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quote: Originally posted by skinny
quote: Originally posted by CJ
quote: Originally posted by rmbbrave
When I move back to NZ next year...
I will be opening an account for my 2 year old. (She doesn't have to pay anymore after that)
Ka-ching! - $1000.
By the time she starts working she will have had the account for more than 5 years and would be able to get $5000 to buy her first house (assuming things don't change.)
Why not put in $1000 per year (no need for gift thing to IRD or wont count towards the $27k) and the government will match the contribution? Does that work?
As said on the Govt. budget thread, I checked it out and it appears that the government will match up to $20 per week to kiwisaver accounts for non wage/salary earners under 65.
Government will matchup to $20 per week to kiwisaver accounts for those between 18 and 65. So my cunning plan doesn't work for the kids but will for the unemployed wife, or kids a uni.
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Member
I haven't looked through this whole thing thoroughly , but it looks like a good choice for me to contribute $20 a week and get matched, and get the $1000, and then get the $5000 for a house after 5 years (?). And then just withdraw all the money and put it towards a house.
Disc: 18, student.
[edit - or not, seems you must contribute the whole 4% of income thing to get the housing subsisidy.]
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Even if you dont get the subsidy, you can still pull your money out to buy a house. with the government contribution, over a short period of time, that is a 100% return on money.
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Member
Anyone done any number crunching on the merits for the self employed?
Is it worth forming a company, and matching your workers (own) contribution? There is a degree of self interest here, as I'm thinking seriously it could be worth a go, assuming you go for a scheme that wont rip you off.
I'm a dedicated follower of Gareth Morgan, as I reached the same conclusions on investment/insurance funds independently back in my youth. When I saw the insurance policies mature that my parents and contempories signed up for when they started work I saw the light. When they took the policies out they were thinking a new car and world trip at retirement, what did they get, a new washing machine.
A govt subsidy may not be enough if your fund doesn't give a reasonable yield after all the fees, allocations into "reserves" etc.
But, assuming you go for a decent fund, is it worth while for a 50 plus self employed (but not yet high income) share trader?
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I went to a Kiwisaver pitch by one of the scheme providers yesterday.
It seems obvious that the march towards compulsion will be a fairly quick one (less than 5 years IMO).
For those who do not have the skills or desire to be active investors it's ideal. Low risk, low maintenance.
For those of us who are used to making our own decisions it's no where near aggressive enough.
The big winners are the scheme providers, who suddenly got the whole workforce thrown in their lap as customers. The revenue stream for the providers will be unreal.
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We already have compulsion. Starts at 1% up to 4% made by the employer.The only change I see is that if you opt out, they will still make it compulsory for the employer to make payments.
Employers ahve already raised the issue with this. If they have two identical employees and both should be on $100k. If one opts in and the other opts out, they will be on a different total package. You give the one on less, more cash in hand so that it is equal and then they opt in and you have to give them a salary cut? Not practical
quote: Originally posted by Serpie
It seems obvious that the march towards compulsion will be a fairly quick one (less than 5 years IMO).
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Do you join Kiwi saver or not?
Person A earns $50,000 gross and wants to buy a house in 5 years time and can afford to put $10,000 into kiwisaver/mortgage payments .
Person B earns $50,000 gross and also want to buy a house in 5 years time and can afford to put $10,000 into mortgage payments
Person A joins KiwiSaver so after 5 years the tax payer will give over $5,215 in tax credits – which can’t be used for the house. There is also $200 worth of Fund Fees that will be paid into the account over 5 years. Of Person A’s $10,000, $2,000 will have been paid to KiwiSaver and $8,000 into personal savings.
After 5 years Person A has $40,000 in personal saving and $10,000 in KiwiSaver that can be withdrawn for the house deposit. The tax payer will stump up another $5,000 for the house deposit so there is a total $55,000 deposit. Half the KiwiSaver deposits can go into paying the mortgage - $1,000 a year will still go into KiwiSaver leaving $9,000 for the mortgage repayments – meaning you can borrow $85,463 (at 10.00% for 30 years at Kiwibank). Total buying power is $140,463.
