Guide to Retirement Villages

Retirement Villages

Retirement villages are a great option for people who want a degree of independence in retirement but with the added benefits that come from communal living. There can be significant differences between retirement villages in terms of facilities and costs and it pays to do your homework before signing an agreement so as to avoid making costly mistakes.

There are four basic legal titles commonly used for retirement villages; licence to occupy, unit title, cross lease and lease for life. The type of title will largely determine how much it costs you to buy and live in your retirement unit. There are three types of cost that you will need to consider; the initial cost of buying your unit, the costs of living in your unit and the costs involved with selling your unit.

In many cases, the initial amount you pay gives you the right to live in your unit, but does not buy the unit itself. While you are living in the village, you will need to make regular payments to cover such expenses as rates, gardening, maintenance and healthcare. There are differences between villages as to what these ongoing fees cover. When you sell your unit, you may be required to pay for refurbishment of the unit to a certain standard as well as marketing and selling costs. In some cases, you may have no control over the sale process and when you sell you may not get the benefit of any capital gain on the unit.

Before you purchase, the retirement village must give you certain legal documents which set out your rights, benefits and costs and you are required to get independent legal advice on these before signing an agreement.

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Make your Mortgage Manageable

Avoid a Mortgagee Sale! 

Mortgagee sales are on the increase as a result of the recession and the property market downturn. If you are struggling with your mortgage payments how can you avoid having to sell your house? Here are a few tips that could help.

 One of the first things you should do is talk to your lending institution or a mortgage broker. Your lender should be willing to work with you to find solutions to your repayment problems so as to avoid a mortgagee sale.

 Most lenders offer repayment holidays of up to 90 days, which may be enough to let you build up your reserves or pay off other short term debt so as to reduce your weekly outgoings. Another option may be to convert your mortgage to an ‘interest only’ mortgage. This will have the effect of reducing the amount of your repayments because you are not paying back principal. Yet another option is to extend the term of your mortgage, say from 20 years to 25 years, which will also have the effect of lowering your repayments. All of these options should be seen as short term solutions because ideally you should pay off your mortgage as quickly as possible.

 A mortgage broker may be able to help you shop around for a mortgage at a lower rate of interest, however bear in mind that depending on your circumstances, there may be penalties involved in repaying your existing lender, so get this information from your lender first.

 Selling your house because you can’t keep up the mortgage payments should be a last resort. Real estate agent fees, legal fees and removal costs will eat into your deposit, and there is always the uncertainty of whether property prices will move ahead by the time you can afford to buy again.

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Money Conflicts

Money Conflicts

According to the experts, arguments about money are one of the main causes of conflict in relationships and are also one of the key reasons why relationships end.

Differences between couples over how money is spent, saved or earned arise largely from different attitudes towards money and risk, and different money values. Very often these attitudes and values stem from childhood, but not in a predictable way. For example, someone who endured frugality in childhood may be frugal as an adult or may conversely be keen to ensure their own children have everything they want. The starting point for resolving money conflicts is to explore the differences in values and attitudes.

There are two key questions that should form the basis of discussion:

  • What things were said or taught to you about money in your childhood and how have these affected your attitudes towards money?
  • What is the purpose of money in your life?

Sayings from childhood, such as ‘money is the root of all evil’ can often instil a negative attitude towards money, which is a sure way to avoid attracting it into your life. The purpose of money in your life will depend on what you value. Perhaps security is important to you, or it might be helping your children with education costs. For some, the purpose of money is to be able to have fun and interesting experiences. Having a conversation with your partner about your attitudes and values will help uncover the points of conflict. The next step is to find ways of resolving the differences, which usually requires a logical analysis of the issues and some degree of compromise.

As with most other conflicts in relationships, money conflicts can generally be resolved with good communication and an understanding of each other’s perspective 

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UK Pension Transfers

UK Pension Transfers

Immigrants from the UK and New Zealand residents who have worked in the UK usually find themselves leaving behind their locked-in pension funds when they arrive in New Zealand. This can present a number of difficulties.

