For most New Zealanders, KiwiSaver will be their first introduction to investment. It’s a great tool to save for your retirement and it can also help you get into your first home. However, as with any investment, there are things you can do to make your money work harder for you. It’s about how and where you invest, about the tax rate you pay and about making sure you benefit from what the Government is offering to KiwiSaver members.
With over 2.8 million Kiwis in KiwiSaver, it doesn’t matter if you’re just starting out or if you’re already an experienced investor, here are 5 things anyone can do to maximise their KiwiSaver returns.
1. Check your PIR rate
The prescribed investor rate (PIR) refers to the tax rate for your investment earnings from a portfolio investment entities (PIE). It is based on your income from the last two years. Make sure your tax rate is correct and you’re not paying more tax than you need to.
For example, if you made less than $48k in the last year, your tax rate should be 10.5%. To work out what your tax rate is, have a look on the IRD website.
If you do not provide your PIR or IRD number to your KiwiSaver provider, you’ll be taxed at the default rate of 28% no matter what your income is. In these cases, a refund will not be available. Save yourself some money by making sure your PIR rate is correct.
2. Get the $521 Government contribution
To get the maximum payment of $521.43 from the Government, you must contribute $1,042.86 every year. That’s about $20 per week. If you have been contributing for at least one year through your employer at the 3% rate and you earn over $34,766 per year, you will qualify for the full Government contribution.
If you haven’t contributed enough, you can top up your KiwiSaver to make sure you get 100% of the Government contribution. They are paid out annually around July/August.
3. Select the right fund for your life stage
If you didn’t choose a fund when you first joined KiwiSaver, chances are that you’re in a default conservative fund. Conservative funds are lower-risk and because of this they tend to generate lower returns.
In most cases, if you are close to retirement it makes sense to be in a lower risk fund. However, if you are not buying your first home or retiring anytime soon, it might pay off to move to a growth fund.
Even a 1 per cent difference in investment performance in your KiwiSaver fund over time could give you an extra $100k when you retire. (This is based on a 22-year-old contributing 3% of a $45k salary, along with employer contributions of 3%, until the saver is 65). Source
4. Review your contribution rate
There are now more contribution rates to choose from. You can decide to deduct 3%, 4%, 6%, 8% or 10% from your wages. Your contribution rate should be linked to your financial goals. If you are paying down your mortgage, it makes sense to contribute the minimum to your KiwiSaver. However, if you have no debt, increasing your contribution could be a good way to go.
A small change can make a big difference. As an example, a 35-year-old with $25k in KiwiSaver funds, with a salary of $50k per annum, who raises the contribution rate from 3% to 4% would have approximately $40k extra by age 65. Source
5. Get advice
An adviser will help you check all the things above off your list, and help you boost your KiwiSaver balance while they’re at it. Let them do the work for you and save yourself some time. Our advisers are KiwiSaver experts, and they would love to help you make the most of your KiwiSaver, whether you’ll be using it to buy your first home or for your retirement.