Latest / Making Cents / What KiwiSaver Actually Needs to Change, According to an Adviser

Transcript

What KiwiSaver Actually Needs to Change, According to an Adviser · Making Cents

• 0:00
  Five minutes could be enough to have hundreds of thousands of dollars more in your kiwisaver.
• 0:05
  I'm not exaggerating.
• 0:06
  I've done it before myself and I've seen so many other people get similar results.
• 0:12
  There are simple changes, low hanging fruit that can mean so much more money landing in your account.
• 0:20
  Here's the thing though, these simple changes cut both ways.
• 0:25
  There are bear traps to avoid because they cost you big time.
• 0:29
  And then places where changing just a couple of settings can make you a lot.
• 0:33
  There is a little bit more flexibility than you think within KiwiSaver.
• 0:37
  Well, you sent in your KiwiSaver questions and Katie Wesley from EnableMe is so ready to answer them for you.
• 0:44
  There's so much information out there at the moment and it can be really overwhelming and it can stop people from taking action.
• 0:51
  So welcome to Ask the Experts the part of Making Sense where people from inside the money world are ready to answer your questions and give you that inside word on what's working.
• 1:01
  Right now.
• 1:02
  Making Sense has partnered up with Enable Me to get you the strategies for reaching financial freedom faster.
• 1:09
  Head to their website to learn more.
• 1:11
  Visit Enable Me today.
• 1:13
  I want to help as many people as possible build a better life for themselves by understanding and taking control of their money.
• 1:20
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• 1:23
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• 1:39
  Hey Katie, welcome in again.
• 1:41
  Look, we had a KiwiSaver episode that popped off and then I got sent a bunch more questions and I thought, right, great questions.
• 1:49
  Love these.
• 1:50
  I know the exact person who can handle all of these.
• 1:53
  So welcome in.
• 1:54
  I have so many to fire your way.
• 1:56
  Can't wait.
• 1:56
  It was a great episode as well.
• 1:58
  I thought Susan was fantastic.
• 1:59
  I know.
• 2:00
  I love having Susan in.
• 2:01
  How lucky am I to have all these wonderful smart women?
• 2:04
  Okay, so number one, people want to know if there is something that a lot of people do with their KiwiSaver that they get wrong.
• 2:14
  Is there an easy quick fix that a lot of us are missing?
• 2:17
  There is a little bit more flexibility than you think within KiwiSaver.
• 2:21
  So a lot of providers, you have the ability to be across multiple funds as well, which again, not all or nothing.
• 2:29
  I think that's really useful to know and particularly when your money has different timelines that you need it to do different things.
• 2:36
  It can be super useful to know.
• 2:39
  And think of an example.
• 2:40
  If you are approaching 65 and you've got a significant amount in KiwiSaver for some of that, you might not need to access it for quite some time.
• 2:51
  So again, you can accept more volatility in terms of that fund type, but for a portion of that money, you might want to access it come 65.
• 3:01
  So you need it to be relatively liquid and not much risk.
• 3:04
  So that would be a perfect example of being across multiple funds to really serve you in terms of length of time when you might need to access those funds.
• 3:14
  Yes.
• 3:15
  Love it.
• 3:15
  So you can take a little bit more control, be a little bit more hands on with your kiwisaver by splitting it.
• 3:22
  Yeah.
• 3:23
  And thinking about, well, when I might need to access it, that can really serve you.
• 3:27
  For those people who are really worried about volatility, it's a way of just kind of bridging the gap to accept a little bit more risk, but also protecting themselves and making sure that they are doing what needs to
• 3:39
  be done with some of it.
• 3:40
  This is actually something you've really stepped into, something there which I've been thinking about a lot recently and I talked about a bit in the newsletter.
• 3:46
  But I want to explore it more with you because we have this quite black and white.
• 3:51
  Sometimes when we're trying to talk about money concepts, we start with quite the black and white version, which is great, makes it simple.
• 3:57
  But as we get a little bit further into understanding our money, there's a whole bunch of gray that can be fun to play in and give you more control.
• 4:05
  And so we often say, if you have a long time to go until you're using your kiwisaver, if you aren't planning on buying a house soon or you aren't retiring soon, then you might have it in growth.
• 4:16
  But if you're using it soon, buying a house or retiring conservative and yet exactly as you say, the day you hit 65, I certainly hope you're not spending all of your KiwiSaver in one go.
• 4:28
  Right.
• 4:29
  So that idea of splitting across and being like, right, I might spend this much in the next five years.
• 4:36
  So sure, I might put that somewhere safer, more conservative.
• 4:39
  But then the rest of it, I want to, you know, be lasting and working for me until I'm 90, putting that toward a balanced or a growth, really smart option.
