My KiwiSaver dropped. Yours probably did too.
14 Jul, 2023
KiwiSaver Annual Member Statements were sent out recently, and I found myself having to defend KiwiSaver in the face of comments like this:
“KiwiSaver is a waste of time; my balance dropped!”
“I didn’t make any money last year!”
“What’s the point if I only lose money?”
These comments were not from the enlightened readers of personal finance content, people who don’t need convincing that KiwiSaver is a worthwhile investment, but instead, the throwaway comments were from a couple of acquaintances who I bump into in my town (most don’t even know I blog about money).
At least they were in a scheme, though. Well done to them!
But really, it irks me that they believe what they are saying: that KiwiSaver is not worth investing in. I wish I had the time and they had the interest for me to help them dig into the detail of their fund. What I would love for them to do is use their KiwiSaver statement as a tool to quickly look beyond that initial figure that shows them that, yes, indeed, their balance did drop in the previous year.
I’m sharing my Annual Member KiwiSaver Statement for the financial year - from 1 April 2022 to 31 March 2023. I’m moving beyond a sound bite and explaining why my balance is down. And why I’m not bothered by it. I use my statement to look at my investment and make changes if necessary. This is the point of receiving a statement!
My Simplicity KiwiSaver Annual Member Statement 31 March 2023
My balance dropped $1,197.02 between the start of the financial year and the end of it. That was despite both myself, my employer and the government contributing a total of $2,089.63. To add insult to injury, I paid a total fee to my provider of $278.71 (or $5.35 a week) to manage my account.
On the face of it, this investment might suck after all.
But, of course, that is the wrong assumption to draw. My house value has also dropped, so should I stop paying my rates or sell it? Of course not!
I joined KiwiSaver when it began in 2007 and started keeping records of my monthly balance in my net worth spreadsheet from 2015, and this is what my KiwiSaver balance has done over the last nine years:
In the last nine years, my KiwiSaver balance has more than doubled, which far outweighs last financial year's $1,197 drop, don’t you think? But it has also been volatile. Back in December 2021, my balance reached an all-time high of $102,900. With my current balance (July 2023) being $101,582, I’m still yet to beat that high. But the share markets/economy/entire world has had a bit to contend with over the last few years, which is hardly surprising. I’ll refer back to this very blog post in five years, and I’ve no doubt my balance will have grown. KiwiSaver just needs time.
Imagine if I’d only looked at my balance and made a sweeping assumption that because my balance had dropped, KiwiSaver is a dud investment. Thank goodness I didn’t. I’ll repeat: KiwiSaver needs time.
There are a few things you need to know about me.
If you have read my blog for a while, you will know that I only contribute at least the minimum amount of $1,042.86 to my KiwiSaver each year. Jonny does the same for his. This is so I can get the government contribution of $521.43 annually. There needs to be more than a minimum of 3% to guarantee a good retirement.
I work 18 hours per week in a P.A.Y.E. job, earning $27 an hour, contributing about $14 a week from employee deductions into my KiwiSaver. I also make an automated voluntary contribution of $50 each month. This ensures I invest at least $1,042 per year in total. My statement shows I contributed $1,263 last year, which came from me working a few more hours. Going over that $1,042 is perfectly fine.
Still, I need more than the small amount I invest in my KiwiSaver to guarantee me a nice retirement, so I must be clear that I also invest heavily outside of KiwiSaver into other share investments. Jonny and I tuck away ~35% of our monthly take-home pay into our investments. This far exceeds the minimum KiwiSaver contribution of 3% that many of us stick with.
In 16 years, and with little effort, I’ve grown a nest egg of $101,000. Jonny’s balance is $81,000. A $182,000 investment makes it clear that KiwiSaver is not a waste of time. In fact, it’s awesome. You might also be interested that our 15-year-old daughter has a KiwiSaver balance of almost $17,000. This came from an initial $2,000 investment and $40 monthly deposits. KiwiSaver for kids is a no-brainer for me because of the compounding over time. Her employer now pays into her fund, and by the time she turns 18 and starts to receive the $521 from the government, she will already have a sizeable balance. Compounding is working for Jonny and I, but given she started at one, it will be working overtime for her because she still has 50 years ahead of her till she reaches 65.
Educate yourself so you are not left on the sidelines.
The longer KiwiSaver is around, the more that those who have refused to join, or take zero notice of their KiwiSaver fund, are leaving money on the table. Not me; my future self will be delighted with my planning. Saving for retirement is hard to get your head around because it requires you to set aside a portion of your take-home pay now for your future good. There is a portion that you forbid yourself from spending now, and some of us have a tough time saying ‘no’ to ourselves.
