Shelley Hanna: Is it worth joining scheme at 58?

It's not too late to save for your retirement.

Q. We are now permanent residents so could start KiwiSaver - but is it worth me starting? I am self-employed and shall be 58 in December. How long do you have to save for and would I get any worthwhile return?

A. Well done on noting the fact that your new residence status allows you to join KiwiSaver. The exact wording is "entitled to live in New Zealand indefinitely".

This has the side effect of entitling any Australian who pops over here to work to join up straightaway. Most foreigners need to apply for and be granted permanent residence before they can join KiwiSaver.

The main financial advantage of joining KiwiSaver lies with the government top-ups. As you are nearly 58 you will be able to save into KiwiSaver for the next seven years, to age 65, before your entitlement to Member Tax Credits finishes (and your savings are unlocked). If you save $7300 over the seven years ($1042.86 per year or $87 per month) you will receive $4650 from the Government - $1000 for the "kickstart" and $3650 in Member Tax Credits. This assumes the current annual rate of $521.43 in MTC continues for the next seven years - by no means certain. It was cut back from $1042.86 in the 2011 Budget.

Putting away $7300 over seven years and getting back $11,950 plus any investment returns looks a pretty good investment to me. If you add a modest annual net return of 3 per cent, you will have $13,216 after seven years. Investment returns are the least important part of the equation in the early years of KiwiSaver. Doubling your net return to 6 per cent per annum will give you $14,634 after seven years, while an 8 per cent net return will give you $15,672.

What's the alternative? If you save $1042.86 per year into a bank account returning, say, 3 per cent net you would have just $7990 after seven years.

What's the downside? First, you have to choose a KiwiSaver Scheme and set up regular direct debits to suit your cash flow. Many self-employed (or unemployed) people put away at least $87 per month to ensure that they get all available Member Tax Credits. Some pay $1042.86 into their account in June each year, but this does not give them "Dollar Cost Averaging" (potentially higher returns with the rise and fall of the unit price from month to month). Or they may forget to make the transaction and miss out on the MTC for that year altogether.

Self-employed people often procrastinate about joining KiwiSaver. Dozens of providers and schemes exist, and there is no simple way to choose one that may be right for you.

For someone in your position, joining any scheme is better than not joining at all. As a self-employed person, you can stop your contributions at any time, so the usual discussion around repaying debt first and making sure you have an emergency cash account are not crucial in your situation. For many people, the easiest way to join KiwiSaver is through their bank.

The downside is that you will not get a choice, because they can only offer you their bank scheme. Alternatively, take your pick of any authorised financial adviser who deals with KiwiSaver. Only such an adviser can give personalised advice on KiwiSaver, and can talk you through schemes' features and merits.

Every week you delay signing up may cost you $10 in Member Tax Credits. Once you receive statements and newsletters from your fund manager, you can compare your scheme with others and switch at any time.

Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request, call 870 3838. The information contained in this article is of a general nature and is not intended to provide personalised advice. Send your KiwiSaver questions to shelley.hanna@peak.net.nz