Two Americans emigrate to New Zealand from Colorado,
USA.
We talk about
our life in Nelson, New Zealand.
July 2007 | Blog home | September 2007
When Don and I arrived on 6 July 2007, the exchange rate between New Zealand and the United States was very favourable for us. We had been sending our US dollars in chunks to our bank in New Zealand throughout the prior couple of months and we were getting exchange rates of about $.60. That meant that $1 NZ was equal to $.60 US, or, more importantly the reverse, $1 US was equal to $1.66 NZ. So for every $1,000 US we sent, we were getting nearly $1,700 NZ. A very good thing.
For the first three months we were here, I was also earning US dollars as a contractor for Sense of Security. What a good time to be earning the US dollar. We were able to stretch those funds a great deal with the exchange rate and as we lived very meagrely during our first six months.
But the rate started creeping up, and we stopped bringing our money over probably by September or October. As the year was drawing to a close, the Kiwi dollar started to skyrocket. And up until about two weeks ago, it hadn’t stopped reaching for the stars.
A couple of weeks ago the Kiwi dollar crested $.80, climbing a full 20c within the span of one year. To give some perspective, that means now that $1 US is equal to $1.25 NZ. All Don and I say to ourselves is that we sure came over at a great time. Guess what we are doing now? We are sending our Kiwi dollars BACK to the United States! (Most of you know we still have a house and mortgage expenses, so there are bills to be paid.) Rather than spend off our US dollars in the States, we are sending over NZ dollars which are replenish-able. Why not??!! We’re getting such a good exchange rate now!
But the Kiwi dollar is causing heaps of other trouble for this country. Despite a two-day pullback last week of 4c down to $.76c, there are still major concerns.
The dollar could hit US85c, currency strategists say, continuing its ascent on the prospect of higher interest rates and market jitters over American sub-prime mortgage problems.
Increasing home loan defaults and repossessions associated with sub-prime lending have sparked fears of a slowdown in the economy and further fall-out in the financial sector, where there has been widespread speculation in bonds backed by such loans.
This week, the US dollar touched an all-time low against the euro, trading at US$1.38 at one stage on Monday before rallying slightly.
However, there was a risk that if financial institutions in other countries proved to have significant exposure to the problem, that could lead to a wave of "risk aversion" and a rapid unwinding of the carry trade positions that had lent strong support to high-yielding currencies like the kiwi.
For New Zealand, in the short term the high NZ dollar is terrible for our exporters, who are suffering mightily. Businesses are either closing up shop or taking their jobs overseas to Asian countries where it is cheaper to operate. From the NZ Herald 4 August: “The average sheep and beef farmer will see farm profit before tax slashed 49 per cent to the lowest inflation-adjusted level in 50 years if exchange rates stay high, Meat & Wool New Zealand says.” Sheep and beef … those are two of our biggest markets!
In the long-run, New Zealand could experience a major slowing to our housing market (not that that would be a bad thing as it is vastly overpriced anyway) which is one of the current hallmarks of this economy and possibly a recession of sorts. We watch the US and Kiwi markets with baited breath as we have financial concerns in both countries!! Anyone need a house in Westminster, Colorado ??? : )
Hi Don and Angela, I'm in Boulder, CO and have plans to be in NZ in October/November. I'm so bummed that our timing wasn't in our favour. The last time I checked it was .46 and now it's almost doubled! Housing markets in a real slump here but what's worse, we're trying to sell our business and with everyone tightening their belts, I think our goals to leave in Oct/Nov will be doubtful. Reading your blogs have made me more determined to get out. Keep it up.
~ Cindy
On 1 July New Zealand had a historical moment, the introduction of KiwiSaver, a national programme to encourage retirement savings. Kiwis historically are not very good savers, and up to this point there has been little if any encouragement either by industry or government to plan for one’s retirement years.
Over this four-part blog, I’ll give you an introduction into the existing schemes (the word 'scheme' is not used here in a pejorative sense, but is synonymous with programme or plan) for retirement and talk about KiwiSaver and how it works.
