KiwiSaver through life

Where are you on your path to retirement? How far off is it?

You may be at the beginning of your working life, or perhaps you’re gearing up to finally enjoy your ‘golden years’. Or maybe you’re somewhere along the way, growing and consolidating your wealth.

Wherever you’re at, it’s never too early or too late to ensure your KiwiSaver is working hard for you. In this guide, we talk about some key things to think about depending on your life stage.

KiwiSaver through life

IMPORTANT: Please note that the content provided in this guide is of a general nature. It 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. Feel free to get in touch if you have any questions, comments or concerns.

Starting Out (18 to late 20s)

Starting out (18 to late 20s)

Quick tip: Start small, start early.

Financially speaking, the period between your late teens and mid-to-late 20s is a learning curve. Your parents might have taught you some money smarts, but as you now make your own way in life, it’s likely that you’re experiencing many things first-hand for the first time.

If you moved-out of your family’s home, all of a sudden you may be responsible for housing, food, transport, as well as earning an income. Finding your independence can be an exciting, and at times overwhelming, time for many. And as you figure out, little by little, how to structure your finances to support your needs going forward, it’s unlikely that retirement planning is high on your to-do list.

However, there are two very good reasons to take an active interest in KiwiSaver in this phase:

First-home features – In a future not so far off, you may tap into your KiwiSaver funds and grants to get on the property ladder.

Retirement and compounding returns – The earlier you start saving, the longer your funds have to grow. And thanks to compounding returns, as the return on your investment grows, your funds will pick up speed, meaning that even small sums can make a big difference in the long run.

Plus, unless you’re actively thinking of buying your first home within one or two years, you have a long investment horizon ahead of you. And that means that your KiwiSaver has a high-risk capacity (the ability to absorb the impact of investment losses along the way), so a ‘growth’ or ‘aggressive’ fund may be a good option for you.

Growing (early 30s to mid-40s)

Growing (early 30s to mid-40s)

Quick tip: Time to reassess your contribution rate.

In your early 30s to mid-late-40s (what we called the ‘Growing’ life stage), your financial life is in high gear.

You may have young kids depending on you and might be taking on higher levels of debt (e.g.,) to set the foundations for the rest of your life. In the meantime, growing your career might also be a focus, and your income levels may change as you move through it.

As we’ve seen before, when saving and investing for the long term, time is your best ally. In this phase, retirement is still a long way off and it might just be entering your radar, albeit vaguely. Once again, rather than focusing on structuring a plan, there are other key steps that can help you stay on track.

One is paying off debt: the earlier you achieve that debt-free life, the less interest you will pay overall, freeing up important resources for investing and saving.

The second thing is maximising your KiwiSaver. If you’re relying solely on the scheme and NZ Super for your retirement years, the minimum contribution rate of 3% may not be enough. Can you afford to contribute more, without it impacting on your lifestyle and other goals (like paying off debt)?

Consolidating (late 40s to mid-50s)

Consolidating (late 40s to mid-50s)

Quick tip: Think of the different tools in your toolbox.

Every stage of life is a stage of change, and the ‘Consolidating’ phase is no different. If you have children, they are now growing fast and becoming more and more independent: soon enough, they ‘fly the nest’. You may be well-established in your career or even considering changing career altogether.

If the previous phase (‘Growing’) was all about seeing your financial life slowly take off, now you’re well and truly on your way to wealth, or at least giving serious thought to enhancing it. Typically, people in this stage have more income and lower expenses, due to having fewer financial commitments to attend to.

So, with retirement getting closer, now is a good time to put a holistic retirement plan in place, if you haven’t already. There can be many different tools in your toolbox, to help you achieve your long-term goals: alongside KiwiSaver, you may consider investing in property, clearing long-term debt, building a business or setting up more accessible investment funds. Remember: diversification can help you spread out the risk and achieve a more solid position.

Nearing (late 50s to mid-60s)

Nearing (late 50s to mid-60s)

Quick tip: Take stock and take action.

People in the ‘Nearing (Retirement)’ life stage are typically coming towards the end of their career: some people choose to wind down and, rather than stop work altogether, go part-time. Those with children become empty nesters, while business owners may be thinking about their succession plan.

In other words, the ‘Nearing’ stage is all about taking stock of the financial journey so far and firming up on your retirement plans in terms of building wealth and shoring up the value of your assets (if you have any). The focus is on the last leg of your retirement savings journey: by now, you are likely to have a clearer view of how much you have, and to be able to identify gaps and act on them.

As for KiwiSaver in particular, make sure you keep a perspective on your time horizon and how you plan to use KiwiSaver after retiring. For example, are you planning to withdraw from the scheme to support your income needs early on after reaching the age of entitlement? Keep in mind that you don’t have to necessarily withdraw anything: you can keep your funds invested in KiwiSaver for as long as you like. If you’re planning to tap into your funds early on, you may want to ‘secure’ them now by choosing a lower-risk fund. If you don’t, you might stay invested in a higher risk fund, to avoid compromising long-term returns.

      Retirement (65 and over)

      Retirement (65 and over)

      Quick tip: Create ‘time buckets’.

      You may already know this but you don’t have to tap into your KiwiSaver money after you turn 65. But you can, if you want to. Whatever the strategy you choose with KiwiSaver and other financial tools, the important thing is to ensure that your retirement savings go the distance.

      One of the techniques that we often recommend to clients in the ‘Retirement’ stage is to set up a series of ‘time buckets’ and split your savings across them: short-term bucket, medium-term bucket, and long-term bucket.

      Let’s say you have $300,000 in KiwiSaver, and you’d like those funds to last you for the next 15 years. This would give you about $20,000 a year. You may choose to put the first three years ($60,000) into a defensive fund in your KiwiSaver, which you’ll draw on over that three-year period. Then you may put another $100,000 into a conservative or balanced fund, and the remainder into a growth fund.

      This method allows you to diversify the risk and protect your savings while also giving your KiwiSaver an opportunity to grow further.

      KiwiSaver Check-Up Quiz

      Try our KiwiSaver Check-Up Quiz

      By reviewing your KiwiSaver regularly (but not too often), you can make adjustments along the way, and ensure that your savings are moving in the right direction, at the proper speed.

      We have developed a handy KiwiSaver Check-Up tool, designed to support regular reviews: click here to try it. And of course, we’re here to help with any questions you may have.

      Like to grow your retirement saving savvy? Read on…

      Understanding risk, planning your savings, how retirement planning needs change through life, and much more. You name it, you’ll find a helpful read here.

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      Get the latest Future Focus Report

      Like to stay informed about personal finance and retirement planning? Our Future Focus report is for you. - Click on image to download