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Earlier this year, Kiwis gained the ability to access new contribution rates towards their KiwiSaver fund. In addition to the 3%, 4% and 8% rates of salary, we can now also contribute 6% or 10% towards our fund. A new survey this week, however, has found that only around 6% of people are taking advantage of these new contribution rates.
This week we’re illustrating the difference changing your contribution rate can make over a working lifetime.
Jane is 25 years old and currently earns $45,000 a year. She has a KiwiSaver fund balance of $6,000 and is contributing only the minimum 3% of salary to her KiwiSaver. Her fund is a growth type which means it is moderately aggressive with a longer-term time horizon.
We will make some very conservative assumptions and assume that over Jane’s career she never sees another pay rise apart from annual inflation adjustments.
If Jane keeps contributing at 3%, she will end up with approximately $833,000 at age 65:
If we hold our assumptions but Jane now decides to contribute 6% instead of 3% of salary, she retires as a millionaire with just under $1.2m in the bank:
If Jane decides to get extremely serious about saving and puts a full 10% of her salary into KiwiSaver, her retirement balance now falls just a bit short of $1.7m:
The Dollar Sums
There are major differences in the level of return that can be achieved through higher rates of contribution, that’s obvious. What makes it starker is looking at the actual dollar value contributed out of Jane’s paycheck over her working career:
The majority of growth in her KiwiSaver fund is achieved through market growth. Employer contributions and tax credits are other (much smaller) factors.
If Jane contributes an extra $80,000 to her KiwiSaver over her working life at 6%, she has earned an additional $370,000 at age 65.
If she contributes an additional $187,000 at 10%, she earns more than $800,000!
Let's get it sorted for you
At FoxPlan, we’ve got the KiwiSaver specialists in-house to get your fund sorted. An hour of your time today to review your contributions, fund type and tax rate could be worth literally hundreds of thousands of dollars in your future. If you’d like to review your KiwiSaver, please email firstname.lastname@example.org and one of our advisers will be in touch.