When your KiwiSaver statement arrives by June, taking note of a few key things will help ensure you’re making the best decisions for your financial future.
The uncomfortable truth of it is that while women live longer, we retire with 20 per cent less in our KiwiSaver than our male counterparts*. While some of that is down to the fact women earn on average 10 per cent less than men** and are under-represented in higher-level jobs — plus, many women take time out of the workplace for caregiving — the other side of the story is that women often have lower levels of financial confidence, knowledge and participation than men, says Samantha Barrass, chief executive of the Financial Markets Authority Te Mana Tātai Hokohoko. But here’s the good news: it’s not too late to change that. “If your KiwiSaver has been sitting in the ‘too hard’ basket for a while, it’s never too late to start engaging with it,” says Barrass. “Today’s cost of living challenges can make it difficult to think about your financial future. There are easy ways, however, to make sure your KiwiSaver is working as hard as possible for you.”
Understanding your KiwiSaver statement, due out around June, is a crucial part of the journey. These statements contain valuable information to help ensure you’re working towards achieving your future goals — whether that’s having enough money for retirement or a first home, says Barrass.
Some key aspects that are included on it will be: your current balance, which shows the value of your investment today; your retirement projection, showing an estimate of what you’re on track to receive at age 65 (this includes a lump sum figure, plus what that amount works out to weekly); the type of fund you’re in; your level of contributions; and how much you’ve paid in fees.
Digging down into some of this info and understanding it will mean you’re empowered to make the best financial decisions for your future.
For example, knowing the type of funds available will help you decide which is the right one for you. There are five kinds of KiwiSaver funds — defensive, conservative, balanced, growth and aggressive — and each holds a different balance of investments based on risk. “Defensive funds have more assets like cash and bonds which tend to deliver more modest, stable returns over time while at the other end, aggressive funds have more assets like shares and property, which historically tend to deliver higher returns, but which fluctuate more over time.”
The fund you choose depends on how much time you have until you need to withdraw the funds, and your attitude to market fluctuations, she says.
“Growth funds historically have offered the highest returns over the long term. Research found that if you had contributed three per cent of your median full-time income to a growth fund instead of a conservative fund across your entire career, you would end up with significantly more in your KiwiSaver balance at retirement.”***
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Advertise with NZME.“If you need the money sooner, for a deposit on your first home, then a more conservative fund might be better as the balance is less likely jump around as much. You can contact your KiwiSaver provider for help choosing or changing your fund.”
Whatever fund you choose, it’s also important to know your employer is required to contribute three per cent and the government boosts your contributions with an extra $521.43, provided you contribute the minimum of $1,042.86 by June 30 each year. So it’s wise to keep contributing to your KiwiSaver while on maternity leave or a career break, even if it’s the minimum each year (or around $20 per week) so you’re eligible to receive the government contribution.
Samantha also notes that in the recent Budget 2023, the Government has enhanced the KiwiSaver scheme for parents. From July 1, 2024 the Government will pay a matching 3 per cent KiwiSaver employer ‘contribution’ to paid parental leave recipients — another reason to keep contributing.
If you’ve stopped contributing, try to restart as soon as you can to reap the benefits of compound interest (where your interest earns interest) over time, says Barrass. “Your money is growing without you having to do more and it can be really satisfying to see what progress you’re making”.
If your projected balance is looking too low there are two things to consider, she says: 1) can you contribute more; and 2) are you in the right fund?
If you can afford it, increase your contribution. “Inflation reduces the purchasing power of any sum of money, so the larger it is the more you can do with it. Even a one per cent increase can significantly bump up the amount you’ll have when you retire. And if you don’t need the money for many years, a growth fund may be a better option. “The sooner you course-correct, the more you’ll likely have in the long term,” says Barrass.
There are lots of ways to further build your financial knowledge and confidence, and empower other women to do the same: talk to your provider or a licensed financial adviser, use the free resources available at FMA.govt.nz and Sorted.org.nz, share knowledge and information with, those around you — mothers, aunties, sisters, friends and colleagues.
Check out Fma.govt.nz/consumer for more and put yourself on the path to a future of financial confidence.
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New to investing? KiwiSaver makes it easy
KiwiSaver is an easy way to invest your money for the future — your investment is managed for you by your provider, comes pre-diversified, and benefits from employer and government contributions.
One per cent sounds like a little, but it can add up to a lot
Increasing your contributions will make the biggest difference to your KiwiSaver — even by bumping up your contribution by as little as one per cent.
The same can be said for fees
Keep an eye on fees as your balance grows. A fee around the one per cent mark also doesn’t sound like a lot, but the total dollar amount you pay in fees can get expensive as your balance grows. If you think your fees are too high and you’re not getting good value for them, shop around and change funds.
Time is your best friend
The magic of KiwiSaver isn’t necessarily about how much you put in; it’s how long you keep your money in for. Why? Because compound interest — when your interest earns interest — has a snowball effect. The longer you invest, the more it compounds and the bigger your investment will grow.
* According to Dr Suzy Morrissey, Te Ara Ahunga Ora The Retirement Commission: retirement.govt.nz/news/latest-news/what-does-retirement-look-like-for-women/
***”KiwiSaver Equity for Women”, June 2022, New Zealand Institute of Economic Research (NZIER)
