Should I contribute more than the “minimum” to KiwiSaver?

29 December 2017

If you contribute to KiwiSaver, you’re probably eligible for some valuable benefits. If your employer co-contributes (usually up to 3% of your salary), that’s free money. If you contribute $1,043, the Government will kick in $521.

However, the tangible benefits largely stop there.

And there are disadvantages of investing in KiwiSaver. Namely, with limited exceptions, you can’t access these funds until you reach your mid- to late-sixties.

But I’ll tell you a secret. My wife contributes 8% of her income to KiwiSaver. Even though she’d maximise the benefits of contributing if she contributed just 3%.

(I’m setting up a new business, so I’m capping my contributions at $1,043 per year until my income gets back to a “normal” level. But in past roles I have contributed the maximum as well, and in future years I’ll start contributing more again.)

So why does a financial adviser and the wife of a financial adviser contribute so much to KiwiSaver?

Behavioural reasons, my dear Watson. Behavioural reasons.

Do you want to know the secret to dealing with temptation?

It’s better to avoid temptation than resist it.

You don’t spend money that never ends up in your bank account. You don’t miss income that you never received in the first place.

We’re in a fortunate situation where we can do without the 5% of our income. We don’t miss it.

But making this small decision – which involves little more than filling in a form or two – will mean our KiwiSaver balances will collectively be worth hundreds of thousands of dollars more than they would have been, had we contributed the minimum to maximise our benefits.

When it comes to finances, inertia usually works against us. In this case, inertia can work for you.

If you’re not in that position yet, you may be in the future. When your income increases, whether through raises or by taking on new roles, consider increasing the proportion of your income you contribute to KiwiSaver.

You won’t get any benefits from the Government or your employer. You’re subject to some pretty big disadvantages, like not being able to access the money.

But you get the benefit of knowing that when you reach the age when you can access it, the amount in your KiwiSaver balance is going to be substantially higher than it would have been.

If you’re a Vulcan, or a purely rational human being (ha!), then contribute the minimum to KiwiSaver to get the benefits. If you’re a standard-issue human being, and you’re not living payday to payday, then consider increasing your contributions to KiwiSaver.

You’ll probably be glad you did.


behaviour, Kiwisaver

About the author 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

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