Meet Jane* – one of National Capital’s clients. In this blog post, we’ll take a look at how Jane used National Capital’s KiwiSaver recommendations to better align her KiwiSaver strategy with her current situation and goals.
*The names and identifying details in this blog have been changed to protect the privacy of individuals.
Jane’s Profile
Jane is currently 63 years old and works a few days a week as a relief teacher at her local primary school. Her gross annual income is $25,000 and she contributes 10% of this to her KiwiSaver account while her employer contributes 4%. Jane currently has $275,000 in a Balanced KiwiSaver fund. She plans to retire at 70 where she assumes she’ll need weekly expenses of approximately $750 in retirement.
Although Jane has what seems to be a relatively large KiwiSaver balance, due to the rising cost of living and some short term cash needs, she is not sure that her KiwiSaver money will last through her lifetime. She wanted to check whether her KiwiSaver savings would be able to meet her future needs, especially as she has additional expenses for her partner who requires assisted living.
A colleague mentioned how National Capital offers free, online, KiwiSaver advice, so Jane decided to give it a try.
The Process
On the weekend, Jane spent about 15 minutes filling out National Capital’s KiwiSaver HealthCheck form. A few days later, James, one of the Authorised Financial Advisors at National Capital, called Jane to get a better understanding of her situation. She talked about the medical costs for her and her partner and that she’s thinking about selling her home to help fund these medical costs. She has an apartment with a mortgage on it and the tenants will be the only way she can afford the healthcare costs for her partner. With her situation, she plans to sell her family home to pay off the mortgage, but she doesn’t intend to downsize until a few more years.
Within a couple of days of the call, Jane receives an email with her KiwiSaver recommendations from James. James also invites her to book another call to talk through her recommendations and answer any questions. Here are National Capital’s recommendations.
The Recommendations
There are three sections to Jane’s KiwiSaver Advice Recommendations, let’s take a look.
Section One: Analysis of your Current Situation
National Capital calculated the lump sum Jane needs when she retires at 70 and based on that, the rate of return she’ll need from her KiwiSaver investment to reach that goal. For Jane to meet her retirement expenses throughout her retirement life, her returns required would need to be similar to the returns expected from a KiwiSaver Growth fund. Here is Jane’s current situation.
As per some questions she answered, Jane’s volatility tolerance showed that she was comfortable with the ups and downs that are expected from a Growth fund. However, in her situation, Jane did not have the capacity to withstand the volatility expected from a Growth fund. Instead, her capacity for volatility was conservative. This is because she only had three years to go until she could withdraw and use her KiwiSaver funds.
| Jane’s Current Situation | ||
| Returns Required | Volatility Capacity | Volatility Tolerance |
| You need to be in | You can be in | You will be comfortable in |
| Growth | Conservative | Growth |
Section Two: Fund Type Recommendation
After taking into consideration Jane’s current situation, it was seen that her current Balanced KiwiSaver fund would not give her the returns she needed. Jane needed to be in a Growth fund. However, that was complicated by the fact that she also needed money for her short-term needs such as the medical costs for her and her partner.
Jane needed a KiwiSaver strategy that would both achieve her goals while protecting her from volatility. The last thing she could afford was a big dip in her KiwiSaver account while she was withdrawing the money. National Capital’s financial advisers worked on Jane’s situation and formulated a strategy which we felt would bring her closer to her goals.
The advice explained that by putting a portion of money in a Conservative fund, Jane could better protect her KiwiSaver balance from ups and downs in the market. As she doesn’t intend to downsize her home soon, once Jane reaches 65 she can withdraw her KiwiSaver funds from this Conservative fund to help meet her short-term needs.
National Capital calculated how much she would need to put in a Conservative fund and recommended to Jane that she:
- Move $75,000 of her existing KiwiSaver money into a Conservative fund, and
- Invest the remainder and all future contributions to a Growth fund.
We knew that circumstances could change for both Jane and in the investment markets. Therefore, the recommendation would be reviewed each year to ensure that the KiwiSaver strategy was still appropriate for her.
Section Three: Provider Recommendation
When Jane filled out her KiwiSaver HealthCheck, she specified that she would like her KiwiSaver provider to consider ethical investing principles and would prefer to have a New Zealand owned provider rather than a big bank. National Capital took these preferences into account to recommend Jane a KiwiSaver fund that was a better fit compared to her current provider.
In Jane’s case, the recommended Conservative fund was Milford’s KiwiSaver Conservative Fund and the recommended Growth fund was the Milford Active Growth Fund.
|
KiwiSaver Fund |
Milford KiwiSaver Conservative Fund |
Milford KiwiSaver Active Growth Fund |
|
Asset Allocation |
Income Assets 76%, Growth Assets 18%, Cash and cash equivalents 6% |
Growth Assets 78%, Income Assets 16%, Cash and cash equivalents 6% |
|
Last 5 years annualised returns |
6% |
9.8% |
|
Estimated annual fund charges |
0.95% |
1.06% |
|
Administration fee |
$36 per year |
|
|
(Source: Morningstar KiwiSaver Survey June 2020) |
||
Milford Asset Management was recommended for Jane due to:
- The funds having reasonable fees in line with other similar funds.
- The asset allocation mix (Growth/Income/Cash) was consistent with what is expected from the respective fund types.
- The recommended fund followed Environmental, Social and Governance investing principles.
- Milford Asset Management is a New Zealand based provider.
The Implementation
After talking through the recommendations with James, Jane decided that it was a good idea to take National Capital’s advice and move her KiwiSaver funds. James and the admin team guided Jane through this process with instructions and communication on how to go about changing providers. The process was 100% online, so Jane could do it all in a few minutes. National Capital also communicated with Milford Asset Management to make the switch even easier for Jane.
The Fees
Throughout this entire process, the advice Jane received from National Capital did not cost her anything. Nor would ongoing advice and monitoring by National Capital cost her.
Her new KiwiSaver provider, Milford Asset Management, would bear the cost of National Capitals fees. Jane would ‘technically’ pay 0.2% for ongoing advice, but Milford would rebate that amount back to Jane’s KiwiSaver account each month. The fees Jane paid Milford would not change whether she used National Capital or not. So essentially Jane receives advice from National Capital at no cost to her.
If Jane Can Do it, You Can Too
By seeking advice from National Capital, not only was Jane able to have more stability in her KiwiSaver account as she neared retirement, but she also had more confidence in her KiwiSaver strategy. Although Jane has sorted out her KiwiSaver account, this is not the end. National Capital continues to monitor Jane’s KiwiSaver account while also staying updated on KiwiSaver research and news. If Jane’s situation changes, she is able to contact National Capital again so the advisors here can recommend her a new strategy that aligns with her new goals.
Do you have your KiwiSaver account sorted out like Jane? By letting National Capital be your KiwiSaver advisors, you can make KiwiSaver decisions based on quality financial advice. You could end up saving thousands more at retirement.
It’s never too late to get financial advice. Do what Jane did – take National Capital’s KiwiSaver HealthCheck.