Question or Two?

The standard “it depends” is the most appropriate response to this question. Every person’s situation is different and YOUR NUMBER will be unique to you. Some of the factors to consider include:

• your needs – what are your regular spending needs/expectations in retirement?
• What type of lifestyle are you seeking?
• What big ticket spending do you need to consider – how often will you replace your car? Home maintenance, holidays and other significant costs need to the considered.
• How old you are and stage in life will also figure in determining what you can realistically expect to save.
• What are your other income sources? – in addition to National Superannuation you may have other sources of income which offset the income needs from your KiwiSaver and other investments.
• When are you planning to retire? Do you plan to continue working part-time?

These are just some of the factors to consider. Our lifetime cashflow planning service (free to our clients) can provide some useful insights.

Your early years of retirement (and the years leading up to retirement) are critical for avoiding major losses. Taking withdrawals when your account balance is down can cause you to run out of money sooner than anticipated. However, that doesn’t necessarily mean you need to avoid risk altogether.

You’ll hopefully live for many years during retirement. Over time, prices rise, and you may need your account balances to grow some to keep up with inflation and fund an income stream that lasts for the rest of your life. If you keep your money in low-interest safe instruments, you might not get enough growth.

Finding the right balance is difficult, and it’s easy to get drawn into too-good-to-be-true investments that appeal to your desire to preserve money. A diversified mix of low-cost funds or ETFs can help many people fund a comfortable retirement.

One method which is often prescribed for retirement savings is known as waterfall (or sometimes bucket) approach which entails splitting your investments into short, medium and long term buckets. A good explanation of this can be found here: https://www.morningstar.com/articles/840177/the-bucket-approach-to-retirement-allocation

Until you get to your mid-40’s the most important things you can do are save money and maximize your income. Also, living below your means is helpful—it helps you save money, and you’ll be able to live on a lower amount in retirement, which is more important than most people realize.

It’s important to be a smart investor as you accumulate assets, but investing isn’t necessarily the most important thing, and it’s easy to get lured into fancy investing strategies that hurt your chances of retirement. KiwiSaver is an excellent starting point and as your income grows, your should consider increasing your contribution rate.

Check out our Lifestage guides for more information about retirement planning through life.

There are five standard risk profiles that are typically used by KiwiSaver schemes as follows (these are listed in order of risk – lowest to highest):

• Defensive
• Conservative
• Balanced
• Growth
• Aggressive

Some schemes offer only a subset of these fund types (e.g Conservative/Balanced/Growth). Other schemes offer a broader set of investment options including single sector funds or socially responsible variants.

WHAT ARE THE KIWISAVER CONTRIBUTION RATES?

KiwiSaver is an important investment option for your retirement. Any balance you have in your account when you die will form part of your estate. It is therefore appropriate to consider your KiwiSaver when assessing your estate planning needs.

We would encourage you to discuss with your solicitor when preparing or updating your Will or considering a family trust.

KiwiSaver has been primarily set up for retirement savings which means the funds that you invest are effectively ‘locked’ until you reach 65. However, there are three specified exceptions to this;

1. First Home Deposit: You can make a withdrawal to help you buy your first home. See below.
2. Moving overseas: You can make a withdrawal if you are moving overseas to live permanantly. However there are limits on what you can withdraw – see below>
3. Financial Hardship. If you are experiencing severe financial hardship, you may be able to access your KiwiSaver.

To use your KiwiSaver to buy a house, you should contact your KiwiSaver provider to get a pre-approval as soon as possible. As part of this process, your KiwiSaver provider should be able to provide you with an estimate of how much you can withdraw. It is important to note that pre-approval does not speed up the official application process.
Once you have an unconditional agreement to buy your first home, you will need to:

• Fill in the application form provided by your specific KiwiSaver provider (this can be done with or without assistance from a lawyer)
• You will need to sign a statutory declaration, usually this is witnessed by your property lawyer
• Attach certified copies of supporting documents to the application

Your solicitor will have to provide a letter referring to the agreement for sale and purchase and the due dates of the deposit and settlement. They will also provide an undertaking as to whether the agreement is conditional or unconditional.

If all goes well, on the settlement date, your KiwiSaver provider will send your KiwiSaver money directly to your lawyer, who will forward it on to your bank to form part of your “deposit”.

IMPORTANT: It is important to start the process and get your lawyer involved early to mitigate the risk of your KiwiSaver funds not being available on day of settlement or finding out that you are not eligible. The excellent Smith and Partners article (link below) provides more details.