• 4:48
  Yeah, absolutely.
• 4:49
  And I think it comes down to the individual and there's so much information out there at the moment and that can be really overwhelming and it can stop people from taking action.
• 4:59
  And then also they're gleaning things that potentially aren't relevant to them as well.
• 5:05
  So I think there's a real art in a school at the moment to take all of that information, understand what's relevant to you and take really good action.
• 5:13
  Because again, it's that action piece that moves the dial.
• 5:16
  Not having all of this information.
• 5:18
  Yes.
• 5:19
  Yeah, that's a classic trap.
• 5:21
  Spending all the time in the learning phase and not moving into the doing phase.
• 5:24
  What about the flip side of it?
• 5:25
  Is there something that a lot of us do stress about, do worry about that maybe isn't such a big problem?
• 5:31
  Yeah, news headlines, people get obsessed.
• 5:34
  They really do.
• 5:35
  And you think in one day you could go on one news site and think, oh, the world's gonna end the other, oh, green shoots.
• 5:43
  And so I think it's that really short term thinking around being really weighted to news headlines.
• 5:51
  Because remember, for the vast majority of us, KiwiSaver is a very long term investment platform.
• 5:58
  So we need to be thinking about long term thinking and not be swayed by a little bit of volatility when we're not going to retire for 20 years.
• 6:07
  So balance to be had.
• 6:08
  We want to be informed, certainly, but we don't want to be swayed day to day because this is long term thinking, 100%.
• 6:15
  I always think your personal timeline so much more relevant than whatever's happening in the news in the world at the moment.
• 6:22
  It's your personal timeline that matters the most.
• 6:25
  So if someone is thinking about that and thinking, oh, okay, well, maybe I do want to change some things up with my fund.
• 6:31
  Last time I checked over 200 different KiwiSaver options available.
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  So it will be more than that by now because we've had more entrants to the market since then.
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  A lot to sift through, a lot.
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  How do you sift through and what are you looking at?
• 6:44
  So it's such a great question and I think it comes back to you, what are you requiring at a KiwiSaver?
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  And so to begin with, you're asking yourself three questions.
• 6:54
  So again, what is my timeline when I'm going to access it first?
• 6:59
  Home or 65?
• 7:00
  So what is my timeline?
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  What volatility am I truly comfortable with and what is my cash contribution rate going to be going forward?
• 7:10
  So initially you're asking yourself that and then you're figuring out, well, what is the fun type that will align with those two things fundamentally and understanding what kind of sits inside of that because a balanced fund across providers
• 7:26
  can be quite different in terms of investment mix fees, the service.
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  You've got to understand, well, what does that mean to me?
• 7:36
  Because that can have again quite a different outcome in terms of returns.
• 7:41
  And I honestly think there is so much benefit from actually talking to a qualified financial advisor.
• 7:49
  We are a nation of DIYers.
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  I love that about us.
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  But this is so impactful.
• 7:55
  How about you get a qualified sounding board because do we really have time to sift through that copious amounts of information and potentially land in a suboptimal fund?
• 8:06
  Yeah, well, exactly on that.
• 8:07
  Because people have a lot of questions they sent through on this.
• 8:10
  So clearly they are looking for expert eyes and ears on this.
• 8:14
  The other one that they asked me about was if they are looking to switch provider or switch fund, does the timing of it matter?
• 8:23
  Because quite a few people saying, oh, the market's down right now, should I switch or do I change between fund types?
• 8:30
  Like does it matter?
• 8:31
  A lot of anxiety about when to switch.
• 8:34
  If you sort of graduated across, do it all at once.
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  What are your thoughts?
• 8:37
  Trying to wait for perfect timing.
• 8:39
  It just doesn't exist.
• 8:41
  It can serve you, it can not serve you.
• 8:43
  Remember, this is a long term investment.
• 8:46
  I would encourage you to just execute on that sooner rather than later.
• 8:51
  I think also maybe asking some questions about the mechanism of switching, knowing that to switch providers certainly is an element of time where you will be out of the market.
• 9:03
  So again, this is a long term journey with our money.
• 9:08
  Again, I would have the confidence that you're doing the right thing and do it sooner rather than later.
• 9:13
  This is the thing.
• 9:14
  If you're making the decision based on your criteria rather than panicking and responding to headlines but your own criteria, you've been like, oh, actually I just bought my first home, I want to switch into growth.
• 9:25
  It's going to be another 30 or 40 years before I retire.
• 9:28
  You know, you've got all of those criteria that you've looked at and you've thought about it.
• 9:33
  There is the possibility that you get really bad luck.
• 9:36
  There's always that possibility in life.
