Are you contributing the right amount to your KiwiSaver account?
Many people join KiwiSaver without thinking too much about it, defaulting to the 3% contribution rate from their salaries, matched by their employer.
But the reality is, this might not be enough to get you to the sort of retirement lifestyle that you would hope your KiwiSaver plan might let you achieve.
So, if you’re wondering whether you’re contributing enough, there are a few things to think about.
How much would you like to have saved by the time you retire?
This is the big one. By working out what sort of lump sum you’d like to end up with and then running the numbers backwards, you can work out what you need to put in now to get the outcome you desire later on.
If you’re 25, earning $65,000 and contributing 3 per cent of your income, with another 3 per cent from your employer, you are on track for roughly $270,435 at retirement, according to Sorted’s calculator, or about $249 a week until you’re 90.
If you increased your contribution to 10 per cent, you could end up with $589,679 or an extra $543 a week on top of the pension through retirement. That’s quite a difference.
You can also change other levers, like the type of fund you’re in, to potentially deliver better returns from the same contribution amount.
Is KiwiSaver your only retirement savings tool?
How much you need to put in your KiwiSaver account will also be affected by what the rest of your financial life looks like. If you have other investments that you expect to use to support your retirement, you may not need to put as much money into your KiwiSaver account. It’s a good idea to get some financial advice on how they might all fit together. If you have questions, we can help.
Do you have other financial goals that require money at the moment?
You might have other financial goals that take precedence for now. Maybe you’re focused on paying off your home loan as fast as possible, or you have a business that needs some investment – but which should pay off in the long run. It can make sense to temporarily direct more of your disposable income to these goals, but, again, it’s a good idea to take some advice on your strategy.
How much will your employer match?
Some employers will match contributions that are higher than 3 per cent of an employee’s salary. If that’s the case for you, it usually makes sense to contribute at least as much as you can have matched, depending on your situation and needs.
Are you self-employed?
The calculation changes a little bit for self-employed people because you do not have the benefit of an employer contribution. You might decide to only contribute the $1,042.86 a year to get the full Government contribution of $521.43, then save for retirement in an investment vehicle with fewer rules than KiwiSaver. We can help you work through these questions.
Are you saving for a first home or your retirement?
When you’re saving for a first home, it makes sense to contribute as much as you can to get to your goal as soon as possible. Because this isn’t such long-term saving, it can often be a little more palatable to really focus hard.
Have you already withdrawn money for a home?
If you’ve withdrawn money from your KiwiSaver account for a first home and are re-starting with retirement in mind, you may need to increase your contributions to ensure that you’re still on track for a decent lump sum at retirement age. We can help you run the numbers to see what you need to put aside.
Like to talk?
It’s a good idea to check regularly that you’re still on track for the outcomes you want from your KiwiSaver plan – it’s not something you should set and forget. If it’s time for a refresher, get in touch with us today.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
