Kiwisaver for my newborn son?

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Forums › Finance and wealth management › Kiwisaver for my newborn son?

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#924415 30-Oct-2013 20:54

joker97: What about for a stay at home spouse?

Pay $1042 per year into their KS account so that they get the maximum contribution ("tax credit") of $521 from the government.

blakamin

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#924417 30-Oct-2013 21:07

How long before a govt comes in that stops them using it as a house deposit? Changes to the retirement age? Just a thought.
I would think a savings account would even be a better start.

hashbrown

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#924421 30-Oct-2013 21:19

blakamin: How long before a govt comes in that stops them using it as a house deposit? Changes to the retirement age? Just a thought.
I would think a savings account would even be a better start.

By all means put your own money into a savings account, but to not take the free $1000 from the government is just silly.

Doesn't matter if they can't collect it till they are 70. $1000 plus 70 years of compounding returns is better than $0 plus 70 years of nothing.

mattwnz

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#924470 30-Oct-2013 23:06

myopinion: I've started them for my kids, to get the $1000 kick start. Costs nothing to setup so you may as well do it. Put them on the growth fund. If you are over 18 and can afford the ongoing payments, it is a no brainer investment, especially on the minimum amount contributed (is that $1000 now?) to get the $500 rebate.

Actually it has a yearly management cost, so I believe that amount gets eroded over time if you are not paying anything into it. $1000 also will be worth far less in say 18 years, with inflation too. So with fees and inflation that $1000 less management fees over 18 years, may only have the buying power of $300. Or in 70 years when they are eligible to collect it, the buying power of that $1000 is likely to be less than $100.
Personally I don't really see much point in signing up kids, especially as you don't get government contributions except for the inital $1000. I think it is better to set them up with a bank account, and they can withdraw the money for study. It shows how much kiwis love houses, that you can withdraw your own contributions to buy your first house, but not to invest in yourself at uni. The other negative, is that if they become a salary earner, they must contribute a minimum % amount, and you are signing them up to this, rather than them making that decision. Unless of course they go on a contributions holiday. However by the time they are 18, the system will likely be very different, and it may be compulsory by then. So you have to weigh up all these things.
Already with the changes they have made, kiwisaver is very different to what it once was, and the government have halved the contributions they pay each year.

scuwp

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#924526 31-Oct-2013 07:52

I'm on board with mattwnz:

Looked at this for my kids a couple of times and decided against it. Unless regularly contributing the fees would erode away any gains and unless you keep up with inflation at the minimum then there is no point. The more you can get in there the less the fees matter...if you can afford to do that. I would also like the money to be available to them when they need it.

Lazy is such an ugly word, I prefer to call it selective participation

hashbrown

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#924538 31-Oct-2013 08:15

scuwp: I'm on board with mattwnz:

Looked at this for my kids a couple of times and decided against it. Unless regularly contributing the fees would erode away any gains and unless you keep up with inflation at the minimum then there is no point. The more you can get in there the less the fees matter...if you can afford to do that. I would also like the money to be available to them when they need it.

And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

wellygary

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#924589 31-Oct-2013 09:27

hashbrown: And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

Posting short term results (1-3 years) in the middle of a central bank funded stock market boom is not representative, it is cherry picking,

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hashbrown

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#924599 31-Oct-2013 09:45

wellygary:
hashbrown: And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

Posting short term results (1-3 years) in the middle of a central bank funded stock market boom is not representative, it is cherry picking,

Maybe, but at least it's an actual fact vs the gut feelings others are posting. I'm prepared to bet ***FREE MONEY*** that those gains will more than cover the fees and inflation in the coming years.

TinyTim

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#924600 31-Oct-2013 09:52

wellygary:
hashbrown: And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

Posting short term results (1-3 years) in the middle of a central bank funded stock market boom is not representative, it is cherry picking,

You are right. Sorted says an aggressive investor should expect 8.3% p.a. return in the long term (on a share-dominated portfolio) before fees, tax and inflation. If I plug in a 8.3% p.a. return then subtract the fees then $2k ends up at $5k after 15 years - a return of 11% on my $1000. (Ignoring tax which would be PIR=10.5% for kids) (My kids paid $45 fees in the last year, which is 1.8% on the current investment of $2500, and will decrease over time.)

Matching 11% with a savings account at the bank is just not going to happen. Ever. Particularly as interest rates are lower for such small amounts and when you aren't making regular deposits. You'll be lucky to get half that, long term. The best rate I could find for $1000 and no ongoing deposits was 3.3% for a BNZ cash PIE (though I didn't look at many banks). Which, of course is historically very low, but is still not much less than the expected long term interest rate. (Sorted says 5.7% for a defensive investor, but that's mainly bonds, and you still have to take off fees, tax and inflation.)

When you take into account tax and inflation, the savings account will only just give a positive return.

Note: (disclaimer!) this doesn't consider risk and the inconvenience of KS funds being locked away.

hashbrown

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#924641 31-Oct-2013 10:31

TinyTim:
You are right. Sorted says an aggressive investor should expect 8.3% p.a. return in the long term (on a share-dominated portfolio) before fees, tax and inflation. If I plug in a 8.3% p.a. return then subtract the fees then $2k ends up at $5k after 15 years - a return of 11% on my $1000. (Ignoring tax which would be PIR=10.5% for kids) (My kids paid $45 fees in the last year, which is 1.8% on the current investment of $2500, and will decrease over time.)

