Time to give your KiwiSaver plan a ‘full service’?
How fit-for-purpose is your KiwiSaver plan? If you’re not quite sure or it’s just been a long while since you last checked in on it – now may be a great time for a financial once-over.
Let’s put it this way: just like preparing your car before a long drive, an annual review of your KiwiSaver plan can help you make sure that everything is running smoothly under the hood. So, here are a couple of things to tick off the review sheet.
Will you have enough ‘fuel’ in the tank?
Saving for the future is a long-term process. And drop by drop, your contributions are what fills up the ‘tank’ in your KiwiSaver plan. The more you contribute, the more fuel you have for your retirement or first-home purchase. After all, you don’t want it to run out midway through.
So, how much is enough? Most people only contribute the minimum rate of 3% – but here’s the thing: that’s unlikely to be enough to achieve a comfortable retirement or help with a first-home deposit.
If you’d like to know where you sit, use our smart digital advice tool
to run your numbers: the second panel will show you what your KiwiSaver plan is likely to give you, in terms of a weekly income through to retirement. As a rule of thumb, it’s a good idea to aim for 70 to 100% of your pre-retirement income (more if you rent, less if you own your home).
Are you making the most of ‘bonus fuel vouchers’?
You’re not the only one filling up the ‘tank’ of your KiwiSaver plan. If you’re employed, your employer must also contribute at least 3% of your gross income to your KiwiSaver plan.
And that’s not all. Each year, for every dollar you put in between 1 July and the following 30 June, the Government adds an extra 50 cents to your account, up to a maximum of $521.43 a year. It’s called annual Government contribution and it’s a major perk of investing in your KiwiSaver plan.
To get the maximum bonus of $521.43, you need to contribute at least $1,043 during the KiwiSaver year. You’ll receive the extra money directly in your account, usually around July or August.
Consider the terrain you’ll be driving on
Volatility is a normal part of the long-term investment journey, and yes, sharemarkets go up and down all the time. But those ‘potholes’ and ‘bumps’ may feel a bit too steep, depending on the vehicle you choose.
That’s why it’s important to select a fund type(s) for you KiwiSaver plan that’s aligned with your risk profile. And there are five types to choose from: from the lowest to the highest-risk, defensive, conservative, balanced, growth or aggressive.
Some investors are willing and capable to take on more risks – and face the potential for bigger losses along the way – in exchange for likely higher returns over the long run. In general, if your goals for your KiwiSaver plan (retirement or first home) are over 10 years away, you can probably afford to take a riskier route, because you have time to pick up speed again should something slow you down.
On the other hand, if your goal is getting closer, you may not want to waste time and precious petrol on too many detours. A lower-risk fund type is likely to take you more safely where you need to be.
Think about fuel efficiency
It’s not just about how much fuel you put in the tank. If your car is not fuel efficient, you may burn through a lot of petrol along the way.
Things like asset allocation, fees and fund performance are all elements to watch to determine if your KiwiSaver plan is efficient:
- Much like a car’s shock-absorbers, asset allocation allows your KiwiSaver plan to balance returns and volatility, so that downturns don’t steer your retirement savings off course more than necessary.
- Your provider’s fees can also eat away at your returns, so you definitely want to know how much you’re paying.
- And lastly, make sure you don’t choose your fund based on historical returns alone: often, the strategy that has worked in the past will not work in different market conditions. The key thing is to understand why a certain provider adopted that particular strategy, and whether it aligns with you.
Not quite sure where to start? Click here
or the button below to use our handy portfolio generator.
The bottom line
Are you all set for the long journey to retirement? Your KiwiSaver plan can get you ahead, but it’s important to sort your settings and review them from time to time.
If you’d like to learn more about all this, get in touch: we’re always a phone call or click away. Or tune into our Education Centre
for the latest tips and insights.
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.