Ask Susan: I have a mortgage, should I have KiwiSaver?

Thursday, 28 June 2018

My partner and I have recently bought our first home and it's come with a significant mortgage. We used our KiwiSaver accounts to pay for it. Now that we've got a home loan, it's hard to get the motivation to start contributing to KiwiSaver again. Should we just focus on getting rid of our home loan instead?

I can understand your quandary. Generally, people are told to get rid of debt before they look to invest, because nothing gives you as certain and good a return as the saving you get from not having to pay interest on your loan.

I'd argue that KiwiSaver is a bit different, though. For the first $1042 you put in each year, your return just from the government's member tax credit is 50 per cent. That's worth having.

Beyond that, how your employer (if you have one) approaches KiwiSaver may affect your decision.

If it's a total salary package - where your KiwiSaver employer contribution is just part of your total pay deal - then if you're not contributing to the scheme, you'll get more in the hand and could put that straight on your home loan. This would make sense.

But if the 3 per cent from your employer is in addition to your salary, and you'd miss out on it if you did not contribute to KiwiSaver, it probably makes sense to take it.

If you're self-employed you might just decide to stick with the $1042 a year, giving you more money to invest in your business as well as pay down your loan.

I'd caution against waiting to save for retirement until you are mortgage-free. Some of us are likely to be in our 50s before this happens - that's quite late in life to start saving for retirement. It's much easier if you save a little, often, through most of your working life.

Do you have a personal finance or consumer question? Email susan.edmunds@stuff.co.nz