Many people are reliant on KiwiSaver as their principal means of retirement saving, yet so often they make mistakes with their KiwiSaver funds.
Liz Koh talks to Kathryn Ryan about the most common mistakes to avoid, which is particularly timely as people are questioning their funds with the current share market volatility.
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Liz Koh is a financial planner and specialising in retirement planning. This discussion is of a general nature and does not constitute financial advice.
Koh says people are unsure how to manage their funds amid high inflation, rising interest rates and political uncertainty.
“I think particularly for people nearing the end of their working life, they're saying, what should I do here? How should I respond?
“And I think the problem is there's no one standout investment at the moment, everything is turning to custard basically, and we don't know quite where it's all going to end up.”
But there are some steps you can take, including making sure you’re in the right fund, she says.
“Make sure you are not in a default fund, because if you are, you're going to be horribly disappointed. You'll either get a return that's too low, or you'll have too much volatility, one or the other.”
Decide on an investment option (like a conservative fund or a balanced fund or a growth fund) before you choose your provider, she says.
“So make a choice about a fund, but then make sure you make the right choice and it's all about your investment time frame and I think that's the starting point - how long are you going to stay invested for?
“And if you're close to retirement, your investment time frame doesn't finish the day you retire, you will still have money invested right through your retirement so think carefully about how long you're going to have it invested.”
Although there is volatility in the share market, people need to wait it out and look at alternative possible funds they could draw on if they need the money, she says.
“I think as you get closer to retirement you should probably be building up a bit of money in the bank or in some other sort of more liquid option so that you can just leave your KiwiSaver riding through those ups and downs and you don't have to worry about it.”
You can manage risks through asset allocation, she says, which is how your investment is divided between cash, fixed interest, property and shares.
“If you're investing in a conservative fund, you'll be mostly in cash and fixed interest. If you're in a growth fund, you'll be mostly in shares and it will be quite volatile, but you'll get the reward for that.
“I mean, you don't get return without risk. And the way to manage risk is through being very diversified and managing the time frame. So not having to pull money out when things are going downhill.”
Contributing too much or too little is problematic; it’ll be difficult to draw money from KiwiSaver in emergencies if you’ve invested every spare dollar there but putting into too little will mean you miss out on the benefits, she says.
“You can put in a voluntary contribution into your account, so just being out of the workforce or being part-time shouldn't be a reason why you miss out on those free benefits, so make sure you're putting in enough.”
You also don't need to cash it up when you retire, she says.
“You can use KiwiSaver as a bit of a long-term emergency fund. It can even be a bequest fund. Some people use it instead of having health insurance because we know it gets really expensive as we get older.”
KiwiSaver is also looking into creating an annuity product which will be of interest for those wanting a regular income from it, she says.
