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Many folks are currently basking in the Bali sunshine, savouring a delicious meal, or enjoying fine company. But there's another kind of basking that's just as delightful – basking in free money! Yes, you heard that right. Thanks to the member tax credits, if you contributed at least $1,042 between 1st July and 30th June, your KiwiSaver balance will be looking pretty good. This Government top-up happens every year, and it's like a little financial sunshine in your pocket.
For every dollar you contribute to your KiwiSaver account between those dates, the government matches 50 cents, up to a maximum of $521.43. If you didn’t reach the $1,042.86 contribution threshold this year, consider making voluntary contributions to top up your KiwiSaver account. Not only does this ensure you receive the maximum credit, but it also significantly benefits your long-term savings through the power of compounding interest. We've touched on the compounding factor before, and it is simply a beautiful thing. Compounding interest means that the returns you earn on your investments generate their own returns over time, creating a snowball effect. By consistently contributing to your KiwiSaver, you’re laying some solid groundwork for growth over the years.
In recent years, there’s been a growing interest in ethical investing within KiwiSaver. Historically, there was more disparity between providers in how they invested the units, with some having far higher investment percentages in areas of concern to many. This has improved significantly, with many providers now aligning with more socially responsible investments. Many providers now offer socially responsible investment (SRI) options that exclude industries like tobacco, weapons, and fossil fuels. These funds invest in companies that prioritize environmental sustainability, social responsibility, and good governance. You have a choice, and it is a myth that investing ethically means lower returns. In fact, research has shown that ethical investing earns returns that are as high or higher than conventional investing.
While banks offer KiwiSaver accounts, they often tend to have lower returns compared to managed funds provided by investment companies. Managed funds are typically managed by professional fund managers who actively seek to maximize returns, even if it involves higher risk. Yes, the fees might be slightly higher, but the potential for greater returns can make it worthwhile.
We’re still having conversations with folks who use their bank as the provider for convenience. Most providers have their own app where you can track all you need about your KiwiSaver. Do you really need to see your KiwiSaver each time you log into your bank's portal? Probably not.
With the first home grant now removed (May 22, 2024), those additional funds are no longer available for the first home deposit. This highlights the importance of building up your KiwiSaver fund. Withdrawal for the first home is one way to use your KiwiSaver, and if that is on the horizon, consider upping the contribution amount (you’re probably just doing the standard 3% currently) to really see the difference at the time of withdrawal. Increasing the contribution amount at any time is wise, as is making voluntary contributions to your fund.
Whether you’re into ethical investing or exploring options beyond traditional bank KiwiSaver accounts, there are numerous ways to set your KiwiSaver strategy to suit your financial goals and values. The earlier and more consistently you contribute, the greater the rewards you’ll reap through the power of compounding interest.
Review your fund allocation (e.g. Am I in a Balanced fund when I should consider a Growth fund?), contribution amount (Can I up my input from 3% to something higher?), and can I make voluntary contributions, especially if you’re not on track to meet the threshold for the member tax credit.
By taking these steps, you can make the most of your KiwiSaver account and ensure you’re on track for a more secure financial future.
Not sure? Give me a call.
Simon.
About Simon
Hi, I’m Simon a Financial Adviser here at Velocity Financial. I enjoy working with my clients to help demystify all the Mortgage, Insurance and KiwiSaver fine print, and help get them to where they want to be. I am dedicated, thorough and offer professional advice that works for you. I like to help people on their journey and be a trusted person to guide them through really important events in their lives such as the home buying process. I help my clients collaborate with valuers, builders, lawyers and real estate agents to ensure a seamless experience. That satisfaction of reaching the goal with the least amount of stress for my clients is hugely rewarding. I navigate unique scenarios and tailor lending solutions for individual circumstances to save money and time. As a proud father of two and avid supporter of all my children’s endeavours, I know just how precious that time is. On the weekends you’ll also find me mountain biking, surfing, or checking out NZ’s great walks.
Disclaimer: Simon O’Neill (FSP534466) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Simon’s disclosure statement on our website.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures https://www.velocityfinancial.co.nz/disclosure-statement.