New Zealand has a programme similar to social security that is called the superannuation. It is NZ Super or just Super for short. It is a near-guaranteed pension for every kiwi come the age of 65. New Zealand superannuation is not accumulated over your years of working, like social security; you don’t have to have paid into the system to get your social security pension out of the system. And your payments or eligibility are not based on income. That is why I say it is near-guaranteed, every kiwi gets the pension on reaching the age of 65, full stop (translation: period).
Except of course it isn’t truly guaranteed because the government can change its mind, but New Zealand has had a form of state-funded retirement income for over one hundred years. Eligibility, payment levels and other conditions have changed many times, but the present Government's policy is to retain the existing entitlements for the foreseeable future. Comments from other major parties suggest that changes for people currently in and near retirement are unlikely.
And in the same measure, every kiwi gets the same amount in their superannuation. Currently, each retirement age kiwi nets about NZ $11,000 / approximately US $8,000. That means a married couple will get double, about $22,000 per year. It is not a lot of money, granted, but kiwis know it is going to be there for them. Part of that guarantee comes from the fact that it is not paid out on today’s wage earners, like social security.
Super payments are taxed prior to being deposited into your bank account, and single people living alone get a slightly larger distribution than married couples living together, as they determine you can combine costs if you are two people in one residence. Imagine, common sense as an approach. Hmmm.
How is the programme funded? Firstly, there is a New Zealand Superannuation Fund which has a similar name, but is actually an investment fund that accumulates and invests Government contributions. Established in 2001,
the Fund was created to partially provide for the future cost of New Zealand Superannuation. Like many countries around the world, New Zealand has an ageing population, with the number of retired people expected to double by 2050. Accordingly, the cost of providing New Zealand Superannuation is also expected to double in this period.
The Government plans to allocate around $2 billion a year to the Fund over the next 20 years. The Fund's mandate is to invest the money in a way that maximises returns, without undue risk. As the cost of providing New Zealand Superannuation escalates, the Government will draw on the Fund to help smooth the impact on its finances.
The Fund began investing in September 2003 with $2.4 billion in cash. As at 31 May 2007 the Fund's assets totalled $13.3 billion. It is expected to grow to around $109 billion by 2025, making it one of the largest funds in Australasia. (www.nzsuperfund.co.nz)
Secondly, I am not really sure, but I think existing budgets fill in the payment gaps year to year.
To get your Super, you must be a citizen or resident and also have lived in New Zealand for a total of 10 years since you turned 20, and five of those years must be since you turned 50.
There are very few other retirement savings programmes, no IRAs, no 401ks, etc. You cannot go to an investment company or bank on your own and open a retirement account, something you can save toward for your retirement years. Sure, you can open a savings account and invest in the New Zealand stock market – and markets around the world for that matter – but it’s not put away for your retirement years, you can take it out at any time.
Some larger employers offer a savings pension, like my employer the Nelson City Council. NCC participates in a retirement plan called SuperTrust, an investment programme offering the option for employees to put away funds. But they don’t operate just like a 401k programme in the States. I participate in the SuperTrust retirement scheme and I will tell you about the similarities and several differences.
First, my contributions are matched by my employer up to 5%. The employer can opt in on this feature or not, my employer offers this generous match.
Second, both employee and employer contributions are taxed. My contribution is made after I pay employment taxes. Nelson City Council’s contribution is taxed at the corporate tax rate, 33%, or I can ask to have the employer’s contribution taxed at my tax rate, which could be as low as 19.5%. But what that means is that even though the employer matches at 5%, the real contribution is between 3.35% - 4%.
Third, the accumulated savings is not locked away until any retirement age. It is only locked away for as long as I am employed by the Nelson City Council. Upon leaving my employer, I am sent away with a lump sum distribution of both my contributions and my employer’s contributions (as long as I am vested, and I am!) and I can do whatever I want with it…including spend it! So, you might ask yourself, what is the point?? I agree, what is the point??
