Your KiwiSaver strategy should reflect your entire financial picture – Nick Stewart

The path to a comfortable retirement isn’t found in any single investment fund, writes Nick Stewart.

THE FACTS

• Understanding KiwiSaver’s role in your financial ecosystem is crucial for long-term retirement planning.
• A holistic approach, considering total asset allocation, can optimise returns and manage risks effectively.
• Regular reviews and professional advice ensure your strategy evolves with your changing financial circumstances.

The key to optimising your KiwiSaver isn’t just about picking the right fund – it’s about understanding how it fits within your complete financial ecosystem.

If you retire at 65, your savings could need to stretch three decades or more. According to Statistics New Zealand’s mortality data, a 65-year-old today has a significant chance of living into their 90s – much longer than previous generations.

This extended timeframe fundamentally changes the retirement investment equation. Even at retirement age, money that may not be needed for decades can potentially weather market volatility in pursuit of higher long-term returns.

Yet many retirees shift to overly conservative approaches which may struggle to maintain purchasing power across such extended retirement periods.

Consider the numbers. If inflation averages 2.5% annually, the purchasing power of money halves every 28 years. A conservative approach, barely keeping pace with inflation, could leave retirees significantly worse off by their 80s and 90s.

Asset Allocation Across Your Complete Portfolio

Instead of asking, “What should my KiwiSaver fund allocation be?”, try asking, “What should my total asset allocation be, and how can I use different investment vehicles to effectively achieve this?”

Someone with substantial cash savings and term deposits might benefit from a growth-focused KiwiSaver strategy.

Conversely, someone heavily invested in shares outside KiwiSaver might choose a more balanced KiwiSaver approach to avoid over-concentration in equities.

The tax efficiency of different investment vehicles matters too. KiwiSaver’s favourable tax treatment on contributions and fund earnings makes it an ideal vehicle for growth investments. Meanwhile, other investment structures might be more suitable for defensive allocations.

The Danger of Set-and-Forget Thinking

KiwiSaver’s success in automatically enrolling New Zealanders into retirement savings has created the mistaken belief that retirement planning is now “sorted.”

Your optimal KiwiSaver strategy should evolve as your life changes. An aggressive growth approach may be suitable early in your career when you have more time than assets, but your optimal allocation will change as you accumulate property, build emergency funds and approach retirement.

Regular portfolio reviews of all your financial assets are essential – not just of your KiwiSaver. There may be opportunities to rebalance between different investment vehicles, or adjust your KiwiSaver strategy to better complement your evolving financial situation.

The Need for Holistic Financial Guidance

Too often, advice is delivered in silos: KiwiSaver advice from one provider, mortgage advice from another, investment advice from a third. You end up with a fragmented approach, not a full, harmonious picture.

Holistic financial advice considers your complete financial ecosystem. This integrated approach can reveal sound strategies where siloed advice doesn’t.

For example, salary sacrificing into KiwiSaver while reducing term deposit holdings could shift assets into a more tax-efficient structure; or in some cases, paying down your mortgage faster may benefit you more than increasing other investments.

Professional financial advisers taking a holistic view help model different scenarios across your portfolio. They consider not only KiwiSaver options, but also how changes to your mortgage repayments, investment allocations, ownership structures and even insurance strategies could work together to improve your financial position.

The complexity of optimising across multiple asset classes, tax structures, and time horizons is where professional expertise becomes invaluable.

A qualified adviser can navigate KiwiSaver’s tax advantages, property investment considerations, portfolio diversification needs, and your evolving life circumstances.

Your optimal strategy today won’t necessarily be optimal in five years. Regular reviews of your complete financial picture ensure your strategy remains aligned with your goals.

Taking Action

Start by conducting a complete financial stocktake, then consider your current asset allocation across everything you own. Does this allocation make sense for someone needing their money to last 30 years post-retirement? Or is it overly conservative, because you’re only looking at each investment individually?

The path to a comfortable retirement isn’t found in any single investment fund. It’s constructed through the thoughtful integration of all your financial resources, with KiwiSaver playing its optimal role within your wealth ecosystem.

Even modest improvements in your overall investment efficiency compound dramatically over 30-40 years, potentially adding tens of thousands of dollars to your retirement wealth. Get started today – your 95-year-old self will thank you later.