How to give yourself financial freedom in 2025 – Kirk Hope

Putting a little bit of money aside now could help a lot once you reach the age of retirement. Photo / Laura Smith

THREE KEY FACTS

• KiwiSaver is a key part of a retirement plan.
• There are big benefits to starting to save while young.
• Just over 54% of people under the age of 35 are part of KiwiSaver.

Most 20-year-olds don’t know what life will be like at 45, let alone 65, so it’s hard for them to imagine themselves in retirement when it’s decades away. However, we know 70% of Kiwis* worry about money at least monthly, and financial wellbeing is a priority – whether it’s being able to afford bills, activities or setting yourself up in the future.

One of the most powerful tools available to New Zealanders is KiwiSaver, which is designed to function as our retirement plan. While contributing to KiwiSaver is crucial at any age, starting early – particularly between the ages of 20 and 35 – can have a significantly greater impact on your financial future compared to starting later in life.

However, the number of KiwiSaver members under the age of 35 getting on board with the scheme has only risen by 15% in the past decade. With just over 54% of people under the age of 35 part of KiwiSaver, that leaves more than a million younger Kiwis who are resigning their financial freedom and potential for living a dignified retirement to chance.

Compounding interest is your ultimate advantage

The key to understanding why early contributions make a big difference lies in the concept of compounding interest. Compounding interest is the process in which the interest you earn on your savings also earns interest. Over time, this can lead to exponential growth in your retirement savings.

For example, if you start contributing to KiwiSaver at 20, your investments have a longer period to grow. Even small, regular contributions can accumulate significantly by the time you reach retirement age. Conversely, if you start contributing at age 45, you have less time for your investments to benefit from compounding interest, resulting in a smaller retirement fund.

Let’s consider two hypothetical scenarios: Sarah starts contributing $100 a month to her KiwiSaver account at 20. Assuming an average annual return of 5%**, by the time she reaches 65, her savings could grow to approximately $198,000. On the other hand, John starts contributing the same amount at 45. By the time he reaches 65, his savings would only grow to about $39,000. This stark difference illustrates the power of starting early.

Why it pays to invest now

KiwiSaver offers several advantages that make it an attractive option for retirement savings. Firstly, the Government provides an annual contribution of up to $521.43, which is essentially free money added to your savings. Additionally, some employers match employee contributions up to a certain percentage, further boosting your retirement fund.

KiwiSaver funds are managed by professional fund managers who invest your money in a diversified portfolio, aiming to maximise returns at a risk level you are comfortable with. The choice of fund type is up to you – most KiwiSaver providers have a calculator on their websites so you can see which fund suits your goals and needs best, and encourage contacting them for questions and chats.

Your 2025 New Year’s resolution

As we begin a new year, it’s a perfect time to reflect on your financial goals and make changes that can positively impact your future. Starting or increasing your KiwiSaver contributions is a resolution that can pay off significantly in the long run. The summer holidays provide an excellent opportunity to think about your financial plans and set yourself up for a prosperous future.

New Zealand has an ageing population, and living on the pension does not allow for much leeway. With rising life expectancies, the more you have in your KiwiSaver, the more choices your 65-year-old self can make regarding the kind of life you lead.

While it’s never too late to start saving for retirement, the benefits of starting early cannot be overstated. By making regular contributions to KiwiSaver from a young age, you can significantly mould your future self’s life filled with more choices.

*Source: Financial Services Council of New Zealand’s Financial Resilience Index, 2024.

**Assumption made on average KiwiSaver growth fund – please contact your KiwiSaver provider for more information on your KiwiSaver and fund types.