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RTC8: Why it's SO important to make the most of your KiwiSaver · The Curve

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  Welcome to the Curve Podcast, a conversation for women who want to learn more about money,
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  their money for the future they want to have. We're all busy in the pursuit for financial
• 0:12
  confidence and increasing your wealth should be a simple one. That's why the curve was created.
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  This podcast is for women to learn about investing in a non-scary or intimidating way.
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  With short episodes you'll have time to learn, digest and understand everything to do with the
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  world of investing. Don't expect to be an expert on day one. No question is a silly question.
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  If you're asking it, so is everyone else. So thank you for being here and for listening,
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  because together we really can raise the curve. Today's episode is all about Kiwi say that and
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  something that Vic has been on to me, her friends, her family, anyone that will listen about how
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  important it is to make the most of your Kiwi say that. I've sounded like a bit of a broken record
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  haven't I? Yeah. I am saying to believe you though. Yeah, he's going off.
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  But no, Kiwi Sabre is really, really, it's such a great initiative and in terms of helping out
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  Kiwis say for their retirement, there's so many little things that you can do and there's so many
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  small changes you can make that make a huge difference. A lot of people say, oh, I'll think about
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  it tomorrow. I'll do it tomorrow and it's, yeah, every day that you don't get on top of your retirement
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  is kind of costing you. So can you just do like a real blanket overview of what it actually is and
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  why it was created? Yeah. So let's start at the beginning. So it was set up by the government.
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  I think it's about 14 years ago now. So it's still pretty new in the scheme of things and it was
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  set up to help Kiwi say for retirement. It works in a way where you contribute a certain percentage
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  of your salary, your employer contributes a certain percentage of your salary and it's automatic.
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  So it happens before you even get it into bank account, which personally I love because it
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  removes the temptation of spending it and going, I'll save it later and then you've spent
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  that money and you don't end up saving later. So it's really good because it's automatic and it's
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  done before you can even think about it and your employer contributions and your contributions
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  are pulled together given to the IRD and the IRD effectively acts as a holding pin. So if you
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  think about a farmer and his sheep and he puts all the sheep into a holding pin and then he allocates
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  his sheep depending on which paddock to go to. That's exactly what the IRD does. So they take your
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  contributions, your employer contributions and then they look and see, okay, where has where
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  is Vic decided to put her Kiwi saver or who's managing her Kiwi saver on her behalf and I might
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  have picked one of the banks or I might have picked a milford, a fisherman, there's lots of Kiwi
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  saver, there's about 35 Kiwi saver providers out there. Then they will allocate my money and my
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  savings to whoever I've nominated. If you don't nominate anyone, that's when it goes to a default
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  Kiwi saver provider, which is usually one of the banks and because you haven't picked anyone,
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  the IRD effectively just makes that decision on your behalf. That's all the default Kiwi saver
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  provider is and there's quite a few members and default providers. So I was about to say I want
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  not the percentage would be of people who are like, oh, too hard basket don't care. Yeah and it's
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  quite sad because the default providers, well a lot of them are, are really good Kiwi saver
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  providers. They tend to have lower returns than companies or fund managers that do specifically
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  that. So with banks, Kiwi saver isn't there, bread and butter, it's savings, deposits, mortgages,
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  whereas a fund manager, that's all they do is invest your money on your behalf. So they tend to have
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  better returns on average. You hear people saying how important it is to ensure that you're with
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  the right fund manager and we'll kind of get into it a bit later about how you pick a good
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  fund manager to ensure that you are getting the most out of your Kiwi saver. It's so bad how uneducated
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  we all are on this because quite seriously, I talked you started talking about it with me. I
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  didn't even realise they were investing on any. I guess the great thing about Kiwi saver as well
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  is the government is also helping us save. So your employer is helping you save and the
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  government's helping you save and the government's helping you buy every dollar you invest,
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  they'll match 50 cents up to $500. So if you put in $1,000, they'll put in $500.
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  It's amazing isn't it? You're getting free money. How do we not know about this?
