21 Feb Creating wealth – Part Two
In Part One of this series I discussed the importance of a diversified portfolio of investments and how these need not be high risk but rather safe ‘blue-chip’ investments that will comfortable lead you to your retirement. Let’s take a closer look at one of these investments.
New Zealand used to have a compulsory retirement superannuation scheme where individuals contributed to a long-term locked-in savings plan that would help provide them with a more financially enjoyable retirement.
The Muldoon Government, in its wisdom, got rid of it, and we now have the state-run Cullen Fund that provides for us in retirement.
We all get the same amount in superannuation, which even in today’s standards is barely enough to pay the weekly groceries. The New Zealand superannuation rate pays $749.06 per fortnight for a single person and $1,152.40 for a couple, which is about $19,000 a year.
Due to the ageing population in New Zealand and throughout the western world, most governments realise that these types of schemes are not enough to provide for the growing retirement population.
There will be far more people retiring in the next 20 years than ever before, which the working force and the Cullen Fund will not be able to pay for. Governments like New Zealand’s now require all individuals to take responsibility for their own retirement today.
New Zealand’s new superannuation scheme, KiwiSaver was introduced a few years ago to help get Kiwis saving for a better retirement. Australia now has about $2 trillion in their superannuation fund, but this is still not enough for the average Australian to retire comfortably.
However, our new KiwiSaver scheme is actually one of the best retirement schemes around, so I advise everyone to be in it. Here are a few great things about Kiwisaver:
It’s compulsory for all employers to contribute up to a maximum of 3% on top of your wage into a KiwiSaver scheme for you if you also put in 3%. Many employers will also let you choose your own scheme to if you want to continue with an old one you’ve had in the past.
The fees in KiwiSaver are also very low compared to other investments. Also, for every dollar you put in, the government will put in 50c up to maximum of $521 a year. If you’re not in it, you’re missing out on free money.
You can save a lot with relatively low risk!
Let’s take a look at what you could accumulate over your working life based on some very basic assumptions. With an average working life of 40 years on a salary of $40,000 and the basic contribution rate of 3%, it’s possible to save $131,302 with compounding interest.
So you can see the return is not bad. Some would argue that’s not much for 40 years but I would argue that would be fantastic for the average New Zealander to have sitting in their bank come retirement. New Zealanders are some of the worst savers in the western world – how many people do you know have $131,302 sitting in savings come retirement?
I do this for a living and I don’t know many. Also, don’t forget you will have about another $50,000 of free government contributions as well, so the total is actually more at about $181,300. And these are working on quite conservative figures! Some of the growth and high-growth funds historically should do better than that.
And here’s the most important tip I am going to give you: the actual power in accumulating a decent fund is in the regular contributions, so start early and stay there – don’t stop, pull out or switch about.
Like what you’ve read and want to know more? Get a free copy of Jethro Hooker’s book ‘Insure and Grow Rich’ from our website or speak to Jethro himself on 027 446 4143.