Why saving for your retirement needs to start right now

“Nah, I’ve got heaps of time.”
“I’m trying to save enough to go on holiday.”
“Won’t the government look after that for me?”

For many people, retirement is so far away it’s hard to comprehend. For others, it’s a welcome reprieve from a lifetime of work.

But how you get to spend your retirement depends on the decisions you make today – even if you’d rather bury your head in the sand.

How you live now versus how you’d like to live when you’re older

Consider the things you’d like to do when you retire. Perhaps it’s overseas travel. More golf. Family holidays with the grandchildren. Daily coffee with friends. An apartment in a smart retirement village. Enough left over to leave an inheritance to your family.

Now consider the life you currently live while working a fulltime job. Mortgage or rent payments. Insurance. Childcare or school fees. Power bills. Groceries. Petrol.

Many of the expenses you have now will still need to be paid when you retire. But if you’re not working to pay for your lifestyle, how do you expect to be able to have resources to enjoy yourself too when you retire?

Government superannuation

The standard of living you will get to enjoy (or not) when you retire comes down to simple mathematics.

According to the Sorted website, $1,029 is an appropriate weekly allowance for a single person living in a main centre on a ‘Lifestyle – Choices’ setting. Judging by the current rate of inflation and the ever-increasing cost of living, that figure is likely to increase between now and the time you retire.

The current weekly New Zealand superannuation payment for single person on the M tax rate is $463 (after tax). That’s a significant income gap of $566 per week. Unless you happen to win the lotto or inherit a lot of money (neither of which can be counted on), you need to have another option to have the retirement that you want – and deserve.

KiwiSaver 101

The solution to this mismatched mathematical equation is KiwiSaver. Introduced in 2007, KiwiSaver is a voluntary savings scheme to help New Zealanders save for their retirement. Contributors invest 3%, 4%, 6%, 8% or 10% of their salary (before tax) into a KiwiSaver fund that will grow that investment for them. Employers are required to contribute at least 3% into employees’ funds too. If people contribute, the government will contribute up to $521 annually too.

A KiwiSaver fund is more than a savings account; it behaves like a managed fund. Your fund manager invests your KiwiSaver savings on your behalf which means your savings earn returns over time.

KiwiSaver balances can be used for two things: to put down a deposit on your first home, or to use for your retirement. If you’re using it for retirement, your KiwiSaver balance will sit there earning more money until you’re able to take it out aged 65 (either all at once or incrementally).

Self-employed people don’t usually receive employer contributions, but there’s nothing
stopping them from enjoying the other benefits of KiwiSaver. KiwiSaver is usually excellent value for
money as fees tend be lower than managed funds. It’s a safe and secure form of investing due to the
investments being held in trust. And if they contribute, they’ll qualify for the government contributions too, up to maximum of $521 every year until they turn 65.

The beauty of KiwiSaver is that there’s no one size fits all. Every KiwiSaver account owner has the power to change their future by making small changes that will have big impact. Here are four questions to ask yourself about your KiwiSaver contributions:

  • Are you contributing enough?
  • Are you taking on enough risk?
  • Are you in a top-performing fund?
  • Have you received financial advice?

Are you contributing enough?

Contributing the default option of 3% is a good start, but the more you contribute the more you’ll enjoy the power of compound interest. Compound interest is often referred to as interest on interest and is an important factor to understanding a long-term investment like KiwiSaver.

Simply increasing your contributions from 3% to 4% could earn you an additional $100,000 by the time you retire. In the moment it’s a miniscule amount that you’ll barely notice going out of your paycheck, but in the long term it could mean the difference between living a no-frills versus comfortable retirement.

By using the KiwiSaver calculator on the Sorted website, we can see the difference someone might be able to save for their retirement, simply by increasing how much they contribute. For example, a 25-year-old who earns $80,000 a year and puts 3% of their salary into a Growth KiwiSaver fund (and their employer matches it) could expect to have almost $375,000 in their KiwiSaver by the time they retire (not taking into consideration any pay rises along the way). Increasing that contribution to 6% could equal more than $580,000. If they contributed the maximum of 10% they could have $855,000 by the time they retire.

Compare that to a 35-year-old just starting KiwiSaver. Using the same values as above, they could expect to have $232,000 at 3%, $359,000 at 6%, or $528,000 at 10%.

The figures show that the sooner you start investing in KiwiSaver, and the higher your contributions are, the more potential earnings you’ll make and the better your retirement will be.

Are you taking on enough risk?

For most of us, KiwiSaver is a long-term investment. This means if you aren’t going to retire for a long time, you can take on greater risk because you’ll have more time to bounce back from any financial downturns.

Higher-risk funds are called Growth and Aggressive funds and have a much higher allocation of shares in their portfolios. It’s important to have time up your sleeve in these funds because they are the most volatile. If you have time on your side and your investments experience volatility, you can ride it out, and wait until the markets recover and your investments recoup any losses. 

However, if you’re planning on retiring in the next 10-15 years, a more conservative approach might be appropriate. But with more people working well past retirement age, another question to ask yourself is when you plan to start withdrawing from your KiwiSaver, not when you turn 65. Extending your investment time will mean you’ll enjoy more compound interest.

Are you in a top-performing fund?

There’s a big range of KiwiSaver providers available, from big banks and investment institutes to boutique organisations. Some of these providers perform exceptionally; others perform exceptionally poorly.

Better-performing funds can only be a good thing for the state of your retirement. Check where your fund ranks (consider fees as well), and don’t be afraid to make the switch if it means you’ll earn more (and switching is easy). The performance difference could be as much as 1% or 2% per annum which doesn’t sound like a lot, but over multiple years the difference magnifies thanks to the compound interest.

Have you received financial advice?

Navigating KiwiSaver and setting yourself up for the best retirement and future possible can be daunting. Most of us are more than happy to seek financial advice when purchasing property or organising insurance, but the same should apply to KiwiSaver too.

Here at Threefold, we look at finances holistically, from owning a home (or multiple properties), managing your insurance, and maximising your KiwiSaver. Keen to start the conversation about your retirement? Threefold’s KiwiSaver specialist, Carl Pheasant, is happy to help. Email Carl at to find out more.