Well I don’t want to give away too many spoilers early on, but the answer is definitely a lot more than absolutely nothing! As per my disclaimer, I would recommend getting personalised financial advice before making any decisions, but the general consensus here in NZ is that you need to have a really, really good excuse to not be in KiwiSaver, and I’m yet to hear such an excuse.
There is one reason why every New Zealander should be in KiwiSaver and that reason is called a Government Contribution. This is up to $521 every single year that you can get between the ages of 18 and 65 as long you are tax resident in NZ.
To get the full $521, you need to sock $1043 away into your KiwiSaver each year. I’ve seen some people suggest they can get better returns elsewhere than in a KiwiSaver fund, but I defy anyone to demonstrate how they can beat a guaranteed 50% return on $1043 of their money for 47 years straight.
Yes, it’s only a 50% return the year you put that money in. The following year you’ll only get a regular return on the $1043 you put in the previous year, but that regular return will still be 50% larger than it would otherwise have been, so compounding returns really come into their own here.
There are other more mathematically-minded bloggers out there who will be able to tell you what $521 x 47 years + compounding interest adds up to, but suffice to say it is many tens of thousands of dollars.
More Free Money
There are some nefarious employers out there who are skirting around providing a proper employer contribution (legally) by paying non-KiwiSaver members extra to make up for the 3% contribution their colleagues are getting. But for the vast majority of Kiwis, if you’re not in KiwiSaver your employer is taking you for a ride and hanging onto money they’d otherwise have to give you (or at least give 65-year-old you).
This means that for most NZers who are KiwiSaver members, simply by contributing 3% of their pay they can get up to a 150% return on their money that year.
What about Mr and Mrs R2A?
Those of you who have been following along know that our current plan is to move to the Philippines to retire early in about seven years’ time. So how does KiwiSaver work for us, given we won’t be anywhere near age 65 when we retire?
Well, believe it or not KiwiSaver works even better for people who plan to retire early overseas (as opposed to within NZ) because once you’ve been living outside NZ for 12 months you can withdraw all your money.
But, even if we were retiring in NZ or the rules changed, it would still be worth our while to be in KiwiSaver, as we’d still get the aforementioned free money while we are working in NZ before we retire. Also, funnily enough, we do plan to live to age 65 so the money is going to figure into our retirement plans eventually one way or another.
In fact anyone retiring early in NZ can get some pretty sweet returns by drip-feeding $1043 each year into their KiwiSaver and receiving the government contribution, as you don’t have to be in the workforce to get it!
I realise it’s extremely unlikely that anyone who is interested enough in personal finance to be reading this blog would not already be in KiwiSaver. But there are so many myths out there, everything I’ve said bears repeating and is constantly repeated by every NZ finance blogger and journalist out there. I’m just adding my voice. This stuff is basic but hugely important. Happy saving!
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