KiwiSaver for Beginner’s:
Kia Ora and welcome back to yet another blog post. Today’s post is all about KiwiSaver. I love KiwiSaver because there are some special perks you receive by having a KiwiSaver account. This post is all about those special perks you receive, and the potential benefits you may get by having and using your very own KiwiSaver account. But first, what even is a KiwiSaver account?
KiwiSaver is Aotearoa's very own version of a retirement scheme that started in July of 2007. The idea was that it would support and encourage people to invest and contribute regular, small amounts into their accounts to help build up their wealth which they could later withdraw for retirement. Today, you are able to withdraw funds from KiwiSaver for two things:
Retirement
Buying a first Home
(Under some circumstances you can withdraw funds for serious Financial Hardship and Serious Illness)
I like to think of my KiwiSaver account as like a savings account that grows really fast. Here’s why:
● When you have a job, and you decide to opt in to ‘employee contributions (a % of your wage gets sent to KiwiSaver instead of yourself)’, your employer actually has to contribute too. Their contributions are called ‘Employer Contributions’. They have to match your contributions up to 3%, but some employers will match it with your own contribution. So, what this means is that if you add 3% of your wages to KiwiSaver, and your employer does so too, you are getting 6% added to your KiwiSaver but only paying for half of that. So, each week/fortnight/time you get paid you are effectively making a 100% return on your initial investment (meaning the savings you have contributed).
● Once you are 18 years old, there is another wee surprise with KiwiSaver. This one is called the ‘Government Contribution’. This is where the Government will contribute up to $521.43 each year - all you need to do is make sure you have contributed at least $1042.86 in the period 1 July to 30 June (If you do not contribute $1042.86 in the year, the government will still contribute 50 cents for every dollar you save).
· Your KiwiSaver money is pooled together with other KiwiSaver accounts and invested into different funds (this will vary slightly depending on your KiwiSaver provider), which will make up your overall KiwiSaver portfolio. This also means that your KiwiSaver savings money is put to work, and through the magic of compounding (interest) growth, it will grow over time.
So, why would you put money into KiwiSaver as opposed to an ordinary savings account?
1. Because an ordinary savings account will not pay you 3% of your wages, and it won't give you $521 each year, and it also will not have as much potential return (earn as much interest) as it would in KiwiSaver.
Each year your money sits in a bank account, it may earn 1% in interest (Depending on your bank). But, if inflation is at, say, 6%, you have actually lost 5% of your savings, to inflation. This means that your buying power reduces. Alternatively, if it is invested, it should have a better chance to grow more than the rate of inflation, which means more for you in the long term.
The three F’s with KiwiSaver
There’s a few important factors to deciding what provider you should use when it comes to KiwiSaver, and they are a big part of the reason I chose kōura as my KiwiSaver provider:
Fees
Friendliness
Freedom
I will explain these 3 F’s for you:
Fees - Let’s not waste our hard earned money on fees! That’s nonsense. Some providers steal a lot of your money by charging you big fees. At kōura though, their fees at 0.63%, are on the lower side, with their core fund fees being half the industry average growth fund. the best in the market.
Friendliness - your KiwiSaver provider is going to be someone you’ll need to talk to over the years. When your situation changes, when you want to withdraw it for a first home, it's important that the team is friendly enough that you can do these things efficiently and without stress.
The last F is Freedom. Freedom to decide where your money is invested is so important! Some providers make it really hard to understand where your money is being invested. Not with kōura though! You have the freedom to choose where your money gets invested.
These three F’s don’t just apply to KiwiSaver. You can use them with any investment.
Kids and KiwiSaver:
You might be wondering, if KiwiSaver is so good - should I sign my kids up for it? Yes! My mum first helped me to open up a KiwiSaver account when I was 8 years old. I haven’t added any of my own money to the fund except for the government contributions, and employee / employer contributions and it’s already compounded to $7,000.00! I intend to withdraw the money here when I buy my first home. This will be a huge help and it's something I wish for every young person to have access to. Here are just some of the benefits for children and KiwiSaver:
● By signing them up young, you have the option of adding small amounts of money and them being able to leave home with a nice lump sum in their KiwiSaver account.
● KiwiSaver is an awesome way to educate your children about dollar cost averaging which is when you add regular amounts of money into an investment. You can help them to start doing this at a young age, even with their pocket money. The skills that they will learn from this are invaluable.
KiwiSaver may seem big and confusing, but it’s really not. If you’d like to learn more about KiwiSaver and the different types of funds, make sure to read the articles available in the education center of koura’s website. Here’s my favorite one: Servicing your KiwiSaver
Disclaimer: This Blog Post is sponsored by kōura KiwiSaver. #ad All thoughts are my own.