This article was first published in NZ Herald on 7 Mar 2024
Six tips to help KiwiSaver accounts deliver optimum results.
KiwiSaver balances might have looked a little sad over the last couple of years but Milford KiwiSaver financial adviser Liam Robertson is cautiously hopeful about the outlook for 2024.
“Markets are a wee bit more positive than they were a couple of years ago,” he says. “Things are still quite volatile, but we are starting to move away from some of the pain that came about because of Covid.”
With inflation reducing and interest rates expected to trend down in the next 12-24 months, now is a good time to review investments. Robertson has six key tips to make sure people get the best from KiwiSaver in 2024.
1] Get the government contribution
If you do nothing else, at least make sure you put the minimum required amount into your KiwiSaver account to get the maximum annual government contribution of $521.43. This is money the government will pop into your KiwiSaver if you meet eligibility requirements, and you contribute at least $1042.86 between July 1 and June 30 each year. The amount excludes employer contributions and applies to KiwiSaver members aged 18-64 who mainly live in New Zealand. It’s important to note you will still receive 50c from the government for every dollar you contribute, up to the maximum of $1042.86.
Most people working full time and contributing regularly out of their wages to KiwiSaver should have reached the threshold but, if you are not sure, it’s worth checking. Kiwis not reaching the minimum contribution collectively miss out on about $500m each year, Robertson says.
2] Set a goal
It’s crucial to know what you want, whether you are saving for your first home, or retirement. “It’s easy to take an ‘out of sight, out of mind approach’,” he says. “The sooner people set a goal and figure out how to use KiwiSaver to achieve it, the better.
“Recently I spoke with a group of university students. I asked if they thought they would be able to afford a home one day. Most said no.”
Robertson told the students they could do it if they used their KiwiSaver wisely. Assuming the students would be 21 at graduation and start on a $50,000 annual salary, and contributing 10 per cent of their income (along with the 3 per cent employer contribution) to a growth fund, they could have roughly $100,000 within 10 years (assuming 2 per cent inflation and a $3000 starting balance).
That might not be enough to buy a house in certain parts of the country, but the students could combine their deposit with a friend or partner, Robertson says. “They were quite inspired – and saw it as doable.”
3] Right fund and contribution level
Once a goal is clear, it’s time to choose the right fund. Choosing a fund depends on an investor’s timeframe and risk tolerance. If you are in your late 30s and have already withdrawn from your KiwiSaver for your first home, you might look towards retirement.
In this case, a growth or aggressive fund might be appropriate, depending on your risk appetite, Robertson says. There will likely be enough time for compound returns to work their magic and for a KiwiSaver balance to recover from the ups and downs of the market.
If your goal is to purchase a house in the next couple of years, or if you are nearing retirement and intend to withdraw your funds then, it might be more appropriate to switch to a conservative fund, he says.
Online tools, such as the Sorted Retirement Calculator, help calculate returns long-term, based on how much is contributed and the type of fund chosen. Robertson says it’s an excellent start for anyone unsure how to reach their goal with KiwiSaver.
With the cost-of-living crisis, it’s hard to think about saving – but small amounts can make a huge difference in the long run, Robertson says. It’s best to start with a challenge and try to contribute more than 3 per cent of your wages if you can.
For example, take a 35-year-old with a $3000 starting balance earning $50,000 a year. If they contribute 3 per cent of their income, along with the 3 per cent employer contribution into a conservative fund, they will have $126,000 when they reach retirement (assuming 2 per cent inflation and 3.5 per cent wage inflation). From age 65, they will be able to pay themselves an income of $116 a week until the age of 90.
But if the same person contributed 10 per cent of their income (along with the 3 per cent employer contribution) into a growth fund, they would have $360,000 by retirement (assuming 2 per cent inflation and 3.5 per cent wage inflation) and able to pay themselves $332 a week until 90.
Robertson says 10 per cent of income is a good amount to save for retirement (be it in KiwiSaver or another form of investment) and aligns with amounts saved in other countries for that purpose. Calculations above were made using sorted.org.nz/tool/kiwisaver-calculator
4] Choose the right provider
Check providers’ track records and what sort of service and tools they provide, Robertson says.
5] Get advice
It can be a bit daunting working out a goal, choosing a fund and contribution level and selecting a provider. Professional advice is free of charge with certain providers, be it in person or via digital tools. It’s worth taking the time to review your KiwiSaver situation with a financial adviser who can help you achieve your goals, Robertson says.
6] Stick to the plan
Staying the course through volatility is difficult, but crucial, he says. When Covid first hit in 2020, a lot of people shifted their KiwiSaver fund from growth to conservative. “This decision hurt because the market recovered shortly afterwards. It might not be a pandemic next time – it could be a war, a natural disaster, a banking crisis. Markets will always go up and down.”
To avoid getting too worried about the fluctuations of your KiwiSaver balance, Robertson advises making sure your account is set up correctly and then reviewing it about once a year: “People don’t need to panic. If you are unsure what to do, ask for help.”
Disclaimer: This article does not take into account your investment needs or personal circumstances. It is not intended to be viewed as investment or financial advice. Past performance is not a reliable indicator of future performance. Investment involves risk and returns can be negative as well as positive. Milford Funds Limited is the issuer of the Milford KiwiSaver Plan and Milford Investment Funds. Please read the relevant Milford Product Disclosure Statement at milfordasset.com. Before investing you may wish to seek financial advice. For more information about our financial advice services please visit milfordasset.com/getting-advice. Financial Adviser Disclosure Statements are available on request free of charge.
