Why KiwiSaver 101 Today

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KiwiSaver 101. I've got Dave from Booster again. This episode is not sponsored by Booster. I just want to make it clear. Hello, David.

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Morning. How are you?

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Lovely. Thank you. Wild weather out there today.

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It is crazy out there today.

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So we thought, why don't we just go back to basics?

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Good idea.

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Comfort. Comfort food for the comfort weather.

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Let's do that.

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KiwiSaver 101, the basics that everyone should know. You've pulled up some really interesting article from the sorted website. Yep. And there are ten facts.

SPEAKER_00 0:40

Yep. Ten facts that they've said are basically 10 facts on KiwiSaver that you may or may not know.

SPEAKER_01 0:46

Alright, let's hit it.

SPEAKER_00 0:47

Okay.

You Are An Investor Now

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So number one. Was you become an investor. When you're in KiwiSaver, automatically, and this it's a mindset thing, you've become a financial person who's investing into funds.

SPEAKER_01 1:02

So hold on a second. Just because you've opened a Kiwi Saver, you're now an investor.

SPEAKER_00 1:07

You're now an investor. Congratulations. So you now have an investment. How cool is that, right? Love it. Yeah. So so it's it's a mindset thing, I think, to help people go. Actually, now I am invested. Let's have a look at it and do the right thing by it and make sure it's doing the right things by me.

SPEAKER_01 1:20

And how cool it is for parents to be doing it with their children.

SPEAKER_00 1:22

Yeah, very cool. Yeah. Awesome. It's a it's definitely a an excellent way to educate our younger people of New Zealand. And that's any age group for me, up to 16, 17, is to help them with that investment and go, right, let's sit down and make an investment decision for you. Beautiful. And let's have a look. So very cool, right? Love it. You know an investor. Number two. Number two, choosing the right fund can make a lot of difference. And we've talked about this in previous podcasts. And I think it's it's worth going over almost every time we speak because it's so important to everyone to be in the right fund to get the most out of their Kiwi Saber. So the difference it can make is hundreds of thousands of dollars over a long period of time. Agree. If you are in a conservative fund versus a more high growth fund.

SPEAKER_01 2:12

Can I just step it a bit uh one step back? I almost feel like we need to explain to people what is a fund. Yes. Yeah, let's do that. Right? Yep. So we're gonna do a separate episode to that. Yep. But I think that's over important for people that just became an investor, fresh off the boat, they'll be looking at you going, what fund?

SPEAKER_00 2:30

What are they talking about? What are you talking about? So I just do it. We I think we'll go into a different bit of detail in the future with this one, but I think the key point is with that is a fund is your investment mix. So depending on how long you've got before you start accessing the money and how long you've got. So if you're buying a house or you're using it for retirement, it will determine how many growth assets versus how many income assets you have in that fund. So the funds generally follow a principle which is conservative, moderate, moderate, balance, balanced, balanced growth, growth, high growth, and then aggressive. Right? So the more aggressive you go, the more risk you take over a period of time, though, it will normally outperform most other funds because you've got the time to ride out the markets.

SPEAKER_01 3:14

Yeah.

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If you've got a short period of time and you're buying a house within a year, you don't want to play around with your with the markets too much, then you'll go into something a bit safer, a bit more secure.

SPEAKER_01 3:24

Yeah. Love it.

SPEAKER_00 3:25

Is that a bit of a good way to explain it?

SPEAKER_01 3:26

I think that makes sense to me. And I just want to point out on sorted, they do have a little quiz that people can take before you speak with a financial advisor. You know, you could actually try to understand what sort of investor you may be. Yep. But at the same time, I would highly recommend after you take that quiz to speak with a proper financial advisor. I I agree 100%. Because then they can guide you in terms of the term that you have. You may come out balanced, yeah, but you still may have 30 years to your retirement. Yeah.

