Ep. 2: Why should you take control of your KiwiSaver account sooner?
Economist Brad Olsen and ZM radio host Georgia Burt join us to chat about their personal experiences with KiwiSaver—from getting started to buying a first home.
Alongside some great insights from Mary Holm, we’ll learn that everyone’s KiwiSaver account is theirs to make their own.
We’ll also tackle some myths about how much you need, whether you need to have a job to contribute, and how to choose a fund that feels right for you.
Listen to the full episode
[00:01] My retirement dream is based off of Best Marigold Hotel. Something exotic. Something that will keep the heart racing. Also, I can kick back, relax, and get served.
[00:13] I’d love to open up a barcade. Which is like an old-school fighting game arcade, that’s also a bar.
[00:19] Ideally I’d like to have enough money that I could travel wherever I wanted to. Probably Africa, and do a safari. But also have maybe a nice quiet life somewhere by a beach.
[00:28] I want to have the ability to annoy my children when they’re adults, and so have enough money to travel to wherever they are, and stay in their home.
[00:38] Kia ora, ko Brooke toku ingoa. I’m Brooke Roberts, one of the 3EO’s at Sharesies. Welcome to The Payoff, the KiwiSaver series about creating a future that’s more you.
[00:49] Today we look at the common misconceptions.
[00:51] When people say they can’t afford it, I sort of challenge them on that.
[00:56] How KiwiSaver can help you buy a home.
[00:57] He was like, wait what? You can use it for your first home. I was like, that's the best part.
[01:01] And how to realise your dreams.
01:02 Going overseas for an extended period of time. Just get really immersed in a small town.
[01:07] And dreams are free right?
[01:09] We dream of where we want to go, who we want to be. So how do I want my life to look when I don’t have to work anymore.
[01:17] I’ve been thinking about this. Time is one of the most valuable assets we have in life, and when we retire, we open up the opportunity to spend our time however we want.
[01:27] And I'd hope that I'd spend it really in the community. I'd love to spend my time supporting parents, especially those who’ve got a baby in their first year of life. Really navigating that. It's really hard it can be really challenging. And if I could just help them look after their baby for a little bit. So they can go have some fun with their friends, or have a shower, or have a rest. I'd like to spend my time really supporting those new parents.
[01:51] Our first guest today is known as Bad News Brad to some, and Brad Olsen to those who know him as a CEO and principal economist at Infometrics.
[02:00] Brad is a borderline Gen Z, and had a pretty similar experience to many of us when signing up to KiwiSaver.
[02:06] I mean, I think like probably most young people, I just, just got into it. I mean, I was starting a job and, and it was another bit of paper to fill out. And then yeah, it was set and forget. There was an automatic scheme, and I don't think I looked at it for a few years. Maybe I should have.
[02:16] But the purpose of it was very much that, that is so far in the future. I don't know what I'm doing, you know, next week. I certainly don't even know where I'm living in a year's time. I'm not thinking about, you know, when I retire in, at that stage, it would've been 50 odd years from now.
[02:30] And I think that's actually an experience that a lot of my peers have as well. Put it this way, I have a lot of discussions with friends and that about a whole manner of things. KiwiSaver and retirement is never one of them. No one ever sort of actually brings it up as like, you know, this is something I need to actively think about.
[02:44] It's funny when you're talking, it made me reflect on when I got my first KiwiSaver. I was working and I think it had just come out recently, it hadn't been around for too long, and. I was just gonna opt out straight away because it was my first job. I was still studying at this time and I thought, oh, I kind of, I need that money. Like, I need as much as my money. I need that 3%. And then it was awesome that the CEO of the company that I worked at sat me down. And he's like, I just want you to realise that you, these are the reasons why you shouldn't opt out. And he probably, like, gave me a bit of financial advice and I'd studied finance, like I knew all these things, but I think actually just having it in front of me going, you're getting a 3% pay rise. If you, if you keep this, you know, we are gonna be the, you know, our company's gonna be contributing to this.
[03:30] Also there's a natural sort of level of interest when you sort of say, Hey, if you put in enough money, government's gonna give you 500 plus bucks, you know, free. Literally free. As long as you put in. And I think a lot of people are like, well, Might as well then, you know, money's money. There's very rarely free money with no strings attached. And if the only string is that you can't spend it immediately, well, I mean, especially as a younger person, that's actually sort of a good element of forced savings, if you will.
[03:55] I remember when we were starting Sharesies. I heard so often, oh, KiwiSaver, isn't that a savings account at Kiwi Bank? You know, I, I think that there's such … a lot of misconceptions out there about what it is and what it's for. So what do you think the common ones are?
