Know the Retirement Savings Statistics and Then Beat Them
16 Oct, 2022
This week's blog post got started because I received a random Instagram message from KiwiSaver provider kōura asking me to sign a petition they have launched.
They are proposing that legislation be passed through the government allowing people to transfer some of their yearly KiwiSaver contributions to their partner through a ‘contribution-sharing scheme’.
Why?
kōura thinks there is inequality occurring between couples. Suppose one partner earns more than the other, either due to an income disparity or taking time out of work to be a primary caregiver. Over time, one person in the relationship (generally the male) has a higher KiwiSaver balance. You can read more about it in their FAQs.
Although I chose not to sign the petition, reading it did get me thinking about the gap in retirement savings between men and women and that tinkering with KiwiSaver legislation in the way kōura is suggesting won’t really address two of the critical findings of an earlier report I took from the Te Ara Ahunga Ora Retirement Commission:
There is a 20% gender gap in KiwiSaver balances.
Regardless of gender, none of us is saving enough for retirement - “overall, both sexes are lagging behind where they would have expected to be at this point in their KiwiSaver balances”.
Both points are pretty sobering, and the Retirement Commission is working on ways to address them.
When a person stops working, it is an issue that their contributions to their KiwiSaver cease. But I couldn’t see how one spouse giving up a portion of their contributions to the other would address the broader problem of all of us not saving enough. All it does is make the combined family unit slow down their contributions to their KiwiSaver funds for that year. By siphoning off a few contributions, you are moving the same amount of money around for that family.
Also, I thought there was no chance I would be prepared to wait for any government to tinker with the rules to allow me to siphon a little off my partners' KiwiSaver contribution.
It felt a little like being offered crumbs from the table. And why wait for a KiwiSaver provider or a government to fix something when you can fix it yourself far more quickly?
I’d rather rule my own world, thank you very much.
If you read the study above, it shows that the gender pay gap is real. The 20% difference between men's and women’s KiwiSaver balance is also genuine. But they are also talking in averages. The average KiwiSaver balance for:
Females - $27,061
Men - $32,553
Within the 2,944,050 members whose data they analysed, this will mean that for some, the opposite will be true; there will be women with a higher balance than men.
Lucky old me, I’m one such woman!
Today, my balance is $90,000, and Jonny’s is $71,000. Mine is 23% higher than Jonny’s. And that was not by chance; it was by design. I had worked out that if I didn’t do something about it, I would get to retirement, having not saved much at all.
I’m writing this post today because I don’t want people, particularly women, to be downhearted by statistics that might not even apply to them. And if you do find yourself on the wrong side of a stat, it is within your control to change it.
PocketSmith first really drew my attention to this when they asked me to write a blog post for them called The KiwiSaver Savings Gap Between Men and Women, and instead of reinventing the wheel, I’ve reworked that post for my blog today. I think it is helpful to share my own experiences with saving for retirement because I’ve contended with the following:
Long gaps in employment
Earning a lower income
Motherhood
Yet, I’ve managed to buck the trend.
When I read that report, I used it to dig into my own KiwiSaver numbers, and instead of feeling deflated by it, I thought, “Is this my reality?” Actually, NO, it is not. I’m suggesting that you do the same, and use that study to set yourself some intentions for your KiwiSaver fund.
Statistics are great, but they never tell the personal stories behind the numbers.
I know that I easily could have been that statistic, having far less in my KiwiSaver than the man I often compare myself to, my husband, Jonny. But to provide hope to others, I think it is important to share that I’m no worse off than him regarding retirement savings. I have 23% MORE in my KiwiSaver than he does! And importantly, BOTH of our balances are far higher than the average.
This was by design, not an accident.
You need to join a retirement fund.
KiwiSaver began in July 2007, and Jonny and I signed up immediately. However, this newfound workplace perk coincided with me permanently stopping all paid employment when our daughter was born in November of that year! Those employer KiwiSaver contributions were good for the very brief time I received them! With Jonny continuing to work full-time, he contributed to his fund.
I clearly recall seeing the direction both of our KiwiSaver balances were headed in if this arrangement continued:
No new money has been deposited in my fund
His balance continues to grow due to regular employer/employee contributions
Therefore, I immediately started making voluntary monthly contributions to my fund. From our bank account, I set up an automatic monthly transfer. If you don’t know how to do this, just ask your bank. They would not have been large, probably just $20 a week ($80-$100 a month). I also had a small superannuation account in Australia (from memory, about $5,000). Because I knew I was unlikely to return to OZ to work, I rolled it into my KiwiSaver fund, which also gave it a slight boost. I made contributing to my fund an item in our household budget. Contributing to it was as crucial as buying groceries, paying the electricity bill and fueling the car. I knew that saving for retirement was essential, and I think this is the part many Kiwis are not internalising enough.
Something that made this easier is that we have had fully combined finances from the day we became a permanent couple. There is no “mine” or “yours”; it is all “ours”, so this money came from our household income, i.e. Jonny’s after-tax take-home pay.
There was no employer contribution for me, no deduction from my wages (because I had no income), but Jonny and I agreed that a small chunk of our family income would be sent to my retirement account each month without fail. What this did entitle me to was the annual government contribution of $521 per year.
