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If I Don't Join KiwiSaver, How Much Could I Be Missing Out On?

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Mary Holm
Mary Holm


I've heard it said "For every month you delay joining KiwiSaver, you could miss out on the equivalent of $700 to spend in retirement."
In reality this applies today, but in a year's time the month is worth less as it is one year closer to retirement.  Do you agree?


Mary Holm: KiwiSaver has been around for more than two years now. Most eligible people who haven't yet joined have already missed out on thousands of dollars of spending money in retirement. For the young, it's many thousands of dollars. If you're not yet in the scheme, it's a really good idea to join now so you don't miss out on further thousands.

As we all know, there's no such thing as a free lunch. The price of lunch here is your contributions to KiwiSaver.

Still, in the example in our table - of an employee currently earning $50,000 who contributes 2 per cent of pay - the contributions are less than $20 a week. And while the table assumes that pay and contributions will rise 3 per cent a year, generally that shouldn't be hard to cope with.

You end up with vastly more in retirement than you personally put in because the government and in many cases your employer also contribute, and because of compounding returns.

Looking at other income levels, for someone earning $30,000, 2 per cent of pay amounts to less than $12 a week. For someone earning $80,000, it's less than $31 a week. Of course those making lower contributions will end up with less in retirement. But for everyone except people over 60 - more on them in a minute - there will still be a big difference between starting now and starting two years from now.

As the table shows, a young person earning $50,000 today, and earning a 5 per cent annual return, might miss out on close to $100,000 in retirement by delaying joining KiwiSaver for just two years. And if they invested in a riskier fund with a higher return, they could miss out on considerably more. Even a 50-year-old on $50,000 might lose $15,000 by delaying - and more in a riskier fund.

The exception is people 60 to 64. At your age, you get exactly five years in KiwiSaver regardless of when you join - as long as you get in before your 65th birthday. However, if you are likely to retire before 70, it's a good idea to start now so you get as many years of employer contributions as possible.

It's important to note that the numbers don't take inflation into account. But even after adjusting for inflation, we are still talking pretty big numbers for just two years' delay. Assuming 2 per cent inflation, the 18-year-old's $91,000 is worth $35,000 in today's dollars. In other words, the $91,000 would buy as much as $35,000 buys today. That's quite a few lunches. And the 40-year-old's $27,000 is $16,000 in today's dollars.

Why are the differences so big for just two more years of membership - especially for the young?

As stated, our numbers assume the employee's pay rises by 3 per cent year - which is probably reasonable given the likelihood of some promotions and moves to higher-paying jobs.

Over long periods, this growth greatly boosts the employee's and matching employer's contributions, even assuming the government's maximum tax credit doesn't rise at all. For example, in the 47 years between age 18 and age 65, an employee's pay will grow almost tenfold.

Adding two more years of large employee and employer contributions makes a big difference. So does earning 5 per cent a year on a large balance.
Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praisedseminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.      

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