Still worth joining up at 64
With 10 years to work it’s still worth joining says
Investors joining at your age are unable to access their savings for five years. However, as part of the review of the Taxation Bill, the Government plans to scrap this restriction.
Iam just joining KiwiSaver at the ripe old age of 64. Firstly, is there any point at my age? I will probably be working for another 10 years. Secondly what type of fund should I choose to maximise its existence. Have you any thoughts as to some funds to check out?
The fact you plan to work for the next 10 years is a very good reason to join KiwiSaver — even at age 64!
Your employer will be obliged to pay you 3 per cent for five years (some continue beyond this point) and you will also be eligible for Member Tax Credits of up to $521 per year under current rules for the next five years.
Investors joining at your age are unable to access their savings for five years, however, as part of the review of the Taxation Bill, the Government plans to scrap this restriction.
If approved, from July 1, 2019, all members will be able to access their KiwiSaver at age 65 (the age of eligibility for NZ Super).
How much can you save over the next five years? Let’s say you are earning $50,000 per year. At a contribution rate of 3 per cent, plus employer’s 3 per cent (less tax), plus Government top up, around $3220 will be going into your KiwiSaver each year.
If your KiwiSaver achieves a net return of 5 per cent per annum you could have a balance of $17,800 after five years.
If both your employer contribution and Member Tax Credits cease at that point but you continue your contributions, you could have $31,000 in 10 years’ time! I am sure you will appreciate that sum of money at age 74.
Because you are starting from scratch it makes sense to choose a balanced or even a growth fund — this may have 80 per cent in shares.
Usually older investors are warned off higher risk investments because of their shorter timeframe. However, you have 10 years ahead of you and will be saving smaller amounts on a regular basis.
A sharemarket drop will not hurt as much while your balance is small, and any volatility will pay off with Dollar Cost Averaging. This is the benefit experienced by savers into volatile funds — when the unit price drops their regular savings buys more units.
Usually when the sharemarket falls investors panic and either stop investing or (worse) sell their shares at a loss. KiwiSaver investors, however, don’t have any control over the investment process — their employers send their contributions to IRD with PAYE and IRD sends it on to the fund managers to invest.
If they are contributing by direct debit, it goes through on the due date whether the market is up or down. This is a very effective way to remove emotions out of the investing process.
As to choosing a fund, if you join through work you will be allocated to a default conservative fund. You can then spend some time doing your research into more suitable funds. Some members like to switch their KiwiSaver to their bank purely for convenience, without consideration for either investment returns or service. Try doing your own research using the handy FundFinder tool at sorted.org.nz. You can search through 234 funds and choose one that’s right for you.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free of charge by calling 06 870 3838 or go to peak.net.nz. The information contained in this article is of a general nature and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz
Investors joining at your age are unable to access their savings for five years, however, as part of the review of the Taxation Bill, the Government plans to scrap this restriction.