Finally, at least as my SuperTrust is concerned, my choice of savings programmes is very limited; I can choose only one fund to place my contributions. And even though I can choose only one fund, my choice is to be made out of a total of five funds anyway, so my investment options are pretty severely limited. The funds are very stereotypical too: cash fund, bond fund, growth fund, balanced fund, and crazy outrageous risky fund. Hmmm, not a lot of good options there.
Essentially the employer schemes are just a savings account and way to get the employer to contribute to that savings account. Since there is no tax benefit, that really is the only advantage to the program.
What can I say. No sooner do I publish a blog on the extraordinary rise of the New Zealand dollar than the entire world takes a financial dump and the dollar crash lands some 10c lower than it's high at the time. Today the dollar rebounded from it's prior day's close of US67c to end up around US70c. This down from its high in July of US81c. Hello!?! Thank you subprime real estate loans in the U.S. I guess those checks we send back to the States are going to cost us just a bit more now. Such is life. I just hope the US market slide finds its way toward correction soon!
Let's start with the basics that most of you already know: there is no central heating in New Zealand, houses are heated either by wood fire, coal fire, or pellet fire, electrical heating tools, or heat pumps. There are a few other miscellaneous ways, but that mostly does it. One of the funniest stories we have from moving here was learning we could get Olivia (our cat) her usual kitty litter: wood pellets. Here, they burn them for heat! Us, we use them as a toilet for our cat :) So about once a quarter we head to the home heating place and buy a bag of pellets. Not for our fire, for our cat.
One of the reasons we selected our current rental is because it didn't have a fireplace. We don't want to heat via fire. For older homes there are not many other options unless you redo the heating entirely. We use electric heating: plug in oil heaters in the main room and our bedroom (plus one for guest room), there are two blowers that we use for dedicated heating in two other rooms should we need them. And of course, the sun is our key heat source as our house faces north and west, so the sun passes over us all day long. Good in winter, hot in summer. But we are lucky to have the benefit of the sun to warm the house.
Anyway, most people still burn wood, some burn coal, and both practises have detrimental effects on the quality of New Zealand's air in winter months. I know we smelled the wood burning fires in Colorado during winter, but there ain't nothing like the smell we smell in winter here in Nelson some days. Just take a look at these photos!
Once a week my friend and I walk home from work, we both live in the same area. It's a great 1.5 hours of exercise, but the last 20 minutes of the route have been difficult for me to finish in these winter months because it's after 5pm, it's dark, and people have revved up their fireplaces. I can't breathe well, I walk through a cloud of smoke, and all you smell and breathe in is smoke. We are lucky to live on the hill because the smoke settles in the flatlands below us. When I walk up the final hills, I can start to breathe again!
Of course, working at Council, I have a few more pieces of scientific information to authenticate my anecdotal stories. More than 80 percent of the air pollution in Nelson (and I'm sure elsewhere in the country) is caused by wood and coal burning fires in houses, and mostly those from open fires (no door) or enclosed older woodburners. If people would change their heating habits, we'd all be healthier. They'd be a lot healthier I suspect.
Council is starting a programme this year that goes through the middle of the next decade to help people in certain areas of town (areas with the heaviest pollution) replace outdated burners and get more efficient, environmentally friendly burners or, better yet, heat pumps. The reason is that national environmental standards are regularly exceeded by yours truly: Nelson. There were over 50 occurrences during the 2006 winter where the standards were exceeded. Technically, winter has only 90 days, so that's more than half by my quick calculations. Nelson must progressively reduce this number every year and by 2013 we must not exceed the limit more than once per year. WOW, that's rough!
BUT ITS A PLAN! What I love about this country is that they actually make laws to help people ... I could just stop there with my amazement to be honest ... AND do something about those laws by IMPLEMENTING them!! I don't remember what that was like. And there's no disagreement about it, nobody vetos it, nobody says the "big man upstairs" owns the pollution and wants it there for the wealthiest individuals, or whatever.
That was a ramble of a blog, but I think you followed along. Hope you dig the pictures.
Per New Zealand Herald, Monday 20 August (cut for brevity):
Memory of strip club sketchy but I'm not heavy drinker - Rudd
Opposition Leader [Labor Party] Kevin Rudd says he is not a heavy drinker, as he continues to apologise for his boozy September 2003 visit to a New York strip club.
