KiwiSaver – A $200,000 difference!

Let’s say you are 40 years old, earn $60,000 per year, contributing 3% and have $12,000 in your KiwiSaver account.

Using Online Calculators, one provider suggests that this investor could have anywhere between $138,000 and $346,000 at retirement age, just because of the choice that investor makes on how their funds are invested. A 20 minute conversation today could be worth over $200,000 when you retire, just by getting some financial advice around your KiwiSaver…

Typically, you will be invested in a Default Fund, Conservative, Balanced, Growth or Aggressive Fund, but what does that mean? If you are in a Default Fund then please call us now – this is designed as a temporary parking space while investors seek advice on how they should invest their money, and therefore have minimal return on investment.

Defensive/Conservative typically have more lower risk investments than higher risk. Balanced usually has an even split of low and high risk. Growth have more High Risk investments.

Low Risk Investments are Cash and Bonds. They offer steady returns and limited fluctuation in the value of your investments. You can expect an average return over the medium to long term of about 3-4% net per annum.

High Risk Investments are Shares and Property. Their returns are made up of dividends and capital growth. The prices of these investments will vary on a day to day basis. Over the long term these returns should average out to 7-8% per annum on average.

SOMETHING ELSE TO THINK ABOUT… If you are planning on withdrawing your KiwiSaver in the next 5 years, such as using the funds to buy your first home or taking your money out completely for retirement then you should probably be invested in lower risk investments.

That’s because the higher risk investments can take a long time to recover, if there is a Share/property market downturn between now and when you need your money, and conservative investments are more likely to protect the value of your investment.

If you are about to buy your first home, and your KiwiSaver makes up a big component of your deposit, how bad would it be if your investment then dropped in value by 20% just before you are about to use it? A $50,000 KiwiSaver balance in this situation can fall by $10,000 if it’s not invested correctly, Bye Bye House for the next few years, instead of Buy Buy House!

However, if your investment time frame is longer, between 5 – 15+ years then it is definitely worthwhile having a conversation with an Authorised Financial Adviser (like us at WealthHealth!) about options that will earn you more money over the long term.

(disclaimer this is not personalised advice, but general in nature, Adviser Disclosure Statement is available on request)

This article was published in the January 2019 issue of The Chronicle.