QMy partner and I are both 63 and plan to retire from full-time work when we reach 65, although we may continue to work part-time. We will pay our mortgage off very shortly.
This question is on behalf of my partner. His weekly contribution to the mortgage has been $250. His KiwiSaver payment is 4 per cent whereas mine is 8 per cent. His salary is $66,000.
Would it be better for him now to increase his KiwiSaver payment to 8 per cent because he can afford to, or to save elsewhere the $250 no longer going towards the mortgage? At this point we are unsure about our plans in regard to KiwiSaver when we reach 65.
AI always say that in the first month after you’ve paid off your mortgage you should blow what would have been your mortgage payment on something that’s fun. It’s celebration time!
Right after that, though, it’s a really good idea to set up payments of that amount into an investment, before you get used to spending the extra cash.
Let’s say, for now, that your partner decides to put the money into his KiwiSaver account.
It seems that you think the only way to increase his contributions is to raise them to 8 per cent of his pay. But there are two other options:
- He could set up automatic payments of any amount directly to his KiwiSaver provider.
- As of the first of this month, he could put 6 or 10 per cent of his pay into KiwiSaver — along with the old 3, 4 or 8 per cent.
That change will make it easier for people who want to gradually increase their KiwiSaver contributions — a great way to really get savings growing.
A rise from 3 to 4 per cent of pay would be fairly painless for most. For someone who earns $40,000 before tax, contributions would rise by less than $8 a week. On $70,000 it would be $13 a week, and on $100,000 it would be $19 a week.
After that, if someone wanted to jump from 4 to 6 per cent, or 6 to 8 per cent, or 8 to 10 per cent, their contributions would rise by twice those amounts — $15 a week on $40,000, $27 on $70,000 and $38 on $100,000. These are still pretty minor increases.
To change your rate, just ask your employer. You can always move back later if you’re struggling.
The next question for your partner, and others, is whether KiwiSaver is the best place for extra savings.
If you have high-interest debt, such as credit card debt, it’s always best to use any spare money to reduce that to zero. The next priority for anyone who has a mortgage is probably to pay that off as fast as possible — whilst continuing to contribute enough to KiwiSaver to get the maximum government contribution and employer contributions.
I say “probably” because you might do better putting all the extra money into a higher-risk KiwiSaver fund. But paying off the mortgage is a very low-risk “investment”, so it suits most people better.
If you don’t have any debt, go for KiwiSaver or a similar non-KiwiSaver fund. If you want to keep things simple, KiwiSaver is your choice. Ditto if you need to lock up your money so that you’re not tempted to spend it.
Otherwise, a non-KiwiSaver fund has the big advantage of being accessible at any age. You never know when you might need money, perhaps to help out family members.
In choosing a non-KiwiSaver fund, keep a sharp eye on the fees charged. High fees really eat into returns over the years, and fees are often higher on non-KiwiSaver funds.
Even though you’re looking beyond KiwiSaver, use the KiwiSaver Fund Finder on sorted.org.nz to work out what type of fund you should be in. Then check the fees on funds of that type. The providers that charge low KiwiSaver fees are likely to also offer similar low-fee non-KiwiSaver funds.
Once you’ve chosen a fund, arrange for automatic transfers into it.
But priority number one is deciding on your $250 End of Mortgage Celebration. Let me know how it goes.
QMy wife and I are mid fifties and have secure combined personal income totalling $200,000 per year, with 8 per cent going into KiwiSaver.
Our home and future retirement house are both paid off, total value $2.1 million. KiwiSaver totals $200,000.
We have two 2-unit rental properties worth $2.1 million. Their weekly income is $1950, but these are mortgaged at $1.7 million. These properties are in a high-growth area, Mount Maunganui, and they are in a break-even position.
I think there is too much risk in one sector, property, and not enough exposure to shares. My wife thinks otherwise and wants to keep the status quo for another ten years or so. Your comments on this sort of scenario will be valued.
AI certainly wouldn’t want that much of my savings in property. House prices do sometimes fall considerably, as the graph with this column a few weeks ago showed.
Share prices fall sometimes too, of course, but you reduce your over-all risk if you have some money in each type of asset.
And shares often do better than property. Maybe you should show your wife some numbers released this week by the NZ stock exchange. Over the past ten years, the S&P/NZX 50 Gross Index — the main NZ share price index — almost quadrupled. Meanwhile, the House Price Index grew 82 per cent.
