"What do I do with all of the savings I am making by living off the smell of an oily rag?" That's a question we're often asked, so we thought we should traverse the slippery slope of retirement saving, and KiwiSaver in particular.
We are pretty keen on KiwiSaver because the
words, "free money" come up. In fact, we think it's something everyone should have, so here's a quick run-down on how to turn your oily rag savings into retirement savings.
There are some pretty good financial reasons to open a KiwiSaver account. First, the Government will give you $1000 to "kickstart" your fund.
But that's not the end of the free money. When you start contributing into your KiwiSaver account (2, 4 or 8 per cent of your salary or wages) they will also give you up to $20 a week ($1042.86 a year) as a tax credit.
And, there's more. If you are employed (and over the age of 18) your employer will be required to contribute the equivalent of 2 per cent of your salary into your fund. That's on top of what they pay you already.
In other words, there's a lot of other people's money going into your KiwiSaver account, for you to keep.
Self-employed people can also receive those benefits but, of course, not the employer contribution.
Anyone of any age can open up a KiwiSaver account and benefit from the $1000 kickstart and tax credit.
A grandparent could open up a KiwiSaver account for a newborn with a deposit of $10. The Government will put in $1000. Even if no more contributions are made until the child starts work at say age 18, as a result of the compounding of interest the $1000 will have grown to be more than $3000.
However, KiwiSaver is not all roses and chocolates - there are a few negatives. The main one is that KiwiSaver is a superannuation scheme and is locked in until the age of 65.
Those wanting to retire before then will need to save and invest elsewhere.
The other negative is KiwiSaver funds are not guaranteed; nor is there a guarantee about performance. So far, the performance has been a bit patchy and in the long run the returns are not likely to be spectacular - but the amount of free money going into the account is likely to counter this.
To a 20-year-old, 65 will seem like an eternity away, but they can "unlock" their KiwiSaver funds to buy their first home. Not only that, but the Government will give up to $5000 to help with the purchase - per KiwiSaver account (so a couple could receive up to $10,000).
That means a couple who have not owned a home could both opt into KiwiSaver, put in 2 per cent of their salary for five years, then use their contributions, plus their employer's contributions, plus the $5000 subsidy to purchase their first home.
There are a few conditions: they must have been in KiwiSaver for at least three years, and the funds can be used to buy only a "cheaper home", which they must live in for at least six months.
With the tough economic times making it harder for people to make ends meet, and much harder to put together enough money for a deposit on a home, having a KiwiSaver fund could make things a little easier.
Frank and Muriel Newman are the authors of Living Off the Smell of an Oily Rag in NZ.
Readers can submit their oily rag tips on-line at www.oilyrag.co.nz
"What do I do with all of the savings I am making by living off the smell of an oily rag?" That's a question we're often asked, so we thought we should traverse the slippery slope of retirement saving, and KiwiSaver in particular.
We are pretty keen on KiwiSaver because the
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