Tag Archives | KiwiSaver

KiwiSaver for Retirees

Retired CoupleKiwiSaver for Retirees

A recent survey conducted by the Financial Markets Authority and the Commission for Financial Capability found that around a quarter of people are not sure how to manage the money in their KiwiSaver funds after the age of 65. There are variations between different scheme providers and once you turn 65, providing you have been in KiwiSaver for five years, you should ensure you understand what your options are. As well as withdrawing your funds in full or leaving your funds invested, you may be able to set up a regular withdrawal, arrange a partial withdrawal, or add more money. There are a number of considerations when deciding what to do. If you are still working after the age of 65, you will not receive the annual tax credit and your employer does not have to contribute 3% of your pay. However, many employers offer to keep contributing and you should retain your KiwiSaver fund while contributions continue.

After that point, the decision as to whether to leave your funds in KiwiSaver will partly depend on what other retirement savings you have accumulated. You should plan to still have funds invested at the end of life, and this could be for a period of thirty years. Your KiwiSaver fund can be a convenient way to invest part of your savings for the longer term. You might even want to consider adding some of your other funds into KiwiSaver to take advantage of the low fee structure. It is important to check the investment profile of your fund to ensure it is appropriate for the investment term and your risk profile. Investing in a fund that has exposure to growth assets (property and shares) will help keep you ahead of the effects of inflation and tax over the long term.

 

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Transferring Your Australian Superannuation

AustralianCoinTransferring Your Australian Superannuation

While it is now possible to transfer funds from your Australian superannuation scheme to KiwiSaver, this is not something that should be done without consideration of a number of important factors. There are many good reasons to bring your superannuation home. Having investments in more than one country can make life more complicated than necessary, and if your Australian superannuation is a relatively small amount, you may choose to transfer it just for simplicity. Access to informed, personalised financial advice on your investments is another good reason to transfer. Bringing your funds back reduces your exposure to exchange rate fluctuations, however the transfer value will be impacted by the exchange rate at the time of transfer.

There may also be good reasons why you might choose to leave your superannuation in Australia. Have a look at the benefits you are entitled to from your Australian scheme. At what age are you able to withdraw the funds? Are there additional benefits such as life insurance or income protection insurance included with your investment? Is there a guaranteed value at retirement age? What is the fee structure? Will there be a fee charged if you transfer? There are also tax considerations. In Australia, the earnings on superannuation schemes are taxed at a flat rate of 15% however there is a capital gains tax. For KiwiSaver, the earnings on your investment will be taxed at your marginal tax rate up to a maximum of 28% but there are benefits in how capital gains are taxed.

Having decided you wish to transfer your funds, check with your KiwiSaver provider that they are able to accept your funds and establish if there is any fee involved. You can change your KiwiSaver provider if necessary. Transfers are best done with the assistance of a financial adviser.

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When to Start Investing

InvestmentWhen to Start Investing

Starting an investment portfolio is usually somewhere near the bottom of a priority list for young people entering paid employment, who at that stage of life just want to have a good time. Of course, many employees are now members of KiwiSaver, which makes them investors, at least to the extent of 3% of their pay. For those who want to enjoy an above average lifestyle during their working lives and retirement, KiwiSaver is essential but will not be enough. However, while it is good to invest sooner rather than later to take advantage of the benefits of compound returns, investment beyond KiwiSaver is something that should take a back seat until you have a solid financial foundation to build on.

Once you have surplus funds, getting rid of short term debt is the top priority. There is unlikely to be an investment that will provide a guaranteed rate of return higher than the interest you pay on short term debt. The next priority is to have funds in reserve for when life doesn’t go according to plan, either in a savings account, or through a relatively low interest line of credit.  Buying a home to either live in or rent to someone else will help add to your financial foundation. Whether you start investing while you still have a mortgage will depend on a number of factors. Strictly speaking, it is best to put every spare dollar towards your mortgage and begin investing once it is paid off. However, not everyone has the discipline required for this approach. Getting into the habit of investing earlier in life is a good idea. Borrowing money to invest in property or a business can produce better returns than paying off the mortgage on your home providing your financial foundation is solid.

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Bring Your Aussie Super Home

KangarooBring Your Aussie Super Home

Spending time in Australia on a working holiday has been part of the Kiwi way of life for many years. The trouble is that since 1992, when it became compulsory in Australia to contribute to a superannuation scheme, locked-in funds have had to be left behind when it’s time to come home. From 1 July, 2013 however, it will be possible to transfer money between Australian complying superannuation schemes and KiwiSaver. Transfers in both directions will be allowed, with a few conditions.