SPEAKER_00 3:55

And and sometimes the quizzes are great because they give you a first indication of where you are. However, sometimes this the questions can be a little bit scary in the quizzes. And so if I said to you, Are you happy losing 25% of your holding? Most people will go, no, I don't want to lose 25%. But what and if you put it into context with the other questions that says, but it will recover and do this, or it will, are you, you know, that most people end up in a balanced investor. So just bear that in mind if you're doing the quiz, is that bear in mind that it's not saying it it's just giving you an indication for then you go and talk to somebody to get some advice. Beautiful. All right. Number

Find Your Provider And Fix PIR

SPEAKER_00 4:36

three. Number three, you can find out exactly what you're invested in. So again, from the very start, there's lots of ways. If you I I've come across so many people, and you would be the same, that have said, Oh, I've got Kimmy Saver, I just don't know what it is. Right? I just don't know what it's invested in. Oh, yeah, I've got it. I can't remember. Maybe it was with the bank, maybe it was with the advisor that did it for me. I can't remember. There's lots of ways. So number one is to go to the IRD. So everybody's got an IRD login. Most people will have that. And you can go to my IR, I think it's called, and you can have a look, click on KiwiSaver, it will tell you who your provider is, it will tell you your balance, I think. It tells you what you're contributing. So it's got some good information on there. So if you're not sure where it is, look it up. And what I would say is if you're not sure where it is and somebody hasn't been in touch with you for a while, go and talk to your advisor, go and talk to another advisor, maybe, and find out because it means that that provider probably hasn't reached out and helped you anyway.

SPEAKER_01 5:36

But also, you know, sometimes people move addresses and then they forget to update certain things. So you may be getting mail sent to the wrong address, you may be getting, you maybe changed your email because your other email got out of storage and you don't want to pay extra for storage. So you may uh not have the latest information, contact details updated with your provider. Correct. And that's vital.

SPEAKER_00 5:58

Yeah, absolutely. Absolutely vital. So if you haven't done that, please look up who you're with and f and update your information. A lot of information comes out via email or app these days as well. So if you have changed your email address, make sure you change it.

SPEAKER_01 6:11

Because the other thing I'm thinking as well is that if people don't update their PIR, you can't claim that back.

SPEAKER_00 6:18

Correct.

SPEAKER_01 6:18

So if you suddenly, you know, if you were earning 200k a year and now you're on maternity leave and you're not you're not going to come back to work for the next five years, you need to change your PIR.

SPEAKER_00 6:28

Correct. You could be paying too much tax, of which, as you say, you're not allowed to claim it back. And I'll put it on the flip side is that if you're not paying enough, they can come and take that back off you.

SPEAKER_01 6:39

Isn't a bit mean? Like you can't you can't claim back what you pay extra. Yeah. But then they will come after you. That's right.

SPEAKER_00 6:46

Yeah, it is look, and it is what it is, so we've just got to make sure we get that right. And uh your PIR rate is your prescribed investor rate, which is uh again, if you're a high-end taxpayer, being in a unit of trust like this in KiwiSaver always has a maximum of 28% tax paid on it. So you don't have to pay the difference back. So it is a nice investment to be in. Nice. All right, number four.

Switch Providers And Invest Ethically

SPEAKER_00 7:09

Number four, you are in control of your investment. All right. So what that means is a lot of people have got a well, firstly, I've got a a view that KiwiSaver is a government fund or it's a government thing that we are invested in. It's still a view out there. It is not true. It's a KiwiSaver is a government-led what's the right word for it? I'll said initiative. Initiative is a great word. That's the word I was after. It's a government-led initiative, which is helping people retire or get into their first home. The funds or the providers are all owned in their own right in one way or another, nothing to do with government, and they just have to follow the rules and make sure that they're following legislation with what they're doing. Okay. Alright. So you are in control. You can, if you're not happy with your current provider, you can move. It's very easy to move. Uh you can talk to an advisor and they could give you advice on where to go, but you are in control of how your money's invested and where it's invested.

SPEAKER_01 8:08

Okay.

SPEAKER_00 8:09

You will choose a fund, but you will uh you will you can choose who it's invested with. Nice. Makes sense? Makes sense. Next. All right. Number five, and that kind of follows on from number four. Number five is you do have options. And the options are based around how you invest, who you invest with. So it follows on from number four a little bit, but also around if you have some ethical views of how you want your investments invested, then there is options out there that follow different pathways as well. So just do your research or help get your advisor to help you do the research.

SPEAKER_01 8:45

I'm glad you mentioned ethical because I know for a lot of clients I deal with, it's super important that funds are not in guns and you know, drugs and whatever, you know. So I I love that they can sit down and they can have a look at different funds and they can see where it's invested and how it's performing. Yep. And to be honest, some of those ethical funds that I looked into myself when I was doing it for me, this is not a financial advice, this is just sharing personal story, because that was a big thing for me. I wanted something ethical as well. I wanted to feel that I am making a difference in the world.

