Welcome to KiwiSaver! You can contribute 3%-10% of your income, often matched by your employer, into various funds. Tips: choose your fund wisely, consider increasing contributions, claim government benefits, and stay calm during market changes. KiwiSaver is for the long term.
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“I’m new to Kiwisaver, so interested in everyone’s ideas.”
(Original question on Reddit)
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Welcome to KiwiSaver! It’s a significant step in saving towards retirement or your first home. First, before we get into the tips, it’s essential to understand what KiwiSaver exactly is. KiwiSaver is a voluntary savings scheme, so you can choose how much you want to contribute towards your retirement. You can choose from 3%, 4%, 6%, 8% or 10% of your gross income (before tax) wage or salary regularly.
In most cases, your employer will then match part of your contribution. The money is then invested on your behalf by a KiwiSaver provider into a KiwiSaver fund of your choice. Different types of KiwiSaver funds range from Cash to Aggressive funds. As KiwiSaver is meant for retirement, you can’t start spending it until 65. However, you can withdraw money in particular situations, including buying your first home.
Now we understand what KiwiSaver is, here are some tips to help you get started and make the most of your KiwiSaver account:
Check you’re in the right fund for you
Choosing the right fund is one of the most important decisions you need to make when planning your retirement. Being in the right fund means you can achieve your first home or retirement income goals more successfully. Some funds offer higher potential returns with higher volatility – while others offer more stable but much lower returns. Before you choose a KiwiSaver fund, it’s important to know what the returns you require are, what your capacity to endure volatility is and how comfortable you are with the ups and downs that are part of investing, also called your volatility tolerance. The type of fund you want to be in would depend on your goals and situation. For example, Suppose you are considering buying your first home in the coming year or so and are currently on a high-growth fund (more volatile). In that case, it might be wise to change to a balanced or conservative fund type to reduce the volatility you might experience. This way, you can reduce the ups and downs of your KiwiSaver and ensure you don’t lose too much of your KiwiSaver value in that year or so before buying that first home.
Review your contribution rate.
Not everyone can afford to increase their KiwiSaver contributions, so it might be worthwhile if you have the financial means to do so. If you have a job, the employee contribution rate is 3% of your pre-tax income by default, but you may increase it to 4%, 6%, 8%, or 10%. While you make a contribution through your income, your employer must also make a minimum 3% contribution. So, depending on your financial goals and situation, reviewing how much you want to contribute towards your KiwiSaver account is a good idea.
Make sure you’re getting the government contribution.
One of the best benefits of KiwiSaver is the government contribution of up to $521.43 each year. Regardless of your work situation, if you qualify, the government may contribute 50c for every $1 you deposit into your KiwiSaver account (up to $1,042.86). Contributing to your KiwiSaver is worthwhile to benefit from the annual government contribution, as it accumulates over time, which will help you towards retirement or saving for your first home.
Don’t panic when the markets are falling.
KiwiSaver is primarily a retirement savings vehicle, and your investments are expected to grow exponentially over several years. Short-term market fluctuations should not deter you from your long-term objectives. Thus, staying calm during market ups and downs is important as they should deliver higher returns in the long term.
Remember, KiwiSaver is a long-term savings vehicle, so it’s important to be patient and stay committed to your financial goals. Regularly assess your contributions and investment strategy to ensure they align with your changing circumstances and objectives, whether saving for retirement or your first home.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
