This is a chosen deduction of at least 3% from our pay packet, matched by 3% payment from the employer. This means it is deducted before it even hits our bank account. For many, this type of savings works as it just goes out and you never see it.
KiwiSaver is the government's way to encourage us to save for retirement.
All sounds great. But, what are the negatives?
1. Your savings essentially are untouchable until you reach retirement age (with the exception of first home buyers, see below).
2. Your savings are not guaranteed.
For first home buyers
Subject to eligibility, you may be able to (1) withdraw almost all of your KiwiSaver savings and (2) receive a HomeStart grant of up to $5,000 for an existing home or $10,000 if you are to build.
The HomeStart Grant is an additional contribution per member to your first home purchase. These have to fall in between $3,000 and $5,000 for existing homes and $6,000 to $10,000 for new builds. This is applied for through Housing New Zealand and is paid directly to your solicitor (as is your KiwiSaver funds).
KiwiSaver is a Managed Fund and generally attracts fees. However, you can select the level of return/risk and potentially reduce tax payable on these funds.
Along with your contribution and your employer's, the Government also chips in. It is currently up to $521.43 per annum (50c per $1 till $1,042.86) and this is based on either our Personal Contribution (i.e. not employers) and/or voluntary payments.
Personal Forced Savings
This is you deciding how much you should be saving, making the payments to a savings account or scheme of your choosing.
The amount you choose, the frequency, and where you place the money is fully your decision.
For this reason, there is greater flexibility than KiwiSaver. But, what are the negatives?
1. You don’t have an employer contribution
2. It is reliant on your discipline
3. You can access the funds at any time – which can be great, but also an issue
4. Saving money is a difficult task for most, especially when we consider that most of us are spending more than we earn. When we receive a pay raise or bonus, we typically look to improve our lifestyle or blow the money on the latest and greatest. It is concerning that this is what is expected of us because we don’t know what lies ahead.
Acknowledging what you earn and budgeting to live within it, should allow you to place any unexpected income (for example overtime, extra commission, bonus, pay raise or tax refund) aside into Savings, Investments or as a Principal reduction on your mortgage(s).
Savings and/or Investments have varying level of risk/reward and in some instances, restrictions. But for the most part, they can be easily withdrawn upon should you need to (this can be both good and bad).
Placing this money into your mortgage would reduce your required repayments, however continuing with the same budget, would allow you to repay your loan more rapidly. This technique on an appreciating asset allows you to grow your net worth at both ends.
So Which Is It?
To answer this question, you should be discussing your financial goals with an expert.
At Love My Money, we believe there is room for both KiwiSaver and Personal Savings, but what you do with your ‘spare’ money should be in relation to your money personalities and your goals.