SPEAKER_00 9:20

Yep.

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And I was surprised by their performance because you would think, oh, ethical is probably not going to make much money.

SPEAKER_00 9:25

Yeah.

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But that actually does.

SPEAKER_00 9:27

If you go back 15, 20 years, there was a view that you would it would cost you a bit of return to be in one of those type of funds. These days, it's uh they perform just as well over a long period of time as other funds. Uh and sometimes they'll be better, sometimes they may be worse because of the investments that they're in. So, for example, um, if they have fossil fuels, when COVID hit, fossil fuels uh went down, people didn't drive, and so those funds that didn't have invest in fossil fuels did really well. So, yeah, it depends what you're into. Look into it, do your research. Again, advisors know what they're talking about, they can help.

SPEAKER_01 10:07

Nice. Number six.

Keep Employer And Government Money

SPEAKER_00 10:08

Number six, it is your money. Never forget that. It's your money. Nobody can come in and take it away. And that and that goes with the way that these are structured. It's not the government can't touch it. The only thing that can happen is that if you go overseas and you take and you want to wind it up, you may not be able to take the government contributions that go into your fund. Apart from that, it's your money. If the if employees put money in there, it's yours. It's not theirs still. Um, I think to mention on top of that, as well as the way that the unit trusts are built, that if something happened to a provider, they can't touch your money either. Because it's but basically a trust. It's the owners are the members.

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All right.

SPEAKER_01 10:51

So if you suddenly hear on the news that this certain provider is going under, you shouldn't panic.

SPEAKER_00 10:56

No, not at all. It'll just go next to the next the provider is the manager of the money. Okay. So that will just go to the next manager. There won't be anybody won't be able to touch your money or the because I we get that question a lot. What happens if you guys fall out? What happens if this? And we just go, look, it's safe. We everybody what happens is they take their fee, and then what what's left in the fund is yours as a member, and you have your units, and then that just gets goes to the next manager.

SPEAKER_01 11:20

Okay.

SPEAKER_00 11:21

So I think that's it's a good thing to remember.

SPEAKER_01 11:24

I think that's a super safe thing to remember for people because often, you know, we are driven by this ancestral brain that will give us the fears that will feed us the anxiety off what if water doom and gloom, and then you lose all your money, right? And especially if you're looking at your balances and you're close to retirement and you've got like 200k there or 300k, that's a lot of money.

SPEAKER_00 11:47

It is.

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And you don't want to feel like all of it will disappear overnight.

SPEAKER_00 11:51

Yeah, correct. And and not just through the provider, but through markets. And the way that diversification works within most KiwiSaber funds. I have this conversation a lot with people. I don't want to lose all my money. Well, if you lost all your money in a Kiwi Saber fund, we've got more problems than we think. You know, so yeah, it's because of diversification that shouldn't you never lose all your funds. You'll you'll go up and down with the markets.

SPEAKER_01 12:14

Okay.

SPEAKER_00 12:15

All right. Number seven. Number seven, this is an important one.

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I love it how they're left at this point.

SPEAKER_00 12:22

Don't forget that the money that your employer puts in is is at the three and a half percent, which is the minimum at the moment. That is your money, and let's call it let's say that it makes it part of your package of your employer. If you decide that you don't want that and you go, no, I don't want Kiwi Sover, I'm opting out most of the time that employee's not going to give you three and a half percent on top of your salary. And that and they can't really do that in lieu of Agree. So what you're doing by opting out or saying that you don't you want to go on a contribution holiday is you're saying that your employer can keep three and a half percent of salary.

SPEAKER_01 13:02

Yeah, you're missing out on that little bonus.

SPEAKER_00 13:04

Yeah, 100%. So let's never forget that. I think some people don't get that, and I think it's important that you know that you get your money and be part of it.

SPEAKER_01 13:15

And you know, on the average salary of 75k, 3.5% is actually $2,625. So that's $2,625 you leave on the table.

SPEAKER_00 13:27

Yeah.

SPEAKER_01 13:28

And then you're gonna earn interest on it as well. So Yeah.

