KiwiSaver

24
Jan
2018
How to rev up your KiwiSaver – Part 2

How to rev up your KiwiSaver – Part 2

“How you go about managing your KiwiSaver account today will determine how you go about managing your life in retirement.” 

As with most things in life, luck favors the prepared. It is inevitable you will get to a point in life when you want to kick back and relax and enjoy the fruits of many years of hard work. Sure, some of us may never be able to switch off completely from work but for the vast majority, retirement is a real future.

Assuming you do decide to hang up your hat at the current retirement age of 65, it is very likely we will have to fund our lifestyle over a 20 to 30 year period – the very years when we don’t earn an income from wages or salary. Instead, we will be dependent on the income we earn from all our other assets, as well as the little help we get from Government superannuation. Then there is your KiwiSaver balance – at least for those of us who are members.

In that light, how much your KiwiSaver balance grows to by the time you are eligible to access it becomes critical to the quality of life you spend in retirement. As explained in Part 1 of this series, your preparation now can make a massive difference in the future.

As much as making such long-term decisions is hard, there are a few things you can take into consideration to get you started.

The primary objective is to figure out the ‘type’ of KiwiSaver fund you should choose to contribute your savings into. That will largely depend on your investment timeframe – meaning how many years away you are from needing to access your money.

Typically, the theory goes along the lines of ‘when you are young you can be in a growth or aggressive type fund’. Meaning, if you are say a 30 year old today, you can afford to be in a higher risk fund (typically ‘growth’ and ‘aggressive’ type funds) – given that you have another 35 years to go before you are eligible to access your balance.

But, remember age is only one factor.

How about this – do you need to make an early withdrawal? As an exception to the rule you may withdraw your KiwiSaver balance earlier than the current age of 65 for the purchase of a first home. So if the same 30 year old is saving up to buy a first home in the next couple of years then their investment timeframe is as short as 2 years, not 35. As such, it may be wise for them to consider less risky funds.

What really matters is WHEN you will be withdrawing from your KiwiSaver account. Contrary to popular belief, how old you are, is NOT important to what type of fund you should choose.

The type of fund you choose needs to be appropriate for your time frame. Consider cash or capital stable funds for really short timeframes.  Move up to conservative, balanced or growth funds, the longer your timeframe.

One of the biggest risks you will face is inflation. So, the longer you have till you withdraw, the greater the need for you to be in a KiwiSaver fund that invests in growth assets, such as shares. Look up what assets your Fund invests in. Make a short list of eligible funds.

Don’t set and forget. If any change to your circumstances affects your timeframe, review your fund and switch to more appropriate ones.

It is VERY likely that a default fund may not be right for you. If you didn’t make a choice when you signed up to KiwiSaver, most likely you are in any one of nine ‘default’ funds, which are highly conservative and have a low earning potential over time. Find out how your fund is faring here.

Posted by pwadmin in KiwiSaver
07
Dec
2017
Mortgage requirements part 3: Leveraging Kiwisaver

Mortgage requirements part 3: Leveraging Kiwisaver

KiwiSaver is New Zealand’s savings initiative that combines your voluntary contributions with contributions from your employer and the government. It’s main purpose is to help you save for retirement, but in some cases it can also be used to help you fund the purchase of your first home.

Side note: If you’re not already a KiwiSaver member, we highly recommend joining ASAP – it takes the guesswork and discipline out of saving, and the money can rack up surprisingly quickly over the years.

How do KiwiSaver contributions work?

Kiwisaver contributions come from three sources:

  • You: A proportion of your pay (3%, 4% or 8% as chosen by you) is deducted from your earnings and invested for you into a KiwiSaver scheme.
  • Your employer: Contributes a minimum 3% of your gross salary.
  • The government: Contributes 50 cents for every dollar you contribute annually up to $521.43. To max this out, you must contribute at least $1,042.86 per year.

How can I use KiwiSaver to buy a house?

As noted, KiwiSaver is primarily centred around helping you save for retirement. However, you don’t necessarily have to wait until you’re grey and wrinkly to access your savings. If you meet certain requirements, you may be able to withdraw your KiwiSaver money to buy your first home.

You might be eligible if you:

  • Are buying your first home
  • Have been a KiwiSaver member for three or more years
  • Are going to live in the property

It’s important to note that you must leave at least $1,000 in your KiwiSaver account. Check the official site for more details.

KiwiSaver is an excellent tool for getting your foot in the door and, when combined with New Zealand mortgage rate calculators, can help you strengthen your financial position when purchasing your first home.

Posted by pwadmin in First Home Buyer, KiwiSaver, Mortgage
07
Dec
2017
Using your KiwiSaver membership to help buy your first home

Using your KiwiSaver membership to help buy your first home

If you are currently working (part-time or full-time), it’s likely that you are a member of the KiwiSaver scheme. This means that a portion of your income is automatically transferred to your KiwiSaver savings account, including contributions from your employer and the government. For most people, this money can only be withdrawn once they qualify for NZ Super (65 years) – but for first home buyers, there are several ways to use your KiwiSaver contributions to help with your purchase.

