KiwiSaver Mistakes
KiwiSaver is a fantastic retirement investment scheme, but many New Zealanders make mistakes that can cost them in the long run. By avoiding these common pitfalls, you can ensure that your KiwiSaver works hard for you, growing your retirement savings as much as possible.
Staying in a Default Fund for Too Long
One of the most common mistakes is staying in a default KiwiSaver fund. Default funds are balanced funds, meaning they are medium risk but also medium to lower returns. This might be appropriate when you're just starting, but sticking with it for too long could mean missing out on growth opportunities.
Why It’s a Mistake: Balanced funds are designed to be medium-risk, which is great if you're nearing retirement. But if you're younger, you could miss out on higher returns by not switching to a growth or aggressive fund.
Example: Emma was placed in a default fund when she joined KiwiSaver at 25. Ten years later, she’s still in that fund. If she had switched to a growth or high growth fund earlier, her savings could have potentially doubled due to higher returns.
Tip: Review your KiwiSaver fund regularly and switch to one that matches your life stage and risk tolerance. Professional KiwiSaver advice can help you choose the right fund - speak to us if you’re in a default fund!
Not Maximizing Contributions
If you're employed and contributing the minimum 3%, you’ll also be receiving employer contributions. However, consider increasing your own contribution rate as you could accumulate thousands more by the time you retire.
Why It’s a Mistake: Contributing only 3% may be leaving money on the table. Employers are required to match your contributions up to 3%, and some employers offer higher contribution too but increasing your own personal contribution rate to 6% or more can significantly boost your savings with compounded growth over time.
Example: John, aged 30, decided to increase his KiwiSaver contribution from 3% to 6%. This change, combined with his employer's contribution, will result in tens of thousands more in savings by the time he retires.
Tip: Even small increases in your contribution rate can have a big impact over time. Talk to us to find out what contribution level works best for your retirement goals.
Missing Out on Government Contributions
The government offers up to $521.43 annually in contributions for members who put in at least $1,042.86 by June 30th each year. If you're not contributing this amount, you're missing out on free money.
Why It’s a Mistake: If you don't contribute at least $1,042.86 a year, you won't get the full government match. This can add up over time, meaning you're leaving free money on the table.
Example: Susan only contributed $800 to her KiwiSaver this year, meaning she missed out on $241.43 in government contributions. Over the years, missing out on these government contributions could result in a loss of thousands of dollars by the time she retires.
Tip: Set up automatic payments to ensure you contribute at least $1,042.86 each year and receive the full government contribution.
Self-Employed? Don’t Forget Voluntary Contributions
If you're self-employed, you don’t automatically get employer contributions, but that doesn’t mean you should ignore KiwiSaver. Voluntary contributions are essential to ensure your KiwiSaver grows over time so be sure to contribute.
Why It’s a Mistake: Many self-employed people assume that without an employer, KiwiSaver isn't worth contributing to. However, by making voluntary contributions, you can still benefit from the annual government contribution and the power of compounding returns.
Example: Lisa, a self-employed freelancer, contributes $1,042.86 annually to her KiwiSaver. This ensures she receives the full government contribution of $521.43. Over time, these contributions will add up, giving her a significant boost in her retirement savings.
Tip: If you're self-employed, set a goal to contribute at least $1,042.86 annually to take advantage of the government’s contribution. You can also choose to contribute more for long-term growth.
Withdrawing KiwiSaver: Only Take What You Need
KiwiSaver allows withdrawals for financial hardship and for first home buyers, but it’s important to carefully consider how much you withdraw. Taking out more than you absolutely need can reduce your retirement nest egg significantly.
Why It’s a Mistake: Financial hardship withdrawals should be treated as a last resort. Taking out more than you need now means you'll have less for retirement later, reducing the power of compounding growth.
Example: Tom withdrew $8,000 from his KiwiSaver due to financial hardship. However, if he had taken only $4,000, the remaining $4,000 could have compounded over the years, providing him with more in retirement.
Tip: When faced with financial hardship, only withdraw the minimum amount you need. Consulting a KiwiSaver adviser can help you make informed decisions and minimize the impact on your retirement savings.
Choosing the Wrong Fund for Your Risk Profile
Selecting the wrong KiwiSaver fund can be costly. You may be in a fund that’s too conservative and miss out on potential growth, or too aggressive and risk losses close to retirement.
Why It’s a Mistake: Being in a conservative fund when you have decades until retirement can mean lower returns, while being in a high-risk fund as you approach retirement can expose you to losses at the wrong time.
Example: Jane, aged 60, is still in a growth fund, but she plans to retire in 5 years. If the market dips, she could lose a substantial portion of her savings. A balanced fund may have offered her more protection while still providing moderate growth.
Tip: Regularly review your fund type to ensure it matches your risk tolerance and stage in life. We can help you find the right fund for your needs, please take our KiwiSaver Discovery Quiz and we will provide you with a free no obligation KiwiSaver report.
Ignoring Fees and Performance
Not all KiwiSaver funds are the same. Some charge higher fees, and those fees can eat into your returns over time. Additionally, staying in a poorly performing fund could reduce your savings potential.
Why It’s a Mistake: Over time, higher fees can significantly erode your savings. Likewise, a fund that consistently underperforms can reduce the overall growth of your KiwiSaver account.
Example: Mike is in a fund with fees of 1.5%, while other similar funds charge only 0.8%. Over 20 years, the higher fees reduce his savings by $15,000. By switching to a lower-fee fund, he could have kept more of his money growing.
Tip: Compare your fund's fees and performance regularly. Getting professional KiwiSaver advice can help you choose a more cost-effective, high-performing fund.
Not Reviewing Your KiwiSaver Regularly
Your financial situation and goals change over time, and so should your KiwiSaver strategy. If you don’t regularly review your fund, contributions, and risk profile, you could be missing out on opportunities.
Why It’s a Mistake: Failing to adjust your KiwiSaver as life circumstances change—such as getting a raise, nearing retirement, or changing career paths—could result in your savings not growing as much as they should.
Example: Susan hasn’t reviewed her KiwiSaver in five years. During that time, her salary increased significantly, but she didn’t increase her contributions. By not adjusting her contributions, she’s missing out on thousands of dollars in additional savings from employer contributions and compounding returns.
Tip: Compound Wealth performs annual KiwiSaver reviews, we can adjust your KiwiSaver as needed based on life changes. Consulting with us to ensure your plan stays on track.
Get KiwiSaver Advice to Avoid Costly Mistakes
KiwiSaver can help you build a secure retirement, but it requires attention to detail and some smart decisions along the way. By avoiding these common mistakes and seeking professional KiwiSaver advice, you can maximize your savings and ensure you're on the best path to a comfortable retirement.
If any of these mistakes sound familiar, now is the time to get professional KiwiSaver advice from us and make sure you're getting the most out of your plan.
Compound Wealth is a KiwiSaver, Retirement and Private Wealth Financial Advice Firm based in Mount Maunganui, Bay of Plenty with clients all over New Zealand.