Mr Rudd yesterday admitted to visiting the Scores club with New York Post editor Col Allan and Labor MP Warren Snowdon during a taxpayer-funded visit to the United Nations.
"On this occasion I had too much drink," Mr Rudd told ABC radio today. "But I am not by habit or by reputation or by instinct a heavy drinker. "People who know me around Parliament House would affirm that."
Mr Allan said yesterday Mr Rudd had behaved like "a perfect gentleman" during the visit to the Manhattan strip club.
Mr Rudd said he took full responsibility for any fallout from the strip club incident. But it was up to voters to decide whether he should be punished. "Yes it happened, I'm responsible for it, I don't make any excuses (and I will) cop it on the chin," he said.
Mr Snowdon conceded he should not have visited the club. "It was an inappropriate thing to do and I shouldn't have been there in the first place," he said.
That is the background story, reported here pretty widely. Sounds familiar, right? Politician gets caught in some version of a sex scandal, gets questioned ad nauseum, apologises repeatedly, worries about election chances. Same old, same old.
One of the political reporters on TV3 here in New Zealand decided to start asking around yesterday and today of politicians if they've been to a strip club--well, asked the men anyway. Who woulda thunk this came out:
Per TV3 website, Monday 21 August:
John Key: ‘Strip clubs are overrated’
John Key, the leader of the National Party [opposition in New Zealand] is the latest politician to admit he has been to strip clubs. He says he did it "a couple of times" around 20 years ago. According to Key, it was all a bit underwhelming, who calls strip clubs "overrated."
Once again, the opposition leader has shocked my delicate sensibilities first off admitting this in public on camera, and second getting away with it as no one here thinks it's a big deal! I mean, a male politician admitted that in his 20s he went to a strip club, wow, shocking. I think he might be stoned for this admission in some other countries I formerly lived in. I bet the news would be splashed all over the cable news channels and on Sunday morning programs for weeks if John Kerry or John Edwards or the like made such an admission. Who can forget the reason for Bill Clinton's impeachment, after all.
The retirement savings game has changed a bit now with the introduction of KiwiSaver. A creation of the Labour government, KiwiSaver is a real retirement savings plan. Contributions stay put away until you turn 65 and there are only a handful of reasons you can get the funds out prior to that age. In addition, there are tax benefits – at least under the current Labour government. Who knows what will happen to the program if/when National takes over, although they have said they won’t do away with KiwiSaver, they may tweak it in good ways, or in bad.
Firstly, as I mentioned, KiwiSaver fund are put away until the age of 65. As in the states for some retirement plans, you can take the money out for the purchase of a first home (under conditions) as well as for dire hardship, after an application, and also if you permanently emigrate. But otherwise, once saved, don’t think about those dollars again! They are locked away.
Second, employers are required to match KiwiSaver dollars $1 for $1 up to $4. This is starting off in a phased-in manner over the next 4 years to give businesses a break; in year one, the required match is only $1, year 2 $2, year 3 $3, and finally by 2011—or year 4—the maximum match is reached at $4 and it will stay there.
Third, employees will automatically be enrolled each time they start a new job and, unlike in the States, they take their account with them wherever they go. Everyone (who wants one) has only one KiwiSaver account, and they opt in with their current employer whenever they switch jobs. All centralized via the government, each person registers their KiwiSaver account and chooses a financial provider, then gives that information to the employer upon commencement of employment.
Unlike the SuperTrust programme I told you about before, there are tax benefits to KiwiSaver. Contributions, however, are all put into KiwiSaver after income tax. But the current Labour government is giving tax breaks to Kiwis who have signed up for the programme in the form of an additional contribution into the account: the Government will match up to $20 per week from the time you become a member, to a maximum of $1040 (rounded) per year.
In addition, to kickstart the programme, everyone who signs up for KiwiSaver is going to get an initial $1,000 contribution from the Government to fund the account.
