The difference KiwiSaver can make
No-one knows what our lives will bring; that’s why it’s important to have a solid financial plan to create, protect and grow your wealth.
But what exactly is a financial plan and how do you go about getting one?
At Rival Wealth we reckon there are nine steps you need to take. So join me every fortnight in our second series on how to get financially sorted.
Our three client case studies are fictitious but their issues are common to many of us. Step eight is KiwiSaver.
Talia
Talia is 65 and worked as a secondary school teacher. She has just sold her house in Auckland and retired to New Plymouth where she is now mortgage-free with money to invest.
Talia has four adult children and three grandchildren.
When Talia began her teaching career 40 years ago, she always contributed to a retirement scheme. Then in 2007 KiwiSaver came along so she joined that too.
Now Talia has retired, she has $330,000 in her SSRSS and $70,000 in KiwiSaver to add to her investment portfolio.
With several options available on how she can withdraw her money, she’s decided to make a full withdrawal from both schemes and merge these funds into her managed portfolio.
She’s hoping to frequently travel during her retirement plus have a regular drawdown, so wants to have easy access to ad hoc lump sums if needed.
Talia has ticked several goals in her planning for retirement. She has sold her Auckland house at the height of the market and now lives a comfortable life close to her family, she has investments that will provide her with a regular income and she has plenty of cash for travelling. Life is good. Top tip: Lump sums or regular income? – think about what you want to get out of your retirement funds and set them up accordingly.
Jeff and Nicki
Jeff and Nicki are both in their late 40s and are in the process of getting divorced. Jeff runs a family building company with his father and two brothers in Nelson. They have two teenage children.
Jeff and Nicki’s divorce settlement has hit a hurdle. They’re both members of KiwiSaver, but have just remembered they also have overseas superannuation schemes.
Jeff worked in Australia for several years and has just over A$80,000 (NZ$83,000) there, while Nicki has a United Kingdom pension fund of just under £20,000 (NZ$35,000).
Jeff and Nicki are unsure as to what happens with superannuation schemes when you get divorced.
Their lawyer has explained that while the actual funds must stay in their retrospective super schemes, the figures will need to be included in the settlement to ensure the couple’s total assets are equally divided. In other words, depending on their final agreement Jeff will probably need to pay more settlement cash to Nicki as the total of his super schemes is quite a bit higher.
Both Jeff and Nicki will continue to contribute to their own KiwiSavers even though their financial situation has changed dramatically.
Their divorce has prompted them to review their schemes to make sure they are in the most appropriate fund and their provider is performing against the market. Something they have not reviewed since joining KiwiSaver more than nine years ago. Top tip: It’s important to annually review your KiwiSaver. Make sure you are on the correct prescribed investor rate (PIR) so you are not paying more tax than you need to.
Ben and Keira
Ben and Keira are in their late 30s and have just moved back to New Zealand after living in the UK for the past 12 years.
They have three children and have moved to the Wairarapa to take over the family sheep farm from Ben’s parents.
Ben and Keira are aware of KiwiSaver but have incorrectly assumed they couldn’t join. Ben thought there would be no benefit to him signing up to KiwiSaver as he is not employed; he receives self employed drawings from the farm.
Keira also assumed because she was a full-time mum and not earning an income she was not entitled to join.
Both Ben and Keira have just found out from their financial adviser they can benefit considerably if they sign up to KiwiSaver. As long as they both contribute $1042.86 per year into the scheme, the Government will contribute the maximum member tax credits of $521.43 per year.
KiwiSaver members missed out on $302 million in tax credits in the past year.
Keira wants to sign up the children and deposit $20 a week into each KiwiSaver. But since the $1000 Government kickstart has ended, the kids wouldn’t get the tax credit until they are 18.
They’re better off putting $20 a week into a savings account for their children, so they have access to their money if needed.
Ben and Keira will now join KiwiSaver and contribute just over $40 each fortnight to ensure they make the most of the member tax credits. Top tip: In the last financial year a staggering $302 million worth of member tax credits were not claimed by KiwiSaver members because they had not contributed the minimum amount.