Once you become eligible for payments from your fund, you will need to pay tax on those payments as well as bank transfer fees. You will also be exposed to exchange rate changes so that the amount you receive as a pension will fluctuate over time. If you pass away with your money still in a UK scheme, your spouse is likely to receive a pension worth only half of what you would have received, whereas New Zealand retirement schemes pay the whole benefit to your spouse or dependants. UK pension funds are classed as Foreign Investment Funds by Inland Revenue which means that if you are a New Zealand tax resident you may have to pay tax on the investment gains.

UK pensions can be transferred to New Zealand but can only be transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) without incurring tax. Up to 40% of any money you transfer may go into an unlocked fund and can be withdrawn before retirement age without tax liability if withdrawn more than six years after leaving the UK. By contrast, some UK pensions allow you to take 25% of your funds after the age of 55 without paying tax. Being able to withdraw funds can help with changing circumstances such as marriage, birth of a child or change in employment status.

Having your funds in New Zealand means it is easier to obtain information on how your investment is performing. The transfer is best done with the assistance of a financial adviser to avoid unnecessary penalties and to be aware of your options.

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The Eight Worst Credit Card Mistakes

Credit Card Mistakes

Credit cards are one of the most useful yet also one of the most dangerous modern financial inventions. Use them wisely and you can make money from them. Use them unwisely and you can lose everything you have. The worst mistakes you can make with your credit card are:

 

  1. Paying only the minimum balance. You will lose the interest free period on new purchases and it will take a long time to repay your debt.
  2. Having too many cards. It is much harder to keep track of your total debt when you have multiple cards.
  3. Using cards for non-essentials. Getting into debt to buy luxury goods will set you back financially.
  4. Not getting the best deal. There are big differences between cards when it comes to interest rates and features. Choose the card that is right for you.
  5. Forgetting to pay or paying late. You will add to your interest bill and your credit rating may be affected.
  6. Having too high a credit limit. The higher your limit, the more you may be tempted to spend and the harder it will be to pay off your bill each month
  7. Being tempted with low interest offers. Look at the fine print before you accepting an offer to get a new card at a low interest rate.
  8. Refinancing without reducing your limit. Increasing your mortgage to repay your card will reduce your interest if you are maxed out, but only if you stop spending on your card.

To use your credit card to advantage, set the limit to a level that you can afford to pay off every month by direct debit. For emergencies, have a second card with a higher limit which you keep hidden in a safe place (not your wallet or purse!).

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When Retirees Run out of Money

Retirement Blues

One of the biggest financial risks faced by retirees is that they will run out of money before they run out of time.  A pension is only enough for daily living costs and those who have just a small sum saved can run out of money once they have had to replace a car and pay for home maintenance. There are a number of options for retirees who need to supplement their retirement funds.

 First of all, check to ensure all available Government benefits are being received such as accommodation supplements and disability allowances. Check with the local council on eligibility for a rates rebate.

 If a large sum of money is needed, the cheapest option to consider is to borrow from family members. This should be done with the assistance of a solicitor to prevent any problems with gift duty or issues that might arise on death. Unfortunately, children don’t often have money to lend. Borrowing from a bank is a possibility and can usually be done by way of an interest-only loan. While this will help keep repayments small, they still need to made and this can be stressful.

 Selling the family home and buying a cheaper house is another way of getting access to funds. This can be an expensive option once all the costs associated with selling, buying and moving are taken into consideration.

 Home equity release schemes are proving to be very popular as a last resort option. If you need funds for home improvements, such as a new roof or painting, then taking out a loan will enable you to preserve the value of your house. Choosing a home equity release scheme is something that needs to be done with caution and is best done with independent financial and legal advice.

