If you’ve ever stared at your KiwiSaver statement and wondered whether you’re in the right fund, you’re not alone. The reality is that navigating KiwiSaver options can feel overwhelming, with different fund types, providers, and fee structures to consider. But getting this decision right matters more than you might think.
Why Your KiwiSaver Choice Actually Matters
Being in the wrong KiwiSaver fund can cost you significantly over time. We saw this play out dramatically during COVID-19, when many people panicked and switched out of growth funds as markets dropped. The problem? They locked in their losses and missed the subsequent recovery.
Your KiwiSaver plan should align with your age and stage of life. If you’re young and haven’t bought your first home yet, you might prefer a less volatile approach since you may need those funds sooner. However, if you’ve already used your first home withdrawal and are not nearing retirement, you typically have a much higher capacity to accept risk and can focus on long-term returns for retirement.
Key Factors When Choosing a KiwiSaver Fund
Your Investment Timeline
The longer you have until retirement, the more market volatility you can weather. This means younger investors can often benefit from higher growth assets, while those closer to retirement might prefer more conservative funds.
Risk Tolerance
Here’s a simple test: can you sleep at night when markets are volatile? Can you tune out the media noise during market downturns? If market fluctuations keep you awake, a balanced fund might be more suitable than an aggressive fund. The key is to choose a fund that aligns with both your financial goals and your emotional capacity to handle market fluctuations.
Financial Goals
For most of us, KiwiSaver serves as either our retirement savings vehicle or our first home deposit fund. These different goals require different investment approaches and fund types.
Fees and Charges
Management fees might seem small, but they compound over decades. Your annual member statement will show what annual fund charges and performance fees you’re paying. A 1% difference in fees can have a significant impact on your KiwiSaver balance over 30-40 years.
Understanding KiwiSaver Fund Types
The main KiwiSaver fund types are typically classified as:
- Conservative funds – Lower risk, small exposure to growth assets, suitable for shorter-term investment horizon or those with low tolerance for market fluctuations
- Balanced funds – Mix of growth and income assets – medium-term investment timeframe
- Growth funds – Higher exposure to growth assets – longer term investment horizon
- Aggressive funds – Highest exposure to growth assets and highest potential returns over the long term
The key difference is how much of your KiwiSaver investments go into growth assets such as shares and property versus income assets such as cash and bonds. Higher share exposure generally means higher returns over the long term, but also more volatility in the short term.
How Often Should You Review Your Plan?
KiwiSaver isn’t completely “set and forget,” but you don’t need to check it constantly either. A good rule of thumb is every couple of years, or whenever your circumstances change significantly.
Major life events that might trigger a review include:
- Buying your first home
- Changing jobs
- Serious illness
- Getting married or divorced
- Having children
- Approaching retirement
Don’t Forget the Government Contribution
Many eligible KiwiSaver members, particularly those who are self-employed or not working, may miss out on the government contribution if they do not make a voluntary contribution. Contributing the minimum amount to qualify for this contribution is important – don’t leave money on the table.
Getting Started
If you’re unsure about your current situation, start by checking your annual member statement. This will tell you who your provider is, what fund type you’re in, and what fees you’re paying. It will also provide an estimate of what your KiwiSaver savings may be worth at age 65, either as a lump sum or a weekly amount until age 90.
For a quick assessment, try the KiwiSaver quiz on our website, which can give you insights into whether your current KiwiSaver balance is above or below average for your age group. The government’s sorted.org.nz website is another excellent resource that allows you to model different scenarios and see how various contribution rates and fund types might affect your retirement savings.
Remember, KiwiSaver forms an integral part of most New Zealanders’ financial future. Taking the time to ensure you’re in the right fund for your situation could make a significant difference to your retirement lifestyle.
Don’t leave money on the table – make sure your KiwiSaver is working as hard as it should be for your future.
