Are you invested in KiwiSaver and looking at making the most of it? As straightforward and seemingly low-maintenance as KiwiSaver is, there are some key things to watch out along the way.
While we don't give advice on KiwiSaver, we know some experts in this space who, just like us, have Kiwis' financial future at heart. So, we asked our friends at koura to tell us about common KiwiSaver mistakes, and here's their advice.
Not contributing enough
According to koura, even small mistakes along the way can make a big difference over time - starting with your contribution rate.
A couple of good thought-starting questions here could be:
- How much money do I need to retire with? It depends on your unique situation, including whether you own your home or rent. But generally speaking, according to koura, if you own your home mortgage-free, international research state that you need at least 70% of your pre-tax income after you retire. But you'll likely need a lot more (up to 100% of your pre-tax income) if you're still renting in retirement.
- Am I on track for retirement if I leave my KiwiSaver contribution rate as it is? Depending on your needs and goals, contributing the minimum 3% is unlikely to be enough for the retirement lifestyle you're envisioning.
- Can I afford to contribute more? The reality is, it's not always possible to increase your contribution rate. But if your budget allows it, it's something worth considering. And the earlier you start contributing more, on a regular basis or in lump sums, the better the benefits of compound investment earnings.
Being in the 'wrong' fund for your risk profile
Are you taking enough risk, or maybe not enough risk? And what's 'enough', anyway?
The first step is to understand your risk profile: this is determined by the combination of how much risk you can afford to take with your KiwiSaver (for example, because retirement is a long way off), and what level of risk you're comfortable to take (in other words, how you feel about investment volatility).
Once you've determined where you stand in the risk spectrum, it's important to choose a fund option that aligns with your risk profile: defensive, conservative, balanced, growth or aggressive?
Keep in mind that, generally, the longer you have until retirement, the more risk you might be able to take. That's because your KiwiSaver fund has more time to ride out future downturns. Plus, a higher risk fund is more likely to deliver higher returns in the long run - which can make a difference to your KiwiSaver outcome.
Not sure where your fund is invested? You can login to myIR, or contact Inland Revenue directly to ask them.
Not maximising the Government contribution
Have you ever heard of the annual KiwiSaver government contribution?
Annual government contributions, alongside employer contributions (if you're employed), are one of the key benefits of having KiwiSaver. In short, each year, for every dollar you contribute to your KiwiSaver in the year from 1 July to 30 June, the government adds 50c to your account, up to a maximum of $521.43. This means that, to get the maximum contribution, you need to save at least $1,042.86 in the year.
So, make sure you check how much you've contributed around the end of May: you'll have time until mid-June to top your account if needed!
Not considering fees and taxes
When saving for retirement, every dollar counts, so koura recommend checking fees and taxes as well. "The higher your fees, the less KiwiSaver money is left for you," they explain. "The average Kiwi will pay over $90k in KiwiSaver fees in their lifetime."
Of course, that doesn't mean the fund with the lowest fees is necessarily right for your needs, but it's one of the factors to consider.
As for taxes, like most things in life, KiwiSaver returns incur tax. To ensure you don't pay too much, or get an unexpected tax bill at some point, it's important to check that you have the right tax rate (PIR rate). Click here to learn more.
Find out more at koura
Here at LifeDirect, we're fans of services and options that make life easier for Kiwis. Koura was created with the same spirit, to help New Zealanders get what they expected and deserved out of their KiwiSaver investments.
Visit kourawealth.co.nz to learn more.
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.
