kiwisaver

KiwiSaver: Did you know you can contribute 10 per cent?

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By Simon O’Neill

 

Simon explores the impact of KiwiSaver over the past 12 years and how you can maximise its effectiveness for your financial goals.

 

Monday 2 July 2007 was a game changer.

 

This was the day that the New Zealand government introduced a savings/retirement scheme that would help secure our financial future: KiwiSaver.

 

Part of that financial future, as is the “Kiwi dream”, is owning your own home. One of the great things about KiwiSaver, is you can withdraw almost all of it and use it toward your first home. The fact that not only does your employer contribute a portion but also there’s “free money” every year from the government by way of the Member Tax Credits to further build this fund, is fantastic!

When you combine your KiwiSaver balance with your other savings, the Home Start Grant, and maybe a gift from the bank of Mum and Dad, your deposit can start to look pretty healthy. In many cases, without KiwiSaver (and Home Start Grant, where applicable) a lot of Kiwi’s would not even get a look in to the housing market.

 

After all that hard work, years of contributing and you finally get the house. Congratulations!

 

Yes, the savings are depleted, and it can be a bit disheartening to see all that money gone. It does take an emotional toll and I remember feeling (when we got our home and used up all our KiwiSaver balances) that those funds were setting me up for retirement and now we’re back to $1000. Eeek!

As you find your feet in your new home and you promise to half those takeaway coffees and go to the vege markets rain or shine every Sunday, it’s important to remember there is still plenty of time to rebuild that nest egg.

 

The next time you can withdraw from your KiwiSaver is at retirement (although there are some other qualifying circumstances). So, between now and then, I’m assuming you’re with me on this one, you’re wanting to ensure that that balance gets as big as possible.

 

In Australia, your employer contributes 9.5% on top of your annual salary to your super account and you can make voluntary contributions as well. In Canada, you can choose to contribute up to 18% of your pre-tax annual earned income, up to a maximum of about $25,000 per year. In the UK, you receive tax relief on contributions up to 100% of your earnings capped at a whopping £40,000 annually.


Here in God’s Own, you now have several options for contributing percentages: 3, 4, 6, 8 or 10%. Your employer will still do the 3% and if your contributions exceed $1042 per KiwiSaver calendar year you’ll continue to get the Member Tax Credits (free money) from the government.

 

So, now is the time to crank it up.


Did you even notice 3% coming out of your pay? What about if you made it 6% for a year? Or 10%?


Yes, the fund/s that you invest in have a part to play, but so does the contribution you make. You might raise an eyebrow or two when you punch the figures into a KiwiSaver calculator and see the differences in your “retirement” balance between contributing 3% and 8%. 


As an example, let’s say you’re a 40-year-old PAYE employee on $55k with a KiwiSaver balance of $1k and next time you’ll be taking the KiwiSaver out is at age 65. 3% from you (and 3% from your boss) in the ‘Growth’ fund is approx. $254k at retirement. Increasing your contribution to 8% is approx. $468k at retirement.

Key factors to maximising that balance are, the fund/s you’re investing in (get out of the default fund!), the contribution rate you have and the tax rate you have loaded against your KiwiSaver.

 

A recent Stuff article referenced a 2015 KiwiSaver warning about Kiwis on the wrong (KiwiSaver) tax rate. It really was spectacularly correct. Nearly half a million Kiwis have overpaid tax, in the millions. And no, IRD won’t refund.

 

Now is the time to re-look at the set-up of your KiwiSaver, check your tax rate, check the fund/s are appropriate for you, and ask yourself whether a change in contributions might be a wise step.

 

We can help guide you through each of these decisions. As always, we’d love to chat!

 

Simon O’Neill 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.

KiwiSaver … How Hard can it be?

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Here are the key intricacies to be aware of in order to optimise your KiwiSaver ready for a happy and long retirement.

Your KiwiSaver, if set up right, can be a game-changer when it comes to your retirement. But to make sure it’s as game-changing as possible, it’s important to ask the right questions of your scheme.

 

When I mention saving for the future, we might think saving up for a holiday or some renos … but I want to talk about saving that big future … 65.

 

What’s that nest egg going to look like when you’re 65? And will your KiwiSaver have done its job by then?

 

The big thing to keep in mind is that KiwiSaver is not a set and forget scheme. There are layers to this scheme that you need to stay aware of. These key layers include:

·      Tax & Contributions: Considerations around your tax rates and contribution amounts.

·      Changes: There are many ongoing tweaks being made to the scheme. For example, on 1 April this year there were changes to the contributions holiday and to the percentages you can contribute; from July, KiwiSaver being opened up to the over 65s; and there are more changes in the pipeline from April 2020.

·      Fund Type: There are funds that will generate a return starkly different than others (don’t just go with the default).

·      PAYE vs Self-Employed: There are considerations for self-employed Kiwis that differ slightly (with contributions) to those on PAYE.

·      Withdrawing Funds: There are several instances where you can dip into your KiwiSaver funds, including: boosting your first-home deposit, if you are permanently immigrating overseas, or as your retirement lump sum. Depending on when you will be (next) needing your funds, will determine a course of action with how your KiwiSaver funds are invested.

 

With many KiwiSaver balances getting to be substantial, talking with an adviser about how your KiwiSaver funds fit into your big picture will ensure you’re getting the best of your investment.

 

When it comes to top tips for your KiwiSaver success, your best plan is to talk with someone who does this for a living, who knows the ins and outs and can give you the information you need to make that informed decision.

 

Simon O'Neill 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.

 

KiwiSaver: Have the Conversation

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Is your KiwiSaver working as hard as it could for you? Is it time to tweak the dials to maximise your investment or make things more conservative?

