New Zealand Kiwisaver Scheme is a second to none retirement savings tool.
New Zealand’s own retirement saving’s scheme, “Kiwisaver” is a second to none savings tool for putting money away for your retirement. It has only been available since 2007. Prior to this New Zealand had no government retirement scheme.
There are several features and benefits of kiwisaver and before I discuss this, I want to emphsis the difference between a feature and a benefit. A feature tells you something about the product while a benefit tells you what is in it for you. For example, a feature of kiwisaver is that your money is locked up (with exceptions) until you reach the retirement age of 65. The benefit of this is that you will have a nice nest egg when you retire.
The main feature is the $520 tax credit per annum which you are eligible for but you must deposit twice this amount ($1040) per annum to get the full tax credit. The rule is whatever you put into kiwisaver, the government will deposit half of that amount to a maximum of $520 per annum. This money goes into you kiwisaver account around mid to late July. By the way, the kiwisaver year begins 1 July and ends in June so that even if you waited until June to put $1040 into your kiwisaver account, you will still get the government money in July. You are able to deposit money into your kiwisaver account to ensure you get the full tax credit if you only worked a portion of the year.
Another feature is that your employer will contribute to your kiwisaver account. It all ads up in the end.
You are able to use a portion of your kiwisaver funds to help purchase your first home. There are rules surrounding this. I believe that you have to have been enrolled in kiwisaver for at least 5 years. If both husband and wife are both in kiwisaver, this can be a big help toward getting your first home.
Another advantage of having your retirement funds in kiwisaver compared to other types of investments is that if you need to go on income support then money earned by your kiwisaver account will not affect your benefit whereas any income derived from investments such as dividends from shares and fixed term interests will affect your benefit. It must be stressed that it is not the amount of savings in these investments that is of concern but the income from them.
When one enrols with kiwisaver, they are given the choice between conservative funds, balanced funds, and growth funds. Conservative Funds are low risk but profits are low. Growth funds are high risk but have the potential to grown your savings. Balanced funds are a combination of conservative and growth funds. Most financial advisors believe that when you are young, it is better to put your money in growth fund because you have more time to recover from a sharemarket crash if indeed that does occur. Those nearing retirement are better to scale back and lean on the conservative funds the experts believe. At the end of the day, it is your money and its your responsibility to decide what you are going to do with it.
If you do not choose which fund you are going on, one will be chosen for you and these tend to lean on the conservative side which will limit the earning potential of your savings.
When you start a job you have the choice of choosing whether you want 2%, 4%, or 8% of your gross income will go into kiwisaver. To give you an idea of how much would go into kiwisaver. Someone on $16 an hour working a 40 hour-week would have $12.80 deducted per week on 2%, $25.60 deducted per week on 4%, and $51.20 per week on 8%. It all depends on how much you can afford. I think that 2% or 4% is recommended because you can always make lump sum contributions to kiwisaver if you are in a position to do so.
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