KiwiSaver

Why save for retirement now?

If you're wondering why you should start saving for retirement when it's so far off, the answer is something called ‘compound returns’. Compound returns, which are basically the money earned by your KiwiSaver account, are added back into your account to earn more returns in the future.

To make it a little simpler, imagine a snowball rolling down a snow-covered hill. If it rolls down a big hill, it will collect more snow and grow bigger than if it rolled down a smaller hill. This is the same with your KiwiSaver. The earlier you start saving, the more you’ll have to live on later.

How it works

After you join KiwiSaver, some of what's called your 'gross income' is calculated and put directly into your KiwiSaver. As an employee, there are four streams of money that go into your KiwiSaver savings. They include:

1. your contributions
2. your employer’s contributions
3. the government’s contributions, and
4. the investment returns on all those, which compound.

Who contributes?

As mentioned above, to help you save more money over the long term, the government contributes to your KiwiSaver fund and requires your employer to contribute too. Your employer is obligated to contribute at least 3% of your pay to your KiwiSaver and the government contribution is $521.43. Your contribution is either 3%, 4%, 6%, 8% or 10% of your pay. Choose the highest contribution you can afford for the best results. If you don’t choose an amount, 3% will be taken out, which is the default savings rate.

Useful links:

• KiwiSaver - 'New to KiwiSaver'

Three ways to sign up

There are three ways to join KiwiSaver, and two of those are directly through your employer.

1. Opting in through your employer, e.g., you’re already employed. If you turn 18 and are already employed, make sure you talk to your employer about signing up to KiwiSaver after your birthday.
2. Automatic enrolment when you start a new job: When you start a new job, if you’re not already a member and are eligible, your employer will automatically enrol you in KiwiSaver.
3. If you are self-employed or not currently working, e.g., a stay-at-home parent, you can still sign up for a KiwiSaver account. Select a KiwiSaver provider that fits with your saving goals and ethics and get in touch with them to set up an account.

Useful links:

• KiwiSaver - 'How to join KiwiSaver'
• KiwiSaver - 'Joining directly with a KiwiSaver provider'

Saving goals

You may find it helpful to make a goal of how much you want to save for your first home or even for retirement. The Sorted website has a KiwiSaver Savings Calculator that can give you an idea of how much you can build up in KiwiSaver over time. The compounding returns can add up to quite a significant amount and looking at the calculator may help you decide how much to contribute to your KiwiSaver fund now.

Selecting a KiwiSaver fund that suits

Your KiwiSaver balance will start to build up and will soon be worth quite a bit, so you want to get your settings right from the beginning. Check that your tax rate and type of fund are set up for optimising your balance. Sorted has a tool for this on their Get your KiwiSaver settings right page. Use this to find the right fund for you, as there are a few different kinds of KiwiSaver funds. Once you find the ideal type of fund for you, use Sorted’s Smart Investor tool to compare KiwiSaver funds, fees, and what your returns are likely to look like.

You’ll soon learn that KiwiSaver funds range from aggressive funds to defensive funds. Aggressive funds are for when you are looking for strong long-term growth and aren’t planning on withdrawing your funds for at least 10 years. Defensive funds are more suitable when you’re planning to spend your KiwiSaver money in the next three years.

Can I use the money to buy a house?

In short, yes. Your KiwiSaver can be used to put towards buying your first home, after you’ve been contributing for over three years.

Useful links:

• KiwiSaver - 'Savings withdrawal to purchase your first home'

Key websites

• Sorted - Sorted is a personal finance site that has the tools and information you need to tackle debt, plan and budget, save and invest, dial up your KiwiSaver, plan for retirement, protect what's important, and take on a mortgage. Sorted lets you fine-tune your finances and get ahead moneywise.
• Inland Revenue: Kiwisaver - Inland Revenue provides information on KiwiSaver, how to opt in or out, track your payments and change KiwiSaver providers. Check out the site for a good, clear steer on all things KiwiSaver-related.