RNZ's money correspondent Susan Edmunds. Photo: RNZ
Send your questions to susan.edmunds@rnz.co.nz
My elderly mother would like to pay for three of her grandchildren to go to university. She's happily living independently at the moment but if she were to go into care in the next five years, would this likely be seen by the government as an attempt to divest her assets? She'll be well over the $284,636 asset threshold at such time anyway, so I'm not even sure it would matter. Are you able to provide some clarity on this? Would it be problematic if we set the university money aside in advance into a separate fund/account?
Rest home subsidies are a complicated area, and have prompted a lot of questions lately!
Thomas Biss, a director of law firm Henderson Reeves, says if your mother is above the threshold, she will need to pay for her own care - that's the starting point. In this case, it's probably how far above the threshold she is that matters.
If she gets below the level of the threshold through giving money to family, the ministry can investigate to see whether she has deprived herself of assets - and that could become an issue.
"While you can make some gifts, the amounts can be quite limited - only $8000 per annum for the five years preceding an application for subsidy and $27,000 per annum before that.
"I guess the point becomes though that if she were to pay over time - it's about $70,000 per annum I think - then depending on how much she actually has, she might get down to the threshold at some point."
Is it a better idea to have KiwiSaver or to use all that money to pay off a mortgage quicker?
I can understand why you might want to direct any extra money you have into paying off your mortgage - it's a guaranteed return of (at the moment) about 6 percent. The idea of getting rid of a home loan faster is pretty appealing, and even small increases to the repayments you make can save you a lot of money over the term of your home loan.
But KiwiSaver is a bit of a special case.
Assuming you're an employee, you might be paying 3 percent of your salary into your KiwiSaver. But then your employer will match it with another 3 percent, and you'll usually get the government's member tax credit of $521 a year.
That means you are getting more for your money by putting it into KiwiSaver than you would if you just took that 3 percent and used it to pay off your home loan faster.
It's valid to only put 3 percent into your KiwiSaver and then channel any additional money you have into paying off your home loan, with a view to investing more once the loan is clear. BUt I wouldn't skip on KiwiSaver.
The other great thing about KiwiSaver is that it can happen without you really paying a lot of attention to it, and build over time in the background. That can be a lot easier to cope with than paying off your home loan at (for example) 55 and having to cram all your retirement savings efforts into ten years, assuming you want to retire at 65.
If you're a self-employed person, it makes sense to at least put $1042 a year into KiwiSaver to get the full $521 from the government.
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