When you shouldn't put more than 3% in...

There is one word that summarises why you shouldn’t put more than 3% into your KiwiSaver.  That word is flexibility.

If you are putting more than 3% in -it is locked up and you can’t get to it until you are 65.  (Assuming of course you don’t want it to buy your first home ...  or you are going to go and live permanently overseas, or you suffer severe financial hardship ... or you die first!)

Our investment team at Velocity would argue that you put your 3% away in KiwiSaver (or $1042 if you don’t have an employer who will match your contributions) and invest any additional funds in options that give you more flexibility.  Sure; at this stage you may not need those extra funds until you are 65…  but life is full of twists and turns, and you might just.

By “options that give you more flexibility” I am meaning some form of investment -normally in the share market or fixed interest options via a type of Managed Fund.  

If you can get the same returns (or better) with similar fees and more flexibility, why wouldn’t you?

It is also possible that you want to invest for things other than retirement and these are legitimate.  If this is you, then putting more into your KiwiSaver would be a very bad idea.

Case made!   … and now for all the possible exceptions and reasons to ignore that advice.

When you should put more than 3% in....

If you have no intention of investing anywhere else -then crank up your KiwiSaver contributions.  Your retired self will thank you.

If you know you have the personality type that can’t be trusted, then put more into your KiwiSaver and less into other more flexible options.  

If you know you will be tempted to take out your retirement investments and spend it on other things that aren’t in the long-term plan, then use the KiwiSaver withdrawal rules to protect you from your impulses and latest whims.

If you are saving for your first house and you are very clear that is your goal and you are 100% sure you will use your KiwiSaver for this then cranking up your KiwiSaver to 6, 8 or even 10% of your income can be a very smart and simple way to save for your house deposit.  You can always drop it down again once you have ticked off that goal.

If your employer will “match” your KiwiSaver up to a higher level than 3% then do it. Nowhere else are you going to get a guaranteed 100% return on your money.

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Talk to us

Do ask your Velocity adviser for a quick KiwiSaver review.  We can make sure your basic KiwiSaver settings are optimised.  Your retirement plan is a slightly larger conversation that will require some more work -but we can certainly help you with that as well.  Get in touch.

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Brendon

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Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Brendon’s disclosure statement on our website.

About Brendon:

Hi, I'm Brendon, one of the owners and advisers at Velocity Financial. I have been giving advice on mortgages and insurances at Velocity for around 15 years, and it is great to be able to work with people to achieve their financial goals. Prior to giving money advice I worked as a youth worker and managed teams for a not for profit organisation. I live with my wife and one of my sons (the other one only stays when he needs food) in Berhampore, and if I'm not talking revolving credit accounts, I can be found running the trails of Wellington.

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