HomeStart grant

If you have been an active contributor to KiwiSaver for at least three years, you may be eligible for a HomeStart grant. Eligible members can get up to $5,000 for the purchase of an existing/older home (up to $10,000 for eligible couples), or $10,000 for the purchase or building of a brand new house (up to $20,000 for eligible couples).

Eligibility criteria (Find out full criteria on the HomeStart website):

  1. The grant is for your first home
  2. You have been an active KiwiSaver contributor for at least three years
  3. Your income is below the income caps:
    • $85,000 for individuals (increased from $80,000), or
    • $130,000 (increased from $120,000) for a couple
  4. House price falls below the price caps:
    • Auckland: $600,000 for existing house, $650,000 for new house.
    • Wellington, Christchurch, Hamilton, Tauranga, Queenstown and Nelson-Tasman: $500,000 for existing house, $550,000 for new house.
    • Rest of NZ: $400,000 for existing house, $450,000 for new house.

As long as you live in that house for a minimum of 6 months from settlement date, the grant does not need to paid back = FREE MONEY! Don’t let your contributions go to waste – If you are a first home buyer, have been a KiwiSaver contributor for at least three years, and need a little boost for your house deposit, enquire about the HomeStart grant from Housing New Zealand! Note that the application can take up to four weeks before the grant can be paid out to you, so apply early, or even get pre-approved.

KiwiSaver

First-home withdrawal

If you have been contributing to KiwiSaver for a few years (minimum three years), you may have built up a handy balance which can be withdrawn to help with your first home deposit.

“You may be able to withdraw some of your KiwiSaver savings (provided you leave a minimum balance of $1,000 in your account) to put towards purchasing your first home.”

This means, if you have a KiwiSaver balance of $10,000, you may be eligible to withdraw up to $9000 (leave a minimum $1000 balance in the account) to help with your home purchase.

With increased lending restrictions by the banks, it is getting harder for first home buyers to fork up the cash to meet the required deposits. If you have been an active KiwiSaver contributor, contact Housing New Zealand or KiwiSaver to find out more about the HomeStart grant or KiwiSaver withdrawals. If you’d like to learn more about this, as well as get the best mortgage deal for your first home purchase, submit a loan enquiry with a PocketWise partnered broker – absolutely free.

Posted by pwadmin in First Home Buyer, KiwiSaver, Mortgage
09
Oct
2017

How well is your KiwiSaver fund performing?

To most of us, assessing our KiwiSaver fund’s performance is a bit like negotiating with Winston Peters – it’s never as simple as it seems.
Assessing the performance of your KiwiSaver fund isn’t as simple as looking at the increasing balance. In fact, you could very well see your account balance trending up from month to month, even when your fund may be losing money, or not earning as much as similar other funds. Let’s take a look at the factors that influence your KiwiSaver balance, and how you can assess how well it’s performing.

Why is this important?
In the past five years, across all KiwiSaver funds (over 200 on offer), their performance returns have ranged anywhere from 2.5% p.a. to 17.4% p.a. – a pretty substantial difference. Consider someone on a salary of $60,000 and contributing 3% to their account for the last five years;
In the lower performing fund above, as of now they would have a balance of around $19,200. In the higher performing fund above, they would have a balance today of around $29,700.  That’s a $10,500 difference in just 5 years!
Somewhere in there, is your fund.

Deciphering your KiwiSaver account balance
Your KiwiSaver account balance tells you how much your account is approximately worth. It’ll be approximate only because your most recent contribution or your rebate may not have been accounted for yet.
The balance in your KiwiSaver account, is made up of a number of items, including:

1. Contribution amounts you have made from your salary, plus
2. Contribution amounts your employer has made on your behalf, plus
3. Annual rebates you have received from the Government, minus
4. Taxes paid, minus
5. Fees, minus
6. Other expenses, and
7. Accumulated profits and/or losses your fund has made

As you can see, items (1) to (3) will always be positive, meaning it will add to your account balance.

Items (4) to (6) will always be negative, meaning it always reduce your account balance.

But, the final item (7) is dependent on how your fund manager performs, and could be positive or negative. This could either add value to your account, or reduce the value of your account balance.

What this means is that even though you may see your account balance rising over a period of time it could be possible that any losses suffered by your fund are being hidden by the positive flows from items (1)-(3). Like when you keep buying bread, but your roommate secretly steals a couple of slices from each loaf – you don’t notice there’s a problem, but there is.

Keeping track of your KiwiSaver fund’s return
Since the inception of KiwiSaver in 2007, scheme providers have been continuously improving how they communicate with their members. While some have been driven by legislation, others have been by their own initiative.

On PocketWise, we keep track of how your fund has been performing from quarter to quarter, as well as compare it for you against other similar funds. Why not take a couple of minutes to to find the best KiwiSaver fund that suits you. You can also compare your existing fund to find out exactly how well (or not well!) it’s been performing.

Happy saving,

The PocketWise Team

Posted by pwadmin in KiwiSaver