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I'm In My Mid-60s: Should I Contribute To KiwiSaver?

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Mary Holm
Mary Holm


I am in my mid-60s and have been made redundant after decades with the employer. I would like to take the opportunity to enjoy an early retirement, but will obviously need to cut back expenditure at least until I qualify for New Zealand Superannuation at 65.
I have a reasonable level of cash investment earning around 5 per cent before tax, and I'm also in KiwiSaver.
Am I better to draw on the invested funds to pay the minimum KiwiSaver contribution to receive the maximum tax credit, or should I take a contributions holiday? My KiwiSaver comes due when I am aged 66.


Mary Holm: There's an important message here for everyone 60 to 64: Make hay while the sun shines - even if there hasn't been a lot of shining going on in the past week.

Anyone in their early 60s is mad not to be in KiwiSaver, contributing enough to get all the incentives.

The main drawback of the scheme is that you tie up your money until NZ Super age or - if you join after 60 - until you have been in the scheme for five years. But for most people in their 60s, that shouldn't be a problem.

On the plus side, you receive the $1000 kick-start and tax credits of $1043 a year, plus employer contributions if you are employed. Those incentives continue until the age when you can withdraw money.

What does it all amount to? If you are not employed for the entire five years in KiwiSaver, and you contribute $1043 a year, you put in a total of $5215 and the government puts in $6215. If you invest conservatively, getting an average return after fees and tax of 3 per cent a year, you'll end up with about $12,300.

That's pretty amazing. If you saved the same amount outside KiwiSaver, you would need a return of more than 36 per cent a year to get to $12,300. Such a high return is close to impossible.

Employees do even better. If you earn $50,000 and contribute 2 per cent of pay, you would end up with about $17,200 - having contributed $5000. If you topped up your contributions to $1043 a year, you would get more still. And if you earn $100,000, you would end up with $28,300 - having contributed $10,000.

In all cases, if you invest in a riskier fund, you will probably end up with even more - although I don't recommend risky investment if you are planning to spend the money within 10 years.

Whatever way you look at it, the numbers are ridiculously good.

What about our correspondent? Having lost your job, you also lose your employer contributions. But the tax credits will still double your money and hugely boost your returns. So yes, you should definitely dip into your savings to make your KiwiSaver contributions. You will end up considerably better off.

To get the maximum tax credit, you need to contribute $1043 every July-June year. You may have already put that much in for the year ending this June 30 - looking at your own contributions, not employer contributions. If not, top up your contributions before June 30.

After July 1 this year, make sure you get $1043 in before June 30 next year - and so on. You can do $20 a week, $87 a month or any other pattern - including putting the lot in at once. Enjoy your early retirement. It's a great way of making something good out of something bad.

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      



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