Leaving your money in a default fund
When you sign up to KiwiSaver, unless you specify otherwise, you’ll automatically be placed into a default fund. As tempting as it is to think you’ve got it sorted just by signing up, the default fund is actually meant to only be used as an interim until you choose the right fund for you. Default funds are usually conservative, meaning that you’ll have a very low return and surprisingly little overall if you leave it here until your retire.
Choosing the wrong fund
This is where education is key – in order to make the best decision for you, you’ll need to make sure you know the pros and cons of all of the different fund types. Depending on the length of time you’re planning to leave your KiwiSaver untouched, there may be a better fund than the one you’re currently in that will increase your savings significantly. If you’re not sure what fund is best for you, you can complete a risk profile questionnaire, and you should also seek out some advice.
Contributing too little
If you’re self-employed or not working at all it can be hard to remember to contribute to your KiwiSaver during the year. In order to make the most of the benefits offered by KiwiSaver, including the Member Tax Credits, you’ll need to be contributing at least $1042 a year (that’s only around $20 a week). If possible, it’s a good idea to set up an automatic payment into a separate account from which you can make lump sum deposits into your KiwiSaver throughout the year.
Getting nervous during market drops
The main thing that isn’t very often understood about KiwiSaver is that it’s more of an investment scheme than a savings scheme. Yes, your money is being put away for ‘saving’, but market changes will affect it similarly (but not as dramatically) as shares and stocks.
Because KiwiSaver is more of a long-term investment, it’s important not to get worried or nervous when the market turns – your savings may dip but they also may increase. The only time you really need to be concerned with how the market is affecting your KiwiSaver is if you’re nearing a withdrawal.
Playing the markets
Due to anxiety around market changes, many people in KiwiSaver tend to switch their funds around fairly often to match the market. Whilst this might seem to make sense on some level, it’s actually not that beneficial as not even the best economists on the planet can predict what will happen. Because you’re in it for the long haul, it’s better to choose the best fund for you and stick to it.
Not talking about KiwiSaver
As mentioned above, too many Kiwis are unaware of which KiwiSaver fund they’re in and how it actually works. Talking about KiwiSaver and reading about it are key steps to ensuring that you’re making the most out of your retirement savings. Although it’s ultimately your decision, our advisers can sit down with you to have a chat and answer any general KiwiSaver questions you may have.
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