[04:07] It's interesting. I've had a lot of these conversations with people where people say, oh, but I could invest it better myself. And it's like, well, that might be true, but are you?
[04:16] And I say that even to myself. I'm like, maybe, maybe. I think I could have my three phones up to my ears screaming like a stock dealer all the time. I haven't got time for that.
[04:23] You know, it's so easy. I literally never see the money. I don't have to click a button. I don't have to do a thing. As soon as I start work, it just happens. And that is a really lazy but quite convenient thing I think we've got going for us.
[04:34] But I think also that people don't often think about it in terms of what it can provide, let's say for a home deposit or, or similar. Cos that is a way that a lot of younger Kiwis are using it now, is you sort of build up some assets over time and your KiwiSaver. You take some of it out, a fair bit of it out for your home deposit, and then you build it again, but you've also got another asset held there, so it can provide some ability actually before you turn 65. So that's one misconception.
[04:55] So that’s a good a point from Brad. KiwiSaver has helped so many people get on the property ladder.
[04:59] I probably wouldn't been able to get the house that we've got if I didn't have that as an extra buffer.
[05:04] This is Georgia Burt.
Georgia Burt (on ZM)
[05:06] On ZM's jam-packed work day. Georgia with you, and we're keeping the tune's coming, because you've got this.
[05:11] Georgia hosts workdays on ZM, and used KiwiSaver to buy her first home with her partner.
[05:15] It was really easy actually. Just had to put the application through and then took the money out. It was there like straight away.
[05:22] Mom and dad obviously have KiwiSaver for retirement. And so when the first time I told dad I was gonna use it, he was like Wait, what? You can use it for your first home?And I was like, that's the best part. It helps so many people get on the property market.
[05:36] Were you watching your KiwiSaver before you took that money out? Were you really aware of how much was in there, and where it was, and what you're invested in? Or?
[05:44] Probably the last few months before buying the house, I was. Pre that, I was just like, oh cool. So that's where we're at now. But that was because, I had it with a company where I didn't know the login really or anything. I never really used it. And then I put it into a place where I had like an app that, yeah, I could see the money and so every time I'd go in there, I'd be like, oh my God, how cool is that?
[06:06] Now, let’s pause there and find out how this works.
[06:11] You can withdraw most of your KiwiSaver funds to use towards buying your first home as long as you’ve been a member for at least three years.
[06:18] There's also the KiwiSaver HomeStart grant, where the government will give you up to $5,000 towards an older, existing house and up to $10,000 towards a new house.
[06:29] Remember Mary Holm, from our last episode? Mary’s an expert on KiwiSaver, and knows a thing or two about why people don’t sign up.
[06:37] One I hear occasionally is somebody says if they're not an employee, that they can't afford to put in $1,042. This is obviously low income people and to, in order to get the government's $521, so they won't be in. They don't realise that if they put in $10, the government will put in $5. So, you don't have to put in this, this for non-employees. There's no minimum amount you can put in. You can put in the tiniest amount and um, get some government help on it.
[07:11] Getting the government contribution is a no-brainer. Why? Because the money is invested over decades. For example, an 18-year-old in KiwiSaver who gets that $521 boost each year could have as much as $36,000 more for their retirement, when they reach 65.
[07:28] As Brad mentioned earlier, that’s free money. But back to Mary, with another couple of reasons why people hesitate to sign up.
[07:34] Another is people's concern about the safety of their money, which is totally justified. And, KiwiSaver is not guaranteed by the government.
[07:44] It is theoretically possible for a person to lose their money in KiwiSaver. I'm not talking about losses in terms of the markets going down, I'm talking about the money actually disappearing. But in the real world, I would say pretty much is impossible cos what happens is the KiwiSaver provider has a whole separate company called the supervisor. You'll be familiar with this. Um, and they watch closely where the money's going so that they're making sure that when I put money into KiwiSaver, it's going where my provider says it's going and it doesn't stay with the provider. That that's the point. It goes into shares, bonds, um, various other investments. And, the supervisor makes sure that that's what happens.
[08:35] So if the provider goes out of business, and there have been some small ones that have gone out of business, then the government steps in and helps to transfer those members of the KiwiSaver scheme to another provider. And if you don't like that new one, you can always move. You’re always free to move whenever you want to. And so that's happened quite smoothly a few times already.
[08:58] There's really, the idea that somebody that you've put money into somebody's KiwiSaver scheme and it's disappeared and can't be retrieved is pretty much impossible. It's not impossible, but you know …
[09:16] Highly improbable.
[09:19] There's a couple of other things that people say about why they shouldn't be in KiwiSaver.
