Would you throw away free money? Would you decline if someone said "Here, have this" and shoved a whole wad of cash into your hand? Would you say no if your employer decided "to hell with it, we're giving extra money to all our employees"?
Of course you wouldn't. Saying no to free money isn't something many of us would do.
But that's what a lot of people are doing if they are not using Employer Contributions in one of their retirement plans.
Tossing Away Free Money
MighyBargainHunter says it better than I could: these people are Tossing Away Free Money. Granted, it's not money you will see for a long time but that's probably why people don't think of it as real. I'll tell you what though, when I reach retirement age, it'll definitely feel real in comparison to people who did say no.
After all, you're working anyway so why wouldn't you want to make the most of it.
Should I Join?
As always, that depends, and as always, you need to look into it yourself. You need to figure out (along with your financial planner) what kind of money you need for retirement, what age you want to retire and what standard of living you want to have. All of these choices must be factored in. Of course, you don't know what the future brings but you can only plan on what you know rather than what you think might happen.
One thing you do know is that if you're saving 4% of your salary and your employer is giving you 4% of your salary on top of that, you're basically doubling your chances of coming out on top in the long run, if not more.
Note: New Zealand specific section.
I have heard a number of detractors of KiwiSaver and I'm sure they are all valid concerns. Yes, I know it's not guaranteed by the Government but then what is? Your house? No. Your shares? No. Your savings? No. How is this any different? (Yes I know that certain bank accounts in the States are insured by FDIC but that doesn't affect us in New Zealand.) 2008-10-07 Interesting Update: There are now calls for a bank insurance.
Call me simple if you like but the way I see it is:
- you give 4% or 8%
- your employer gives (currently) 1%, rising to 4% by 2011
- you get an initial $1,000 from the Government
- you get tax-breaks paid in as well
That's a lot of free money any way you look at it.
Of course, if your KiwiSaver plan invests in stocks and property, you may end up losing a lot of money. However even before you've chosen your plan, you've more than doubled-your-money so hopefully the plan won't go down as much as that.
Looking at it like that, you're still ahead and you also have the option of more conservative funds which also takes out a lot of the risks (though for a possibly lower return). Overall, the fact that your employer takes out your contributions before your salary has hit your bank account, makes it the easiest and simplest ways to save for retirement in New Zealand.
Let me put it another way. I joined KiwiSaver a year ago and already I have a few thousand dollars more than I would otherwise have. All I did was fill in the form and that took about 10 minutes. Not a bad return already.
Have you started a retirement plan yet? Are you getting free contributions from your employer? Do you get any tax breaks from your Government (please state your country)? Or are you doing none of these things and why? Let us know.