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  I know. The number of taxes that you pay and then there's people missing out on this $500
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  a year it's just like it's free money, free money, you're like a stout on that for nearly 30 years
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  of my life. Yeah and it's so tragic. It's 50% return on your $1,000 which is pretty unheard of
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  and those who don't know. I've caught on and on about how there's no guaranteed returns and
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  investing and then now I'm like take that back there is this one. Hold on there's this really
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  golden nugget Kiwi saver yeah. This is a special case. This is an initiative that's
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  kind of been set up to help us save. Was there like drastic statistics about people not saving
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  properly? Is that why it was brought in in the first place? It was brought in I think to help
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  alleviate the burden of government having to pay superannuation when we get to superannuation
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  age of 65. So it's and to be honest it's actually filtered down and had more of a positive effect
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  on people's mindset when it comes to investing. It's helped everyday Kiwis learn about investing
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  and now there's been around for over 10 years. Some people have a decent size balance in their
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  Kiwi saver and they're kind of sitting up and going hang on a second. I want to know how much
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  it's returning. I want to know where it is and I want and even if they haven't paid much attention
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  to it in the past they are now and that's a really really good part of the education piece when
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  it comes to investing is that people now have this pool of money in there. They want to learn
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  more about investing and they want to know where their money is and what it's doing and because I
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  think when you're starting from zero you've got nothing to invest you can feel reasonably unmotivated
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  by it. But if you go into your bank account or you go into your bank whatever and you said you've
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  got 10 grand sitting there and you're someone who maybe is really bad at saving and then all of a
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  sudden there's a lump sum. It's so encouraging to take these other parties helping you. It's not
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  just you doing all the legwork. You've got your employer helping you as well. You've got the
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  government helping you as well so it just it kind of seems like a no brain out. It's a small
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  percentage each week or each month, however often you get paid. You can contribute anywhere between
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  around 2 to 10% and your employer contributes around 3%. Also if you do need the money and you are
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  feeling about financially stretched you can go on what we call a contributions holiday which means
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  you just don't contribute for a period of time which can be three months up to five years.
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  Does the employer still pay their contribution when you're on a holiday?
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  No so you've got to be careful that even if you're thinking about it and thinking
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  oh I need that extra 3% you're actually losing out on an additional 3% so you're actually going to
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  be 6% worse off if your employer is contributing 3 and you're contributing 3 so it's just
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  just something to be aware of and then also if you don't put in that the $1000 that I was talking
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  about before the full $1000 to get I think it's $142 actually it's like I don't know why it's just
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  not a round number but anyway if you don't put in that that full contribution per year of $1000
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  and $142 then the government won't match the $500 so you'll miss out on that $500.
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  Do you want and you told me to do it last year and I didn't do it. I'm sorry I don't myself.
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  I know it's terrible. Hey the Kiwis over here this year the Kiwis over here ends every June so
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  you still got a couple months. Oh okay yeah you can put it in on the 29 maybe don't
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  have it there like but no yeah I'm telling you all the listeners now to get out their phones and
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  put a reminder on their phone. So you literally just have to put a $1000 and it's like a voluntary
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  donation towards it. Yeah if you're working and you're contributing regularly to Kiwis over
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  you'll probably be above that threshold depending on what your salary is but for people there's
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  probably lots of listeners that are self-employed yeah it's just it's just making sure that you
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  contribute. So say someone was contributing as you said and they contributed 4 grand that year
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  and the Kiwis over there that already met that threshold and therefore the government automatically
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  does it it's just if you haven't quite got to that $1000. Yes yeah so if you only contributed say
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  $600 you'll only get $300 so in order to get that maximum amount from the government it's $1000
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  and $4,000 and above yeah so but if you've put in $4,000 a year you're fine so you don't have to
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  do an additional amount but it's also automatic so you don't have to contact the IRD or your Kiwis
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  over provide or anyone and go hey I've put in my $1000. I'll be free money. Please don't forget
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  about me. Keep my good though because it is the admin of paperwork put so many people off.
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  Oh totally. So that's amazing that they make it as easy as possible. And contributing and then
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  applying would just be you're just going to. No it's going to. Exactly and you'd be surprised
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  though there's about 50% of people that don't get their full government contribution or
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  then what we call the member tax credit which is so surprising. There should be banners around the
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  country like. Free money from your dues. Exactly. I feel like most people if they knew
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  accept me for it last year but most people if they know would do it. Yes oh totally.
