This is the time of year when you are supposed to make those pesky New Year’s resolutions about saving more, eating less, getting organised or dropping that annoying habit. But how often do you put these in the “too-hard basket” and ignore them until next New Year’s Eve?
With KiwiSaver, “saving more” is one resolution that can actually be quite easy to achieve and if you run the numbers the benefits are staggering.
Currently, the minimum contribution for employed KiwiSaver members is 3% of their gross salary, with employer’s also kicking in 3%. But what if you told your employer to up your contribution to 4% of your salary?
Let’s take a look at a hypothetical situation. To a 25 year old person earning a gross salary of $50,000, a 1% increase in their KiwiSaver contributions equals about $9 per week. Doesn’t sound like it will boost their savings by much, so what’s the point right?
Well, through the power of compounded returns that extra $9 per week spread out over their working career and assuming modest salary increases of 2% p.a. with net investment returns of only 4% p.a., means their KiwiSaver savings will be worth an extra $65,000 at age 65 (in today’s dollars).
|
Current Age |
Gross Annual Salary |
Current KiwiSaver Balance |
Salary Contributions |
Net Investment Returns p.a. |
KiwiSaver Balance at 65 |
|
25 |
$50,000 |
$20,000 |
3% |
4% |
$467,500 |
|
25 |
$50,000 |
$20,000 |
4% |
4% |
$532,300 |
To put that in context, an extra $65,000 should be able to produce thousands of dollars more in retirement income per year. So, by simply telling their employer to increase their KiwiSaver contributions by 1% this person would have markedly improved their retirement situation for only $9 per week.
That’s not a bad deal and when you think about it, this might be one of those New Year’s resolutions worth following through on.
Sean Donovan
KiwiSaver Associate