And the Australian research you refer to is interesting. Readers can find it at tinyurl.com/SuperAndWages.

Building reports

Q: Last week you said, “it would be great to see auction sellers giving all prospective house buyers a copy of a building inspection report from a reputable company”. When living in Sydney there were a few places that did this. You’d pay a nominal amount for the report (say $50) on the proviso that if you were the eventual purchaser you would then pay the full amount.

Seemed like a good idea for all involved. It meant the purchaser wasn’t losing hundreds of dollars each time they missed out at auction. Also it likely meant there would be more potential buyers.

A: Sounds great. There’s no reason why sellers couldn’t do that here.

But some other readers have worries about sellers providing property information to buyers. Read on.

Property probe

Q: Just a word of warning about LIM reports, which you wrote about last week. They do not always include all the information a council may hold about a property.

The thorough way to research is to go to the council and ask to see the file they hold. The Catch-22 is that maybe not all councils will allow non-owners to see them.

The perfect situation is for the vendor to purchase a CD of the file and make it available. But of course what vendor would do that if it discloses bad news? And the agent would be dead against it.

Same goes for the vendor providing a builder’s report, as you suggested.

And there is a belief afoot that because it was prepared for the vendor it would not be independent and trustworthy. Not sure that is fair to the inspection industry.

A: Thanks for the warning and suggestion. On your comment about sellers not wanting to disclose bad news, as I said last week, potential buyers should perhaps look sideways at a seller who is unwilling to give them property info.

Who knows whether a builder’s report – or for that matter a valuation – will vary depending on whether a buyer or seller is paying? It would be great if somebody did a mystery shopper test on this.

I suppose there’s quite a lot of room for varying views on a property’s value. But surely the person putting their name on a builder’s report would be reluctant to ignore or overlook serious problems. Even if they couldn’t be held legally accountable for an omission – see next letter – at least their reputation would be at stake. Or am I being naive?

Leaky homes & the law

Q: Having recently gone through leaky home litigation, I read with dismay your advice for auction sellers to provide buyers with a building report before the auction, so that they can “purchase with confidence”. No, no, no, no.

Firstly, if there are problems down the line, this report is useless to the buyers as it has been commissioned to the sellers with their name on it. Not helpful at all if you end up going to court.

Secondly, we as buyers got our own report done through a “reputable” company with no issues raised, only to find later that we had a leaky-home problem. Our house was one third plaster, two-thirds brick, and still cost almost $300,000 to fix including subsequent lawsuit costs.

The building report industry is unregulated in New Zealand. The only people who should be doing inspections on monolithic clad houses are registered building surveyors who are experts in the field. You have no idea what level of competence you are getting with your garden variety building inspector.

While we got some of our remediation costs back through our lawsuit, leaky house owners are always left well out of pocket in these cases, and I would hate other people to be caught up in the years of hell and financial loss that we were.

A: My heart goes out to you. The whole leaky home thing seems so unfair.

And you make some really good points. It sounds as if potential buyers of monolithic clad houses should take special care with getting expert advice.

Even then, though, I would think the seller might be better off getting a report from a qualified inspector that shows buyers where they stand, rather than having people just turn away. Serious buyers might then follow up with their own report.

Helping the kids

Q: In regards to last week’s question about paying for a student’s education or hoping for a financial payoff, another option for parents is to look at the cost of living while studying.

If their young person is moving away it could cost over $15,000 to live in on-campus accommodation in their first year. If living at home, supporting the cost of transport or co-curricular activities could make a huge difference to their academic experience.

Student allowances and part-time work only go so far, unfortunately.

A: In an ideal world, a student gets a part-time job and a summer job to help with expenses – and perhaps to learn what it’s like doing low-paid work, which might inspire them to study hard in the hopes of qualifying for higher-paid work.

But circumstances vary widely. So yes, I’m sure some students would welcome financial help along the way.

Missing the message

Q: A lot can be said for bollocks.

Do you shop at Countdown, or Farro? Do you have your hair cut by a friend, or a stranger?

My father used to rant “Do you need it? Do you need it now? Is it the right price!!!” It’s his mantra.

He never tests the purchase though with, “But do you want it?”!!!

Sage wisdom indeed!!!

Before I go Mary, could I please pray to ask you … what is the most ridiculous excuse you have ever used to get off of a parking ticket?

A: I asked you last week to elaborate on your message about my needing a haircut. What you’ve written is certainly elaborate. Poetic in fact. But I’m not sure it gets us any closer to understanding what you meant. However, I do like your father’s mantra. Lovers of shopping could do well to adopt it.

Parking tickets? I once wrote to a council that I had actually moved the car one parking slot forward after the first hour, and then one slot back after the second hour, and so on, so I hadn’t parked in the same spot for more than 60 minutes, as alleged. But I acknowledged that the parking lot attendant might not have noticed that. It worked.

I hasten to add that was many years ago, in my student days when I had very little money.

Our correspondent above might sympathise. These days, though, I wouldn’t lie like that. Funny how honesty seems to grow with age.

Two other readers responded to your letter last week. They said:

• “I believe that haircut has a meaning in banking to do with ‘losing a little bit off the top’.”

That’s right. And it could happen to people’s bank accounts with balances above a minimum amount if a bank gets into trouble. I thought about that last week, but it didn’t seem to work in the context.

• “Liked your short post about the haircut in your Herald column. People are random, rude or plain weird sometimes.”

Can’t argue with that. And while we don’t need rudeness, long live plain weirdness.

– 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 [email protected] 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.

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