Kiwisaver for my newborn son?

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

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20141 posts

Uber Geek

#924759 31-Oct-2013 13:56

One thing that some people are failing to understand, is that signing up a child, is basically signing them up to something they didn't agree to sign up to themselves. They may resent you for it. You don't know what they will intend to do in the future, and it is another outgoing expense on top of student loan payments, mortgage payments. I think you have to pay a minimum of 4% of your income currently if you are signed up to it, and are a wage earner. That figure may increase. Sure they could get a contributions holiday for 5 years, but we don't know if things will change any more with this scheme. Personally I think eventually it will become compulsory so getting the $1000 is perhaps a good idea, as that will likely be withdrawn if it is compulsory. But I would seek professional financial advice before signing up a child. I don't think there is any right or wrong answer, but personally I would leave the decision to the child when they are old enough to manage their own finances. There are also a lot of article I have read discussing this very topic, so would suggest the OP reads them all.

TinyTim

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#924778 31-Oct-2013 14:19

mattwnz: One thing that some people are failing to understand, is that signing up a child, is basically signing them up to something they didn't agree to sign up to themselves. They may resent you for it. You don't know what they will intend to do in the future, and it is another outgoing expense on top of student loan payments, mortgage payments. I think you have to pay a minimum of 4% of your income currently if you are signed up to it, and are a wage earner. That figure may increase. Sure they could get a contributions holiday for 5 years, but we don't know if things will change any more with this scheme. Personally I think eventually it will become compulsory so getting the $1000 is perhaps a good idea, as that will likely be withdrawn if it is compulsory. But I would seek professional financial advice before signing up a child. I don't think there is any right or wrong answer, but personally I would leave the decision to the child when they are old enough to manage their own finances. There are also a lot of article I have read discussing this very topic, so would suggest the OP reads them all.

Mary Holms suggests if the kids complain about the 3% or 4% that they're going to have to pay from their paper round because you signed them up (do kids do paper rounds anymore??) then reimburse them that 3% or 4% yourself!

(Personally, I think it's better that the kid learns the saving lesson.)

hashbrown

463 posts

Ultimate Geek

#924783 31-Oct-2013 14:28

mattwnz: They may resent you for it.

They may also resent you for not doing it.

"So Mum/Dad, let me get this straight. The government were going to give me $1000..... for free..... and YOU SAID NO!"

mattwnz

20141 posts

Uber Geek

#924792 31-Oct-2013 14:39

hashbrown:
mattwnz: They may resent you for it.

They may also resent you for not doing it.

"So Mum/Dad, let me get this straight. The government were going to give me $1000..... for free..... and YOU SAID NO!"

Yes, until you tell them that you couldn't get it until you are possibily 70 or even more if the retirement ages goes up by more. It is not as though they can withdraw that for a first home either or pay for uni. Plus we don't know it will get withdrawn as an incentive either, as the government doesn't need to pay it out until retirement age.

hashbrown

463 posts

Ultimate Geek

#924826 31-Oct-2013 15:10

mattwnz: It is not as though they can withdraw that for a first home.

Wrong. By the time they are able to buy a first home, the investment returns will dwarf the original $1000 and you are able to withdraw investment returns.

mattwnz

20141 posts

Uber Geek

#924842 31-Oct-2013 15:26

hashbrown:
mattwnz: It is not as though they can withdraw that for a first home.

Wrong. By the time they are able to buy a first home, the investment returns will dwarf the original $1000 and you are able to withdraw investment returns.

You can only withdraw your own contributions plus returns (if any), less I believe the fees. If in a cash fund, the returns on $1000 less fees are likely to be tiny, unless yo go in a fuind that doesn't charge fees for people under 18. You can't withdraw any government contributions or the kickstart. I know because I tried to apply, and amount I could get wasn't really much more than I had contributed, even though I have been in it for 5 years. Not unless you qualify for a subsidy but that has some major restrictions. The other thing to note is that you can only withdraw it if you use a lawyer, and the lawyers tend to charge $250, just to apply for the kiwisaver withdrawal on your behalf, which is a large percentage. The only reason I bothered with the withdrawal, as my lawyer did it for free as part of the conveyancing, but every other lawyer I tried does charge.

