Why contributing to KiwiSaver will help you in the long run
KiwiSaver is a great way to build your retirement, and the longer you are in KiwiSaver the better.
The advantage is that putting money aside every pay means you can put aside a small(ish) amount of money and rely on the long term growth to build your wealth, alongside your employers contributions.
It can seem like it wont make much difference if you take a few years off contributing or wait a few years to start, but the long term downside could be huge.
Lets look at a competing scenario.
Lets assume:
Person 1 is 25, starting on 40K, putting aside 3% and 3% from their employer in a balanced fund.
Person 2 is 35, starting on 60K higher salary, and putting aside 3% and 3% from their employer in a balanced fund.
For person 1, they will have around $422 000 at age 65. Person 2 will have $306 000.
Even though person 2 put aside a higher amount each pay, they had less time to put money aside and less time to grow and compound that money.
For person two to get the same result, they would need to put aside around 5%-6% of their salary each pay.
What if you are already over 25? Well its better to start now than to wait.
The sooner you start, the more you can save, and the longer you have for compounding interest.
If you are unsure how to fit KiwiSaver into your budget and balance it with your mortgage, we can help.
Small print – calculations assume a 5% net return per year, and a 2% per year pay increase, plus the KiwiSaver rules stay about the same. Results may vary of course.