 

KiwiSaver is a voluntary savings scheme set up by the government to help New Zealanders save for their retirement. You can choose to contribute 3, 4 or 8 per cent of your gross (before tax) wage or salary to your KiwiSaver account. Your employer must contribute as well—at least 3 per cent of your gross salary.

 

There are a few instances when you can use your KiwiSaver before retirement—these are known as “time horizons”.

 

It could be for:

·      your first home (where you can withdraw all but the $1000 kick start),

·      perhaps you’ll be emigrating (there are some timeframes around when you can take that money out),

·      severe hardship (let’s hope it doesn’t come to that), or

·      when you reach 65 years of age.

 

The key here is to ensure that your KiwiSaver is on track to maximise your return in the time between today and when you’re going to withdraw the money (time horizon).

 

There are several different funds you can invest your KiwiSaver in. These are generally classified as either conservative, balanced and growth or variations of these. You do need to have all of your sum in one classification. You can choose to split a percentage of “units” across a number of different funds (i.e. from a low-risk to a more aggressive fund). For example, you might put half of your savings in balanced and the half in growth. And it’s not a set-and-forget scenario—you can move these percentages around to suit your goals and life circumstances.

 

The investment statements must be provided to you prior to you signing up to KiwiSaver. You can of course do some of your own research. This could be looking at the Sorted website to compare some funds (see who has the best returns, lowest fees, and who invests in socially responsible sectors and so on).

 

The government’s KiwiSaver website provides forms and tools to get things set up, to keep track of your contributions or to help get your money out.

 

There are a number of different levels of advice that you can receive, from “information only” to “class advice” where the representative will outline what is suitable for people in your group or “class”. For example, “we recommend people aged 30 to 45 choose ABC fund” through to personalised advice where the investment structure is tailored to your personal situation.

 

The advice piece is crucial.

 

So many Kiwis are not close to their next time horizon where funds will be withdrawn, and they are sitting in a default fund—where their KiwiSaver is just ticking away and the potential for a larger KiwiSaver balance is not being realised.

 

When’s your next KiwiSaver time horizon? Is it time to have a chat about getting the most from your KiwiSaver?

 

Simon O’Neill 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.

KiwiSaver's "Free Money"

We are well and truly into the New Year, the financial year is drawing to a close, but did you know you could greet the New Year with some free money? Alex explains.

 

People are often surprised to hear that the government actually hands out free money to everyone who contributes to KiwiSaver. It comes in the form of Member Tax Credits.

 

So how much Member Tax Credits (a.k.a “free money”) can you get?

 

That all depends how much you put in to KiwiSaver. The government will pay 50 cents for every dollar a member contributes annually up to a maximum payment of $521.43. This means that you must contribute $1,042.86 annually to qualify for the maximum payment of $521.43.

 

For most people who haven’t opted out for KiwiSaver, this will happen automatically by contributing (a minimum) three per cent of their income on KiwiSaver. For most full-time workers this will take you over the $1042.86 threshold.

 

However, if you have not been contributing due to a KiwiSaver holiday or you are self-employed or you have been without a job, KiwiSaver’s Member Tax Credits could still work for you.

 

To explain, you may have heard this saying: "The best time to plant a tree was 20 years ago. The second best time is now!” As in previous mentioned situations, you are still eligible for KiwiSaver’s “free money” by manually adding some extra funds to your KiwiSaver. If you do this before the end of the KiwiSaver year (this year runs from 1 July to 30 June) you will receive this year’s Member Tax Credits.

 

If you don’t have a KiwiSaver or have some questions about it feel free to contact me for an obligation-free chat.

 

Fun Fact: Last year the government set aside a whopping $500 million of Member Tax Credits that were unclaimed by participants.

 

Also read this helpful Stuff.co.nz article:  http://www.stuff.co.nz/business/money/10506702/KiwiSavers-missing-400m

 

Alex Barendregt 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

Put Money on the Mortgage or into KiwiSaver?

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.

KiwiSaver Basics 101

The two questions asked time and time again by first home buyers are “How can I possibly afford my deposit?” and “Are my KiwiSaver funds REALLY accessible?” Jaimie sifts through all the confusion and media hype KiwiSaver for first-home buyers 101.

 

There is plenty of confusion out there surrounding how much you can borrow from your KiwiSaver. Add to this the way the media focuses on regional house-price caps such as $550,000 for Auckland (or $450,000 for Wellington) in a market where the median house price has just topped $940,000 and the possibility of using KiwiSaver funds immediately disappears in the minds of many potential new buyers.

 

With that in mind, it's probably a good time to clarify the difference between the two options available from KiwiSaver.

 

So the first option is the KiwiSaver First Home Withdrawal. For this there is no regional cap and no maximum on your income.

 

Any first home buyer who is a New Zealand resident and has contributed to their KiwiSaver for a minimum of three years can withdraw ALL of their KiwiSaver savings for the purchase of their first home (except for the initial $1000 kick start). OR if you haven't used your KiwiSaver withdrawal previously and are in a similar financial position as a first home buyer again, you may qualify for the Second Chance Home Withdrawal.

 

The second option is the KiwiSaver HomeStart Grant. This is where the cap and income limit comes in.

 

The HomeStart Grant is basically a FREE gift from the government and can be combined with your First Home Withdrawal. It works like this: If you're a single buyer with a total income under $80,000 or under $120,000 for two or more buyers and have a deposit of at least 10 per cent (including the grant) you may qualify for a one-off contribution of up to $20,000 per couple. The amount available is determined on how long you have made regular KiwiSaver contributions and whether you are purchasing an existing or newly built home.

 

So, with the potential to receive one or both of these funds, all of a sudden you’re a good step closer to that first home!

 

If you would like further information regarding KiwiSaver or sound mortgage advice on what options are available to you please don’t hesitate to contact us. 

 

Jaimie McDonald 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.