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RETIREMENT SAVINGS SCHEMES

Kiwisaver Retirement Savings Scheme

“A good man leaves an inheritance to his children’s children.” Proverbs 13:22

Saving for one’s retirement is the responsible thing to do and it is up to each individual to get their own finances sorted for their latter years. New Zealand has their own retirement scheme as most other countries do to help make life easier for their citizens when they retire. 

The New Zealand retirement scheme is called “kiwisaver.” It is open to New Zealand residents. Kiwisaver is voluntary and anyone aged up to 65 can join. You do not have to be in work to join kiwisaver, you are able to make voluntary contributions at any time.

You are about to make contributions through your wages and salaries of between 2%, 4%, or 8% (you choose). Your employer will also make contributions to your kiwisaver account. If you are not employed then you can choose to make voluntary contributions.

The key component of kiwisaver is the government’s contribution which is a maximum of $10 per week or $520 per year but you have to contribute at least $1040 per annum to get the full $520 otherwise you the government will put in 50% of whatever is your contribution.

You will receive the government money sometime in July. The kiwisaver year starts 1st July and ends 30th June and any money deposited into your kiwisaver account during this period will be eligible for the government contribution the following July. You could say leave it until June before you put any money in kiwisaver and still be eligible for the tax credits as the government money is sometimes called.

When joining KiwiSaver you will be given the choice of fund managers. If you do not choose one, the I.R.D (Inland Revenue Department) will choose one for you and when this happens, it tends to lean on the more conservative side. 

You have the option of different funds, Growth, Balanced, or Conservative with growth funds being aggressive. They have the potential to grow your savings but the downside is that they are the most risky. Conservative funds are low risk but can inhibit the growth of your savings while balanced funds are a combination of growth and conservative funds. 

Your savings in kiwisaver are locked in until you reach the retirement age of 65 (applicable in NZ) but you may be able to access your funds under exceptional circumstances. These are if you are suffering from financial hardship, have a terminal illness, or die (money goes to your estate). It is important that you have a will because if you don’t, any money still in your kiwisaver will likely be swallowed by lawyer’s fees.

You may use some of your kiwisaver funds for a deposit on your first home but only after you have been in kiwisaver for at least five years. If you are at that stage where you will be looking at purchasing your first home in the not too distant future then it would be a good idea to go for a combination of balanced and conservative funds when choosing which type of kiwisaver fund to invest in because if you went for growth funds, the markets may have gone down when it comes time to withdraw some of your kiwisaver funds for a home deposit. That would be a double whammy because when the market recovers and is on the up, you have missed out on the gains because you withdraw your money when the market was down.

It is a good idea though to have other investments which can take advantage of the swings and roundabouts of the markets even if you only have a small amount to invest. 

Always try to keep up to date with what is going on in the financial world as this will increase your financial literacy and help you make better decisions on your finances.

Check out my site www.robertastewart.com for useful information on how to increase your wealth.

The information in this article is the writer’s opinion and experience. It is advisable to seek independent financial advice to ascertain the best financial plan for your situation.

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Taking Responsibility for your Finances

Taking Responsibility for your Finances

Life is full of choices and what you do with your choices determines the outcome or what happens in the long term. Taking no action is a choice in itself. As far as finances go, what you do with your resources can make a difference to your life.

In New Zealand and in most countries some form of retirement scheme is in operation.That is where a small percentage of your pay goes directly into your retirement scheme. There are various incentives available to encourage people to contribute toward their retirement savings. 

New Zealand’s retirement scheme is called “Kiwisaver” and it is voluntary which means that no one is compelled to join or to contribute to their retirement fund if they do not wish to.

Considering the advantages of belonging to Kiwisaver it is truly baffling why anyone would not want to join. 

I have heard all kinds of excuses such as, “I’m not earning enough,” “You can’t take it all with you”, “Other people are not in Kiwisaver.”

These are all excuses and not reasons.

The truth is and the real reason why some people are not involved in KIwisaver or are contributing toward it is because they are irresponsible.

Of course you will not hear any of them admit that.

The bottom line is that it is not up to the Prime MInister to spoon feed people. At some point one has to take responsibility for your own finances.

Irresponsible behavior is a habit and a pattern of behavior. Responsibility is a dirty word to some people and a person who is not responsible enough to join a retirement plan of some kind is likely to be irresponsible in other areas of their life. The number of one parent families is a prime example of this. “Where are the fathers of these kids” is a question I sometimes ask myself when I see a story on TV about single mothers.

