COMMENT:
Worried about how the Covid-19 pandemic is affecting your KiwiSaver investment, and wondering what to do about it?
Or is KiwiSaver the last thing on your mind? Maybe you were auto-enrolled and have ignored it since.
Or perhaps you're somewhere in between?
Whatever your situation, it's highly likely you're not getting as much out of KiwiSaver as you can. Now — while you've probably got time to spare — is a great opportunity to make simple improvements. The sooner you do, the more fun you can have in retirement.
So what should you do if:
You're not contributing.
A: Too many people are on savings suspensions, or they're not employed and have simply stopped putting money in.
That's understandable if you really can't afford it. But if you earn, say, $40,000, then 3 per cent of your pay is just $23 a week. And for non-employees, contributing $1043 a year to get the maximum $521 government contribution amounts to $20 a week. Most people could manage those amounts if they really want to.
Remember that an employee's contributions are roughly doubled by employer and government contributions. And a non-employee's contributions are multiplied by 1.5 by the government input. That means employees will end up with twice as much in retirement as if they save elsewhere, and others with 1.5 times as much. That's powerful. Don't miss out.
Footnote: If you think your income might drop a lot because of Covid-19, perhaps postpone restarting KiwiSaver contributions.
But instead, put the same amount in a savings account. If you end up not needing it, contribute it all to KiwiSaver when the crisis is over. You can send a lump sum directly to your provider. And do restart contributing then!
You don't know which provider you're with.
A: Ring 0800 KIWISAVER. Have your IRD number handy.
You don't know the name of your fund.
A: Look at communications your provider has sent you, or phone or email your provider.
You don't know how risky your fund is.
A: Go to the KiwiSaver Fund Finder on sorted.org.nz, click "Check your current fund" on the left, and type in your fund name. On the top right it will say whether your fund is Defensive (lowest risk), Conservative, Balanced, Growth or Aggressive (highest risk).
You're not sure whether that is the right risk level for you.
A: On the left side of the KiwiSaver Fund Finder, click "Find the right type of fund for you". This will take you to three questions, about how long it will be before you expect to spend your KiwiSaver money, and how well you can cope with market ups and downs.
You find — through the Fund Finder's questions — that your fund is too risky for you.
A: You may have already realised this, as share markets have dropped considerably lately and your KiwiSaver balance has fallen. What you should do depends on your plans for the money.
If you are:
• Not planning to spend your KiwiSaver money for 10 years or more. Please don't rush into a lower-risk fund. If you do that, you make the recent losses real. But if you stay the course, your KiwiSaver balance will rise again. It may take just a month or a couple of years, and there may be more falls first. But you've got time on your side. Once your balance has risen — or at least recovered most of its fall — that's the time to switch to a lower-risk fund, so you don't have to go through this again.
Remember, though, that over the long run higher-risk funds bring higher average returns. So consider moving only part of your savings to lower risk. Leave a portion where it is, and learn to be brave as it rises and falls over the years.
• Planning to spend at least some of the money within 10 years — in retirement or on a first home. You may need to take faster action.
It all depends on the timing and quantity of your spending. If you hope to buy a house or spend most of your savings within, say, three years, it's probably wise to fairly promptly move your money to a lower-risk fund — or bank term deposits if you're over 65. You'll avoid possible further share market drops — although be aware that you could miss out on a market recovery.
But if you can delay most of the spending for a few years, I suggest you wait until your balance has largely recovered before making a move.
Whatever your circumstances, whenever you move money you can reduce the risk of transferring it all at what turns out to be a particularly bad time by moving, say, a third at the start, a third a month or two later, and the rest in another month or two.
Footnote for retired people: while you may want to move shorter-term spending money into a low-risk fund, consider leaving the 10-year-plus money in middle or higher-risk to get the better long-term returns.
You find — through the Fund Finder's questions — that your fund is not risky enough.
A: You may have heard friends or family complaining about recent drops in their KiwiSaver balances, but yours has fallen only a little. Feeling complacent? Don't! You've been missing out on fantastic returns in the riskier funds over most of the last 10 years. The recent losses so far are minor in comparison.
So what now? Lucky you. You can move into a higher-risk fund at a really good time — when units in those funds are cheap.
But I suggest you also make your move in, say, three batches — a month or two apart. We don't know whether the markets will fall further, so you want a chance at moving at least some of your money at the best time.
You've decided to move a portion of your savings to a lower or higher-risk fund — sooner or later — but your KiwiSaver provider won't let you be in more than one fund.
A: Switch to another provider that will permit that. Most do. Use the KiwiSaver Fund Finder to find another good fund at the right risk level for you and, of course, check their fund switching policy before moving.
How do you choose a new provider? See the next two items.
You may be paying too much in fees.
A: The KiwiSaver Fund Finder comes to the rescue again! Click "Compare Funds" on the left. Go to "Select the type of fund you'd like to look at" and select your risk level.
Below that, choose to compare funds by fees. You'll get a list of all the funds of that type, with the lowest-fee funds first. How does your fund compare? If it's not among the cheapest, I strongly suggest you choose one that is.
You can get info about each low-fee fund on the Fund Finder, and then check the providers' websites to see if you like the way they operate.
You'll also notice that the Fund Finder lets you compare funds by quality of services and by returns. Take services into account, but don't take much notice of returns — except to rule out any funds that consistently have low returns.
Why not go for funds that have had high returns? Because time and again, we see past high performers doing poorly in future.
Your best bet to get high long-term returns after fees is to go for funds with low fees.
When you decide to move to a new provider, just contact them. They will get in touch with your old provider and arrange the move.
You're concerned about how ethical or environmentally friendly your fund is.
A: Go to mindfulmoney.nz, where you can check what's in your KiwiSaver fund, and find a KiwiSaver fund that fits your values.
You're worried about your financial situation in the months to come — perhaps because you might lose your job.
A: Consider taking a savings suspension — but only if you put the money, instead, into a savings account, and then deposit it in KiwiSaver when the crisis is over — unless you had to use it in the meantime. Resume your regular contributions as soon as possible.
It's a pity to suspend your payments, though. This is a particularly good time to be contributing to KiwiSaver. With the markets down, units in your fund are at bargain prices.
So don't take this step unless you really feel you must.
You find yourself checking your KiwiSaver balance often.
A: This is bad for your financial and emotional health, especially in times of falling markets. It can lead to rash fund switching that leaves you worse off.
If your provider is a bank, and you see your balance every time you do online banking, turn off that feature.
Checking your balance about once every three months, when you get a statement from the provider, is often enough.
You're not sure if you will have enough in retirement.
A: Go to the KiwiSaver Savings Calculator on sorted.org.nz. It will tell you roughly how much you're likely to have when you retire, and how much that's expected to give you per week in retirement — in addition to NZ Super. Important note: At the bottom of the results, you'll see that they are adjusted for inflation. That means that if your retirement total is $100,000, that will buy you what $100,000 buys today.
You can switch off the inflation adjustment, and your retirement total will be considerably higher. That's the dollar amount you're expected to actually have. But keep in mind that, because of inflation, it will buy less than it does today.
While you're there, try adjusting your fund type, to see how much more or less you might have if you switched funds. You can also see how contributing more would affect your results. And there's a link to a retirement planner.
Done? Brilliant!
You can now drive your KiwiSaver car smoothly into retirement. Take a bit of interest in your account every now and then. But you shouldn't have to change much, except perhaps to increase your contributions when you can, or to reduce your risk level as you approach the time you'll spend the money.
• Covid19.govt.nz: The Government's official Covid-19 advisory website
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