I recall that someone has done some calculations on this somewhere, and whether they thought it was worth getting children signed up or not.

hashbrown

463 posts

Ultimate Geek

#924947 31-Oct-2013 18:00

mattwnz: You can only withdraw your own contributions plus returns (if any), less I believe the fees. If in a cash fund, the returns on $1000 less fees are likely to be tiny, unless yo go in a fuind that doesn't charge fees for people under 18. You can't withdraw any government contributions or the kickstart. I know because I tried to apply, and amount I could get wasn't really much more than I had contributed, even though I have been in it for 5 years. Not unless you qualify for a subsidy but that has some major restrictions.

1. Why a cash fund for a child? Growth fund or you're doing it wrong

2. We're talking about 20-30 years of compounded gains, not 5.

mattwnz: I recall that someone has done some calculations on this somewhere, and whether they thought it was worth getting children signed up or not.

3. Let's try an actual calculation.

Taking the Sorted 8.3% figure, with 1.3% fees (7% net) and a 10.5% marginal tax rate over 20 years. This calculator shows a result of $3,371, $2,371 of which would be able to be withdrawn.

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mattwnz

20141 posts

Uber Geek

#924994 31-Oct-2013 18:54

hashbrown:
mattwnz: You can only withdraw your own contributions plus returns (if any), less I believe the fees. If in a cash fund, the returns on $1000 less fees are likely to be tiny, unless yo go in a fuind that doesn't charge fees for people under 18. You can't withdraw any government contributions or the kickstart. I know because I tried to apply, and amount I could get wasn't really much more than I had contributed, even though I have been in it for 5 years. Not unless you qualify for a subsidy but that has some major restrictions.

1. Why a cash fund for a child? Growth fund or you're doing it wrong

2. We're talking about 20-30 years of compounded gains, not 5.

mattwnz: I recall that someone has done some calculations on this somewhere, and whether they thought it was worth getting children signed up or not.

3. Let's try an actual calculation.

Taking the Sorted 8.3% figure, with 1.3% fees (7% net) and a 10.5% marginal tax rate over 20 years. This calculator shows a result of $3,371, $2,371 of which would be able to be withdrawn.

You have to be doing very well to get 8.3% over 20 years. Also say they want to withdraw in 18 years to buy a house, is a growth fund really the best fund to be in as you are going to get booms and busts during that period. I would say growth would be better for a far longer period. Also you have to take into account inflation and buying power and the fact that house inflation has gone up well beyond inflation in recent years. $2300 in 20 years time will be likely to have far less buying power than $1000 dollars in todays money.

I tried the sorted website to see what the fees on a growth fund would be over 20 years, and the cost looks to be $1000, and for some providers quite a bit more. The conservative funds such as cash ones have lower fees.

hashbrown

463 posts

Ultimate Geek

#925036 31-Oct-2013 19:41

mattwnz: You have to be doing very well to get 8.3% over 20 years

Your opinion based on what exactly? Current growth funds are doing over 20% and the 8.3% figure came from a reputable site.

mattwnz: Also say they want to withdraw in 18 years to buy a house, is a growth fund really the best fund to be in as you are going to get booms and busts during that period. I would say growth would be better for a far longer period.

Kiwisaver is a retirement scheme and we are talking about $1000 here. If it's not at a peak when the kids need to buy a house it won't be the end of the world.

mattwnz: Also you have to take into account inflation and buying power and the fact that house inflation has gone up well beyond inflation in recent years. $2300 in 20 years time will be likely to have far less buying power than $1000 dollars in todays money.

Based on what inflation rate? At 3% I make it a bit more than $1000 of today's money.

mattwnz:I tried the sorted website to see what the fees on a growth fund would be over 20 years, and the cost looks to be $1000, and for some providers quite a bit more. The conservative funds such as cash ones have lower fees.

Then either the sorted website is broken or you did it wrong. There is no way 1.3% over 20 years becomes anything like $1000

blakamin

4431 posts

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Inactive user

#925131 31-Oct-2013 21:31

hashbrown:
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.