Responsibility also means that you must make the decisions on which funds to invest in; those who may be intellectually limited and those who do not have the time to do their research can make the use of a fund manager by investing in managed funds. All money invested into kiwisaver are in managed funds. 

Fund managers are skilled and have the kind of financial knowledge that the ordinary man in the street does not but you still have to choose which fund to invest in whether it is growth, balanced, or conservative. 

Markets will go up and down which are beyond the control of the fund manager, therefore, do not take your anxieties out of them when the markets are down.

It is certainly a fact of life that some people will let others make their decisions for them so that they have someone to blame when things turn to custard.

You may have a financial advisor but they still need to know what your intentions are as far as your goals in order to make the right choices for you. An investment made for someone who has thirty years left till retirement is not going to be the same as one for someone who has five years to go. It is your responsibility to keep your advisor informed.

That is, if you have an advisor. If you do not then it is up to you to do your own homework. That way, if things turn to custard then the person who is to blame is the one you see in the mirror every morning.

Watch this video

This is not for everyone; we prepared a presentation for you outlining the income opportunity, please watch through it in its entirety. Here is the training link, http://bit.ly/3uQXf7I

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KIWISAVER RETIREMENT SCHEME

HOW TO MAKE 50% ON YOUR MONEY TAX FREE

Do you want to make 50% return on your money tax free?.

Sounds too good to be true?

Some people will now be thinking that I must have fallen for one of these internet scams. The truth is thousands of New Zealanders are doing this every year which has helped to build up their wealth and it is really no secret; in fact people are encouraged to participate in this scheme by the government.

Over a million Kiwis are making 50% of their money in this scheme every week and if you have not guessed what it is, it’s KIWI SAVER.

The government will contribute $520 to your kiwisaver account per annum but you must contribute at least $1040 to get the $520. If your annual contribution is less than $1040 then your tax credit will be 50% of whatever your contribution is.

Let’s look at an example.

If 4% of your gross income is deposited into your kiwisaver account and you earn on average 50k per annum then your contribution to kiwisaver per annum is 2k. 

There are countless thousands of New Zealanders who are living from payday to pay day who may struggle to contribute even $1040 annually to their kiwisaver account. If you can find a way to contribute money to your kiwisaver then it will be worthwhile in the end. What you spend your money on is what takes priority in your life so if you want a way you will find a way to reach the $1040 target.

Your employer will contribute 3%  of your gross income to your kiwisaver account; it all contributes to your retirement savings.

When signing up for Kiwi Saver, you are given several options of which funds to invest your money, the degree of risk each of these funds carry depends on where your money is being invested.

The funds offering the highest return are also offering the greatest risk of loss, the thing to bear in mind us that if there is a chance of a capital gain then there is also a chance of a capital loss and there is no guarantee that a share market crash such as the 1987 black Monday one will not occur again and it is the higher risk funds which will be affected mostly.

Your tolerance to risk is another factor to consider, there is no point in investing in higher risk funds if  the possibility of loss is going to cause you to lose sleep. Your age is another factor to consider; if you are young then you have the luxury of time on your side.You have more time to recover from financial setbacks.

These are just some things to think about but it’s best to speak to a financial advisor before making any decision.

www.robertastewart.com

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UNDERSTANDING INFLATION

How to beat inflation guide for ordinary people

Inflation is no respecter of people; it affects all of us, rich, poor, or in between; you do not have to have a lot of money to feel the effects of inflation, in fact, it is those who are least able to afford the rising prices who are affected by inflation.

So what is inflation?

Inflation is the name given to the rises in prices. This is all tallied up and averaged out with the measure of inflation indicated by a percentage point. If inflation is say 1.5% then it means prices on average have risen by 1.5% in the 12 months the survey was taken.

There are many different strategies for beating inflation, most involve investing for a return greater than the inflation rate. If you just stored the money under your mattress, the value of your money would decrease every year by the value of the inflation rate. If the inflation rate was 1.5%, then your money would decrease by 1.5% per annum.

1-CUT UP THE CREDIT CARDS

When you purchase stuff using borrowed money, you are paying inflated prices for everything and this all adds up during your lifetime. “If you have not got the money then don’t buy it,” is a good rule to live by.

2-CUT BACK ON YOUR SPENDING 

This is the best way of getting ahead financially in life and will protect you from some of the effects of inflation. Think of everything you spend on an annual basis. Some folks think nothing of spending $20 on coffees per week, but that adds up to  $1000 per year.