Source: Smith and Partners Lawyers

Government Subsidy

KiwiSavers between that age of 18 and 65 are eligible for a government contribution of $0.50 for every dollar you contribute each year. The maximum government contribution is $521 each year.

Lock-in

This may not seem to be a particular benefit on the face of it. However, it is the lock-in features of KiwiSaver that make it so effective as a retirement savings platform. This is important as, with very limited exceptions, the moneys you save in your KiwiSaver will grow over time and help you when you reach retirement.
The lock-in features also make KiwiSaver an excellent tool when looking to save a deposit for your first home. (see below)

Employer contributions

If you are an employee, you are entitled to a minimum 3%.

First Home Grant

If you are looking to buy your first home, you may be eligible for a government subsidy to help with your deposit (up to $20,000 for a couple looking to buy a new property). There are some specific criteria that you need to meet which you can find at this link: https://kaingaora.govt.nz/home-ownership/first-home-grant/check-you-are-eligible-for-first-home-grant/

First Home deposit

Your KiwiSaver scheme makes and excellent tool when saving for your first home – primarily because you won’t be able to access the funds for any other reason. (unless you retire, of course!!!)

1. First Home Deposit: You can make a withdrawal to help you buy your first home. See below.
2. Moving overseas: You can make a withdrawal if you are moving overseas to live permanantly. However there are limits on what you can withdraw – see below>
3. Financial Hardship. If you are experiencing severe financial hardship, you may be able to access your KiwiSaver.

Australia

If you move permanently to Australia, you can transfer your KiwiSaver funds to an Australian superannuation scheme. You do not have to transfer your KiwiSaver account to Australia though.
Contact your KiwiSaver provider if you decide to transfer your KiwiSaver funds. They can take you through the process.

Any other country

After you’ve been living overseas (not Australia) for 1 year, you can take most of the savings from your KiwiSaver account.
You can withdraw:

• your contributions
• your employer’s contribution
• the $1,000 kickstart (if you got it)
• fee subsidies (if you got these)
• interest you have earned.

You cannot take out the government contributions
or
You can apply to your Scheme Provider to have your KiwiSaver funds  transferred to an approved foreign superannuation scheme. The scheme  must comply with regulations under the KiwiSaver Act 2006 Section 228(e)

No. You can choose to leave some or all of your funds in your KiwiSaver scheme. A decision to withdraw will be dependent on how soon after you reach 65 you plan to use those funds.  If you are unsure – use our handy guide.

• cannot meet minimum living expenses
• cannot pay the mortgage on the home you live in, and your lender is seeking to enforce the mortgage.
• need to modify your home to meet your special needs or those of a dependent family member
• need to pay for medical treatment for yourself or a dependent family member
• have a serious illness
• need to pay funeral costs of a dependent family member.

You can join KiwiSaver as a self-employed person. However, unless you are paying yourself through the PAYE system, there are no provisions for automatic deductions like there are for employees. Instead you will need to make direct contributions to your scheme provider. We typically recommend that self employed people set up regular automated monthly, weekly or fortnightly contributions and take advantage of the benefits of KiwiSaver.

That depends on your situation. For most people the answer is yes – Kiwisaver is an excellent tool for retirement planning purposes for most people.  The only exception to this are where you have sufficient wealth to support all of your retirement income needs.

• First Home subsidy (subject to eligibility criteria)
• Government subsidy ($0.50 for every dollar you put in up to a maximum subsidy of $521 (your contribution must be at least $1,042)
• Access to all KiwiSaver funds (less $1,000) to buy your first home.

In addition, the nature of KiwiSaver also provides self-employed people with a robust retirement savings programme which provides diversification and a buffer in the event that your business doesn’t create the wealth you expected or planned for.

The minimum employer contribution is 3% of your gross pay but your employer can choose to contribute more – that is at the discretion of the employer.

Your employer contribution is calculated as 3% (or other % if your employer has agreed to contribute more) of your gross pay.  These contributions are subject to a tax (ESCT) which is deducted and paid to IRD – the balance is paid directly into your KiwiSaver account.  The amount of tax deducted from employer contributions will be determined by the highest tax rate you pay on your employment income.

Your contributions are based on your gross salary/wages – but they are deducted from your net pay. Contributions don’t affect your overall tax liability – you still pay the same amount of tax whether or not you contribute to KiwiSaver.