Are you getting the most out of your KiwiSaver?
KiwiSaver was set up in 2007 to encourage long-term savings and foster financial independence for New Zealanders. Many New Zealanders will rely on their KiwiSaver money to supplement NZ superannuation in retirement. As such, it is an essential tool for securing your financial future.
However, how you invest within the scheme can significantly impact your retirement savings. It is important to check whether your KiwiSaver is in conservative, balanced, or growth funds, as this directly affects your returns over time.
Are you being too conservative?
Many people in New Zealand end up in overly conservative KiwiSaver allocations, either because they are put into default funds, which are usually conservative, and may be unaware or lack the knowledge to make an active choice, or they choose funds which don’t match their investment horizon. The chart below shows how much more a growth fund generates over time than a conservative fund due to the power of compounding. Being too conservative could limit your long-term growth potential, especially if you’re young and have decades to go before retirement.
What should I consider?
- Life stages
As you age, your risk tolerance changes. When you’re younger, you can afford to take more risks. However, as retirement nears, you might want to switch to more conservative investments to protect your savings. - Investment goals
Your KiwiSaver account is designed to build wealth over time. Conservative funds may offer steady but low returns, which may not keep up with inflation. Your personal financial goals need to be considered – what sort of retirement income do you want? When do you want to retire? - Risk tolerance
What sort of market volatility you are comfortable with plays an important part in determining your KiwiSaver allocation, within the context of the two factors listed above.
How do I check my KiwiSaver allocation?
Checking and adjusting your KiwiSaver allocation is relatively simple:
- Review your current KiwiSaver plan
Check your current risk allocation via your KiwiSaver provider’s website. Look at whether your funds are conservative or growth oriented. - Assess your risk profile
Think about your age, risk tolerance, and retirement timeline. Are you comfortable with market fluctuations, or do you prefer stability? - Clarify your financial goals
Consider how your KiwiSaver funds will contribute to your overall financial goals.
Making a change to your risk profile is usually fairly simple – check with your provider. However, if you need assistance with an assessment of which risk profile to opt for, or you want personalised advice, consider consulting Axiome. We can provide tailored guidance to assess your risk tolerance and undertake planning based on your goals and retirement timeline. We also offer the KiwiWrap KiwiSaver scheme which allows more tailored investment choices, and access to wholesale funds, as well as ongoing monitoring and plan updates over time.
