So what do you need to think about when it comes to KiwiSaver?

Part of a financial adviser’s role is to help clients make “smart decisions” about their money, and joining KiwiSaver is often one of those smart decisions.

Our business partner, Bloomsbury Associates, are able to guide you through this, and have suggested some of the decisions that need to be made regarding the KiwiSaver process.

This article has been written in the first person by Bloomsbury Associates…

Smart decision 1 – join, and then maximise the benefits

I was explaining the benefits of joining KiwiSaver to a 61 year old. She doesn’t work, and was wondering why she should contribute anything to KiwiSaver.

I told her to imagine that there was a cash machine in her kitchen. The machine worked this way – if you put a dollar in it, it would give your dollar back, plus 50 cents extra. In fact, the machine would do this for the first $1,043 you put into it every year, clicking over at the end of June.

I asked her how often she would put a dollar into that machine. Of course, she said 1043 times.

She now contributes about $87 per month to her KiwiSaver, in order to get the full benefit of the government member tax credit each year.

If you are a member and don’t already contribute at least $87 a month to your KiwiSaver, you may like to consider increasing your contributions, either monthly or as a lump sum top up each year.

In the first year that you join KiwiSaver, you get even more than an extra 50 cents back for every dollar invested. The government’s $1,000 tax free kickstart payment makes sure of that.

Employees not only get those government contributions – an employer will also contribute an amount equal to 3% of your pay (less tax).

When you add up the kickstart, the member tax credit and your employer’s contributions, your KiwiSaver balance is already off to a great start by the end of your first year of membership.

Smart decision 2 – take some risk

One of the ‘drawbacks’ of KiwiSaver is that the money is tied up until age 65, or whatever the official retirement age is when you reach it. However, this drawback is also a benefit – for many of us, it means we’re not going to see that money for over a decade. This means we can potentially take some risk with it.

But many KiwiSaver investors aren’t taking risk. The largest pool of KiwiSaver money is in the conservative category. One reason for this is that all KiwiSaver default funds are conservative. If you have a longer time horizon, then you should strongly consider taking risks appropriate to that time horizon. Remember, your time horizon is not merely the time until age 65, unless you plan to spend the entire lump sum at that moment. For those using the funds to support their retirement, the time horizon extends to life expectancy.

Your adviser can help you determine the appropriate amount of risk to take for your circumstances.

So when looking to make the smart decision regarding your KiwiSaver, it is best to speak to the experts. Speak to Bloomsbury Associates today by ringing them on  04 499 6979 and asking to speak to either Philip Stevenson (Director) or Angie Georgiou (Consultant).

And, as always, for anything to do with your accounting / tax needs – give us a call (Laurenson Chartered Accountants) on 04 477 1801.

Brad Harpur – Business Manager