WEBVTT - Quick Bite: KiwiSaver contributions vs paying off the mortage?

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<v Speaker 1>You're listening to a Shasese podcast, which often get a

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<v Speaker 1>question should I be paying off my mortgage or should

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<v Speaker 1>I be contributing to key we Saver, And obviously you

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<v Speaker 1>should be contributing to key we Saver, But then it's

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<v Speaker 1>how much and what's my emphasis?

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<v Speaker 2>Yeah, So, as a general rule, you contribute to key

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<v Speaker 2>we Saver if you're not in financial hardship, and you

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<v Speaker 2>contribute up to the level that your employer matches. If

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<v Speaker 2>you're self employed, there isn't that much of an incentive

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<v Speaker 2>to contribute beyond what the government will unlock the attacks

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<v Speaker 2>credit for you. But let's say it's three percent. So

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<v Speaker 2>if you had money outside of that, then the question is, well,

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<v Speaker 2>what do I do with it? Well, yes, you could

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<v Speaker 2>put it into key we Saver, and I guess that's

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<v Speaker 2>a form of compulsory saving. But that is assuming that

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<v Speaker 2>you haven't purchased your first home, I guess, And you

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<v Speaker 2>don't need that money for retirement. I guess it protects it,

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<v Speaker 2>it locks it in a vault for you. But for

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<v Speaker 2>most of us, the clients that I'm working with, I

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<v Speaker 2>can put that money to work a lot faster and

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<v Speaker 2>a lot harder than if it was left in a

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<v Speaker 2>kiwisaver fund. So contributing up to the level your employer matches,

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<v Speaker 2>absolutely could put that into Kiwisaver. It's the extra contribution

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<v Speaker 2>that I'm I'm wary of because if I can put

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<v Speaker 2>that money towards paying your mortgage off faster, not only

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<v Speaker 2>are we creating flexibility and financial resilience now that you

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<v Speaker 2>can benefit, but we're creating equity and your property as

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<v Speaker 2>well that we could recycle as a deposit for an

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<v Speaker 2>investment property. And so then you've got kind of three

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<v Speaker 2>layers working hard for you. You've got your this greater

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<v Speaker 2>cash surplus, which increases your resilience, which means you can

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<v Speaker 2>weather storms more comfortably. We've got your mortgage coming down,

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<v Speaker 2>which is saving you interest costs, getting you mortgage free faster,

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<v Speaker 2>and also creating equity in your home. And then we're

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<v Speaker 2>tapping into that equity as a deposit for an investment property.

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<v Speaker 2>Those three things will outperform any ke we Saver investment

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<v Speaker 2>kind of any day of the week, any extra key

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<v Speaker 2>we Saver investment beyond what your employer matches.

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<v Speaker 1>But the beauty of compound interest, obviously you need to

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<v Speaker 1>be contributing something though so that you can take advantage

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<v Speaker 1>of time.

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<v Speaker 2>Yes, but yes, but I do think that the benefit

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<v Speaker 2>of ki We saver isn't really the compound interest, and

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<v Speaker 2>it isn't really time. It's the fact that your employer

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<v Speaker 2>is contributing, so you're getting one hundred percent return. That

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<v Speaker 2>is the beautiful thing. The actual fund that you're investing

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<v Speaker 2>in after inflation in some of those things might actually

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<v Speaker 2>give quite a poor return, but getting access to that

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<v Speaker 2>employer money is the golden ticket for Kiwi saver. So yes,

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<v Speaker 2>having it locked up so you can't touch it is

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<v Speaker 2>also helpful because you don't inadvertently fritter it away. But

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<v Speaker 2>it's more that it's just locked up for a long

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<v Speaker 2>period of time rather than the based performance of the fund,

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<v Speaker 2>which is where I guess that compounding concept comes in.

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<v Speaker 1>What are some of the biggest mistakes Then you see

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<v Speaker 1>that people make.

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<v Speaker 2>I think a lot of Kiwis are sleep walking towards

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<v Speaker 2>their retirement and there's sort of this hope that it'll

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<v Speaker 2>be okay. They were brought up by parents or grandparents

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<v Speaker 2>where it was okay, so you could see why they

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<v Speaker 2>would make that conclusion. But for most of us that

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<v Speaker 2>isn't going to be the case, and so then you say, well,

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<v Speaker 2>what is not being okay actually mean? Because no one's

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<v Speaker 2>dying as a result of not having their retirement, but

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<v Speaker 2>the impact of not having enough save for your retirement

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<v Speaker 2>and Kiwi saber normally accounts for around forty percent of

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<v Speaker 2>what you are likely to need for retirement. So it's helpful,

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<v Speaker 2>but it's not the silver bullet. It's better than no bullet,

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<v Speaker 2>but it's not the silver bullet. I've got to work

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<v Speaker 2>out what to do with the rest. So if you

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<v Speaker 2>haven't been able to amass the rest of them money

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<v Speaker 2>that you needed, then it just is going to mean, well,

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<v Speaker 2>you're going to need to downsize your home earlier, you

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<v Speaker 2>might need to work longer, You're unlikely to have the

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<v Speaker 2>retirement you want, or be able to help the kids

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<v Speaker 2>as you expect it. I don't think any of those

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<v Speaker 2>things are literally the end of the world, but it

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<v Speaker 2>is disappointing, I think for many of us when we

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<v Speaker 2>know that we have earned good income, so why is

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<v Speaker 2>that our financial reality Investing involves risk you might lose

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<v Speaker 2>the money you start with. We recommend talking to a

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<v Speaker 2>licensed financial advisor. We also recommend reading product disclosure documents

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<v Speaker 2>before deciding to invest,