• 9:38
  But nine times out of 10, even if the market did dip right as you did it or did do something weird in the couple of days that it takes to switch you over, in 20 years time, that's going
• 9:49
  to be less than a blip, right?
• 9:50
  Lost in the sands of time.
• 9:51
  And the great thing about KiwiSaver is that consistency.
• 9:56
  When the market is low, you can buy more.
• 9:59
  When it's high, that's Appreciating again, it's that consistency which is just critical to making long term investing work.
• 10:07
  Not so fun fact.
• 10:09
  When you take on a 30 year mortgage, you'll probably pay more than double what you originally borrowed because of the cost of interest.
• 10:17
  That's probably not the Kiwi dream you bought into the team at EnableMe.
• 10:22
  Specialise in taking charge of your money and growing your wealth, including how to get rid of your mortgage faster.
• 10:29
  Book a consultation with an Enable Me financial advisor today by visiting Enable Me.
• 10:36
  One of the things I got hit up about a lot.
• 10:38
  And as someone who is now also self employed, hear this because we talked a lot in the previous episode about how to get the most out of your KiwiSaver.
• 10:46
  There's some great things.
• 10:47
  A lot of those benefits and perks don't apply as much to self employed people.
• 10:51
  There's not as much in there for KiwiSaver.
• 10:53
  Is there sort of things that the self employed cohort should think about for their Kiwi Saver or do you just kind of have to resign yourself to getting less?
• 11:01
  I think you need a plan.
• 11:03
  As a self employed person, you absolutely need a robust financial plan.
• 11:09
  And I think for lots of people the fallacy is, well, my business is going to be my retirement plan.
• 11:17
  You know, I'm going to hopefully sell it at some point in time.
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  So I think that can be a trap for lots of people.
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  So I think it's coming down to having a plan.
• 11:27
  Understanding the part that Kiwisaver might play for you.
• 11:30
  I mean please, please ensure that you get that small government contribution.
• 11:36
  Yeah, absolutely.
• 11:37
  And how you do that is you automate it.
• 11:39
  Again, we don't have the benefit of the employer contribution, so we actually have to be better in terms of planning.
• 11:47
  So understanding what we need to achieve, ensuring that we maximise what we can at a KiwiSaver and we're investing elsewhere, I think that's really important for self employed people.
• 11:58
  And I also would caveat with every self employed person I work with, their time is so, so precious.
• 12:06
  Like yourself, you are stretched so busy all the time.
• 12:09
  I know for most of my self employed clients they're working 24 7.
• 12:14
  So honestly, to give yourself a bit of time back, I would seek professional advice as well to just do it the most optimal way possible and understand that broader position and planning and goals.
• 12:27
  Yeah.
• 12:27
  And I think even though obviously you don't get the employer contribution, as you say, that government contribution, automate 20 bucks in a week, you're gonna get it and then you're getting that 25% return.
• 12:38
  I wish it was more obviously I'm on the record about being annoyed every time they reduce that it's still 25% return is still far more than the standard share market return which is 7 to 10 and it's so
• 12:51
  worth having then on top of that you get all the share market growth as well.
• 12:55
  If you're in a growth it's still really worth having.
• 12:59
  I still wouldn't say no to 200 bucks.
• 13:01
  Absolutely not.
• 13:02
  And it can serve lots of people as well in terms of it's got a great mechanism that it's locked away that's really useful for lots of people.
• 13:11
  But myself save us for myself.
• 13:13
  I know and our self employed clients they love being in control so you've got to take control back with your money, understand what kiwisaver can play but you also gotta be doing other things as well in terms of
• 13:25
  investing manage funds, potentially property as well as that business piece.
• 13:29
  So I think having a plan, getting good advice, making sure you maximize what you can out of Kiwisaver and really taking that power back is what I encourage people to do.
• 13:38
  Well it's like when we ever talk in the investing episodes right.
• 13:41
  And the classic advice is don't put all your eggs in one basket.
• 13:46
  It's super duper risky and this is why we love funds, you know when we're investing makes it so easy.
• 13:51
  If your entire retirement plan is I'm going to sell my business, you're running a lot of risks in terms of maybe that business isn't what it was.
• 13:59
  Maybe the industry changes, maybe people just don't want to buy.
• 14:03
  I've talked to a lot of people who are actually currently struggling to sell a business.
• 14:06
  In the current environment selling the business might go well but just the idea of having your entire hopes on that when you could put a certain amount every week into a managed fund into a kiwisaver and just why
• 14:21
  not hedge your bets.
• 14:22
  Yeah.
• 14:22
  100% agree and then you're more treating it as cream not the thing that makes this work.
• 14:26
  And yeah that's a good thing.
• 14:28
  PIR three little letters, big impact.
• 14:31
  What is it?
