Young Kiwis Can Build $1 Million KiwiSaver Funds with Smart Strategies

Young New Zealanders entering the KiwiSaver scheme stand a strong chance of accumulating balances exceeding $1 million over their working lives. Current statistics indicate that the average KiwiSaver balance is approximately $30,000. For instance, a young person who is 18 years old and earns $65,000 annually while contributing 3 percent of their salary, alongside a 3 percent employer contribution, could reach the $1 million milestone by their mid-50s, according to calculations provided by Sorted.

The pathway to achieving this financial goal is not limited to younger individuals starting from zero. Even a 30-year-old without any KiwiSaver balance can potentially reach $1 million by the age of 62 if they contribute 8 percent of their salary. Rupert Carlyon, founder of Koura Wealth, highlighted that those earning $100,000 annually and contributing 4 percent could also achieve this target in an aggressive fund.

Time and Strategy Are Key

Mike Taylor, founder of Pie Funds, emphasized that the critical factor in accumulating wealth is time. “The more time you have, the better the outcome,” Taylor stated. Although inflation can complicate the journey to $1 million, it is still attainable. For instance, an 18-year-old could save $1 million in inflation-adjusted terms by their early 60s if they increase their contributions to 8 percent, with an additional 3 percent match from their employer.

Employers’ contributions are expected to increase as recent budget changes will elevate the default rate to 4 percent. These projections assume annual pay increases of 3.5 percent, which can significantly influence the final balance.

Dean Anderson, founder of Kernel, concurred that most New Zealanders in their 20s are likely to become “KiwiSaver millionaires.” David Boyle, general manager of KiwiSaver at Fisher Funds, described this moment as an exciting opportunity for the younger generation. “They can build a retirement nest egg using the power of compound interest,” he noted. Boyle also emphasized the importance of regular contributions throughout one’s working life, stating, “It’s genuinely achievable if they start early enough, are in the right fund, and receive employer and government contributions.”

Considerations for Future Planning

While the prospects of building a substantial KiwiSaver fund are promising, Taylor raised questions about the implications for young people’s reliance on New Zealand Superannuation when they reach 65. He suggested that the government should consider making KiwiSaver contributions compulsory and possibly increasing the contribution rate to 10 percent. Additionally, he proposed the establishment of risk categories based on age to better tailor investment strategies.

Recent reports from RNZ indicate that some KiwiSaver schemes have members with balances exceeding $2 million, highlighting the potential for substantial wealth accumulation.

To maximize the benefits of KiwiSaver, individuals should consider the following strategies:

– **Check Fund Type**: The longer the time until retirement, the more risk one can typically afford. Riskier funds often yield better long-term returns.
– **Set Contribution Rates**: Higher contributions lead to better financial outcomes.
– **Utilize Time Wisely**: Time is a valuable asset for investing; the more time available, the greater the potential for compound growth.

As New Zealanders navigate their financial futures, KiwiSaver stands out as a crucial investment tool that requires careful planning and attention, rather than being treated merely as a savings account.