Money Matters: The Benefits of KiwiSaver

KiwiSaver is a tried-and-tested savings initiative that comes with a wealth of benefits. It’s affordable, easy, and works for most people.

I recommend it to many of our clients as an excellent place to start when it comes to saving money. At Craig Pope we help guide you to getting the right help in regards to KiwiSaver and finance planning goals. Contact us for a free initial review of your situation.

In this post we briefly explain what KiwiSaver is and its key benefits.

What is KiwiSaver?

The government-backed savings scheme helps you save for retirement or your first home by making contributions into a managed fund. It’s voluntary, although you’re generally auto enrolled if you’re 18 or over and when you start working. Your contribution is deducted straight from your work wage, or if you’re self-employed, then you make the contributions yourself.

The best thing about it is that the government, as well as your employer, both make regular contributions in addition to what you pay in. Moreover, it’s managed by expert financial advisors who wisely invest your savings on your behalf, so you get further returns on your investment.

Over time, this grows into a sizeable nest egg for retirement or getting on the property ladder.

Start early to earn more

KiwiSaver is effective because of the power of “compounding returns”.

Compounding returns occur when you earn money on both the money you save and the interest it earns. In this case, it’s the cumulative returns made each year on your KiwiSaver contribution from the government, your employer, and through investments made by your provider. In the long-term, this builds up significant returns.

That’s why it’s imperative to start one as early as possible, so you can really maximize your growth over time. The sooner you start, the more you earn.

Do you have kids? Consider setting up a KiwiSaver for them so that as adults, they’ll already have a healthy savings fund. It’s also a good opportunity to teach your kids about money.

The government gives you up to $521 annually

The big draw of KiwiSaver is that the government contributes up to $521.43 each year.

Unlike claiming a tax rebate, getting this money is hassle-free. Your provider automatically makes the claim each year, and the money goes directly into your bank account.

The only caveat is that you have to contribute at least $1042.86 a year to receive the full sum. Otherwise, they’ll contribute 50 cents for every dollar you save.

Your employer contributes 3% or more

If you’re employed, then it’s compulsory for your employer to also contribute a minimum of 3% of your before-tax pay. Some employers offer more too, up to 10%.

The added benefit of saving through your job is that your contribution is deducted from your wages before you even see it, making saving straightforward. It’s also convenient because if you move jobs, or leave the workforce, your KiwiSaver simply stays with you.

You earn additional income through investments

For the average person, investing can be intimidating.

But with KiwiSaver, your money is invested on your behalf by expert financial advisors working for your provider, in a diversified (therefore lower risk) fund of assets and stocks. While the value of these investments can fluctuate from month-to-month, this kind of fund is likely to grow steadily over the years.

Essentially, KiwiSaver is a form of investing in managed funds that’s lower-cost and lower-risk. With your money in trusted hands, you can put your feet up and simply watch as your investments take flight.

Use it to buy your first home or save for your retirement

KiwiSavers are designed to help you buy your first home or save for your retirement.

You can withdraw funds for your first home as long as you’ve been a KiwiSaver member for at least three years. You may also qualify even if you’ve owned a property previously.

Even better, as a member, you also get access to a First Home Grant. If eligible, the government gives you up to $5,000 towards buying an older, existing home; or up to $10,000 towards buying a new home or land to build a new home on.

If you’re using it to save for retirement, you can’t touch your money until the age at which you start to receive your pension, which is currently 65.

Maximise your growth with KiwiSaver

Aside from limitations as to what for, and when, you can withdraw money, there aren’t really any downsides to saving with KiwiSaver. It’s a no-brainer!

By taking advantage of the compound returns it offers, conveniently handled for you through your work and provider, a KiwiSaver is an easy and profitable way to secure a comfortable retirement, or first home for your family.

There are lots of providers out there, plus different types of accounts that offer more or less risky but potentially lucrative investment strategies. It’s therefore sensible to sit down with a financial advisor to discuss options.

Take the first step towards saving for your future by asking us about our services providers and getting a free review from them. Remember: the sooner you start, the more you earn!