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KiwiSaver helps resist temptation
 
Q.     I enjoyed your recent article which described how a young couple could use KiwiSaver to buy their first home. Can you create a scenario showing some of the benefits of KiwiSaver for older people?
 
A.     Not everyone agrees but I believe one of the best features of KiwiSaver is that it is difficult to get your money out of it, until you turn 65 (and have been a member for at least 5 years).
 
Many of us have lost the ability to spend less than we earn. We are bombarded by clever marketing day after day with the sole aim of getting us to spend more. The pressure is on to upgrade our phone, laptop or TV plus meet the ongoing cost of rent, food, power, insurance, running a car and (if there’s any money left) clothing, sport and entertainment.
 
A few of us stick to a tight budget. The rest rely on our internal barometer which tells us how much we are earning, and depending on our nature and upbringing we either overspend or underspend accordingly. KiwiSaver is one way to divert our income before it even hits our bank accounts. Like PAYE, it is taken out of our spending equation and locked away for future use.
 
Let’s create a scenario with a couple in their forties, Ben and Rachel. They have three teenage children. Ben has a good job as a team leader at Watties while Rachel works part-time at a local kindergarten. They have just finished paying off the mortgage on their modest 3 bedroomed home in Hastings. They have a very good relationship and usually agree on money matters.
 
Because Ben earns more working full-time, his KiwiSaver balance is $18,700. Because she works part-time Rachel has a balance of $7,500. 
 
Rachel’s Aunt Laura dies and leaves her a legacy of $20,000. This is totally unexpected. They have several family discussions about what they should do with the money. The kids want a trip to Disneyland. Ben would like a new car. 
 
Rachel decides that because the money was left to her, she should have the final say on how the money is spent. She was close to her aunt who never had children herself and spent years working overseas as a nurse for the Red Cross. She asks herself ‘What would Aunt Laura want me to do with this money?’
 
Rachel knows that a large sum like that would be hard to save but easy for a family of five to spend. She decides to put the money away where it can’t be touched, so she adds it to her KiwiSaver account. She is in a ‘lifestages’ fund which she knows will automatically adjust her asset allocation, reducing risk as she gets older. She is happy with the returns the fund has been achieving. 
 
Her aunt’s legacy will have 20 years to grow into a substantial sum and help to make their retirement more comfortable. She tells the children that they can all save up for a holiday and Ben can continue to use the car he has as it is only 5 years old and running well.
 
KiwiSaver funds can be accessed for a first home purchase, permanent emigration, significant financial hardship or serious illness. Should the need arise, Rachel can apply to withdraw some of her funds on any of these grounds.
 
 
Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz. or email shelley.hanna@peak.net.nz
Published in the Hawkes Bay Today 29 January 2013