I had 3k in an Aussie super account, untouched for the 10 years I was in NZ. Never looked at it until about a month ago. It was $300 after fees... What makes you think that wont happen in NZ over the next 70 years?

TinyTim

1042 posts

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#925175 31-Oct-2013 22:01

blakamin:

I had 3k in an Aussie super account, untouched for the 10 years I was in NZ. Never looked at it until about a month ago. It was $300 after fees... What makes you think that wont happen in NZ over the next 70 years?

What type of investment and what were the fees?

mattwnz

20141 posts

Uber Geek

#925199 31-Oct-2013 22:40

hashbrown:
mattwnz: You have to be doing very well to get 8.3% over 20 years

Your opinion based on what exactly? Current growth funds are doing over 20% and the 8.3% figure came from a reputable site.

mattwnz: Also say they want to withdraw in 18 years to buy a house, is a growth fund really the best fund to be in as you are going to get booms and busts during that period. I would say growth would be better for a far longer period.

Kiwisaver is a retirement scheme and we are talking about $1000 here. If it's not at a peak when the kids need to buy a house it won't be the end of the world.

mattwnz: Also you have to take into account inflation and buying power and the fact that house inflation has gone up well beyond inflation in recent years. $2300 in 20 years time will be likely to have far less buying power than $1000 dollars in todays money.

Based on what inflation rate? At 3% I make it a bit more than $1000 of today's money.

mattwnz:I tried the sorted website to see what the fees on a growth fund would be over 20 years, and the cost looks to be $1000, and for some providers quite a bit more. The conservative funds such as cash ones have lower fees.

Then either the sorted website is broken or you did it wrong. There is no way 1.3% over 20 years becomes anything like $1000

ASBs own figures since kiwisaver begun. Infact the conservative funds have performed just as well over that 5 year period as the growth one. The only reason the growth one has done as well, is due to good performance over the last few years. Sure, shares maybe up a lot over recent years, but that averages out over a long period of time with bubbles and busts. You could say that there is currently a bit of a bubble on current share values for example.
Where are you getting the 1.3% figure from? If you use the sorted website, and only have the $1000 kick start in it, and make no other contributions, and you tell it that you will retire in 20 years time, that $1000+ is the fees on a growth fund that it spits out. It is less for conservative or cash funds, as there is less work involved.

nakedmolerat

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#925239 1-Nov-2013 00:01

blakamin:
hashbrown:
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.

I had 3k in an Aussie super account, untouched for the 10 years I was in NZ. Never looked at it until about a month ago. It was $300 after fees... What makes you think that wont happen in NZ over the next 70 years?

This is one good example why kiwisaver type scheme is useless in general. If you have great self-discipline, we don't need this sort of stuff.

TinyTim

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#925344 1-Nov-2013 08:53

mattwnz:

ASBs own figures since kiwisaver begun. Infact the conservative funds have performed just as well over that 5 year period as the growth one. The only reason the growth one has done as well, is due to good performance over the last few years. Sure, shares maybe up a lot over recent years, but that averages out over a long period of time with bubbles and busts. You could say that there is currently a bit of a bubble on current share values for example.

Five (or six) years isn't long enough to estimate a long-term return on the sharemarket. You need at least one full cycle of boom and bust. (Thus, if you're only investing for five years, be very very careful before investing in the sharemarket.)

Of course growth fund performance since kiwisaver started is poor: Kiwisaver started in 2007 and we all know what happened straight after that.

In fact, the graph on this NZ Herald article is a good indication of what the sharemarket has done over that period, compared with long term. It's hardly representative.

(If you want to go back further you can see the massive 1987 crash in the graph on this webpage: https://www.smartshares.co.nz/smartkiwi/aboutsmartkiwi/investments/)

Get in now before it gets too overpriced again.

hashbrown

463 posts

Ultimate Geek

#925350 1-Nov-2013 08:59

blakamin: I had 3k in an Aussie super account, untouched for the 10 years I was in NZ. Never looked at it until about a month ago. It was $300 after fees... What makes you think that wont happen in NZ over the next 70 years?

The same way I know when the alien overlords take over in 2051 they won't ban the use of our earth money. It hasn't happened yet.

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