How To Make The Most Of KiwiSaver

Navigating the financial landscape can be tricky, especially with high interest rates and inflation creating uncertainty. But amidst these economic unknowns, KiwiSaver stands out as a beacon of stability and opportunity.

Whether you're saving for your first home or planning for those fun-filled golden years, KiwiSaver is your ticket. By making smart choices now, you can build a substantial nest egg that lets you enjoy life's adventures, from homeownership to retirement escapades, regardless of market fluctuations.

KiwiSaver was born on July 1 2007, and is now well into its teenage years with over 3.3 million active members. Together, we’ve amassed over $115 billion in savings!

At the end of 2023, the average balance was $31,823 - that's a 16% increase in one year! It's thanks to rising markets but more importantly regular contributions.

Many factors influence our KiwiSaver balance such as; age, employment, location, fund type and fees.

Some of these factors, such as the KiwiSaver balance gender gap, will require corporate and government intervention to address.

While the table above gives an insight into where the average balance is for your age and stage, remember that comparison is often the thief of joy. These numbers are averages, and we’ve all got differing incomes, contributions, length of membership, personal needs and objectives. Some have withdrawn for first home, and some have not.

However, there are several ways that we can each influence and make the most of our KiwiSaver, and together this can significantly enhance your retirement nest egg.

Here are some key points to ensure you get the most out of your KiwiSaver:

First things first, make sure you're enrolled in KiwiSaver.

It’s not compulsory, but approximately 96% of the working-age population is enrolled. However, not everyone actively contributes. Over 1 million members have opted out, taken a savings suspension, or simply stopped contributing.

Even if you're self-employed or a stay-at-home parent, there are ways to make KiwiSaver work for you and maximise your future wealth.

Every year, the government gives out around $1 billion in 'government contributions' to KiwiSaver members.

If you are aged between 18 and 65 and live primarily in New Zealand, make sure you contribute at least $1,042.86 to your KiwiSaver between July 1 and June 30.

This way, you'll get the full $521.43 annual government contribution 

The government matches 50 cents for every dollar you contribute, up to that $1,042.86 limit – free money just for saving! Employer contributions don’t count towards this, so make sure you're hitting that mark yourself. Anyone on a 3% contribution with salary or wages earnings of over $35,000 will hit that mark.

Sadly, many Kiwis miss out. Each year, around $500 million isn't claimed because people didn’t contribute enough.

Missing this every year over 10, 20, or 30+ years, along with the lost market returns, means the typical non-contributing Kiwi could be leaving tens of thousands of dollars out of their future retirement.

Pro tip: If you aren’t contributing to KiwiSaver through a salary, set up an automatic payment of $20 a week to get the maximum government contribution.

One of the smartest moves you can make is ensuring you're contributing enough to maximise your savings goals for retirement.

Your KiwiSaver contributions, along with employer contributions and government incentives, can significantly impact your KiwiSaver balance.

• Employee Contributions: You can choose to contribute 3%, 4%, 6%, 8%, or 10% of your gross salary.

• Employer Contributions: Employers must contribute a minimum of 3% of your gross salary.

For those looking to supercharge their savings, consider contributing more than the minimum 3% of your salary.

KiwiSaver schemes typically offer a range of funds, from conservative to high growth, each with different risk levels and potential returns.

Choosing the right KiwiSaver fund is crucial and should align with your financial goals and risk tolerance.

If you're planning for retirement and have a long investment horizon, a growth or high growth fund might be appropriate. These funds typically offer higher returns over time, but with more volatility. Given your horizon, you can handle those fluctuations in value and expect to benefit as a result.

As an example, If you're in your late 30s and already have your first home, opting for a high growth fund could allow compound returns to maximize your savings by the time you retire.

Conversely, if you’re likely to buy your first home within 3 years (remember, you can withdraw most of your KiwiSaver savings, provided you've been a member for at least three years) or are nearing retirement, a conservative or cash fund might be the safer bet to not risk the balance if there is a market downturn.

These funds focus on preserving capital and provide more stability, though the returns might be lower.

Approximately 10% of Kiwis remain in a default KiwiSaver fund, a fund randomly allocated to them when joining KiwiSaver. Today, the default KiwiSaver fund risk type is Balanced. For someone who may not access their KiwiSaver for 10, 20 or 30+ years, not taking a moment to check which fund you are in could have a significant impact on your final balance.

Below is a scenario of how much you could be leaving on the table. (Source Sorted calculator)

Assumptions: You’re 36 years old, have $27,000 in your KiwiSaver balance, earn $80,000 a year, and have no intention of using your KiwiSaver balance for your first home and before inflation.

That's a difference of $167,618!

Using online tools like the Sorted Retirement Calculator can help you visualize your long-term returns based on your contributions and chosen fund. It's an excellent resource for anyone uncertain about how to meet their financial goals with KiwiSaver.

Remember, the key is to start contributing regularly and choose a fund that matches your financial timeline and comfort with risk.

Fees can significantly impact your KiwiSaver returns over time.

In fact, in the 12 months to March 31, 2023, KiwiSaver members paid $664 million in fees.

Understanding how fees work, and their potential long-term effects can help you optimise your investment choices.

To see how fees alone impact an investor's balance, consider an investment of $30,000 with an annual contribution of $5,000 over 35 years with an annual return of 6% before fees:

Knowing what you want to achieve with your KiwiSaver is crucial, whether you’re saving for your first home or planning for retirement. Setting clear goals keeps you focused and on track. Studies show that people who set goals are more likely to achieve them, as goals provide direction and motivation.

Clear goals and regular reviews will help you stay on track. If you find you're off course, take action by adjusting your fund risk profile or increasing your contributions.

With Kernel, you can set a range of goals, allocate your investments, and track your progress.

While many Kiwis know that major banks offer KiwiSaver, there are now 30 investment managers licensed by the Financial Markets Authority (FMA) offering KiwiSaver schemes.

More choice means a better chance of finding a provider that aligns with your needs. Each provider is regulated and audited, independently supervised and assets held by an independent custodian.

Take the time to research and compare providers. Independent sites like Sorted.org.nz or review sites like Moneyhub.co.nz and Moneyking.co.nz can help you find the information you need.

• Open an account online with your new provider,

• Select your fund options,

• and sit back.

There's no need to notify your existing provider or employer, the new provider does all the work. The switch usually takes around 10 business days.

Take a moment each year to review your KiwiSaver account. Stay informed about changes to make better decisions and maximize your retirement fund.

Use your annual KiwiSaver Statement, which arrives by the end of June, as a prompt to review your progress, fund type, contribution rate, and fees. These key decisions could be worth hundreds of thousands of dollars and impact future you.