Conservative and balanced KiwiSaver funds will not give New Zealanders a comfortable retirement over the long term, according to a leading digital KiwiSaver advice platform.
BetterSaver Founder and Chief Executive Joe Taylor says the "single most important thing" a person with decades to go to retirement can do is to choose the right KiwiSaver fund to be in – and he strongly advocates against the more conservative, lower-risk funds.
Taylor is urging Kiwis to consider escalating living costs when planning their retirement and to take KiwiSaver fund choice seriously as homeownership remains out of reach for many.
"The brutal reality is that conservative and balanced funds over the long term are not going to give you a comfortable retirement," he says. "Many Kiwis' retirements will be fraught with hardship – and possibly even homelessness. It's terrifying, but it's also avoidable."
As living costs increase rapidly off the back of the highest inflation rate in a decade, many are left without any extra cash to set aside for retirement. Taylor says being in the right KiwiSaver fund is critical.
"Obviously, increasing your KiwiSaver contribution rate is helpful, but with living costs skyrocketing, many people aren't in a position to. The single most important thing you can do is get in the right fund for you. It could mean tens - if not hundreds - of thousands of extra dollars in your hand at 65.
"Conservative or balanced funds just aren't likely to perform well enough to help Kiwis' retirement savings keep up with living costs. I am urging all Kiwis who have decades until retirement to find the right fund for their situation with the help of a financial adviser, or risk a harrowing retirement."
His call is backed up by new BetterSaver - analysis which shows that a 35-year-old Kiwi earning the average wage is at risk of running out of their KiwiSaver money less than four years after leaving the workforce for good.
The analysis explores the retirement prospects of Kiwis in balanced funds earning the average wage, with average household expenditure for where they live, as well as the national average current KiwiSaver balance of around $26,000.
A 35-year-old Kiwi earning the national average wage could have enough retirement savings, factoring in inflation, to last just three years and seven months, according to BetterSaver's analysis. At 65, the KiwiSaver member would have around $468,000, which is equivalent to approximately $264,000 today.
Taylor says : "The value of a dollar is plummeting. Even in years with more stable inflation rates, a conservative or balanced KiwiSaver fund can barely keep pace with inflation over the long term. A few hundred thousand dollars might seem like a lot today, but it won't be nearly enough to retire within a few decades."
Unsurprisingly, Aucklanders could fare slightly worse than the national average, with enough retirement savings to last just three years and five months due to high living costs ($511,000, equivalent to about $288,000 in 2022).
BetterSaver's calculations also revealed:
- A 35-year-old Cantabrian earning the average regional wage could expect to have slightly less - about $443,000 (equivalent to around $249,000 in 2022) - at retirement, but due to lower living costs than other major centres, could fare similarly, with three years and five months' worth of retirement savings.
- A 35-year-old earning the average regional wage in Wellington could fare slightly better, with three years and 10 months' worth of retirement savings, or around $555,000 (equivalent to just shy of $313,000 in 2022).
BetterSaver's analysis uses an inflation rate of two per cent per annum, the midpoint in the Reserve Bank's one to three per cent midterm target. Inflation spikes like this year's six-point nine per cent figure could leave Kiwis with even less of a retirement cushion than BetterSaver projects.
BetterSaver has just released a free online tool that helps you estimate how long your KiwiSaver balance could last.