Now to some downsides. Investment earnings are taxed. The tax is deducted from your investment earnings and paid by the scheme provider. Depending on the chosen scheme, the tax will range from a flat rate of 33% (reducing to 30% from 1 April 2008) down to 19.5% if your income is taxed at that rate--but you have to request this! Withdrawals from the KiwiSaver account are tax-free.
When can you access the savings? You become eligible to withdraw your savings (including the government kick-start and member tax credits) as a lump sum when you qualify for the superannuation program, currently 65. That is because KiwiSaver is designed to complement the New Zealand Superannuation, to give people a better standard of living in retirement. Good thing: being a KiwiSaver member will not affect the eligibility for the superannuation. And, as I already mentioned, withdrawals from the KiwiSaver account are tax-free.
I’m thinking the whole taking-the-entire-savings-out-in-one-lump-sum idea is not really a good one. I bet that is going to get a “tweaking” by either National or Labour sometime down the road. What’s the point if people turn 65 and go out and buy a Ferrari?
There are a few other little issues that are annoying, like paying investment fees, limited fund selection in the same vein as my SuperTrust programme in a previous blog this month.
One really good feature, I think, is that parents can open a KiwiSaver account for their kids. Contributing the minimum amount and getting the government match, by the time a kid is 18, they could have a huge headstart on saving for later on, plus when they reach first-home-buying age, they can use some of their KiwiSaver funds for a down payment.
I am joining 20 other colleagues today at the marae (place of refuge for Māori) as well as some of Nelson's iwi for a formal visit, training on the Treaty of Waitangi, and introduction to Māori culture. It's a two-day experience and I'm going to take good notes so that I share with you all.
Keep in mind, photographs are permitted on the marae only outside the wharenui (meeting house). They are never allowed inside the wharenui (I'll explain why later). However, when one first arrives at the marae, you must allow the Tangata Whenua (hosts of that marae) to remove the tapu (sacred, sort of, in a way that means you cannot be touched) from the manuhiri (visitors) to allow them to become one with the hosts and enter the marae. As such, I'll be slightly engaged going through a ceremonial welcome, and then I enter the marae. Sorry, but I won't be able to document anything with photos.
After taking all of retirement and savings information into careful consideration, Don and I—with the advice of our financial planner—have opted to do things a bit differently. Immigrants will have to carefully consider their options as they pertain to KiwiSaver, in addition to making investments in the New Zealand securities or managed funds.
For immigrants, you have to consider that if you save into KiwiSaver, your money is tied up until you are 65, no matter where in the world you live. If you happen to move out of New Zealand, you’d have to permanently emigrate from the country to access your money, and there are minor penalties such as you won’t take the annual tax credit or it’s accumulated earnings.
You have to remember that you have limited investment options with both KiwiSaver and other retirement savings plans (like my SuperTrust) where you may only be able to place your entire savings amount into one managed fund—there’s not much diversity there. You’ll want to consider these programmes as one part of an overall savings plan, because some of those fund options can be really unattractive to more savvy investors.
You may want to keep in mind that KiwiSaver contributions are made after income tax (PAYE), so if there is a better savings plan that you can do on your own that doesn’t tie up the money for decades, you are working from the same playing field with all after-tax dollars. Right now, for example, our basic savings account pays 7.65% interest. We place those same after-tax dollars into our savings account just as we would KiwiSaver. Consider if the interest rate of 7.65% (variable, of course) is paying more than your chosen KiwiSaver fund. Additionally, if the savings rate is lower than the KiwiSaver fund rate, I also have the added flexibility of making a change with the savings account money, I can put it somewhere else. With KiwiSaver your fund programme options are very limited.
While I think both Don and I as savvy investors are very keen on the idea of the KiwiSaver programme for Kiwis, immigrants may want to pause and consider the idea a bit further. All in all, the bottom line is major kudos to Labour for finally recognizing the savings lag that exists in this country and doing something about it. [Although on a side note, the book I just finished said Americans have been the worst savers for the last decade, saving negative dollars.] On top of it, the KiwiSaver programme is really smart, pretty easy to follow, and provides good incentives for joining.