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  That's why I say put a reminder in your phone for the beginning of June just to check your balance
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  make sure you've contributed over a thousand dollars that year and it can take two seconds and
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  then you can be on your way. Thanks Bo. Thanks Bo. Do you pay any tax on that money that goes in?
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  So when you contribute to Kiwis over you do pay tax so you will be taxed at the fund level though
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  bear with me there's a lot of jargon coming but I'll try to make it down. We're a non jargon space
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  here. So when you contribute to Kiwis over and your fund manager effectively pulls that money
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  together with everyone else and that's invested in a fund that's what we call a fund and those
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  funds the type of fund that they are is what we call a pie fund which is a portfolio investment
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  entity and the great thing about these these were kind of established at the same time as Kiwis
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  and they are really tax-efficient funds so it's all done at the fund level the tax is what I'm
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  the tax is all done at the fund level so it's great so you don't have to file a tax return
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  you don't have to do any of that administrative burden when you're investing in Kiwis
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  over it's all done for you you just have to when you apply you might have seen the IID form and
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  it's or the fund manager form that you get and it says what's your PIR rate which is your
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  prescribed investor rate and that's just a fancy word for your tax rates and it should earn over
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  60,000 a year blah blah blah is it that's yeah it's like that and it's it's usually I can't remember
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  the rates off the top of my head but they should they'll be on the form but it's I think it's a
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  few I earn over 48,000 you're on you're on the highest tax rate but you should be able to ask
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  your your fund manager or your Kiwis are provider you know this is my income what's my tax rate
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  and they'll be able to tell you into into seconds kind of things so that's the tax rate that you'll
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  pay and you'll see that come out of your your Kiwis over fund each each year do we pay any fees on
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  Kiwis over or to be a part of a Kiwis over scheme or anything yeah so we've the Kiwis over scheme
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  itself there's there's a $40 fee to effectively belonging Kiwis over is that a one off it's a
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  one-off flat fee $40 a year and that's just to pay the IID for their admin of running running
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  the Kiwis over scheme effectively and there's no way of getting around that then there's also an
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  additional fee which is what would be called the management fee and that's a fee that is paid to
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  the fund manager who is looking after your money and investing it on your behalf does that change
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  depending on what fund you're with it can it can yes so roughly in New Zealand they kind of range
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  from half a percent to like one and a half percent but there's real pressure on the industry at the
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  moment to to bring down those Kiwis over fees because they're trying to make it investing for
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  the masses you know it should be should be available to be run there shouldn't be high fees
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  there's probably going to be further pressure downward on fees which is good for us but I like to
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  think of the fact that it's a payment for someone looking after your money it's also a pretty small
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  amount considering how much better off we are with Kiwis over them without it totally and then
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  you could be in a low low fee fund but your performance is low or your your return is low
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  it's good to look at the performance in relation to the fee as well so a lot of low low fee funds
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  have low returns and higher fee funds have higher returns so you need to look at fees in relation
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  to return as well and return is really important when it comes to Kiwis ever because you've got
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  such a long time horizon you know just before you said you know return so important because
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  it's such a long time can you just elaborate on that I mean I know return is important but why
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  specifically with Kiwis ever so with Kiwis ever you locked in to your 65 that's the kind of the key
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  difference is that you cannot access your funds until you're 65 years old but the beauty of that
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  is that you get to reap the benefits of compound interest for that full period of time so we've
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  talked about what compound interest is before but just to reiterate so it's it's interest on interest
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  on interest you're starting from a higher base each year so the example we used before with a
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  dollar that's generating 18% return at the end of that first year it's a dollar ten and then
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  you're now starting from a dollar ten in the next year of your of your investment horizon so
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  because we've got I mean I've got another 30 years or so before I retire that's a long period
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  of time for investing for my money to compound I always used to think oh it's so annoying I can't
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  access that time 65 you know in my attitude towards it was so naive it's actually quite
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  incredible that every single New Zealander is investing for the long long long term I know finally
