But before we get into a lot of statistics and why’s and why nots, let’s look at what Kiwi Saver is.
Most Kiwis are earning a lot more than this, so retirement without savings can be pretty miserable.
And it will be even worse if you don’t own your home debt free.
A couple may have ordinary jobs but will still be earning $60,000 pa. or more between them.
If they have no savings their income on retirement drops to $28,000 – more than a 50% drop – ouch !!
Sometimes known as the retirement cliff face.
Hence Kiwi Saver or any retirement savings scheme is a good thing.
It’s even better if the government will put money in.
It’s even better again if your employer puts some money in.
However you don’t have to have a job or be working to get the government benefit e.g. self employed, at home mothers, and many others.
As long as you are under 65 and put in $20 per week, the government will put in $10 per week.
That’s a 50% return before any investment earnings.
But still 1,000,000 Kiwis are missing out
Now of course some people cannot afford to, but far too many are just not aware of how it works.
A person age 50 joins up and puts in $20 pw.
At 65 it will have grown to about $39,000.
A mother at home age 35 puts in $20 per week.
By age 65 it will grow to about $131,000.
Now these are not huge amounts and probably not enough for most of use to have a great retirement.
But to retire with $39,000 or $131,000 is a whole lot better than nothing.
$100,000 would allow a retired person another $100 pw income to age 84 to 85 (increasing by 3% pa for inflation and earning 5% after tax).
Or a trip to Australian to visit children annually.
Or upgrade the car sometimes as few cars will last us 25 years in retirement.
And so on.
By the numbers
2.15 million members.
Over 1,000,000 missing out.
A lot of people don’t look into the investment options that are available, and a huge number are in the default cash scheme.
Over time cash will earn about 3% to 4% pa. after tax.
A balanced fund (5 years for best results) should average 5% to 7% pa. after tax.
A growth fund (7 to 10 years for best results) and should average 7% to 9% after tax.
So $20 pw from you and $10 from the government ;
Over 20 years in the cash fund at 3% return grows to $43,000 .
Over 20 years a balanced fund averaging 6% grows to $61,000.
An extra $18,000 !
All you have to do to get it is check your scheme, and change it with a signature or two.
Issues & Notes
Join via your employer.
If self employed, or not employed, contribute $20 pw.
Ensure you are not in the cash scheme unless you are very close to retirement.
If you have a very large mortgage, get advice – it might be better to reduce your risk by reducing your mortgage down to a lower loan-to-value ratio before joining Kiwi Saver.
Since Kiwi Saver is locked in to age 65, save any extra amounts outside Kiwi Saver to retain access to funds e.g. emergency, help family, retire earlier .
Supplied by Alan Clarke, financial & retirement adviser, & author. His second book is virtually complete, & he also writes regular articles for the media & on line – see www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532 & his disclosure statement is available on request and free of charge.