Spring is in the air and it is a good time to take a fresh look at your retirement savings plans.
There have been many changes in retirement savings in recent times that mean you should review any schemes you signed up for prior to the introduction of KiwiSaver in October, 2007. At that time, a new type of savings and investment product was introduced, called a Portfolio Investment Entity (or PIE). There are significant tax benefits to be gained from switching from an old-style product to a PIE. Before you pull out of an old-style product, you need to check a couple of things. Check whether there are any penalties for early withdrawal and whether there is any insurance cover attached to your savings plan. You will need to make sure you can replace this cover, if still needed, before you stop your policy. There may also be additional bonuses you might be eligible for by staying with your old plan. With most of these old products, even if your funds are locked in until you reach a certain age, you will have an option of suspending your contributions indefinitely, so that you can keep them going to maintain your insurance cover, get your bonuses or avoid paying huge withdrawal penalties, while putting your new savings into a more modern product. Your first choice for a new retirement savings product should be KiwiSaver, but only put in the minimum contribution to get the maximum matched tax credit ($1,040 per year) as your funds will be locked in until you reach retirement age. Your next choice is a diversified Portfolio Investment Entity. Over a long period of time, the difference between a good retirement savings plan and a bad one can make a huge difference to your retirement nest egg.
Liz Koh is a financial adviser. Her disclosure statement can be obtained free of charge by calling 0800 273 847. Author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, Awa Press, March, 2008. For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com
