How to make the most of your KiwiSaver
We all like to think retirement is something that’s a little way off for most of us. We love living in the moment and enjoying our family, friends and all the milestones in between. Not everyone is ready to move into retirement right now, but there’s no better time than now to start planning and saving for it, so here are a few tips:
A little now, means a lot more later
Where do you begin when it comes to planning? When you want to retire, your main sources of income come in mainly three forms: your own savings, income from any investments you have made, and the NZ Super. The NZ Super is unlikely to be enough for your personal needs and the government only pay out when you reach 65, so looking into developing your own saving scheme and retirement plan is necessary. Start with a budget and think about the life you would like once you retire. Thinking about the basics, such as insurance, maintenance on your home and car, plus a few extra pennies for some unexpected purchases, is a starting point. Also consider what age you’d like to retire, what kind of lifestyle you’d like and where you’ll be living.
When you keep these things in mind, you can make sure you’ve got a good basis to start your budgeting and begin putting away a little bit now to make sure you’ve got enough for yourself later on for whatever plan you’d like to have.
The answer to “how much you should be saving?” is different for everyone, according to their individual circumstances. For you it will depend on your:
- current age
- current income and lifestyle
- intended retirement age
- target retirement income (i.e. preferred retirement expenditure levels)
- current retirement savings and assets
- likely inheritances and other sources of assets
To work out your position, check out the retirement planner at sorted.org.nz
Own home or renting?
One of the big things to think about is whether you’ll be living in your own home or renting during your retirement. If you find yourself renting, you won’t have any money tied up in a home and no responsibility for home maintenance. At the other end of the spectrum, owning your own home means you’ll have more control over your finances. Plus, there’s no threat of being asked to move out or having your rent increased. It’s a personal consideration as to what best suits you and it’s great to keep your options in mind as you continue to move towards a saving scheme.
Speaking of mortgages… how to avoid the mortgage trap
Paying off your mortgage prior to retirement is important but shouldn’t be the sole thing you take into account when planning your savings. There are risks in leaving serious retirement saving until after you’ve paid your mortgage off. There is the chance you could end up having a mortgage for longer than expected due to changes in circumstances such as illness or loss of work. These factors need to be considered as they can affect your ability to make repayments.
When KiwiSaver is on your side
KiwiSaver offers extra benefits, making it a great option for retirement saving – even if you have a mortgage. As well as the money you put in and any growth in your savings over time, your employer and the Government may help boost your KiwiSaver account. If you’re working and are contributing through your pay, your employer must generally also contribute 3% of your before-tax pay to your KiwiSaver account. And if you’re eligible, for every $1 you put into your KiwiSaver, the Government may add an extra 50 cents, up to $521 per year.
A little bit of thinking about the future, and the type of retirement you’d like to have, the easier it’ll be for you to begin planning and budgeting a long-term savings plan – your future self will thank you for it. If you have any questions, we’re happy to help.