KiwiSaver - it's Your Choice

It’s all about KiwiSaver in the media at the moment, once you get away from the noise of Mercury Energy.   One of the secrets of abundant wealth is the power of controlled expenditure.   It’s not always about how much we earn, but how well we can live on the money we do earn.   Controlling your expenditure helps you live happily within your existing income.   For most of you, part of your income is yours.  Set it aside and invest it and this will begin to build wealth for your future.   This is the whole idea of KiwiSaver and all Kiwis under the age of 65 are eligible to join.  

Saving for one’s future is easy to say but hard to do for most people when you consider that according to banking information in New Zealand we spend $1.15 for every $1 we earn.   Let’s hope this attitude to spending changes somewhat with the introduction of KiwiSaver and that a real saving ethic develops.   Relying solely on New Zealand Superannuation in retirement, at 65% of the average national wage, is an inadequate standard of living for most people.  
 
Some people, already on a very tight budget, will not be able to afford KiwiSaver, but we would encourage almost everyone else to take advantage of this scheme.   Tell your employer that you want information to consider.   In four years your 4% contribution to KiwiSaver will be progressively matched by a compulsory 4% contribution by your employer.   Where else can you double your money from the start while also enjoying the benefit of compounding interest on the total investment over time?  Add to this the extra contributions made to your saving account by government, and the $40 per year fee subsidy.   The self-employed should start an account at $20 a week so they can get the government’s matching tax credit of $20 per week.    Once again where can you double your money so quickly, year in and year out?   After only five years your $20 a week will grow to $11,800 at an assumed rate of 5% after tax and inflation.   That’s not a bad return for an investment of $5,200.  
 
Which KiwiSaver scheme to join, is one that participants should be encouraged to make, rather than simply going into one of the low risk, low return default provider schemes.   Employers should encourage their employees to seek advice.   Here is some general advice.   Remember you don’t have to be an employee to join.   If you are young then you will have time on your side and a fund that is more aggressive towards local and global shares will give you a greater return in the long-term.  This is based on the higher historical return from shares over cash, fixed interest and property even though the fund you choose will have some of those other investments within its mix.   If you are older then a more balanced mix may be appropriate.   A good strategy is to reduce the aggressiveness of the investment mix as you get older to a more conservative mix.   There are schemes that will automatically make these adjustments for you, just as there are some where you can choose specific sectors to invest in.  This will be a useful feature to complement investments held outside of KiwiSaver.

One potential real danger of having your investments tied up until the age of 65, is how to fund an earlier retirement? The answer is simple.  Have some savings to cover this period held as more flexible investments.  Extra savings above 4% might be appropriate but maybe outside of KiwiSaver so you can gain access to the funds should you need them.   Paying off a mortgage may give you a better return for any extra savings above and beyond the 4% you put in KiwiSaver.  

There won’t be any shortage of information about KiwiSaver and you might like to check out www.kiwisaver.govt.nz.   Now is a good time to give it a lot of thought and to learn about how much to save and where to save – understand your choices or else someone else will make them for you.   The goal is to maximise the contributions made by others to your KiwiSaver account and to maximise the overall return of your investment for the level of risk you are willing to accept.   We believe in general that KiwiSaver is good for those who opt to participate and also economically good for the country – it’s your choice.