Sorted's Kate Reddington On How To Maximise Your KiwiSaver
The Sorted.org.nz website lead says we have plenty of choice when it comes to our long-term savings
What kind of net investment return can I expect in a high-risk Kiwisaver scheme?
The average net return for KiwiSaver growth funds over the past five years has been 8.85 per cent. Some have done better (as high as 18.76 per cent), some worse (5.3 per cent). No one can predict the future. However, Sorted’s KiwiSaver Savings Calculator doubles as a pretty good crystal ball — we use a more modest return rate of 4.5 per cent for growth funds (as the outlook going forward may not be as rosy).
Watch out for the new souped-up version going live in July. Investing in a high-risk fund is generally only recommended if you’re in it for the long haul.
You can expect to see your balance go up and down to a greater extent than lower-risk funds, but over time the returns tend to be greater, so if your balance dips, you have time to recover. If you want to use your money soon, putting it into a high-risk fund risks that money not being there when you need it. But if you’ve got a long-term goal more than 10 years from now, you stand to make more by riding those more dramatic ups and downs for longer.
Are all KiwiSaver providers created equal? How should we choose a provider?
It makes sense to find the right type of fund for you and then shop for that type of fund over multiple providers. When you start comparing providers, look at the fees they’re charging — are they worth the money?
You can find out how much you’ll pay in fees over time with the KiwiSaver Fees Calculator. Seeing a total in black and white may make you re-think who you’re investing with.
Secondly, what is their service like — do they make it easy to ask questions, get help and find out more about your fund?
Thirdly, what have their returns been like? While no one can predict the future, if a fund is charging higher fees, and their returns have been consistently below average, it’s a good idea to consider whether they’re worth the extra cash. Sorted’s KiwiSaver Fund Finder will help you choose a provider you feel comfortable with.
What kind of funds (high risk, conservative) should my KiwiSaver be in?
The right type of fund for you will depend on three key things: your timeframe (how long before you want to use that money); your appetite for risk (how much of your money you’re willing to put on the line in order to gain potential reward); and how comfortable you feel with market fluctuations (is watching your KiwiSaver balance go up and down going to keep you awake at night?).
For example, if you’re thinking of withdrawing your KiwiSaver for your first home in the next few years, you’ll be looking at more conservative funds. A conservative fund will usually take less of a dive when the sharemarkets do.
What happens if you’re in a higher-risk fund when you find your dream home, but your KiwiSaver has taken a big dip?
If your KiwiSaver is in the right fund for you, you can rest easy knowing that you’re invested in a way that suits your goals. Sorted’s KiwiSaver Fund Finder is a good place to start.
How do I know where my KiwiSaver funds are being invested and how closely should I be following this?
KiwiSaver funds are invested based on a specific strategy for that fund, as determined by the fund provider. Some of these rules relate to risk, so you know that your conservative fund will generally be invested in less risky things like cash and bonds.
Other rules can relate to ethical investment choices. For example, many funds have rules preventing them being investing in weapons, gambling or fossil fuels. You can check the ethical filters on your fund and find ethically-oriented funds on the Mindful Money website. If you’re looking for the details, you can download the entire list of what your KiwiSaver fund is invested in through the Sorted Smart Investor website.
How much should we ideally have in our KiwiSaver by the time we retire?
How do you want to live in retirement? For some of us, we have big dreams for retirement, others have a more relaxed idea of their future. How much you should have depends on the lifestyle you want. The more luxurious you’re looking at, the more you’ll need.
It’s impossible to predict the future, and how much we will really need, but one way to get a starting point for our KiwiSaver goal is to look at what retirees are spending today. Go to Sorted’s 6 Steps and work through Step 5 to see what your number could be.
If my relationship breaks up, is my partner entitled to half of my KiwiSaver funds?
In most cases, yes. Your KiwiSaver is your property, and that becomes shared when you enter into a de-facto, legal union or marriage partnership.
How volatile is KiwiSaver in terms of world events, such as a pandemic?
It depends on your fund type. Generally, the higher the risk, the more exposed you’ll be to the ups and downs in the market. Because KiwiSaver funds are invested at least partly in the share market, they follow the market up and down in response to world events.
Having said that, if you’re invested for your timeframe — leave your money there! Your balance will recover as the markets do. If you panic and move your money in a market dip, you’ll lose out. It’s best to get your KiwiSaver set up right, then review it when the big things change.
Having children might reduce your appetite for risk, or you might decide you want to buy your first home within five years, or are within 10 years of retirement. The KiwiSaver Fund Finder will help you figure out which fund is right for you depending on your stage of life.