SPEAKER_00 13:31

Oh sure, it becomes your money then. Yeah. So it's invested, it's doing its job, it's getting you to your retirement. So yeah, look, it's important to never forget that. All right. Number eight. Get your two hundred and sixty dollars from the government. Huh. The government is still paying for you as an encouragement. It's been a great thing that they the government put in over the years. For now. For now, but it's come down a little bit over the years, but it's still there, and make sure you do enough of what you need to do to get the government contribution.

SPEAKER_01 14:03

And what's the minimum that people need to put in?

SPEAKER_00 14:05

So the minimum is so you he ha you have to contribute, and the minimum is it works out about twenty dollars a week. Is it still one thousand? It's still the same.

SPEAKER_01 14:14

Yep. Yeah.

SPEAKER_00 14:15

What I will throw in a caveat on that is anybody uh that is no longer available to anybody earning over $180,000 a year.

SPEAKER_01 14:23

Oh, so if you're over $180K a year.

SPEAKER_00 14:25

You don't get the government contribution.

SPEAKER_01 14:27

You don't get the government contribution anymore.

SPEAKER_00 14:29

No, no, it's no longer.

SPEAKER_01 14:30

Wow.

SPEAKER_00 14:31

No longer part of it.

SPEAKER_01 14:32

But what about the 65-year-olds that retired?

SPEAKER_00 14:35

No. Did they up that no, that that's still they don't get government contribution either at this stage.

SPEAKER_01 14:40

And the children up to 18?

SPEAKER_00 14:41

Yeah, 18.

SPEAKER_01 14:43

Cool. So it's 18 to 65 that get it. Yep. And people below 180k.

SPEAKER_00 14:48

Yep.

SPEAKER_01 14:48

Cool. And you've got to put $1,052, I think 52 cents or something.

SPEAKER_00 14:52

Yeah, something like that. Yeah, it works out about 20 bucks.

SPEAKER_01 14:54

20 bucks a week, and then you can get that to 162, which is fantastic for our self-employed clients.

SPEAKER_00 14:59

Yeah, absolutely.

SPEAKER_01 15:00

That's extra 262.

SPEAKER_00 15:01

Look, it doesn't sound a lot for the year, but it's still something you have didn't have before. Right? So I'd I'd make sure I'm getting that.

SPEAKER_01 15:09

Yeah, that's a massive return on your investment. I mean, show me another place where you can put a thousand bucks a year and get 260.

SPEAKER_00 15:18

That's a really nice way of putting it, actually, is that think about the return on your investment.

SPEAKER_01 15:22

Like, look, when I used to own a lot of store, lovely Wednesday nights and Saturday nights, you know, the big, big draw. Yeah. And the average ticket sale would be $20 for the lottery. Lotto like a dip, $20, $25. And the amount of people that would come back every week to buy those tickets and win nothing apart from a bonus ticket than that wins nothing the week after. Yeah. It blew my mind. Yeah. And I was looking at them going, you better off putting that money into your kiwi saver, because you can get at least you can win $262 back.

SPEAKER_00 15:54

Yeah, that's a good call, actually. Yeah. Yeah. It's an interesting way to look at it, isn't it? But everybody's always in hope, aren't they, that they'll be the one.

SPEAKER_01 16:00

Yeah, you'll you'll win back.

SPEAKER_00 16:01

What's the old saying? You've got to be in it to win it. I suppose that's the argument of that side of it.

SPEAKER_01 16:05

Love it. Number nine.

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Number

First Home Help And Riding Markets

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nine. Don't forget that you can use your KiwiSaver for your first home. And the first home, uh, it's a it's a really good initiative to have for those first home buyers. It's a it's a way of saving. They can put more money into their KiwiSaver. Don't have to just do the minimums. A lot of people put about eight or ten percent of their salary in when they know they're saving for a first home. And the beauty of that is that it can't be touched. And you're getting your contributions from your employer as well, which you can use towards it. So you can use everything in your KiwiSaver account apart from $1,000. So mate, you keep $1,000 in there. Okay. But so you're basically double saving if you're using your KiwiSaver for it because obviously you've got your employer contributions as well. It's a really nice vehicle to help you into your first home.

SPEAKER_01 16:56

Yeah, and we've definitely seen a lot on the rise recently. Yeah. And especially if it's a couple, you know, average balances are 30 to 50k now.