Whether working or not, always contribute.
As the years have rolled on, Jonny and I have oscillated between not working, part-time PAYE employment and self-employment. To say our income is ‘variable’ would be an understatement.
But the one constant has been never-ceasing contributions to BOTH of our KiwiSaver, either from voluntary contributions or PAYE employment. Or both.
For the last fifteen years, we have never missed a single month, consistently contributing to our KiwiSaver as a priority investment, even when things get tight financially. When I look at our KiwiSaver balances, the result is that mine is 23% higher than his.
That small cash injection from my Australian superannuation fund being rolled into my KiwiSaver very early, my progression into part-time PAYE employment, and ongoing voluntary contributions have meant that my investment has grown nicely over time.
Therefore, I think it’s essential to look at the findings of this study in relation to your situation. And understand that if you have to invest in your KiwiSaver from your family bank account, then that is what you should consider doing.
Don’t wait for a rule change that is unlikely to happen, so you can siphon some money from your spouse's KiwiSaver contributions. In the back of my mind was always to contribute enough to my KiwiSaver so that, at the very minimum, I passed the threshold of investing enough each year ($1,042) to get that $521 government contribution.
There is no ‘I’ in team.
Jonny and I have been married for 21 years, and neither of us has plans for that to change. Somewhere in our marriage vows, there was probably the promise of a shared financial future. We have 15 more years to go before he turns 65, 16 years for me. When we access ‘his’ KiwiSaver, because we have always shared all the money that comes into our household, it will be ‘our’ money anyway. The same is true for ‘my’ KiwiSaver. We don’t view our accounts as ‘his and hers’; instead, they are ‘ours’, and I look at their collective total, which currently sits far above ‘the average’.
Key takeaways:
Consider making voluntary contributions to your KiwiSaver fund if you are self-employed, under-employed or on any kind of break from the workforce.
Ensure you are in the correct fund for your risk type and the time you will be in the scheme.
If you are in a committed, safe, long-term relationship, grow your wealth as a team. What is the harm? You do everything else together.
We could all do better
Whether men are ahead of women in the size of their KiwiSaver balance shouldn’t have men feeling smug or women feeling left behind. According to this study, we are ALL behind when it comes to saving for retirement in New Zealand.
I’d encourage you not to focus on the ‘minimum’ contribution you can make to your fund but instead think about the end balance of your retirement fund. Just take a peek at our friends across the ditch in Australia; their superannuation contributions are required by law to be far higher than ours. They are currently 10.5%, compared to our minimum of 3%, meaning that their balances are substantially greater from the get-go, which also means they grow and compound faster over time.
Of course, the report doesn’t say if these people have savings outside of KiwiSaver. In our home, we contribute enough to get the annual government top-ups, BUT we beef our investing up elsewhere, saving as hard as possible into other investments. Collectively this is all money that will be used for future retirement, with a portion of it locked into our KiwiSaver funds. Our total investing rate is about 30% of our take-home pay. Compare that with the 3% people have stuck in their heads as being “enough”. Three percent is not enough.
Try not to drain the fund.
It is possible to rob the treasure chest that is your retirement savings. Whether it be for a first home, opting out of contributing for a while, a hardship withdrawal, or joining the scheme too late.
Although I understand why we might need to use our KiwiSaver for a first home deposit, it does have massive and understated consequences for our future retirement. In a recent email, someone said, “I just destroyed my KiwiSaver and all of my investments in favour of buying a house”.
The most significant blow our KiwiSaver funds can take has nothing to do with the performance of the share markets, our contributions rate, or the fees charged by any providers; it’s because we can drain our KiwiSaver fund effectively to zero. You have to start all over again in building up that nest egg.
Be the change; educate your children.
This is why I focus so hard on teaching my daughter how money works, I’m trying to put her on the right side of any statistics. I believe in giving children a head start by building their financial knowledge early in life and contributing financially to their KiwiSaver fund if you can. Having signed my daughter up to KiwiSaver when she was one and contributed the equivalent of x2 flat whites a week to her fund ever since, I think she will sway a few statistics in the years to come when she is compared to her peers in the future Retirement Commission analysis. Even though there is no government match and an employer decides whether they contribute or not until she reaches 18, her fund balance has given me the best insight into what regular contributions can grow to over time.
Become a cherry orchard.
Finally, I’d add that when we reach 65, no matter our gender, we will all receive government superannuation, meaning that the amount you have invested in KiwiSaver will be the cherry on top of this standardised fortnightly government payment. It’s entirely within your control to decide how large that cherry will be, and in my home, we have prioritised saving for our retirement year upon year. That slow build-up of investing is the most painless way of doing it, meaning there is no crazy rush as we reach retirement to have enough money saved.
The world is a complicated place. It always has been and always will be. How can you address and solve your OWN problems today instead of waiting for companies to petition governments to tinker with legislation? Especially when the proposed change won’t really fix anything. What can you fix yourself? When you read studies that at first glance have you feeling at a disadvantage, keep reading and then look at your financial situation. If you have time before you retire, implement some changes and move what levers you can to increase your chances of a substantial retirement nest egg.