It will be voluntary for scheme providers to accept transfers, so check with your KiwiSaver provider if you want to bring funds back. Until now, Kiwis moving to Australia permanently have been able to cash up their KiwiSaver, however funds will now need to be transferred. Funds transferred into KiwiSaver from an Australian scheme will still be subject to slightly different rules than other KiwiSaver funds. Transferred funds will be locked in until retirement at a minimum age of 60. Australian funds transferred won’t be available for a first home withdrawal, and will not count towards contributions required for the Government tax credit. If you permanently emigrate to a third country, transferred Australian funds will not be able to be taken to that country. Despite these slightly different rules, transferring funds from Australia has advantages. You may have several Australian Superannuation accounts and it may be possible to consolidate them all into one KiwiSaver scheme making it easier to keep track of your savings and plan for the future. You may also be able to save on administration fees by consolidating funds. Converting your savings to New Zealand dollars means you won’t be affected by changes in the exchange rate over time.

Contact your financial adviser to find out more about how to bring your Australian superannuation funds home.

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Retiring on KiwiSaver

Retiring on KiwiSaver

A KiwiSaver milestone will be reached in July this year, five years after KiwiSaver was first introduced. When a KiwiSaver member reaches the official age of retirement (currently 65) and has been in the fund for a minimum of five years they can choose to withdraw their funds or leave them invested in KiwiSaver.  

When you have access to your KiwiSaver funds, your provider or adviser should let you know what your options are. These should include:

  • Leaving your funds invested until you need them
  • Continuing to make contributions to your fund
  • Making a full withdrawal
  • Setting up a regular withdrawal from your fund
  • Making lump sum withdrawals from time to time as your need funds

If funds are left in KiwiSaver, you will no longer receive a Government tax credit and your employer will not be obliged to make a contribution. KiwiSaver providers offer a range of different funds, including conservative, balanced and aggressive funds. Conservative funds are more heavily invested in fixed interest and aggressive funds are more heavily invested in shares while balanced funds are somewhere in between. Your investment can be switched at no cost from one type of fund to another.  You should ensure that your chosen fund is appropriate for your financial situation.

Your decision about what to do with your funds will depend on a number of different factors, including:

  • Whether you need income from your investments
  • The amount and nature of other investments you have.
  • Your attitude towards risk and return
  • Your time frame for investing

It will be interesting indeed to see how eligible members respond in July to suddenly having access to their funds, which in some cases could be substantial. The more sensible will obtain professional advice before making decisions.

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Is Your Boss Short Changing You?

Is Your Boss Short Changing You?

Financial literacy is still a major issue in this country, particularly with regard to retirement savings. A recent online survey by ASB showed a huge gap for most people between the retirement income they want and what they will actually achieve at their current rate of saving. It seems most people have little understanding of how much money they need to save for retirement. Employers are in a good position to help educate their employees about retirement saving and ensure they are receiving the best possible advice on KiwiSaver contributions. Under current legislation, personalised advice on retirement savings should be given by an authorised financial adviser, however employers can provide employees with generic information on retirement savings and make arrangements for employees to receive personalised advice from an adviser at either the employer’s or employee’s cost. The financial literacy problem is not just about saving for retirement, however, it is also about how to save for more immediate goals such as buying a house, paying off a mortgage or taking an overseas trip. Most employees would benefit from education in simple budgeting techniques.

There are good reasons why employers should have a role in improving the financial literacy of their employees. It could be argued that employers have a moral obligation to ensure their employees are able to make informed decisions about whether they join KiwiSaver, the level of their contributions and their choice of fund. Otherwise, employees may be short-changed by missing out on employer contributions and Government tax credits. An equally compelling argument is that people who feel they are in control of their money are happier than those who feel as though they are living from payday to payday and not achieving their goals. Happy, contented people are easier to manage and more productive in the workplace.

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Top Up Your Retirement Savings

Top Up Your Retirement Savings

Now is a good time to be thinking about whether you are putting enough aside for your retirement. A review of your long term plans should be done on an annual basis and June is a good month for two reasons; firstly because it is too wet and cold outside to be doing anything more interesting and secondly because you should make sure you have put enough into your KiwiSaver fund to get the maximum Government tax credit. If you are self employed, working part time, or a low income earner, you might find your contributions for the year are less than $1,040. This means you will not receive the maximum tax credit of $1,040 as it is a matched credit. You can check what your contributions have been with your KiwiSaver provider and if there is a shortfall it is simply a matter of making a lump sum deposit into your fund. Your KiwiSaver provider will tell you how best to do this and it needs to be done well before 30 June to allow time for processing. If you have joined KiwiSaver part way through the year or turned 18 during the year, you are only eligible for part of the tax credit.

