Choosing a KiwiSaver provider and scheme

Thanks for your email. As a starting point, I would suggest you review some of the other Q&As in this thread as some of the general information about how to choose a provider and what kind of fund is appropriate has been answered.

Your next point of call, if you haven't already been there, should be the KiwiSaver calculator on Sorted's website. Why? This will give you a fair approximation of how much you can expect to earn through KiwiSaver should you and your wife decide to become members. 

As I did not have your particular details,  i.e.how much you and your wife earn, and your likely contribution rates I could only guess what you could stand to earn from now until retirement.

The calculator is adjustable but based on current Stats NZ data tags your life expectancy at 87 (as a man) and 90 as a woman. It also breaks down what your accumulated savings after 65 would deliver on a weekly basis (inflation adjusted) until death. Note the assumptions that went into these computations. I've reproduced them at the end of this story.

With only the $1,000 kick-start, and the member tax credits, on a salary of $30,000, assuming contributions by your wife and her employer of 3% (which becomes the legal minimum in April 2013), your partner could expect to build up a $17,026 nest egg by the time she reaches 65, delivering an extra $20 a week as a supplement your other retirement income (private savings and the New Zealand Superannuation).

In case you didn't already know the payment rate (as outlined on the Work and Income website) is $536.80 per fortnight for a couple, married or living in a defacto relationship.

As you are contemplating downsizing your home, you may wish to adjust the numbers in the KiwiSaver calculator to see what effect a lump sum payment could have on your savings over the years.

In terms of which provider to choose, there are a range of considerations including but not restricted to performance, fees, communication, track record and consistency. Because there are so many providers to choose from it can be daunting making a selection. Just remember that choosing one doesn't necessarily bind you to them forever. You can change providers and even funds although the cost to do so can be variable. That's another thing to check before you sign on the dotted line.

With respect to fund type, the general rule is that the closer you are to retirement age, the more conservative your investment portfolio should be. That's to reduce the risk of unexpected market shocks decimating your wealth when you need access to it most. That said, if you're not planning on accessing that money immediately upon turning 65 (subject to certain terms and conditions you have the choice of staying invested in some cases) it's possible you might want to be invested in a fund more heavily invested in equities. This has to do with longevity. If we really do live as long as the forecasts suggest, we'll want our investments to keep ticking along and producing retirement income for 20 odd years. Ask yourself when you want access to that money, what your long(er) term plan is and how much you think you'll need to live off in retirement.

While we can expect to spend less the older we get, health risks and costs grow exponentially. Price out some health care policies for 65 and beyond and you're bound to get a jolt. So even though you might think you can live large off $30k a year, you might want to provision for more or at least have a comfortable savings cushion to draw on as an emergency.

An authorised financial advisor familiar with all the KiwiSaver products on the market should be able to give you some guidance on the better ones out there and also how KiwiSaver itself can fit into your overall financial plan. It's possible there are options outside of KiwiSaver that you should explore as well.

Good luck.

 

 

 

Category

Weekly rate

Fortnightly payment (net)

Gross

Net

Single, living alone

$400.07

$348.92

$697.84

Single, sharing

$367.45

$322.08

$644.16

Married person or partner in a civil union or de facto relationship

$302.40

$268.40

$536.80

Married or in a civil union or de facto relationship, both qualify

Total

$604.80

$536.80

$1,073.60

Each

$302.40

$268.40

$536.80

Married or in a civil union or de facto relationship, non-qualified partner included on or after 1 October 1991

Total

$572.58

$510.18

$1,020.36

Each

$286.29

$255.09

$510.18

Married, non-qualified partner included before 1 October 1991

Total

$604.80

$536.80

$1,073.60

Each

$302.40

$268.40

$536.80

Qualified partner in rest home with non-qualified partner in the community

$287.56

$256.19

$512.38

Hospital rate

$47.31

$42.38

$84.76

 

The KiwiSaver account calculator assumes the following:

  • If you select Employed, the KiwiSaver account calculator assumes your pay increases at 3.5% per year and that your contributions increase in line with your pay. For example, $200 today will be $230 in 4 years time. The assumed pay increase of 3.5% is included in the calculations by applying a margin to the assumed long term rate of inflation (2%).
  • If you select Self-employed or Not working, the KiwiSaver account calculator assumes that the contribution amount increases each year with inflation.
  • You take no contributions holidays.
  • No amounts are withdrawn for home purchase or mortgage diversion.
  • If you join KiwiSaver after age 60, you maintain your contribution levels for 5 years.
  • The one-off Government contribution of $1,000 goes into your KiwiSaver account 3 months after the first contribution is deducted from your pay.
  • Tax credits worth the maximum of $521 are included at the end of each member credit year which runs from 1 July to 30 June. (Note: To receive the total tax credit you must be a KiwiSaver member for the entire member credit year.)
  • Your investments are in a managed balanced fund which is a portfolio investment entity (PIE). Your PIE income is taxed at either 28%, 17.5% or 10.5%, depending on your total taxable income.
  • Your net real return from the balanced fund will be either 3.1%, 3.6% or 4.0% per year depending on your PIE tax rate or prescribed investor rate (PIR).
  • Inflation of 2% is assumed.