Person B puts all the $10,000 into personal saving so after 5 years has a $50,000 deposit. The whole $10,000 can go into the mortgage payments meaning a mortgage of $104,379. (includes an extra $1,000 a year negotiated pay rise from the employer to match KiwiSaver contributions) Total buying power is $154,379.
So Person A has to buy a cheaper house (but has the benefit of some funds in a Superannuation account) than Person B
After the extra 30 years Person A will have $733,000 in total assets. ($1,000 initial tax payer start up, $5,215 in first 5 year tax credits, $30,000 in an extra 30 years of tax credits, $30,000 in personal deposits into Kiwisaver plus $30,000 in employer contributions – all growing at 5% a year) plus $607,072 in house value ($140,463 at 5% compounded growth over 30 years)
After 30 years Person B will have $667,217 in total assets ($154,379 compounding at 5% ).
Alternatively Person B could end up $903,768 - by buying the $140,463 house and dropping the mortgage back by $13,916. This means his loan would have been paid off in 17.39 years leaving 12.6 years to save $11,000 compounding at 5%.
On the face of it Person B will be better off if he buys the same house as Person A but less well off if he goes for the dearer house.
Kiwisaver isn’t really stacking up under this scenario.
But what would happen if the Govt just gave the person the money directly? – see my next post.
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See my previous post.
Is the govt misguided with the use of tax payer funds to help people with their home buying aspirations?
Lets say the govt left the person to their own devices but gave them the tax payer cash for house buying instead of going to KiwiSaver
After the first 5 years the person would have a $66,095 deposit ($50,000 saved plus $1,000 start up + $5,000 deposit assistance + $5,215 in tax credits + $200 in account fee help + $4,680 ($1,040 employer payment refund x 4.5 years)).
The person has $12,283 for mortgage repayments ($10,000 of their own money plus the govt is prepared to stump up $1,043 a year in tax refunds + $200 in account fees + $1,040 employer refunds) meaning a mortgage of $116,571.
So this person could buy a house worth $182,666 and have it paid off in 30 years.
In 30 years total assets would be worth $789,471 – better off than Person A.
Alternatively this person could end up $1,056,111 - by buying the $140,463 house (growing at 5% PA = $607,602) and dropping the mortgage back to $74,368. The loan would be paid off in 9.35 years leaving 20.65 years to grow the $12,283 annual repayments = $448,509.
Again KiwiSaver doesn’t stack up as a means of creating wealth for the individual.
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Alternatively "kiwi-saving" becomes a cultural norm, the NZX now hosts an additional 140 publicly listed companies, including 7 or 8 reasonable sized New Zealand based multinationals (plus a few more existing business like Fonterra who saw the benefits of deeper financial markets). Most of these companies make strategic decisions in NZ, including supporting international infrastructure like IT from a local base. Capitalisation rates have decreased, increasing the value of companies and helping support innovation and expansion. Employment of higher values jobs in IT, law, finance, operations & strategic management, R&D, consulting etc expands, while salaries rise on the back of higher productivity. Small businesses benefit from the larger pool of medium to larger enterprises. The trade balance is strongly positive despite the $NZ trading at parity with $US. Thanks to increased ownership of local business and foreign trading subsidiaries, balance of payments are neutral. New Zealand inc are now world leaders in 2 or 3 industries that didn't even previously exist. Employers still face issues with tight labour markets but thanks to increased corporate activity and higher gross wages, tax rates are reduced to less than 30% of GDP despite a doubling of the health spend per capita. Everyone, from home owners to Non-Kiwisavers are richer as a consequence of the expanded savings pool, but few don't "kiwi-save" and the benefits of leveraged housing over un-leveraged saving have evaporated thanks to strong financial markets and reduced tax rates.
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