Seven clever ways to maximise your KiwiSaver
KiwiSaver remains one of the most effective ways to save for retirement. Since it began in 2007, the scheme has helped over 2.6 million* New Zealanders to save for a more comfortable retirement and, thanks to its withdrawal scheme, 32,000 households were able to turn the key to their first homes last year alone.
Whether you’re looking to grow your fund balance or are saving towards a mortgage deposit it’s important to make sure you’re doing everything you can to maximise any benefits and grow your funds.
Sit with your financial adviser to review your current balance and find ways of saving even more towards your goal. Thanks to compound interest, even the smallest action can help you make a substantial impact to your fund amount.
Below are seven tips to help you boost your KiwiSaver fund.
Revisit your monthly contribution
If you’ve been contributing comfortably at three per cent of your salary, it may be time to increase your contribution to four or eight per cent. Depending on how much you earn, the increased contribution could equate to have one less flat white a week, or eating out once less a month.
Even a one per cent increase in your contribution can make a considerable difference to what you end up retiring with.
Reduce your account fees
The monthly account fees you pay is another factor that can make a huge difference to your KiwiSaver balance.
Canstar’s Star Ratings Report revealed a significant difference in account fees across the various providers and fund type. For example, the report found that a KiwiSaver member with a balance of $11,500 on the conservative fund could pay anywhere between $55.84 and $183.87 in fees.
It certainly pays to find out what you’re currently paying and if there are less expensive alternatives. While low fees may not be the key to the best performance they need to be considered – lean on your financial adviser to help you find the right fund with account fees to meet your retirement objective.
Avoid the default fund
If you didn’t select a fund when you enrolled in KiwiSaver, chances are you’ve been automatically enrolled in the “default fund” of one of the default KiwiSaver providers along with more than one third of all New Zealanders. While this default fund offers far more security than the others, it's generally more conservative and therefore growth is likely to be sluggish.
For an investment performance that matches both your goals and your tolerance to risk, speak to your financial adviser about moving to a fund that is better suited. For example, growth assets such as property and shares typically offer more substantial long-term returns.
Utilise one-off contributions
Depositing lump sums into your KiwiSaver fund is an easy way to grow your balance. Take your tax refund, annual bonus or any extra income you may have after paying your monthly expenses and transfer it into your KiwiSaver fund. These boosts to your fund can give you the peace of mind that no overseas holiday or shopping splurge could.
Whilst the KiwiSaver does allow you to withdraw funds in the event of "significant financial hardship,” it is a difficult process and shouldn’t be your first port of call in a financial emergency. Work towards creating an emergency fund with the equivalent of three months’ salary as a ‘buffer’ or opt for personal insurance to cover costs should the unforeseen happen. Give your KiwiSaver a chance to build and grow in value.
Don’t forget your member tax credit
If you have personally contributed $1,042.86 during the period 1 July to 30 June into your KiwiSaver account, you will receive a member tax credit capped at $521.43 from the government (contributions of less are pro rata’ed accordingly). This applies to anyone between 18 and 64 years old (or older if you have been a member of KiwiSaver for less than five years), and the payment into your KiwiSaver account is automatic.
Read your statement
It’s important to stay on top of your fund balances and growth trajectory in order to ensure you’re on track for your retirement goals. By staying abreast of your balance you’re taking a proactive role in your financial health and retirement.
While your KiwiSaver statements can be challenging to understand, you do have help at hand. Ensure you meet with your financial adviser annually and don’t hesitate to get in contact should you have any concerns or queries about your fund’s performance.
As we navigate a rather turbulent time in the market, many of us are wondering what impact this will have on our KiwiSaver come retirement, and what, if anything, we should do. Lifetime Adviser Michael Heriot explains.