Joining KiwiSaver is good for your long term wealth. There aren’t many investments that are worth more immediately than you’ve paid in. KiwiSaver is, because of the government tax credits and employer contributions.
As many Kiwis are finding, KiwiSaver balances soon grow and suddenly you’ve got a whole lot more savings than you realised. For some people that’s thousands of dollars. Eventually they might have six figures in their retirement savings. If that’s not enough to convince you, here are some more reasons that we think KiwiSaver is a winner:
It boosts your financial literacy. Something subtle is happening to people who have KiwiSaver – including many who didn’t want to sign up in the first place. When a few thousand dollars mount up a light bulb turns on in some people’s brains. If you’ve never saved money before or didn’t think you could, you start to think differently about your finances. If you can become interested in the investments held by your KiwiSaver it will pay off financially.
KiwiSavers set a good example to their children. Monkey see, monkey do. Children who see their parents being financially savvy are more likely to become so themselves. If there’s money building up in your KiwiSaver talk to your kids about it. If they know that mum and dad have “saved” thousands of bucks a few dollars at a time, they’ll believe that they can do it themselves. Financial nous is something of real value that you can give to your kids. It’s also a good idea to sign the kids up to KiwiSaver as well as you.
You get taxed less. Most bank accounts tax you at your marginal rate – which will be 17.5c, 30c or 33c on the dollar. KiwiSaver funds are Pies (Portfolio Investment Entities) and are taxed at the “PIR” (Prescribed Investor Rate) rate. That’s jargon. The important thing is that the top PIR tax rate is 28%, which is less than the 30% and 33% marginal tax rates. Every little bit of tax saved is more for you to spend when you retire.
It’s a good place to store money in retirement. When you reach 65 you can withdraw your KiwiSaver pot. But the reality is that unless you plan to blow the entire lot immediately, your KiwiSaver fund is a good place to park the money. It will continue to grow until you need it and you can make regular withdrawals as and when necessary. If you die, the money becomes part of your estate. It doesn’t, as many people think, go to the government.
KiwiSaver keeps feckless kids at bay. One of the advantages of having money locked away is that you can’t lend it to others. If you’ve got the type of family where ‘what’s yours is mine’ then KiwiSaver is a good way to ensure you’re not put under pressure to lend. The money is safe until you’re 65, by which time the kids are standing on their own two feet – hopefully.
It can be your emergency fund. Warning, we don’t recommend this. The reality is, however, that some people are using their KiwiSaver as a pseudo emergency fund. You’re allowed to withdraw the money you’ve saved into KiwiSaver for serious financial hardship, or disability, medical treatment, palliative care or a funeral. It’s not automatic that you’ll get the money, but every year thousands of people succeed in making withdrawals.