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Use Market Volatility to Make Money

Investment Markets

Investment markets move in cycles and it’s difficult to forecast when they’ll rise or fall. Moving your money in and out of the market during a downturn means you could potentially miss out on any positive bounce in a strong market recovery. Market volatility is what generates the return on your investment, and you can therefore use volatility to make money. With experience we find that most events in life that are volatile or uncertain still follow a reasonably predictable pattern over time. In financial markets, making observations about the way markets have behaved previously in similar conditions should enable you to take the right actions and to reasonably predict the outcome.

Markets move in cycles and as surely as the sun will rise every morning, markets that have dropped will rise again. The question is, how far will they drop in any downturn and how long will it take before they start to rise?

When markets are uncertain in the short term, there are some important principles to consider before you invest. More than ever, the two key principles of liquidity and diversification apply. In simple terms, that means you should aim to invest in things that can easily be converted to cash again (don’t put your money into investments that are locked in or for which there are few buyers and sellers) and spread your money among many different investments rather than trying to pick winners. One of the most effective ways of achieving this is to use another basic investment principle, called dollar cost averaging. That simply means drip feeding small amounts of money on a regular basis into a diversified investment. 

For long term investors, short term market volatility will seem of little consequence in years to come.

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When Sharemarkets Fall

When Sharemarkets Fall

It’s easy to invest when markets are running smoothly but when they fall your confidence can be sorely tested. More uncertainty in investment markets means more volatility and a need to review your investment strategy. Here’s what to do:

 

Start with the basics. Focus on your goals and objectives. If you have long term investment goals, remind yourself not to get too distracted with short term changes in the market. Reversing your strategy will cause you to lose value and lose time – both key ingredients for achieving your goals.

 Review your attitude towards risk and reassess whether your investment strategy is a good fit for your risk tolerance. When things are going well in investment markets it is easy to take on more risk than you should. Find the right balance between risk and return so that you can achieve your goals while taking an acceptable level of risk.

 Stay diversified. Markets can change quickly, and moving all your investments into one asset class might work in the short term, but it means you are taking on more risk by having all your eggs in one basket. Don’t sell in a panic or you will crystallise any paper losses. Selling up and putting all your money into very safe investments will lower your return, possibly making your goals harder to achieve.

 Evaluate all the options you have. This might mean getting more information from an expert who you trust. Make sure that any advice you get is from someone with a balanced or independent point of view who can point out the downsides as well as the advantages of different investment options.

 Confident investors have a long term plan that they stick to, they do their research, they aren’t swayed by emotions such as fear or greed, and they are successful at building wealth 

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How to Manage your Money in Retirement

Investing in Retirement

One of the biggest challenges in retirement is how to invest your money to provide an income while still protecting yourself against the eroding effects of inflation and income tax. Investing in fixed interest gives certainty of income but returns will be low and unable to keep up with inflation. The alternative, investing in growth assets such as shares and property, will give a better return over the long term but with increased uncertainty in the short term. For that reason, many retirees are afraid of investing in shares. However, there is a way of structuring your portfolio so you can use both income assets and growth assets to advantage. Here is how you do it.

Divide your portfolio into three amounts. The first amount is a lump sum of cash that is the equivalent of 6-12 months worth of income. For example, if you need $1,000 per month to top up your income, set aside $6-12,000 in cash. This amount should be placed in a high interest on-call account.

The second amount of money should be the equivalent of 1-3 years income, so in our example you would set aside $12-$36,000. This should be invested in fixed interest investments which are of good quality.

The third amount to be invested is whatever is remaining after setting aside the first two amounts. These funds should be invested mostly in growth assets with a small amount of fixed interest.

The way this strategy works is that over a three or more year time period the gain from your growth portfolio can be cashed up and put into your income portfolio to keep both portfolios constant. The interest from your income portfolio can be put into your on-call account to keep it topped up, along with proceeds from investment maturities as required.

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Buying your First Home

Tips for Home Buyers

For first home buyers the next few months are shaping up to a good time to buy and  there are three reasons for this. Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market. Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria. You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months. You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme. With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

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