Kiwisaver - most of us have one, but how do we get the most out of it?

 

Kiwisaver is no doubt the backbone of how Kiwis save for retirement. Having a Kiwisaver helps set us up for when we stop working and start enjoying the fruits of your labour later on in life.

 

The easy part of Kiwisaver is making regular contributions from your pay while also receiving contributions from your employer. What then determines how well your KiwiSaver portfolio performs is what scheme and fund you select to get the best returns.

 

As of September 2021, there were 38 Kiwisaver schemes and 200 different funds to pick from.

 

So what's the difference between a scheme and a fund?

 

The scheme: This is the overall provider of Kiwisaver, such as Booster Kiwisaver or the ANZ Kiwisaver scheme. Within these schemes are different funds.

 

The fund: The funds are the options you have in terms of where you save and invest your money within the scheme. Fund options can vary from scheme to scheme, but often most schemes have conservative, balanced, and high-growth funds. Each fund has different levels of risk and generally has a time frame associated with it for when you want to access your savings for retirement or to buy your first home.

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  • Conservative: Low risk but also has lower returns in the long run. Suitable if you want to access your savings in 1-4 years.
  • Balanced: Moderate risks but moderate returns in the long run. Suitable if you want to access your savings in 10–20 years.
  • Growth: High risk but often has larger returns over the long run. Suitable if you want to access your funds in 30+ years.

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An example: Barry the Builder is 25. He’s just about to buy his first home, and he’s using a conservative fund because he doesn’t want to make any major losses on his savings before he purchases the home. Once he purchases the home, he can’t access his Kiwisaver until he’s retired, in this case, he decides that he wants to change his fund to Growth so he can maximise his returns.

 

Barry continues building until he’s 50 and then moves into project management; he’s aiming to retire when he’s 65. He decides to change his fund to balanced, as he has a fair amount saved now and doesn’t want to risk any major losses he might have if he continued with the growth fund.

 

Barry keeps chipping away and is now 60, he’s starting to wind down from work slowly. He decides to switch his KiwiSaver to conservative since he’ll be accessing it in 5 years, when he’s eligible to withdraw it.

 

At 65, Barry applies to withdraw his Kiwisaver to enjoy throughout retirement. Barry is pleased that the decisions he's made with his Kiwisaver over the years have paid off.

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‍Disclaimer: Although Barry is happy with how his KiwiSaver turned out for him, it’s always up to what your appetite is for risk on how you plan yours.

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Always choose what scheme and fund are best suited for what your goals are and what appetite you have for risk. Speak to a licensed financial advisor if you’re unsure.

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Final words

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Disclaimer

This blog or any other information provided by BudgetBuddie is not financial advice. If you're needing financial advice please get in touch with a licensed financial advisor or professional.

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