KiwiSaver has made the news lately, having recently surpassed $60 billion in total savings! Most of us might be surprised by how much or how little of our own KiwiSaver money is in that number, and that’s because the savings fund remains an enigma for many of us Kiwis. Some of us notice it on our paycheques every month but don’t remember having started out accounts. Some of us monitor our savings studiously but don’t feel like we’re making the progress we’d hoped for.
The truth is, signing up for your KiwiSaver is easy, but using it to its full potential is a little more challenging.
So, let’s draw the curtain back on the mysterious KiwiSaver fund!
What is KiwiSaver, exactly?
KiwiSaver is a savings scheme orchestrated by the New Zealand Government. This voluntary initiative deducts between 3% and 10% of your gross salary before tax, while your employer and the government also contribute. This makes KiwiSaver a relatively conservative but ultimately safe investment in your retirement.
What sets KiwiSaver apart from other retirement schemes is that the government commits 50 cents on the dollar of your contributions for up to $521.43 per year. Not only that, but your employer also contributes at least 3% of your salary or wages before tax on top. In our books, this is a win-win situation!
Again, Kiwisaver is voluntary, but many New Zealanders find they’ve been enrolled automatically once they started their first job, so the ‘voluntary’ bit refers to your freedom to opt-out. Although, most people would suggest that you don’t. 🙂
Who can get a KiwiSaver?
New Zealand citizens and legal permanent residents are free to join KiwiSaver at any time. The money you invest in your account is kept by a KiwiSaver provider. Typically a provider is a bank or investment firm, rather than the government.
You can find out which provider is holding your finds by logging into your MyIR account. These are easy to make if you don’t have one.
What can KiwiSaver be used for?
Kiwisaver is intended primarily for retirement savings. However, many Kiwis have pushed for—and the NZ Government has agreed to—allowing a single withdrawal in certain circumstances to help first-time homebuyers put down a deposit. Younger New Zealanders have seized on KiwiSaver as a potential tool to help them break into the housing market. They hope it can help reverse the overall decline in New Zealand homeownership.
How to make the most of your KiwiSaver
KiwiSaver is a great financial tool if you know how to wield it well. Think of it as a way of investing without you putting in the work or tracking stocks and shares. Simply putting a little bit of money away to KiwiSaver for every paycheck goes a long way towards your long-term financial goals. Consider it just one significant part of a larger finance strategy!
The real question is: how do you make the most of it? Here are some tips to get your KiwiSaver working for you!
Get started early
Kiwisaver is a safe investment, meaning its growth over time will be fairly conservative. The sooner you get started on your savings, the longer your money will have to grow.
Contribute more than the minimum
You can set your account to automatically contribute as little as 3% of your salary. However, you’ll need to contribute more than the bare minimum if you want to make meaningful progress on your savings. You can contribute up to 10% of your salary or wages. The closer you can get to that 10%, the more satisfied you will be with your progress.
Choose your KiwiSaver provider wisely
It’s always best to choose a great KiwiSaver provider from the get-go. A great provider gives you plenty of information about where your money is going, takes a more personalised approach to your funds, lets you choose what kind of investment fund is suitable for you (e.g. conservative, growth, aggressive, etc.), sends you regular fund updates, and makes you feel like you’re—ultimately—in control of your savings. You don’t want to feel like just another cog in the wheel. After all, this is your retirement or your first house we’re talking about, so choose wisely!
Claim your full member tax credit annually
The New Zealand tax year begins on July 1st, and for every year, the government will match your contributions to the account, dollar for dollar, up to $521.43. That’s over $500 of free money just for contributing to yoru own savings plan. Don’t pass that up!
Make a voluntary contribution here and there
Ever wind up with some extra money and don’t know what to do with it? It’s okay to treat yourself with a holiday, a nice new wish list purchase, or an upgrade to your home or car, but every once in a while you should contribute your extra funds voluntarily to your Kiwisaver. These voluntary contributions can grow substantially and make a big impact over the years.
Step up from a default account
You can choose between Defensive, Conservative, Balanced, Growth, and Aggressive KiwiSaver funds for you to contribute to, depending on your appetite for risk in your investments. If you didn’t specify a fund, however, you’re likely enrolled in the default Conservative fund. This is a perfectly safe option and your money will still grow (particularly if you invested early), but a more aggressive fund can help you grow your savings more quickly.
The best way to use your Kiwisaver to its potential is to keep an eye on it! Read your statement, Crunch the numbers. Take the time to read newsletters and updates to the program, and ask about potential tax benefits you can use to your advantage.
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