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  it's like this is what we've been saying for so long and it's you're forced saving for the long term
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  because before I knew you said you know like short term might be like one to two years mid might be
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  three longs five but really even longer than that this is you know 30 40 50 years of sticking
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  with something it's pretty amazing yeah and that's why we always say that the sooner you can get on
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  to getting your kiwis ever sorted and even joining kiwi saver you can join kiwi saver when you're
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  I signed up my niece and she is when she was three months old so you can you can join kiwi saver
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  from your first birthday or from your your kids are gonna be so on they're gonna be million years
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  before they're five can you give me some examples that so we have Alice Alice now she is just
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  got about twenty thousand dollars in her kiwi saver go Alice yeah that's it she's got a decent
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  just got a decent sum she is around about 35 years old so she's got another 30 years until
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  she can get a kiwi saver out and she's in a default fund she hasn't really given much
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  care to her kiwi saver and you know she's headed in there in there for a while and she's just
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  happy keeping it in a default provider she's a flow so yeah so when she reaches 65 years of age
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  so in 30 years time so she's 25 years right she's 35 did you say that she's 35 she's 35 so she's
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  got another 30 years oh my god I'm there wow so she's got another 30 years to retirement so she's
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  got twenty thousand dollars at four percent per year for 30 years when she reads retirement she's
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  gonna have 65 thousand dollars now that might seem a lot now I know I'm like that's incredible go
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  but people particularly women we live to about say the average ages 90 so we've got 25 years
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  of retirement to level 65 thousand dollars 65 thousand dollars oh god poor Alice yeah so that's
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  why it's so important to get on top of your kiwi saver oh all right I mean how is it even
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  possible surely they still get things from the government wouldn't you yeah so that doesn't
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  include the government contributions but government contributions are an additional 20 thousand
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  or so on top of that so it's it's just being aware of a fund generating four percent return
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  compounded over the long term is it's still a decent return but you're only gonna have 65 thousand
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  dollars now if we come to Briar Briar is same amount as Alice 20 thousand but she's in a higher
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  returning fund so maybe a bit more high risk a bit more aggressive or growthy but but she's young
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  she's the same age as Alice she can take that risk she's got a she's got 30 years as well she's
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  got a 30-year time horizon when she reaches retirement age she's gonna have 350 thousand dollars
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  kidding oh what one's Briar and I want to join it yeah yeah let's be Briar it's so enormous the
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  difference totally if you can make a change from going from being in a four percent fund to a
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  ten percent fund you're gonna have nearly five times the amount of money when you get to retirement
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  you're gonna have a much more comfortable retirement living off three hundred fifty thousand dollars
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  than sixty five thousand dollars oh this is game changer but wait there's more let me get my
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  popcorn we have clear hello clear hi clear welcome to the chat so clear has she's in the same boat
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  as Briar and Alice she's got 20 thousand dollars she's the same age so she's got 30 years
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  until retirement she's in the same fund as Briar so she's got she's generating 10 percent return
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  per annum but the key difference with clear is she's contributing three hundred fifty dollars a month
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  so she's contributing regularly to her key we say on top of the amount that she's so she's starting
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  with that 20 thousand yeah and she's contributing three hundred fifty dollars a month hold on so
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  what were the others contributing month nothing can I just double check so the first two examples
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  were they not contributing anything that was just their lump sum and then the percentage
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  of whatever fund they were worth right yes so they were both just starting out with that lump sum
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  of 20 thousand Alice was in a four percent returning fund Briar was in a ten percent return and
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  neither of them are contributing and neither of them are contributing okay cool but clear the key
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  difference is that she's contributing and she's contributing regularly every month she's
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  contributing three hundred and fifty dollars so she's got she's starting with 20 thousand
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  same as the other two she's in a ten percent returning fund for 30 years but she's contributing
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  through in for dollars a month which is roughly about four thousand dollars a year which isn't that
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  much really yeah it might seem like a lot monthly but yearly it's actually not it's not a lot
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  how much do you think she has at the end of 30 years I mean by math as we all know it's not really
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  a strength of mine um maybe five hundred thousand is it less than that more more six more
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  hundred seven more nine hundred thousand more no wait a million dollars a million dollars a million