3-BUY SECOND HAND WHENEVER PRACTICAL

There is a huge difference between the price of something in a high street store and that same item in the second hand/charity shop; the amount you will save will quickly add up during your lifetime.

4-DON’T JUST SAVE YOUR MONEY…

Invest it; there are plenty of options for you to invest your money, even if you do not have a lot to invest. “You do not have to be rich to invest but you need to invest to become rich.”

5-MANAGED FUNDS

This is my favoured method for a long term inflation beating investment. Your retirement fund with all of it’s incentives is a no brainer, but there are lots of other managed funds you can join, many are ideal for the small saver who do not earn all that much. Managed Funds or Index Funds as they are also called have stood the test of time as the best way of beating inflation.

There are a lot more options for investors looking for managed funds to invest in and some of them can be started on a shoestring, it is all about managing your money and how to beat inflation.

www.robertastewart.com

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WEALTH CREATION DOES NOT JUST HAPPEN

Wealth creation does not just happen….

It is the result of living within your means, saving, and then investing.

Simple isn’t it?

So why are so many people have so little to show for their years of working?

There is no one answer to this question, but…

whatever the reason for their lack of financial success can be summed up in just two words;

Financial illiteracy

People are not broke without a reason and neither are they prosperous without a reason.

If you divided the world’s wealth equally between its citizens, it will not be too long before everyone will return to the same financial position as they were previously because everyone has developed habits of using their money which will either build their wealth or keep them poor.

There is no secret to the financial success of those who build their wealth, and it can be summed up in two words;

Financial literacy

No one is born with financial literacy, just like education of every other kind, it is learned. 

So where do you learn about financial matters?

Start with your local library, there are plenty of books you are able to borrow on financial matters. Your local bookstore, ebay, or Amazon all have books on finance while you may pick up the odd book on the subject from a charity shop.

One good book to keep an eye out for is “Rich Dad Poor Dad,” there are a lot of other books from the same author. 

The author of Rich Dad Poor Dad stresses the importance of developing income producing assets and reducing those or at least eliminating liabilities which cost you money.

I have a free ebook to give away, it is called “Financial Steps.”

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YOUR FINANCIAL RISK PROFILE

Your risk profile-what is it?

Your risk profile is the level of risk you are willing to take when you make an investment! The higher the potential return on your investment, the higher the risk but the catch 22 situation is that just parking your money in low risk low return investments will inhibit your potential returns and could end up costing you in the long run. Taxation and inflation will eat away your profits so investing needs to be a balance between risk and reward. 

Your risk profile is a big factor when deciding how you are going to invest and that has several parts to it so lets examine them.

1. YOUR AGE

When you are young, you are able to take more risks because you have more time to recover from financial setbacks but that is not to say you cannot be on the conswervative side if your circumstances warrant it. 

It also does not mean that you cannot take risks when you are approaching retirement because chances are that you could live long after you retire. 

2. YOUR GOALS

It would be madness to invest in high risk (growth investments) if you require the money in the short term, say within the next 6 months to pay for a wedding, new car, or whatever because the markets may be losing ground and you may end up with less money than you intended. Therefore for money you require in the short tern, invest conservatively. 

3. PERSONAL MAKE UP

If the prospect of losing your money is going to cause you to lose sleep then lean towards more balanced investments. These are a combination of growth and conservative investments. 

Your potential return will not be as much as it could be but at least you will sleep easy, albeit, at a cost.

4. YOUR FINANCIAL SITUATION

If you are up to your eyeballs in debt then clearing that debt has to be your number one priority and staying out of debt is priority number two then you can think about saving for whatever reason. Investing in the kiwisaver scheme is a very good investment for the reason that there are tax credits of up to $520 per annum and you are entitled this providing you invest a minimum of $1040. That equates rto 50% return on your investment, tax free. Where else will you get a return like that?

At the end of the day, it is your money you are investing and it is you who will bear the consequences for any financial decision make.

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TURN DEAD MONEY INTO SEED MONEY

Turn dead money into seed money

Financial success is much easier than you think and is often just a matter of prioritizing your spending. The first thing to do is to find out where your money is going and where is disappears into the sunset never to be seen again. Much of this type of spending is dead money because you have nothing to show for it. You need to convince it to stay at home and work for you rather than fill someone Else’s pockets.

There are a number of money leaks which drain your finances so lets take a took at some of the main culprits.