The comparison includes dividends but not rent income, so some would say it’s unfair. And who knows what the future holds? But still, it’s a big difference.
A good compromise for you two might be to sell just one of your rental properties and put that money in a share fund. But if your wife won’t budge, it’s probably not worth battling over it. You two are pretty well off. Even if your property values plunged, you would still be comfortable.
QThank you so much for your column two weeks ago. Like the correspondent, I am in the teachers’ retirement scheme and up until yesterday I hadn’t signed up to KiwiSaver.
Earlier this year I contacted the ASB to join, once I realized that I was missing out on the government’s yearly contribution. (I had wrongly assumed that I was entitled to the same benefits in the teachers’ scheme.) I was told by ASB staff that because I am turning 65 in June, there was no benefit at all in joining KiwiSaver.
After having read your recent column, I took the newspaper cutting into an ASB branch on Monday. This created much confusion as the staff member spent half an hour trying to convince me it wasn’t correct. She then contacted the KiwiSaver helpline and spent another 15 minutes discussing the article.
It was only after I asked to speak to the helpline desk and got them to reference your article, that I was able to convince them that it was not too late for me to join.
It certainly would seem that even the professionals could be better informed by reading your articles.
AIt’s disappointing to read your letter, given that ASB is one of the biggest KiwiSaver providers and also a default provider — and is therefore expected to give investors particularly good service.
I pointed out to ASB that it has always been good to strongly encourage 60–64s to join KiwiSaver, as (until July 1 2019) they get five years of tax credits and compulsory employer contributions.
So, I asked, “how come your staff are telling someone aged 64 that there is no point in joining?”
ASB’s head of KiwiSaver Aidan Vince responded, “I am really proud that our people have given KiwiSaver advice to over 130,000 Kiwis over the last two years. Clearly however, your reader was not one that we were able to help on the day, so please apologise on my behalf.”
He added that “The implications of KiwiSaver can be more complicated for savers who have an existing workplace savings scheme (possible double employee contributions etc).” It’s possible those issues complicated the situation. But still, you say you were initially turned away because you are soon turning 65.
I also asked ASB: “Even the helpline desk seems not to have known how good KiwiSaver is for 60 to 64s, if they had to read my column first. How come they didn’t know that?”
Replied Vince, “Our KiwiSaver helpline team do know this, however unfortunately this did not come through to your reader on this occasion. If you are able to provide me with a little more detail, I can follow up with the ASB teams involved.”
I then got your permission to give your details to ASB. Meanwhile, you reported having difficulties signing up online, which continued for several days.
Finally you sent me this: “I thought you might be interested in the feedback from the ASB. They are still working on trying to sort out my online application!!
“In the meantime I called into Westpac bank this afternoon (5 minutes before closing) and I am now signed up with them. Although most of my banking is done with ASB, I also have an account with Westpac.
“The process of joining Kiwi Saver was very easy. The personal manager was extremely helpful and knowledgeable — she was very aware of what you had written about in your article and I left the bank within 15 minutes having signed up and been given a hard copy of an informative document — Westpac KiwiSaver Scheme. To be honest the difference between service was like chalk and cheese!”
To be fair to ASB, the technical difficulties with your signup may have been a one-off. But anyone who is signing people up for KiwiSaver should know the rules for different age groups.
One more point: you don’t have to join with a bank you do business with — or any bank for that matter. Many of the providers with the lowest fees, best customer service and good returns are non-banks.
I encourage you and everyone else to use the KiwiSaver Fund Finder to find the best provider for you. It’s easy to move. You just ask your new provider to do it for you.
QEmail from ANZ communications manager Tony Field:
I read your piece in the Weekend Herald about kids and KiwiSaver and wanted to let you know about some recent fee changes at ANZ.
From April 1 we have removed the membership fee ($2 per month) for KiwiSaver members aged under 18 years of age, and have reduced the membership fee for all other members from $2 to $1.50 per month.
PS: Should have added that as well as the membership fees, we still also have the management fees.
AThat’s good to know, especially as ANZ is the biggest KiwiSaver provider.
Your PS raises an important issue. Almost all KiwiSaver providers charge a fixed membership fee plus a management fee that is a percentage of your balance.
Management fees vary considerably. So a provider that drops its membership fee for children but charges a fairly high management fee may not be as cheap as a provider that gives no breaks for kids but charges a lower management fee.
As noted above, the KiwiSaver Fund Finder ranks KiwiSaver funds by fees.
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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.