How Can New Zealanders Boost Their KiwiSaver Balance?

Friday, 21 May 2021, 1:13 pm
Press Release: Kalkine

Summary

The government has recently changed the default KiwiSaver provider settings to improve people’s financial wellbeing in retirement.

Some key tips and strategies can help people bolster their retirement savings.

People can choose the strategy that aligns with their financial needs/situation to increase their KiwiSaver balance.

Whether you are trying to get onto the property ladder or planning to live a comfortable retirement, taking out time to maximise your KiwiSaver balance will surely pay you big rewards. KiwiSaver schemes have been helping New Zealanders for the last many years in building long-term wealth, settling them with a lot more savings during retirement than they initially realise.

Of late, such schemes have become the centre of attraction since the government introduced some sweeping changes for fund members. Last week, the government modified the default KiwiSaver provider settings to enrich people’s financial wellbeing in retirement. It includes moving default KiwiSaver members from a conservative risk profile to a balanced setting in order to improve the likelihood of higher returns over the long run.

Must Read: Needle on KiwiSaver Amidst COVID Crisis

While the government has been taking initiatives to boost KiwiSaver returns, individuals also need to step up their game to make sure their nest egg at retirement is large enough to support a cushy life. Having said that, here are some key tips for New Zealanders that can help them get more bang for their KiwiSaver buck:

Bolster Your KiwiSaver Contributions

Remember, the more you contribute, the faster your KiwiSaver balance is likely to grow.

In the government-mandated KiwiSaver schemes, an individual can choose to contribute either 3%, 4%, 6%, 8% or 10% of their gross salary directly into their KiwiSaver account besides making additional voluntary contributions. In case individuals have not chosen any contribution rate, they will be signed up to a minimum level of 3%.

Raising the contribution rate can make a big difference for individuals, providing them hundreds of thousands of dollars more at the time of retirement. Thanks to the power of compounding, the more money you put in now and the more time it has to grow, the more you will have in the future.

Choose KiwiSaver Fund Cautiously

While KiwiSaver is not complicated, if you end up caught in a wrong fund for a prolonged period, it costs you real money every single day. Consequently, your savings grow at a slower pace. Thus, it is imperative to choose an investment fund that aligns with your savings goals and power up your retirement nest egg.

Different KiwiSaver funds have varied characteristics, with traits of each fund determined by a mix of investments. Individuals can choose a KiwiSaver fund based on the level of risk they are willing to take on the investments comprising the fund. If you select a fund with low-risk, most of your investments are likely to go towards less risky and low-return options like fixed-interest investments and bank deposits. On the other hand, high-risk funds have to potential to deliver larger returns from investments like shares. However, one needs to be wary as they come with greater risk too.

Good Read: What prompted KiwiSavers’ switch to lower risk funds in March 2020?

Harness the Benefits of Government Contribution

New Zealanders can reap the rewards of free annual government contribution in KiwiSaver accounts, which could make a big difference to their retirement balance over the long run.

If you are 18 years or older, the government puts in 50 cents for every 1 dollar you put into your KiwiSaver account. The maximum amount the government contributes each year is NZ$521.43, which is tax-free. To receive the complete annual government contribution, individuals need to contribute at least NZ$1,042.86 between 1 July and 30 June every year and fulfil the eligibility criteria.

Individuals who are not contributing to the KiwiSaver account from their salary can embrace different ways to top up their balance to receive the full government contribution. These ways include making regular voluntary contributions, bolstering the contribution rate or making one or more lumpsum contributions.

Right Tax Rate Matters

You may end up paying more tax than you need to if you have not reviewed your KiwiSaver in a while, which may eat a portion of your fund’s return. Besides, Inland Revenue Department is not allowed to refund any tax an individual has mistakenly overpaid on KiwiSaver.

When you initially set up your KiwiSaver account, you ascertain your Prescribed Investor Rate (compulsory tax to be paid on KiwiSaver) based on your income at that time. Over time, you earn more or less and move into a different tax brackets. Unless you convey to the KiwiSaver scheme provider about the change in your income, you may end up paying the wrong Prescribed Investor Rate.

Thus, it is important for individuals to keep their KiwiSaver scheme provider informed about their correct tax rate to ensure they are paying the right amount.

Although these tips can help you in uplifting the retirement savings, one cannot neglect that KiwiSaver schemes are subject to change. Thus, people should opt for an approach that best suits their individual financial need/situation after conducting a comprehensive analysis.

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