Matching 11% with a savings account at the bank is just not going to happen. Ever. Particularly as interest rates are lower for such small amounts and when you aren't making regular deposits. You'll be lucky to get half that, long term. The best rate I could find for $1000 and no ongoing deposits was 3.3% for a BNZ cash PIE (though I didn't look at many banks). Which, of course is historically very low, but is still not much less than the expected long term interest rate. (Sorted says 5.7% for a defensive investor, but that's mainly bonds, and you still have to take off fees, tax and inflation.)

When you take into account tax and inflation, the savings account will only just give a positive return.

Careful, you are in danger of starting a logical, evidence based debate there :P

I'd add that there seems to be a bit of a myth that the fixed fees are necessarily high. My kids are paying $12 annually in fixed fees at Kiwibank (0.12% of $1000) The rest of the fees are percentage based, so shave the same percentage off whether you have $1000 or $500,000 invested.

On the topic of inflation the $1000 sitting in the governments coffers isn't earning anything. It was $1000 when kiwisaver started, and it's still $1000 even though $1000 necissarily buys you less these days. The government aren't adjusting it for inflation, so the sooner you get it, the sooner it can be put to work earning returns.

TinyTim

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#924661 31-Oct-2013 11:06

hashbrown:
I'd add that there seems to be a bit of a myth that the fixed fees are necessarily high. My kids are paying $12 annually in fixed fees at Kiwibank (0.12% of $1000) The rest of the fees are percentage based, so shave the same percentage off whether you have $1000 or $500,000 invested.

$1/month is a pretty good deal! Though their management fees are higher than many of the other main Kiwisaver providers (ANZ, AMP, ASB).

hashbrown

463 posts

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#924678 31-Oct-2013 11:46

TinyTim:
hashbrown:
I'd add that there seems to be a bit of a myth that the fixed fees are necessarily high. My kids are paying $12 annually in fixed fees at Kiwibank (0.12% of $1000) The rest of the fees are percentage based, so shave the same percentage off whether you have $1000 or $500,000 invested.

$1/month is a pretty good deal! Though their management fees are higher than many of the other main Kiwisaver providers (ANZ, AMP, ASB).

Aye, at some point I should sit down and do the maths on when it makes sense to move them to a higher admin fee, lower management fee plan, but so far so good.

jonherries

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#924680 31-Oct-2013 11:48

hashbrown:
scuwp: I'm on board with mattwnz:

Looked at this for my kids a couple of times and decided against it. Unless regularly contributing the fees would erode away any gains and unless you keep up with inflation at the minimum then there is no point. The more you can get in there the less the fees matter...if you can afford to do that. I would also like the money to be available to them when they need it.

And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

Yep, I am in the same boat my son is now 4.5 and has had his since birth. It is now worth ~3100. I put in $500, the governement put in $1000 and kiwibank put in $500 (they stupidly told me he would get the tax credit so when it didnt happen I complained and had it in writing so they couldnt back down).

Jon

Noodles

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#924690 31-Oct-2013 11:51

Both of our kids have kiwisavers with Westpac (no fees under 18) but we have only got the initial kickstart from the government in there. I don't have any plan on adding any more at this point as I'm also putting money away into a high interest savings account.

Otagolad

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#924713 31-Oct-2013 12:50

TinyTim:
wellygary:
hashbrown: And you'd both be wrong. Please review the real world returns @TinyTim and I have posted and explain how they constitute errosion due to fees and inflation.

Posting short term results (1-3 years) in the middle of a central bank funded stock market boom is not representative, it is cherry picking,

You are right. Sorted says an aggressive investor should expect 8.3% p.a. return in the long term (on a share-dominated portfolio) before fees, tax and inflation. If I plug in a 8.3% p.a. return then subtract the fees then $2k ends up at $5k after 15 years - a return of 11% on my $1000. (Ignoring tax which would be PIR=10.5% for kids) (My kids paid $45 fees in the last year, which is 1.8% on the current investment of $2500, and will decrease over time.)

Matching 11% with a savings account at the bank is just not going to happen. Ever. Particularly as interest rates are lower for such small amounts and when you aren't making regular deposits. You'll be lucky to get half that, long term. The best rate I could find for $1000 and no ongoing deposits was 3.3% for a BNZ cash PIE (though I didn't look at many banks). Which, of course is historically very low, but is still not much less than the expected long term interest rate. (Sorted says 5.7% for a defensive investor, but that's mainly bonds, and you still have to take off fees, tax and inflation.)

When you take into account tax and inflation, the savings account will only just give a positive return.

Note: (disclaimer!) this doesn't consider risk and the inconvenience of KS funds being locked away.

TinyTim,

I'm on exactly the same page as you other than we didn't put in anything extra on top of the Government contribution - we want the flexibility to manage any other money and that for education/housing purposes when they're older - if there were greater tax advantages like in the UK then I'd be contributing far more. Also, the fees at ASB are low enough that if you take a historic average return over 5-10 years there is no way that fees will eat up the ROI. Free money - I'm a fan.

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