Planning your financial future is important. However, it can be tedious to go over your options as not all of them are exciting.
This is where KiwiSaver comes into the picture.
Though KiwiSaver might not be the most highly touted or glamorous option for ensuring financial security, it can prove an effective tool. To make things easier for you, here is an overview of KiwiSaver along with all that you need to know about it.
What is KiwiSaver?
In simplest terms, KiwiSaver is a retirement fund you can sign up for. Sanctioned by the government, KiwiSaver offers a savings scheme you can contribute a percentage of your income to.
KiwiSaver is voluntary scheme, and you have to opt in to make contributions to it. The way KiwiSaver is designed helps you save money from your current income for your retirement.
This is achieved through:
• Receiving contributions from your employer that will help increase the amount of money you save over time.
• Contributing a nominated percentage of your pay to the scheme.
• A tax credit granted by the government on an annual basis to all members.
• Assistance with making a deposit on your first home, provided you are eligible for the scheme.
Despite being initiated by the government, KiwiSaver is managed by private companies. These include a range of financial companies and institutions that bring their experience and expertise to bear to help you secure your financial future.
How it Works
Under KiwiSaver, you can choose from a range of options. They offer different plans, each with its own level of risk and return. You will be charged a certain fee for using KiwiSaver, which will be deducted from your account.
Moreover, you have the freedom to choose the provider you want to invest your money with.
In case you are unable to make a decision, for whatever reason, your money will be invested in the scheme your employer prefers or in any default scheme. However, you do have the option to change providers, as and when you see fit.
What KiwiSaver is Not
It is equally important that you understand what KiwiSaver is not as what it is. The issue is that there are certain myths and misconceptions about KiwiSaver, and it’s crucial that these myths are dispelled.
• KiwiSaver is not a general savings account. The purpose behind the scheme is to help you save for your retirement. This does mean that there are certain conditions under which you can withdraw your money, for instance buying a house or facing a medical emergency.
• The government approves of KiwiSaver but does not guarantee it. The risk is yours to bear. This is because all the decisions regarding which provider to choose and how much money to invest lies with you. The scheme can fail, which is a risk with virtually every financial scheme, and the government will not provide any assistance. This is why it is recommended that you seek professional guidance for choosing a provider.
Why Opt for KiwiSaver
It is a matter of time before you reach the age of retirement and will earn no further income. At that time, you have to rely on the money you have saved over the years to maintain your lifestyle and lead a comfortable life.
That being said, you might wonder why you should opt for KiwiSaver when there are other options available. For one, it is the only scheme backed by the government, with other retirement schemes no longer accepting new members.
And that is not the only reason why KiwiSaver is a viable option. Here are some other reasons why you should opt for KiwiSaver:
You don’t have to put in any extra effort or resources to sign up for KiwiSavers. Once your account is set up, your employer will be responsible for handling your contributions. The money will be deducted from your pay every month. The employer will transfer the funds to the IRD, who will then forward the sum to the scheme you selected.
As mentioned above, you have complete freedom to select the options you want to avail under KiwiSaver. This makes it one of the most flexible retirement schemes available to you. You can decide on the percentage of your gross pay that you want to contribute every month, for instance 4%. Moreover, the scheme also allows you ‘contribution holidays’, ranging from 3 months to 5 years, provided you have made regular contributions for at least a year.
The amount of money you contribute from your gross pay towards your KiwiSaver account is not the only sum you will be saving. Your employer is also liable to pay 3% of your gross pay into your account. There are certain exceptions to this, but this does make KiwiSaver highly rewarding for you. The cumulative sum you contribute every month will be greater than your individual contribution
4. Tax Credits
As mentioned, the government offers a tax credit to every member. The maximum limit for the credit is $521.43, provided you contributed at least twice that amount, excluding contributions from your employer. This means extra savings, which add up over time!
Overall, KiwiSaver is a viable option that you can avail to save money for your retirement and secure your financial future.
If you would like a review of your current KiwiSaver investment plan then please contact me on 021 283 5065, or book an appointment on my website https://samkodi.co.nz/contact/.