[09:24] One is that they can't afford it. And I think people … like if you are earning $25,000 in say a part-time job, you’re putting in less than $15 a week—3% of your pay is less than $15 a week. So when people say they can't afford it, I sort of challenge them on that.
[09:45] There are some people who are really, really struggling and $15 a week would make a big difference to them, but there are still, they're a heck of a lot who could manage that and, and be in KiwiSaver.
[09:57] So just to recap, some of the big misconceptions are: I can’t get it because I’m not employed, my money’s not safe, and I can’t afford it. But as Mary tells us, many people have regrets too.
[10:08] I wish I started earlier is is really common. Um, but also I wish I'd invested in higher risk funds.
[10:19] I get sometimes when people realise that the higher risk … someone was telling me off the other day for calling it higher risk. They said you should be calling it higher volatility because those higher risk funds, as I said a bit earlier, are not, um, necessarily riskier in terms of losing your money.
[10:38] It's just that they, that the balances will go up and down, but over the long term they will grow more.
[10:44] And women in particular have a strong tendency for saying, oh I dunno, that I can cope with seeing my balance go down. And so they stick in the lower risk funds and as they learn more and realise that over the long run they could make a lot more money, earn a lot more returns, and retire with more if they got into the higher risk fund. So that is sometimes expressed as a regret.
[11:13] Mary is speaking there about higher risk or growth funds, versus the lower risk or conservative funds.
[11:18] Mary gave me a bit of insight into how KiwiSaver can be slightly less risky.
[11:22] As you know, Brooke, there's a relationship between risk and return in all investments.
[11:28] From the very lowest money and the bank to, to highly-geared investments in speculative shares, et cetera.
[11:36] But with KiwiSaver, you are getting a higher return, per amount of risk you take, because you've got money coming in from the government and from your employer if you're an employee.
[11:51] But we need to quickly note here, it's not only from employees. It's still, even if you're not an employee, you're still getting government money coming in, which really boosts your contributions. And so all in all, you’re getting a whole lot more coming in from elsewhere, which gives you a return that's too high in a way, in quotes. Too high for the risk you're taking.
[12:14] What are the different life stages and the different ways that people should be interacting with their KiwiSaver along that journey?
[12:19] When I get asked that, it's not really so much about your age as two things. One, how long will it be before you expect to spend the money? And so that could, could be on a first home or it could be in retirement and it might be, you know, just cause you're 65 that you might continue to earn for another 10 or 15 years. And so, you know, it's not your age, it's how soon am I gonna be spending the money?
[12:50] And how much can I tolerate volatility? So if I'm 18 or 80, those are the two questions to ask really.
[13:00] If you've got more than 10 years before you expect to spend the money at any age, I recommend going into the higher risk KiwiSaver funds.
[13:11] So what did we cover in this episode? Here’s 3 takeaways:
[13:15] You can use KiwiSaver to buy your first home as long as you’ve been in the scheme for 3 years. And you may be able to get your first home grant of up to $5,000 or $10,000 depending on what you buy.
[13:25] Make sure you get the annual government contribution of $521. It’s essentially free money. You don’t even have to be employed to get this, just make sure you put in $1,043 yourself. And don’t fret if you can’t afford that much. Just remember the Government puts in 50c for every dollar you do.
[13:42] And lastly, when choosing a Kiwisaver fund, there’s several to consider, starting with:
[13:47] Conservative, where you might want the money soon and is low risk and includes cash type investments.
[13:52] Then there’s balanced, which is when you’ve got a bit more time, and you’re able to stomach a bit more risk.
[13:58] And finally growth, plus what’s often called aggressive. These typically invest mainly in the share market and are higher risk. You might choose this if you can ride the ups and downs because you don’t need the money in the next 10 years.
[14:10] Coming up in the next episode of the Payoff…
[14:12] And you think "I can't do it regularly because I don't know what I’m going to be paid. I think you have to call BS on that thinking. It's about committing. Good habits, good habits.
[14:20] Petra Bagust joins us to share her experience of Kiwisaver in mid-life.
[14:24] Retirement might be retiring from a job, but it doesn't mean retiring from life, from purpose-driven mahi, from value, from contribution to society.
[14:34] Plus we talk ethical investing and how to make sure your nest egg stays green.
[14:38] Think about the large, global, long-term themes that are good for the planet but are also going to make money for investors. And that could be water, it could be renewable energy, it could be social housing, or energy efficiency.
Now for the legal bit
The Payoff is not financial advice. We recommend talking to a licensed financial adviser. You should review relevant product disclosure documents before deciding to invest. Investing involves risk. You might lose the money you start with. Content is current at the time.
The Payoff is for a New Zealand audience.