How To Make The Most Of KiwiSaver & Grow Your Balance | Lighthouse Financial

How To Make The Most Of KiwiSaver & Grow Your Balance Episode 167

KiwiSaver is your ticket to a secure future, whether you're aiming to buy your first home or retire comfortably. In this episode of Cheques & Balances: The Takeover, Jess & Makayla break down KiwiSaver, covering its benefits, risks, and the importance of making an active choice.

What is KiwiSaver?

KiwiSaver serves as a voluntary savings initiative in New Zealand, aiming to help individuals accumulate funds for both homeownership and retirement. This scheme operates under the management of fund managers who oversee the investment of your contributions.

These contributions are strategically diversified across a range of portfolios, each designed to accommodate varying levels of risk tolerance. By offering this diversification, KiwiSaver aims to optimise returns while minimising potential risks for its members.

Benefits of KiwiSaver

  1. Retirement Savings: Saving for retirement is essential, as relying solely on NZ Super may not provide enough financial security. The 2023 NZ Retirement Expenditure Guidelines indicate that a couple’s NZ Super is around $40,000 per year. However, for a ‘No Frills’ lifestyle, annual expenditure is about $51,000 in metro areas and $44,000 in provincial areas. For those aiming for a ‘Choices’ lifestyle, the costs rise to approximately $87,000 in metro areas and $70,000 in provincial areas. KiwiSaver helps bridge this gap, providing a structured way to accumulate the additional funds needed for a more comfortable retirement.
  2. Assistance in Homeownership: KiwiSaver offers a pathway to homeownership through the First Home Withdrawal (FHW) scheme. Members who have been contributing to KiwiSaver for at least three years may be eligible to withdraw their savings, excluding the government contributions and investment earnings, to put towards the purchase of their first home. This initiative aims to support individuals in achieving their homeownership goals by providing access to their KiwiSaver funds as part of their deposit.
  3. Professional Management: KiwiSaver funds are managed by professional fund managers who ensure your investments are diversified and strategically allocated. The top holdings in a typical KiwiSaver portfolio only make up 2-2.5% of the total, reducing the risk of overexposure to any single investment. This professional oversight helps maximise returns while managing risk, giving you peace of mind that your savings are being handled by experts.
  4. Variety of Funds: KiwiSaver offers a range of funds tailored to different risk tolerances and financial goals. You can choose from various fund types, such as Defensive, Conservative, Moderate, Balanced, Growth, and Aggressive funds. Defensive and Conservative funds focus more on income assets, providing stability and lower risk, while Balanced, Growth, and Aggressive funds have higher exposure to growth assets, aiming for higher returns at increased risk. This flexibility allows you to align your investment strategy with your life stage and financial objectives.

Employer and Government Contributions

  1. Employer Contributions: Employers are required to contribute a minimum of 3% of your salary to your KiwiSaver account, providing an additional boost to your savings. While this contribution rate may seem modest compared to Australia’s 11% Superannuation, it still represents a significant addition to your retirement funds. These employer contributions serve as a valuable incentive for individuals to actively participate in KiwiSaver and build their retirement savings over time.
  2. Government Contributions: The government offers a generous contribution incentive to KiwiSaver members. For every $1,042 you contribute annually to your KiwiSaver account, the government adds $521. This means that by contributing to your KiwiSaver regularly, you can effectively double your savings through government contributions. This benefit is particularly advantageous for self-employed individuals who may not have access to employer contributions, making it essential for them to take full advantage of this government incentive to bolster their retirement savings.
  3. Locked-in Savings: While KiwiSaver funds are generally locked in until retirement age, there are specific circumstances in which you can access your savings earlier. In cases of financial hardship or serious illness, you may be eligible to withdraw funds from your KiwiSaver account to alleviate financial strain or cover medical expenses. Additionally, KiwiSaver can be used to facilitate first home purchases, providing a pathway to homeownership for eligible members. Despite these early withdrawal options, the primary purpose of KiwiSaver remains long-term retirement savings, with early withdrawals intended to address genuine financial need or significant life events.

Making an Active Choice in KiwiSaver

  1. Evaluating Provider Values and Performance: When selecting a KiwiSaver provider, it’s essential to consider more than just the numbers. Take the time to research and understand the values and principles of each provider. Ensure that their approach to investing aligns with your own beliefs and priorities. Additionally, compare the performance of different providers over an extended period to gauge their consistency and reliability. By prioritising providers whose values resonate with yours and who have a strong track record of performance, you can feel confident in your decision and maximise the potential growth of your KiwiSaver investment.
  2. Assessing Risk Levels: KiwiSaver offers a range of funds tailored to different risk profiles, from conservative to aggressive. When choosing a fund, consider your current life stage, financial goals, and comfort level with risk. Younger investors with a longer time horizon may opt for more aggressive growth-focused funds, while those nearing retirement may prefer more conservative options to safeguard their savings. By selecting a fund that aligns with your individual circumstances and risk tolerance, you can optimise your KiwiSaver investment strategy and work towards achieving your long-term financial objectives.

Conclusion & Key Takeaways

By making informed and active decisions about your KiwiSaver, you can optimise your savings strategy, ensuring a more secure financial future.

    1. Maximise Retirement Savings: KiwiSaver provides a structured approach to saving for retirement, supplementing NZ Super to ensure a more financially secure future. Understanding the retirement expenditure guidelines and leveraging KiwiSaver’s professional management can help bridge the gap between your retirement goals and current savings.
    2. Leverage Contributions: Take advantage of employer and government contributions to bolster your KiwiSaver balance. While employer contributions provide a significant boost to your savings, government contributions effectively double your contributions, making regular contributions crucial for maximising your retirement savings.
    3. Make Informed Choices: When it comes to KiwiSaver, not all providers and funds are created equal. Researching provider values, performance, and risk levels is essential for making informed investment decisions. By aligning your fund choice with your financial goals and risk tolerance, you can optimise your KiwiSaver investment strategy and work towards achieving long-term financial security

For a no obligation discussion to see how we can help you on the path to wealth, please contact us.

The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.