Kiwisaver: Not Enough?
I still find it very perplexing to hear that many New Zealanders are either not in kiwisaver or have opted out of it. Some are misinformed, some think it’s a hassle but quite a number of people think investing 3% of one’s pre-tax income is something they cannot afford. What’s your reason?
I mean let’s face it when was the last time the government gave away free money without you the public having to invest even more. Uhmm…. NEVER!!!
So what’s the big deal in signing up and getting an instant $1000 bonus in your kiwisaver account? Furthermore, you can get more money every year from the government in the form of member tax credits. The government will pay 50cents for every dollar you put into kiwisaver up to the maximum amount of $521.43 yearly which breaks down to $20.06 fortnightly. You might be saying to yourself that’s not much, right? Let’s do some calculations first,
So let’s say Person A who is 30 years old joins kiwisaver today:
2016
- First year own contribution $1042.86 ($20.06/weekly)
- Governments contributions $521.43
- Employers contributions $1042.86 (before tax)
- Total $3607.15
Ok so you can’t get this money until you are 65 years old but in the meantime, it would still be quite useful. After 5 years you can use some of it as a deposit for a first home. If you for instance lost your job and can’t pay the mortgage payments or feed your family, you may get a withdrawal from your kiwisaver under the financial hardship exemption rule. Because of this, even banks are happier to lend to people with Kiwisaver as mine did for my second rental.
Can’t afford $20/weekly? On minimum income? Let’s see:
Person A is on minimum income of $15.25 an hour which is $610 for a 40 hour week and $31,720 per year before tax.
Between $0 to 14,000 @ 10.5% = $1470 tax charged
Between $14,001 and $31,720 @ 17.5% = $3101 tax charged
Total = $4571 tax deducted per year, $87.90 weekly
Take home pay $27,149 yearly or $522.10 weekly.
Now if Person A joins kiwisaver and decides to contribute $20.06 weekly:
$31,720– $1042.86 = $30,677.14 salary before tax
Between $0 to 14,000 @ 10.5% = $1470 tax charged
Between $14,001 and $30,677.14@ 17.5% = $2918.50 tax charged
Total = $4388.50 tax deducted per year, $84.39 weekly
Take home pay $ 26,288.64 yearly or $505.55 weekly.
So, person A is only paying $16.55 weekly from their pay and $13.48 by the government. Almost a dollar for dollar and remember your employer also has to match your contributions up to 3%. What do you spend $16.55 on weekly that you can go without once a week? Cost of a movie ticket? A takeaway?
So your contribution towards your retirement fund is actually just over $40 weekly. Still not enough?? How much have you saved on your own?
Kiwisaver savings is something and your small contributions will grow over time and by how much depends on what type of fund you invest it in.
If we use Person A’s income and say they joined kiwisaver at age 30 and calculate using Sorted’s Kiwisaver calculator, by age 65 they would have saved over $300,000.
If Person A decides to use that income, that would be around $350 per week until they are 90 years old.
On top of this, everyone who qualifies gets a superannuation from the government after the age of 65, regardless of any other income you may be earning. If Person A was single and living alone at age 65, in today’s date he would get $384.76 after tax weekly. In 35 years, that may not be enough and that kiwisaver contribution of $20/weekly returning $350 weekly may just be what Person A may need to survive. Still not enough?
There are currently debates going around NZ and the parliament whether NZ Super should be scrapped or changed such as raising the minimum age. Kiwisaver government payments were downgraded from $1042 to $521 and $1000 start up was scrapped totally.
I have personally been in Kiwisaver since 2009, at minimum 2% when it started and 3% now which amounts to $68 fortnightly from me, $53 (after tax) from my employer and $20 from government. I am with BNZ growth fund and can see my balance and fund performance anytime. Today there is around $30,000 in my kiwisaver account and if I use Sorted’s Kiwisaver calculator, when I turn 65 I will have $575,272 which will be $633 per week until I turn 90. Add superannuation and I will have a weekly income of $1000 after tax which is more than I earn today. Again this depends on fund performance, so choose wisely. And that my friends is more than enough for me. Your comments and views are welcome.
If you want to know about kiwisaver, you can go to http://www.kiwisaver.govt.nz/, and find out all about kiwisaver and even sign up. If you want to choose a fund and want to see how a certain fund has performed over the last few years, how much it costs, etc., check out http://fundfinder.sorted.org.nz/. For superannuation information go to https://www.workandincome.govt.nz/eligibility/seniors/superannuation/payment-rates.html