SPEAKER_00 17:05

Yeah. And yeah, it really helps them. Yep. And and the key there is, and we've said it before, is talk to your advisor and have a plan and make sure the plan is realistic. Beautiful. Yep. Beautiful. Number 10. Right, the final units. Now I like this one. So every time your money goes into KiwiSaver, we talked about it being a unit trust, you'll buy units. So they go up with every time you put money in from a contribution, whether that be your employer or your own, your units will go up every time. So that means you own more of that KiwiSover fund you've invested in every time your money goes in. Now the beauty of that, and this is where people need to remember, there's a thing called dollar cost averaging. Most people might have heard of that mentioned. What dollar cost averaging does is when you put money into something regularly, whether the markets are down or up, you'll get a nice average cost that you've paid for your units. So if you've got $1,000 going in this month, you might buy a thousand units. Next month you might buy $1,200 units with your $1,000. But the month after you might buy $900. Now the beauty is when the markets are down, you are buying those units at a cheap price. Right? So you're buying what we might call a discount. What that then means is that you, when the markets recover, you've now got more units than you would have had if you were buying it in a high market. So this is why people in Kiwi Sabers should not get too stressed when the markets go down if they're contributing. Because it means that because I'm in the back of your head, you're going, I can see the markets have dropped, I'm not going to stress out. I know I've got some money in there, but what I'm going to be happy about is that when the markets recover, I bought more units than I would have had previously. So you're buying all these units at a discount. So our guys, our investment guys, and myself, because I understand it and love it, is that when markets drop, they love it because they're buying stock as well at a discounted price. So they're going, oh my gosh, let's buy some of that, we'll buy some of that.

SPEAKER_01 19:05

It's almost like I love my analogies. Yeah, yeah. And I've been told that people love my analogies. As I almost said as let's say it's summer tomato season, you know, you've got abundance of tomatoes. Yep. And they're going to be cheap, right? You're buying them like I think I went to pack and safe and it was a dollar fifty for a pannet of tomatoes. Yeah. In winter, those tomatoes are costing us nine dollars for the same exact punnet.

SPEAKER_00 19:29

Yeah.

SPEAKER_01 19:29

So in my view, the way I see it is that there's a season for things, right? Suddenly in the season where there's a lot of units available at very cheap price, you stock up on them. Yeah. And then when the seasons change, suddenly those units cost way more, but suddenly you're making more money on those tomatoes.

SPEAKER_00 19:49

Yeah. Yeah. That's a good way of looking at it. Absolutely. And it and it's and it's and it's good to remember not to get stressed out. If the markets do drop, then change your plan. Because if you change your plan into a conservative type fund, then A, you're not gonna, you're gonna miss the rebound. B, you'll be buying less units because it's always a bit more steady.

SPEAKER_01 20:08

Yeah. Yeah. Exactly. Um I actually had a client, um, was that last year or the year before? He was looking to buy a house, then Kiwi Saver was changing, everything was going up to the zoo, and and he was on high growth and the Kiwi Saver dropped significantly. And he was like, Oh, what should I do? Should I buy the house? Should I um should I change my Kiwi Saver? And in the end, he decided to because I can't provide Kiwi Saver advice. Yeah. So he ended up keeping his Kiwi Saver at high growth, dropping the idea of buying a house and waiting for the Kiwi Saver to recover. Yeah. And he emailed me earlier this week and he's like, Oh my god, thank you so much for your advice. Didn't give him advice, but hey, I just sent him write it out, you know, just don't panic. Yeah, write it out. Yep. And he did, and now his KV7 recovered way more than it originally dropped by. So I think it dropped by like 20k, recovered by 30. Yeah. So he's definitely made his money back. And now the property price has gone down. So now he can go back and property to buy.

SPEAKER_00 21:01

So and the key now is if he's now properly looking, is to then go, right, I'm probably looking, I'm definitely going to be looking at buying the next six months, say. So now you change. Now you get out of that high growth fund.

SPEAKER_01 21:13

Correct.

SPEAKER_00 21:13

If you've got the time to give it a go like he did, and he's not committed to buying a house, great. He's done a great thing. It's worked out well for him. If you know you're buying a house, then you don't want to muck muck around with your capital.

SPEAKER_01 21:24

Yeah. No. And I know he listens to this podcast, so I hope he's smiling right now that I've mentioned him.

SPEAKER_00 21:29

Got to mention he's a superstar.

SPEAKER_01 21:30

Yeah, no, awesome. Thank you so much, David. Um I think that concludes our top 10. Nice. And um, let's get on to the next topic. Sounds good. See you soon.