Confused between KiwiSaver for retirement or your first home? Explore the factors to consider when making this crucial financial decision. Learn how real estate appreciation and careful financial planning can let you do both.
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“I looked at the projection for my KiwiSaver (I currently have $40k), and if I keep on contributing the way I am, I will get just enough KiwiSaver to retire on (according to American authors).
It feels like it would be senseless of me to buy a first home on what I have because it will leave me without enough money for retirement.
I am currently trying to put away 3 months of savings and then will lift my contribution to kiwisaver. But has anyone been able to buy a house AND retire with their KiwiSaver well? It looks like it’s either one or the other.”
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It’s great to hear that you’re planning ahead for your future. Choosing between KiwiSaver for retirement or first home is a common dilemma. The decision of whether to prioritize KiwiSaver for retirement or buying a first home depends on your personal financial goals and circumstances. Let’s break down some factors to consider.
You may lose out on the compounding interest effects…
KiwiSaver is designed as a retirement savings vehicle, and it’s generally considered better to leave those funds untouched until you retire. When you use your KiwiSaver funds for your first home, you’re effectively reducing the amount you’ll have for retirement. This may be fine if you have other retirement savings.
But you may benefit from House Appreciation.
Real estate has the potential to appreciate over time, which means the value of your home may increase. If you buy a house now and its value increases significantly by the time you retire, you could downsize and use the proceeds to supplement your retirement savings.
Buying a House AND Retiring well
You don’t necessarily have to choose between buying a house and saving for retirement with KiwiSaver. It’s possible to do both, but it will require careful financial planning. Here are a few strategies:
Continue contributing to KiwiSaver even after buying your first home. This way, you can build your retirement savings while also enjoying the benefits of homeownership.
Make extra contributions to your KiwiSaver account whenever possible. This can offset the reduction in your retirement savings caused by using some funds for your first home.
Consider other investment options. In addition to KiwiSaver, you can invest in other assets like managed funds to diversify your retirement portfolio.
Explore government assistance programs; New Zealand offers programs like the HomeStart Grant and KiwiSaver First Home Withdrawal, which can help you buy your first home while keeping your KiwiSaver intact.
Ultimately, the decision depends on your individual financial situation, goals, and risk tolerance. It’s advisable to consult with a financial advisor who can provide personalised guidance based on your specific circumstances. Additionally, consider how buying a home fits into your overall financial plan, and weigh the pros and cons of using KiwiSaver for your first home against the potential impact on your retirement savings.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