Retirement savings are not just about KiwiSaver, however. Depending on your goals, you may need to supplement your savings with other investments. There is a great retirement calculator at www.sorted.org.nz which will give you guidance on how much you should be saving. You will need to think about the age at which you would like to have the choice of not working, and how much income you will need over and above NZ Superannuation to pay for extras such as home maintenance, replacing your car, travel and other things you may wish to do in retirement.

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Advice for KiwiSavers

Advice for KiwiSavers

KiwiSaver skeptics will no doubt be saying ‘I told you so’ after the recent changes announced in the budget. A minority of the population have refused to join KiwiSaver on the grounds that the Government will keep changing the rules or mismanage their money. Yes, the rules have changed, but joining KiwiSaver is still a great idea and the skeptics are missing out on an opportunity to increase their wealth.

 Under the current rules, KiwiSavers are required to contribute a minimum of 2% of their gross pay and this is matched by an employer contribution of 2% from which no tax is deducted. There is a $1,000 ‘kickstart’ payment from the Government as well as a matched tax credit of up to $1,040 per annum, paid each July. The new rules leave the $1,000 kickstart unchanged. From 1 April next year, the employer contribution will have tax deducted, so less will be paid into your KiwiSaver fund. From 1 July this year, the Government tax credit will be cut in half to around $520 per annum (paid in July 2012) and from 1 April, 2013 the minimum employee and employer contributions will be 3% of gross pay. Whereas previously the average wage earner’s contribution was tripled with the employer and Government contributions, now it will be roughly doubled, but that is still a good deal! If you haven’t joined already, joining sooner rather than later will let you take advantage of the old rules before they change. Self employed KiwiSavers Self employed KiwiSavers will still have to contribute $1,040 per annum to get the maximum tax credit of $520 as the credit will be paid at the rate of 50c per $1 contributed. Existing KiwiSaver members should ensure that their chosen fund is appropriate for their needs by obtaining advice from an Authorised Financial Adviser.

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Save the Nation

Save the Nation

New Zealand is on the brink of a financial crisis unless national savings increases, according to the final report of the Savings Working Group (SWG). Government, households and businesses are all guilty of overspending and borrowing too much money, leaving our economy in a vulnerable state. The SWG has recommended policies to increase the quality, quantity and rewards of saving. These include reducing serious tax distortions, and improving the disclosure for financial products, especially for fees and performance as well as improving their efficiency and returns.

In the area of retirement saving, the SWG has recommended that all employees over the age of 18 be automatically enrolled in KiwiSaver with the ability to opt out. At present, automatic enrolment applies only for new employees. Also recommended is that the enrolment age be lowered to 16 and that the default employee contribution be set at 4% with the option to drop it to 2%. Of course, one of the most obvious solutions to our savings problem is to increase the retirement age. Despite this being a good economic solution it is still politically unacceptable, at least until after the next election.

The proposal for the Government to help make annuities available to retirees is an excellent one. Many retirees prefer to have a regular monthly payment to supplement income rather than a lump sum to invest. It has been suggested that payouts from KiwiSaver could be part lump sum and part annuity.

While much progress has been made to introduce financial literacy into the school curriculum, the SWG has gone one step further and suggested that financial education be compulsory in schools. This is to be applauded. Increasing the level of knowledge of financial matters is critical for changing attitudes towards saving and thereby securing the financial future of our nation.

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Buying your First Home

Tips for Home Buyers

For first home buyers the next few months are shaping up to a good time to buy and  there are three reasons for this. Firstly, we are seeing a decline in property prices as winter sets in. Some property investors have reacted to the last budget by choosing to sell and this has had an impact at the lower end of the market. Mortgage interest rates are expected to increase over the next few months and this will help keep property prices in check.

The second piece of good news for first home buyers is that from 1 July, 2010 you can you use some of your KiwiSaver funds for your house purchase providing you meet certain criteria. You must have been a member of KiwiSaver for at least three years and the house you buy must be one that you plan to live in yourself for at least six months. You will be able to withdraw the contributions you have made to KiwiSaver plus your employer contributions and investment returns. As well, you may be eligible for a subsidy of $1,000 for every year you have been a member of KiwiSaver up to a maximum of $5,000. To be eligible, your income and the value of the house you are buying must be within certain limits.

Thirdly, you may also be eligible for a low deposit loan through Housing New Zealand’s Welcome Home Loan scheme. With this scheme, you can borrow up to $200,000 without a deposit and up to $280,000 ($350,000 in some areas) with a 15% deposit on the amount above $200,000. That means you can buy a $280,000 house with a deposit of $7,500 and your KiwiSaver money (contributions plus subsidy) will count towards your deposit.

Now is definitely a good time for first home buyers.

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