Millennials are the first generation of New Zealanders for whom KiwiSaver has been around as long (or almost as long) as they have been working.
Many people in that 25-40-year-old age bracket have already built up significant savings in their accounts, which they have used to buy a first home or to set them on the path to a solid retirement nest egg.
If you belong to the Millennial generation, and would like to make the most of your KiwiSaver, here are some key thing to think about.
The earlier you start, the better
Millennials have lots of benefits when it comes to the scheme that older generations do not.
They have the potential to be members for four decades or more of their working lives – maximising the benefits of compound returns and the power of investing for the long term.
That’s important because research has shown that millennials also expect to rely on their KiwiSaver accounts more heavily in retirement than older generations do. The Financial Services Council found that only 54 per cent of people aged 18 to 34 expected to have their own home when they reached retirement and only 30 percent of that cohort expected to receive the pension.
When it comes to KiwiSaver (and investing in general), the key thing is to start. Read on for some quick tips to get you started or back on track.
Get contributions right
You can choose between 3%, 4%, 6%, 8% or 10% of your before tax pay, but if you don’t decide, 3% is the automatic default rate. Make sure you select a contribution rate that fits comfortably within your budget, while also helping you achieve your long-term retirement goals.
The benefit of starting early is that even small amounts, saved regularly, can add up over time. You can also change your contribution rate down the line or make extra one-off contributions, for example if you get a pay rise or a bonus.
Make the most of the ‘extra help’
When saving for retirement or to buy your first home, any extra help you can get is a good thing. With KiwiSaver, on top of your own contributions, you also get employer contributions of at least 3% of your salary (but some do more).
Plus each year, if you’re aged between 18 and 65, and contribute at least $1,042.86 towards your KiwiSaver balance between 1 July and 30 June, you’re eligible to receive the maximum annual Government contribution of $521.43. Basically, the Government will add $0.50 in your account for each dollar you save, up to a maximum of $521.43 – click here to learn more.
There are lots of digital tools that will help you to keep an eye on your balance and understand your investments in more detail. Make the most of what’s on offer from your provider and consider whether some personalised financial advice might help, too.
Watch out for time off
Many Millennials are heading into the prime child-raising years. If you’re taking time off from work, don’t forget about your KiwiSaver. Find out whether your employer offers any sort of contribution while you’re away, and chat to your partner about whether there are ways that your household as a whole could ensure that your contributions continue.
Get your fund right
Younger people have a lot more to lose if they are in the wrong sort of fund, than do older workers. When you’re in the first couple of decades of your working life you have the opportunity to bank some gains that will then seed further returns in the future.
But you’re in a fund that is too conservative for your risk profile, you could miss out on some of this. On the other hand, if you’re aiming to buy a first home, you may need to dial down the risk. Needing the money sooner means you’re unlikely to have the time to recover from any losses, while if you’re saving for retirement, you’ll have decades ahead of you to bounce back.
As financial advisers, we can ensure you have your settings right for your circumstances, and review them as your life changes.
If you’re not sure about your KiwiSaver, or simply want to check in, give us a call. We can explain how the scheme works and ensure you’re maximising your retirement savings.
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 development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.