It’s a common question that we get asked. You’ve got a mortgage and you want to pay it down, but you’d also like to save for the future through KiwiSaver. O, what to do? Rupert provides some insight.
Note that the following is very much generic advice. For more personalised advice you would need to see a wealth adviser.
In general, there are two groups of people that we can divide our answer into: self-employed and employed.
For the self-employed, the answer is fairly simple. There are currently no real benefits for putting your money into KiwiSaver except the ~$521 per year Tax Refund that you receive from the government (50c from the government for every $1 you put in up to a maximum from you of $1042 per year).
So, in my opinion, every self-employed person who can afford it should have an automatic payment of $20 per week (or $40 per fortnight etc.) that is put into your KiwiSaver. Why? Because that $1042 would earn you ~$44 per year in interest and you receive a further $521 from the government. That’s a return of more than 50 per cent each year. It’s a no-brainer.
For employed people, you need to know the maximum percentage your employer is willing to match on your KiwiSaver deposits. For most employers, if you put in 3 per cent, they will put in 3 per cent (you lose tax on this, but it’s still a good deal). The best I’ve ever seen is if you put 9 per cent in, the employer will put in 13.5 per cent (so after tax, you get 9 per cent from them too). You would be absolutely mad to not put in that 9 per cent into your KiwiSaver. You are literally doubling your money.
Once you’ve sorted out the decision above, the question of how much money to put into KiwiSaver gets significantly more difficult. It involves weighing up post-tax profit in KiwiSaver versus non-taxable and taxable interest in your mortgage. It’s hard. Certainly too hard to summarise in a blog.
But you can get those low-hanging fruit. Firstly, get joined up to KiwiSaver. If you’re self-employed and can afford it, get that automatic payment set up. If you are employed, find out how much your employer will match if you put money in and, again, if you can afford it, begin putting that money into your account.
Rupert Gough is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.