What happens to my KiwiSaver when…
Hopefully, everyone in the workforce is now familiar with the concept of KiwiSaver. You put in a little, your employer puts in a little, and if you meet your minimum contributions the Government will contribute a $521 top-up. It’s a great vehicle for retirement savings, especially since the contributions are directly taken from your pay before you have time to miss them.
Beyond “What is KiwiSaver,” I’ve put together a wee list of questions and answers for curious minds...
Who is eligible for KiwiSaver?
Anyone who is a New Zealand citizen, or entitled to live in NZ indefinitely, and who lives or normally lives in New Zealand can enrol in a KiwiSaver scheme. Typically, you will join through an employer, which is when you will indicate the percentage of your pay you would like to put into your KiwiSaver fund each time.
If you’re under 18 the rules differ as you’ll need to join through a scheme provider and not through your employer. Those in the 16-17 bracket will require at least one legal guardian to co-sign their application, and anyone under 16 will need the consent of all their legal guardians.
So, if you’re really thinking ahead and want to get your kids into KiwiSaver before they fly the nest, you can – you’ll just need to work out the contributions with your provider for anyone not getting a regular payslip.
What KiwiSaver fund should I be in?
That depends on what your goals are.
As a general rule of thumb, the longer you have to invest, the more risk you can take on. If you have a shorter timeframe for investment – i.e. you are looking to use part of your KiwiSaver to put down a house deposit in the next five years, you might want to be in a more conservative fund. Being in a conservative KiwiSaver investment often means you won’t capture the highs of the market, but you likely won’t be burnt by any lows right before you need the money either.
If you still have a fair way to go and you plan on using the funds in your KiwiSaver as your retirement nest egg, you should look at being in a higher risk fund. This is because you have time to weather volatility in the market. Being in a growth-oriented fund will also help you maximise returns as you save for retirement. Of course, it’s ultimately up to you and your personal risk tolerance where you land. A KiwiSaver-savvy financial adviser can help you navigate your options too.
How do I grow my KiwiSaver?
It’s easier than you might think. You grow your KiwiSaver by contributing, and by being in the right fund for your timeframe and savings goals (see above).
If you want to grow your KiwiSaver faster, contribute more. The 3% voluntary minimum is pretty low, especially when you consider our cousins across the ditch have a minimum mandatory employer superannuation contribution requirement of 10.5%. Up your contributions (if you can) while you’re earning, and you’ll reap the rewards later when you wind down.
Once you are confident you have a solid plan in place for your KiwiSaver, the key is to now stick with this plan and stay the course. Moving forward, we know the value of our KiwiSaver investment may bounce up and down. And the last thing we want to do is chop and change between funds, especially during volatile periods in markets – like the last 12 months.
By sticking with the plan and staying invested, regardless of whether markets are up or down will allow for the magic of compound interest to slowly start kicking in and growing our KiwiSaver balance over the long term. Some patience here is key!
What happens to KiwiSaver when I’m not working?
If you’re 65 or over you can access your KiwiSaver funds and use them to supplement your living costs, in addition to NZ Super. This is quite literally what KiwiSaver is made for. You can opt out any time after you turn 65 and withdraw your savings.
If you’ve come upon hard times and want to suspend your contributions for a time, you can take a savings break for up to a year while you find your feet again.
If you have left a job and you haven’t started a new one, you can still make voluntary contributions if you would like.
What happens to KiwiSaver when I die?
It’s human to shy away from thinking about when the worst happens, but it’s practical to plan for it where you can.
As with any aspect of your wealth, your KiwiSaver forms part of your estate and will be distributed as per your Will. Should you die without contingencies in place, things get more complicated – if your KiwiSaver is over $15k at the time of your passing, an application will need to be made to the court to enable the appointment of someone to administer the estate.
If you have an up-to-date Will, this shouldn’t be an issue for your family in the event of your death. If not... it’s always a good idea to have a plan in place, and having a current Will (and EPA) is part of that.
KiwiSaver is a great tool... but like anything else in the toolbox, you need to use it properly to get your optimal result. If you’re not sure where you stand on any of the above, or you have other questions about your financial plan, now’s a good time to get in touch with a trusted fiduciary for a chat.
· Adam Deck is a Financial Adviser and KiwiSaver expert at Stewart Group, a Hawke's Bay and Wellington-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
· The information provided, or any opinions expressed in this show, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
