No matter how fit you are or aren’t, we all know that it’s valuable to drop by your Doctor’s office and get an annual health check-up to make sure everything is running smoothly under the hood. These check-ups are important for early detection of issues that might have cropped up, or even just the peace of mind that you’re on the right track.
We need to be thinking about our Kiwisavers in the same way, a yearly financial once-over to keep it operating on all cylinders. The best part of this is that you can do it all at home — here’s a list of the vitals you should assess.
Is your blood pressure high enough?
Contributions are the blood that courses through your Kiwisaver veins, don’t contribute enough and there won’t be enough pressure to give you the first home or retirement that you expect. You need to understand how much money you’re contributing and whether that will create enough pressure to give you the retirement or first home you are expecting.
A lifetime of low Kiwisaver blood pressure will leave you high and dry when it’s time to hang up the boots at retirement. Most people only contribute the default rate of 3% - the sad truth though is that is nowhere near enough for a comfortable retirement or the first home you expect.
You can check out your KiwiSaver blood pressure using the kōura portfolio generator. The second panel will let you know what your KiwiSaver will give you in terms of a weekly income through to your retirement!
If you are disappointed at the answer (as most people will be) then you might need to think about whether you can afford to increase your contribution rates to a level that will let you meet your dreams.
Should you be living it up a bit, or maybe calming down?
At 19 years old you might be able to get away with a bit of binge drinking and other risque behaviours; these things give you life experience to learn from and look back on when you’re old. If things go really wrong you also have plenty of time to get back on your feet.
If you’re still doing these things at 62, though, it’s time to take a good hard look in the mirror. Verging on retirement these behaviours may have given you lasting liver damage and you likely won’t have the time left to improve your health before you settle down into retirement.
KiwiSaver is exactly the same. When you are young and a long way away from your goal, you can afford to take lots of risks (lots of growth assets or a growth fund)as your KiwiSaver will have time to recover from any downturn. And generally, the more risk the greater the returns over the long term.
Take too much risk when you are approaching retirement or a first home and you will expose yourself to the savagery of the market (you will need to be in a conservative fund or have lots of growth assets). You don’t want to be caught needing your KiwiSaver in the midst of a market downturn!
An often overlooked fact is that your KiwiSaver fund needs to change alongside you, the type of fund you are in reflects the checkpoints in your journey towards your financial goals. Ideally, you would be making a transition from growth to balanced to conservative each and every year.
Do you qualify for the flu jab?
Many New Zealanders qualify for a free flu jab - a supercharged vaccine to keep you flu-free over the winter season. Most people don’t get around to taking it.
Every year the government gives a jab of cash into Kiwsavers, with a maximum of $521.43. The catch is you need to have contributed at least $1,042.86 between 1 July to 30 June each tax year. Make sure you are set to receive this amount by crossing that finish line every time with your KiwiSaver employee contributions. This may mean an added top-up is needed by making a voluntary contribution.
Is there a community doctor that might do the same thing for cheaper?
The shiny doctor’s practise with the fancy mags in the waiting room might feel like they’re giving you better healthcare, but chances are you’d be getting the same treatment at the community GP around the road, for cheaper.
For Kiwisaver, it’s necessary to look at the fees you are being charged. The fees you are being charged each year can chip away at the returns you are gaining which will affect the total balance you end up with. Research shows that lower fees will generally give you the best return over time.
Asset-based fees for KiwiSaver Growth funds
Source: Morningstar Q1 2020 survey
Do you have the correct meds?
Getting the right dosage on your meds will make a massive difference to their effectiveness.
Your KiwiSaver is taxed based on the rate that you have provided to your KiwiSaver provider. Get it wrong and you could end up paying too much, or you could get a nasty surprise at the end of the year when the IRD comes and asks for a little bit more tax out of you.
The IRD website will help you figure out what the correct PIR is for you.
Do your research before trying some new fad diet?
Everyone wants to try a new diet to stay healthy, last year it was Keto, this year it might be Paleo. It’s hard to decide which one is effective and is going to work for you.
Similarly, judging KiwiSaver performance is hard, funds will consistently have strong and poor periods. Strategies will work in different market environments. Whilst we always say, don’t choose a fund because it is a top performer, we do also caution about staying in a fund that has consistently been a laggard. In assessing fund performance you need to look at long term returns, always look at 5-year data rather than making a decision based on a short term horizon.
If you are in a fund that has been sitting at the bottom of the pack (and has been consistently there), then you probably do need to look for a new fund. In selecting your fund, the three things to think about are:
- Asset allocation
- The team doing the investing; and
- The fees
Make sure you don’t choose your fund based on historical returns alone. As often the strategy that has worked in the past, will not work in different market conditions.
Actually, get that check-up
For many people, the hardest part is going to the doctors’ for a check-up. Making it a yearly habit is essential for keeping you on the right path and identifying any niggles before they become major problems.
Similarly, there are a lot of New Zealanders who haven’t interacted with their KiwiSaver since setting it up. If you’re one of those people, it’s easy to find out the details of your account. Grab your IRD number and get in touch with them to ask. You can even do this online under the “My KiwiSaver” tab in your IRD member account.
Finding a new doctor
Speaking of providers, if you don’t know who your provider is chances are they haven’t been in touch with you enough. Do they deserve to look after your hard-earned money?
To change providers you don’t need to track down your original account. You can simply sign up to a new provider with your IRD number. The hard work will be done for you, your balance will be shifted over and in all likelihood, you will have moved to someone that cares.
The easiest way to make sure you are in exactly the right fund for the exact point of your life you’re in is to seek financial advice. Digital advice is as simple as answering some questions that will crunch the numbers for you and provide you with a unique tailored profile.