Tag Archives | retirement savings

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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Get to Know Your Investments

Get to Know Your Investments

It is not uncommon for investors, particularly those in superannuation or retirement savings schemes, to be unfamiliar with how their money is being invested. All too often, there is disillusionment when the investment does not perform in line with the investor’s expectations. In most cases, this is not because the investment has been a poor performer, but because the investor either had unrealistic expectations of the investment or did not understand the nature of it. An investment portfolio or retirement savings scheme needs to be treated like a member of the family. It needs to be understood, nurtured and brought back to health when it isn’t doing very well. Having a stranger in your house brings about a degree of tension and discomfort, whereas with someone you know well, you know what to expect and what actions to take. Get to know your investments so you feel comfortable with them. This means giving them attention rather than putting them into the bottom drawer. Read the investment statement and the performance reports you receive. If you don’t understand them, ask questions and spend time on them so you do. If you are invested in managed funds, make sure you understand what kind of assets the funds invest in. Stay in tune with what is happening in each of the main investment sectors (fixed interest, property and shares) and the global economy. This doesn’t mean you need a degree in financial analysis or economics; it just means you need to take an interest in financial matters in the news and to have discussions with other people who are experts, such as your financial adviser, or friends with particular expertise. Each week, take time to learn something new about investing, perhaps by reading a book or going to an investing website or blog.

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Spending your Nest Egg

Spending your Nest Egg

There comes a time in life when you have to flick the spend/save switch from saving to spending. If you have been careful with your money during your working life, it can be hard to spend and watch your savings dwindle. Spend too much and you might run out of money; spend too little and it will be your children who get the benefit of your life savings.

There are three phases to retirement which each have different spending requirements:

  • The Live It Up phase where you travel, enjoy sports and participate in community activities
  • The Fix It Up phase during which the house needs renovating inside and out, you need a new car, and various body parts need replacing (hips, knees and hearing aids)
  • The Wind It Down phase where issues such as home help or moving to a rest home become important

Making the right decisions about how much to spend and when can be difficult. The three major risks to be considered are:

  • Timing. It is hard to judge when each of the three retirement phases will start and end. Spending too much in the Live It Up phase may leave you short by the time you get to the Wind It Down phase.
  • Longevity. With improved health care, people are living much longer in retirement and there is an increased risk of running out of money before you run out of time.
  • Inflation. The longer you live, the greater will be the impact of inflation on your savings. With 3% inflation, the purchasing power of your money will be almost halved after twenty years.

The best approach is to plan ahead as far as you can and steer the middle course of living in comfort rather than poverty or luxury.

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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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Spring Clean Your Investments

Retirement Savings

Spring is in the air and it is a good time to take a fresh look at your retirement savings plans. There have been many changes in retirement savings in recent times that mean you should review any schemes you signed up for prior to the introduction of KiwiSaver in October, 2007. At that time, a new type of savings and investment product was introduced, called a Portfolio Investment Entity (or PIE). There are significant tax benefits to be gained from switching from an old-style product to a PIE.

Before you pull out of an old-style product, you need to check a couple of things. Check whether there are any penalties for early withdrawal and whether there is any insurance cover attached to your savings plan. You will need to make sure you can replace this cover, if still needed, before you stop your policy. There may also be additional bonuses you might be eligible for by staying with your old plan. With most of these old products, even if your funds are locked in until you reach a certain age, you will have an option of suspending your contributions indefinitely, so that you can keep them going to maintain your insurance cover, get your bonuses or avoid paying huge withdrawal penalties, while putting your new savings into a more modern product.

Your first choice for a new retirement savings product should be KiwiSaver, but only put in the minimum contribution to get the maximum matched tax credit ($1,040 per year) as your funds will be locked in until you reach retirement age. Your next choice is a diversified Portfolio Investment Entity. Over a long period of time, the difference between a good retirement savings plan and a bad one can make a huge difference to your retirement nest egg.

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When Retirees Run out of Money

Retirement Blues

One of the biggest financial risks faced by retirees is that they will run out of money before they run out of time.  A pension is only enough for daily living costs and those who have just a small sum saved can run out of money once they have had to replace a car and pay for home maintenance. There are a number of options for retirees who need to supplement their retirement funds.

 First of all, check to ensure all available Government benefits are being received such as accommodation supplements and disability allowances. Check with the local council on eligibility for a rates rebate.

 If a large sum of money is needed, the cheapest option to consider is to borrow from family members. This should be done with the assistance of a solicitor to prevent any problems with gift duty or issues that might arise on death. Unfortunately, children don’t often have money to lend. Borrowing from a bank is a possibility and can usually be done by way of an interest-only loan. While this will help keep repayments small, they still need to made and this can be stressful.

 Selling the family home and buying a cheaper house is another way of getting access to funds. This can be an expensive option once all the costs associated with selling, buying and moving are taken into consideration.

 Home equity release schemes are proving to be very popular as a last resort option. If you need funds for home improvements, such as a new roof or painting, then taking out a loan will enable you to preserve the value of your house. Choosing a home equity release scheme is something that needs to be done with caution and is best done with independent financial and legal advice.

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