And while some of us can legitimately use the current rise in the cost of living as a reason to reduce payment into the scheme or even temporarily stop in some cases, most of us can’t. When covid exploded into our world, Jonny and I took a hardline look at where we spent our money and cut all unnecessary spending to continue investing. Investing for our future is always a high priority, and I can’t stress enough how important investing a part of every paycheque you receive throughout your working life is.
KiwiSaver won’t always be on sale.
I’m more than comfortable with my balance dropping for a period of time because I know that a drop in the share market is a good thing for a long-term investment. The following is a made-up example of what was happening in the bowels of my KiwiSaver scheme over time:
One month my $100 investment bought ten shares in my KiwiSaver fund. Then the share market dropped, meaning the value of every share dropped, so the next month, my $100 investment bought 15 shares in my KiwiSaver fund.
I invested the same amount, but because the share market was down, the share price was down (or on sale), and my $100 bought more shares.
Fast forward a few years, and those shares I bought cheaply will have increased in value (capital gains), raising the balance of my KiwiSaver fund.
What do people do when the housing market drops? They try to buy more houses. Are they now rushing to sell those houses because the price is down? No! The share market is the only place where when things go on sale, i.e. the share price drops, people cash out and run away when that is the time to grab a bargain. And it’s why I happily invest in my KiwiSaver every week and every month, year after year. I continue investing, ignoring the short-term volatility, knowing it will increase over time.
Simple tricks to use:
The key to understanding how my KiwiSaver moves over time is taking five minutes on the first day of every new month to track my net worth. I just noted down the balance of my KiwiSaver account. This has helped me build up a picture over time of how my investment is tracking, and it's why I know that those who think KiwiSaver is pointless are entirely wrong.
If either Jonny or I am not working enough in our P.A.Y.E. jobs, our automated monthly voluntary contribution makes up the difference. Plus, I can easily make additional lump sum payments into my KiwiSaver if I want to.
In March each year, I ensure that we have each contributed $1,042 from our employee and voluntary contributions (you don’t include employer or government contributions).
I celebrate that we each received $521 from the government in July. That is an instant $1,042 bump in our family net worth. Winning!
If either of us stops working, we still voluntarily pay into our funds. Always.
Automated small investments made weekly or monthly are better than one lump sum. Why? It’s set and forget; you won’t notice the payment going out. You buy during the highs and lows, and it stops you from remembering to invest.
A negative return year shows a high fee fund for what it is, a drain on investment returns. Even when your provider fails to make a positive return, they will still charge you. Choose the lowest fee fund possible. Aim for fees of less than .5%. How does my $278 (or 0.29%) fee compare to yours?
Active fund managers do worse over time than passive fund managers. They might beat the market in one year, maybe two, but they can’t sustain it over time. And even if one or two manage to, how are you going to know to choose them to invest with? For that reason, an individual doesn’t have the skills required to play ‘pick and mix’ and design their own fund either.
I’m 49, still 16 long and profitable years away from turning 65. I’m now in a high-growth fund for this very reason. It might be a bumpier ride, but the returns will be greater.
Use your statement to project forward.
The annual KiwiSaver statement I receive also gives me a handy projection of how long my KiwiSaver fund will last me. This is a best guess, out of date by the time you even receive it, but still useful:
My Simplicity KiwiSaver Projections. What am I on track to receive at age 65.
How can I use this information to help me plan when I retire? By playing out a scenario such as this:
My weekly expenses at the age of 65 might be: $1,000
My weekly income from Government Superannuation payment might be: $600 (complete guess!)
KiwiSaver money I need to top-up the shortfall: $400
This means that over a year, I’ll take $400 x 52, or $20,800, from my KiwiSaver to top up my pension payment to have $1,000 to spend.
But clearly, at the rate I’m currently investing, and from the projections they have given me, I am not saving enough; I’m $250 short each week! Which, in turn, leads me to play out some further scenarios.
I may need to keep a part-time job when I retire. Or I might increase my contributions right now—or both. Or, I might sell my house and buy a cheaper one to put more money into my investments. Thankfully because Jonny and I have joint finances, we have a bigger pool of KiwiSaver to draw from, and with our other investments, we are well on track for a financially prepared retirement. That feels good.
In a way, I’m grateful to people throwing out their opinions about KiwiSaver because it’s made me hyper-aware and check in with my KiwiSaver provider.
When my statement arrives, it gives me the chance to forward plan in a way that we are often too busy to do, and it allows me to tweak anything that needs changing. And yes, I moved from the Growth to the High-Growth Simplicity fund for those who were wondering. These yearly check-ins are all it takes to give me peace of mind.
Please print off your own KiwiSaver statements for your household and take ten minutes to dive deep into the numbers behind them. Compare them with your friends! How are you doing? How is your partner doing? What about your kids? What needs changing? Then, make those changes and continue your life for another year.
