In 2019, over 40,000 KiwiSaver members withdrew their balances to buy their first homes. The government-mandated savings scheme is a fantastic tool for saving your deposit so you should make the most of it if you’re trying to get onto the property ladder.
With that in mind, we’ve put together a list of five easy ways that you can maximise your KiwiSaver and get into your first home faster.
The easiest and most obvious way to increase your KiwiSaver balance is to simply increase your contributions. If you haven’t changed it, you’ll be contributing the default amount to your fund: 3% of your before-tax salary. Changing this to the maximum contribution level, 10%, will make a huge difference and you may not even notice it coming out of your pay.
It’s also a great idea to consider putting windfalls like bonuses, inheritances and cash gifts into your KiwiSaver as these voluntary contributions will help it increase faster.
If you haven’t chosen a KiwiSaver fund, you’ll most likely be in a conservative fund with low returns and high fees. Do yourself a favour and review the performance of your fund and compare it against other funds on the market.
Usually, KiwiSaver providers will publish results on their websites – look for three to five year averages to see if the fund is performing well over the long term. If your KiwiSaver performs well against competitors, that’s great. But if it doesn’t, switch to a better performing fund as soon as you can.
If you’re over 18 and you’re mainly living in New Zealand, the government may give you free money for contributing to your KiwiSaver. For every dollar you put into your fund, the government will contribute 50 cents up to a maximum of $521.43.
To ensure you get the maximum amount of free money, you’ll need to contribute $1042.86 between 1 July and 30 June every year.
There are four tax rates for KiwiSaver funds: 0%, 10.5%, 17.5% and 28%, these are called prescribed investor rates (PIR). If you haven’t reviewed your KiwiSaver, there’s a good chance that you’ll be paying more than you need to, which will cut into your KiwiSaver’s return. Check what your correct PIR is on the IRD website and then talk to your KiwiSaver provider to ensure you’re paying the right amount.
Every KiwiSaver provider charges fees to manage your money, varying from less than 1% to over 5% of the total amount. Over the course of a few years, higher fees can cost you hundreds up front and thousands in lost returns.
With that said, there are a few things to weigh up when it comes to high fees. If your fund has high fees but also has higher returns than most other funds on the market, it might be worth sticking around. However, if your fees are high and your returns are comparable to other lower cost funds, it’s time to consider switching.
KiwiSaver is a fantastic tool to make buying your first home easier, but there are a few tricks to using yours properly. If you need a hand in getting the most out of your KiwiSaver and buying your first home earlier, get in touch with the experts here at Money Empire to get started.