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  she's a millionaire she's 65 years old and she's a millionaire so she so she so compared that to a
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  sixty five thousand dollars verse a million dollars yeah that is so crazy and this is why I sound like
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  a broken record when I'm like there's so many little changes that you can make that can make such a
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  big difference and the earlier you make them the bigger the difference at the end I want to be a
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  millionaire when I'm sixty five it's amazing yeah we all want to be clear I want to be clear yeah
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  so it's pretty crazy regular contributions high growth fund a few young enough to take the risk
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  and and can trim uh what was my third point and keep it in there keep it in there yeah we can't
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  yeah you can't take it out but that's the beauty of Kiwi Sabre is it makes you keep it in there
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  you're any other fund you could be you could say oh I want to buy a new car or I want to pay for my
• 20:05
  wedding and it's where it's Kiwi Sabre is very much in there super strict yeah so and there's
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  actually a great tool on a lot of fund manager fund manager websites there's these calculators and
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  you can punch in okay I'm on this salary I'm I've got this many years until retirement I'm in
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  this returning fund you can project and it spits out a projection admittedly they do make quite
• 20:32
  conservative assumptions because legally they don't want to promise you X and then you only get Y
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  kind of thing so but they do it does give you a good idea if you want to have a play around and say
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  hang on I want to increase my contributions from 3% to 8% what difference will that make and so
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  you can just have a play around in real time and see see the impacts that it will have it's so
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  encouraging to be able to see that you know because I think in a lot of investing you can't right
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  it's just like a top not a gamble I know you hate that word but it's essentially there's no
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  guarantee or idea as to how it's going to go whereas with this there's a little bit more of a
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  pad on the back like keep going this is where you get to yes it is yeah it's a bit bit more of a
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  tangible or visual outcome that's why I say there's actually a cost of doing nothing and that cost
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  is that you're going to lose out nearly you know over $900,000 if you were Alice versus clear
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  you know you're missing out on that $900,000 of from doing nothing so when people say to me
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  I'll get on to it tomorrow or oh I don't have Kiwi Sava but I haven't understood it so I haven't
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  decided to join it and it's just it's just it's so infuriating yeah it does and the best thing
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  is when we get messages from from listeners or from people that have attended our events and they
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  say you know hey Vic hey so I've just just wanted to say to you like I've changed my Kiwi Sava
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  now and I've made this much this year already and that's that just makes it so worthwhile and it
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  makes me so happy and this is exactly why we do this so just remember get in early ensure you're
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  in the right fund and hold it as long as as long as possible you want to be making sure that your
• 22:15
  Kiwi Sava is working as hard as you are you don't want all those savings and contributions and
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  the money that you're not spending to be not generative as much as it can for you you can see the
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  difference that six percent can make so ten percent versus four percent so that you can see
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  how much that six percent difference can make over the long term it can have a huge impact on
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  your savings it's kind of mind-blowing actually I'm so so so glad I didn't scroll down on the
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  presentation to see the 65 versus 350 versus a million because it was way more of a shock
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  that is just just absolutely crazy and that million dollars isn't including any of the government
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  so you add another 20,000 on top of that and that's like none of these scenarios are
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  taking that government money into consideration they're almost conservative so yeah they're
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  conservative assumptions themselves okay be clear be clear be clear if there's one thing you
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  take away from this product be clear be clear I really want to get into the benefits and the risks
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  and what you should be looking for in a fund manager and what and where to look for that
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  but I feel like maybe this should needs to be a two-part series yeah we've been talking
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  a while haven't we and we don't want this to get too long yeah let's split it up into two episodes
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  and so next time what will we go over we're going to talk about the benefits of Kiwi Saver
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  you're kind of one of the perks of being there the risks and what you should look for and then
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  how to choose the best fund manager for you okay awesome so we've got still got quite a lot of
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  Kiwi Saver such a giant topic isn't it but one thing to remember be clear do I say like that man
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  just isn't it be clear if you're looking to further upskill yourself when it comes to your
• 23:58
  finances and investing head to our website the curve.co.nz we have a plethora of articles videos as well
• 24:05
  as upcoming events and workshops to stay out to date with thanks for listening and for helping us
• 24:10
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