• 14:32
  What do we need to know about it?
• 14:33
  Yeah so it's the prescribed investor rate in terms of tax it's really important to get right otherwise you're overpaying tax or underpaying and deferring it to another.
• 14:42
  And you don't get it back.
• 14:43
  Right if you realise you've done it wrong.
• 14:45
  Yeah.
• 14:45
  So getting it right is really important and it's such a simple check.
• 14:49
  The IRD has a calculator.
• 14:52
  Just a few questions so you can Google that and you can check on your KiwiSaver app what you are on at the moment, just to double check that it's right.
• 15:01
  And it's generally a super easy fix, so definitely encourage you to do that.
• 15:07
  Perfect.
• 15:07
  All right.
• 15:08
  Now, there has been a lot of talk politically about KiwiSaver.
• 15:11
  I feel like this year as I've been watching the politicians talk about things, it's sort of cost of living.
• 15:16
  Kiwisaver and then solar for some reason has become political, but I'm into it.
• 15:21
  But yeah, KiwiSaver is a really big one.
• 15:23
  As we're gearing up to the election.
• 15:24
  A lot of chat about that.
• 15:26
  If you had the ear of politicians, whoever's in charge, what would you be talking to them about?
• 15:33
  What do you think could make New Zealanders lives a little easier with KiwiSaver?
• 15:37
  I have a laundry list, so it's so tricky to choose the top one.
• 15:43
  And I love that we're talking about it.
• 15:45
  KiwiSaver's been around for what, 20 years now?
• 15:47
  Isn't that crazy?
• 15:48
  So it's a good time to be reflecting.
• 15:50
  Is it still serving us in terms of settings?
• 15:53
  Probably.
• 15:53
  My number one is I would love us to be moving away collectively from those total remuneration packages.
• 16:02
  I absolutely agree with Susan on that.
• 16:04
  And I also wonder if it's in the spirit of the kiwisaver, all of it coming out of the employee's pay packet.
• 16:13
  So I'd love us to move away from that.
• 16:16
  And if I could sneak in another Francis, I would really love that we could decouple the employer and the employee contribution as well, because I do worry about our people who are earning less.
• 16:29
  It's such a chunk and they're the people we want to be protecting the most, really in terms of being okay longer term.
• 16:37
  So I would dearly love that.
• 16:39
  And once we're fixed to these things and made it future proof, I'd like us to stop tinkering as well, because I think that decreases confidence in Kiwisaver conceptually.
• 16:50
  So let's reflect, get it right for that next generations, et cetera, and then, yeah, click and leave.
• 16:56
  Yeah.
• 16:57
  So if we were to decouple it, as you mentioned there, that would basically be.
• 17:00
  Even if you are on a KiwiSaver cause, or you are maybe putting in less into your KiwiSaver at the moment, your employer would keep paying their amount into your Kiwisaver no matter what.
• 17:13
  I would dearly love that.
• 17:14
  Yeah.
• 17:14
  Because that's what they do in Australia, right?
• 17:15
  Yeah, you did right.
• 17:16
  Yeah.
• 17:17
  Which is really.
• 17:17
  It's a smart way to do it because people do have to take breaks.
• 17:21
  People do have life crises.
• 17:23
  I mean, obviously I look at that and I say, I would really rather people keep going, but life happens and life is so expensive.
• 17:30
  And then you get the people who've struggled the most through their working years hitting retirement, and they also have the least saved.
• 17:36
  I mean, it just feels like a double whammy for people.
• 17:39
  Yeah.
• 17:39
  And again, that's a problem that we will have to solve in time as well.
• 17:44
  So let's solve it sooner rather than later and empower people to, you know, have enough and to feel like they're going to be okay.
• 17:51
  I think that's really important.
• 17:53
  I love that.
• 17:54
  I think that's brilliant.
• 17:55
  Suggestions?
• 17:55
  Let's get you to the beehive.
• 17:58
  I'll pull out my laundry list.
• 18:00
  Yeah.
• 18:00
  So, number one, I have thoughts.
• 18:05
  You've got a tea.
• 18:06
  Great.
• 18:08
  Brilliant.
• 18:08
  Hey, thank you so much.
• 18:09
  Katie Wesley from Enable Me.
• 18:11
  Always a delight having you in.
• 18:12
  Now, if you have more questions, we've been talking a lot about kiwisaver, but I know you have plenty more thoughts, so send me more questions.
• 18:19
  We can do a deep dive into your issues.
• 18:21
  Askranciscook co nz until next time, have a great day.
• 18:27
  This podcast can only give you general information about how things work in most situations.
• 18:33
  It's not individual financial advice.
• 18:35
  If you're after that, a financial advisor is always the best bet.