INTEREST

If you have hire purchase loans, credit card loans, or bank or finance company loans then a good deal of your money is being spent servicing the loan. There is a cost to using other people’s money to buy stuff and that is called interest. In order to become debt free and save money, you need to decide on what youer priorities are and MAKE SACRIFICES. As painful as it may sound, you must do an audit in order to work out how much of your money in going in interest payments per annum.

If you are seriously in debt then talking to a budget advisor make sense.

STUFF YOU NO LONGER NEED

Everyone has stuff they no longer need just lying about around the house. This can all be considered “dead money”. Your stuff can be converted into cash and turned into seed money for your future wealth. Selling the stuff on ebay will give you some extra money to invest. You can then put this money to work for you.

HOBBIES AND SPORT

People will spend a fortune on their hobbies and the question of whether the amount you are spending on yours is going to affect your financial plans in the future. We hear of people who spend absurd amounts of money on whatever they are collecting yet when it comes to retirements savings bury their head in the sand. The money spent on this stuff is really dead money because it is not producing any wealth.

Sport is in a separate category altogether because being a participate in sporting activities promotes health and well being but you are able to minimize the amount spent so that what it is costing you does not get out of hand.

MONEY LYING IDLE

Money just lying in a low interest account earning just 2% interest is losing its value because when inflation and tax are both considered, it has lost its value and is worth less than 12 months ago. It all depends on what the purpose of that money is. If it is rainy day money then you may be better off investing it in Bonus Bonds where instead of being paid interest, you go into a draw to win prizes including a million dollar prize. It may be a long shot but at least you have a chance.

It all adds up during the course of a year. $4 or so for one cup of coffee per day does not sound much but if you buy say three cups of coffees per day that is $12 per day you are spending on coffee. That is $60 per week (5 days per week) and during the course of a year, that is $3,000 worth of coffee you are drinking. That could be your retirement savings or an overseas trip, or whatever you may prefer to spend your money on which you can see with your own eyes what your labours have paid for.

Learn to look at your spending on an annual basis because it does not sound like money money when you are paying for something in small amounts but like a dripping tap, leaks like this can add up to a lake. These little money leaks can then be used as your seed money to build your future wealth.

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CAPITAL GAINS TAX

Capital Gains tax and kiwisaver

The talk in New Zealand these past two or three weeks has been the possibility of the introduction of the Capital Gains tax. This is likely to be at 33%. irrespective of which tax rate you are on. So if for example you are on the lower income bracket paying tax of 17.5% then your kiwisaver provider would still pay 33% tax on any capital gains on your kiwisaver. The capital gains tax could be mitigated by new incentives by those in the scheme or at least encourage those who have not joined to do so. All will be revealed in May’s budget but it is likely that the $1000 kickstart will be reinstated and that the annual tax credit will be increased. It was the last National government who scrapped the kickstart in order to balance the books. They also reduced the tax credit from $1040 to $520. Prior to the reduction, you had to deposit at least $1040 to get the full government tax credit so that was in effect the same as making 100% on your investment, tax free. Then National reduced the tax credit to $520 but you still had to deposit $1040 to get this which is like earning 50% on your investment.

As for the $1000 kickstart. If you are a school leaver or have not got around to joining kiwisaver then it may be a good idea to wait until after the budget to see what unfolds. It really depends on timing because Grant Robertson (The finance minister) may decide that they changes will take effect on July 1st which is the start of the kiwisaver year but if the changes take effect immediately after budget night then it would be good sense to join kiwisaver in order to collect the 1k kickstart and deposit at least $1040 into your kiwisaver account by 30th June in order to collect July’s tax credit.

Another change which has been talked about is the scrapping of the tax on employer contributions for those earning less than $48,000. As with the government incentives, the employer contributions will become tax free if your level of income allows it. It was the last National government who placed the tax on employer contributions.

It is interesting to see how any capital gains tax will effect kiwisaver balances in the future because a lot of these funds do have investments in property. It may well affect the supply of housing because would be property developers will think it is just not worth the hassle especially with the new compliance costs which will cost land lords an arm and a leg.

A capital gains tax will not just affect property and shares. It is likely to affect crypto currency as well but it is not clear what the situation is in the event that someone makes a capital loss as can happen when investing for capital gain. Investor’s who lose money in an investment in this way may well be able to claim losses against their wages and salaries but it is best to seek advice from a qualified person in this regard.

www.robertastewart.com