Today’s must read:
KiwiSaver tax rates need fixing, world’s ‘most punitive’, says savings lobby
A new article in the National Business Review this morning highlights how high the taxes are on KiwiSaver accounts. When KiwiSaver was set up, the government decided to use an annual member tax credit incentive of $1042, but now only $521, instead of a reduced tax rate on earnings in KiwiSaver accounts. Back when balances were small, this was probably preferable, but now that many accounts have gotten larger this $521 a year is not so great. KiwiSaver schemes are taxed the same as PIE funds, so at the investors PIR of 10.5%, 17.5%, or 28%. Continue reading Annual Tax on KiwiSaver Too High
A word of warning, this is a difficult question to answer simply. Many Kiwis put it into the too hard basket and delay planning for the future. It’s also one of the main reasons that companies no longer offer traditional pensions. For them, it was just too difficult, risky, and expensive to put aside enough for those future liabilities. Any calculation you try to do to figure it out will be filled with uncertainties. How much per year will I need to live on? What rate of return will I earn on my savings? How fast will my income go up during my working years? What will inflation be in the future? How many years will I live in retirement? Will NZ Super stay the same until I am 65?
There are many rules of thumb for what percentage of your earnings you should be saving for retirement. Save 10 % of your take home pay? Save a percentage equal to half your age in the year you begin saving for retirement? Somehow I think that these rules of thumb may oversimplify things. We often start saving slowly and ramp up our savings as we earn more.
Continue reading How much should I be saving?
Link → Lifecycle Finance: An Alternative For a Lifetime Financial Plan
In his first column as a contributor at Forbes Wade Phau explains Lifecycle Finance.
People seek to smooth spending over their lifetimes in order to obtain the greatest satisfaction from their limited resources, and the problem to be solved is how high this standard of living can be.
I plan on covering implementing this approach in the future.
Link → How Much Stock Should You Hold In Retirement
This article from MarketWatch.com deals with an important topic that I want to go into in some detail later on. I think each of the three methods listed deserve their own post in the future. I haven’t decided which method I favor for the DIY Investor, so stay tuned for more analysis and research on current thinking about asset allocation in retirement.
Every time I read the personal finance columns from Mary Holm and others, I cannot believe that there are still people who are against joining KiwiSaver. Why would you be against free money from the Government? Although not as generous now as it was when first begun, I love getting $521 every year in my account. Plus, your employer will put in some as well. KiwiSaver is the only universal non-employer-sponsored retirement saving vehicle in New Zealand. Employers may have another scheme, but pretty much everyone of working age and younger can join KiwiSaver and benefit.
KiwiSaver is not a tax advantaged scheme like some in other countries. Instead, the government matches your contributions every year up to a maximum (see Member Tax Credit below). Earnings on investments held in the scheme are taxed annually as PIEs or Portfolio Investment Entities. In most cases, these do have a slight tax advantage because the PIE tax rates may be less than marginal income tax rates (This is not an advantage unique to KiwiSaver however).
Continue reading KiwiSaver – Why wouldn’t you?