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How does KiwiSaver work?


We often get questions from our investors about whether or not they should have KiwiSaver, and how it works. So let’s dive in!


KiwiSaver is a retirement savings program created by the New Zealand Government. And what’s cool about it is it’s one of the only ways you can get free money! Well, not completely free. There’s a bit of a catch, which we’ll get to later. But let’s start with the free bit, by looking at how KiwiSaver works:

  1. You opt-in when you start your job.

  2. You agree to contribute 3%, 4%, 6%, 8% or 10% of your salary to KiwiSaver.

  3. (This is the important part) your employer has to contribute at least another 3%.

  4. Your bit, plus the 3% from your employer, goes to the IRD, and the IRD puts it in a fund for you.

So, if you contribute 3%, your employer then contributes another 3%. This means that if you make $40,000 a year, you contribute $1,200 towards your KiwiSaver, and your employer puts up to another $1,200. You instantly double your money!

And don’t worry—your KiwiSaver isn’t tied to your employer. When you leave your job, your KiwiSaver comes with you. Then you just start the process again in your next job.

If you’re self-employed, you won’t get the employer contributions, but you are entitled to the next section of the free money, so stay tuned.

Have another $500

What’s more, if you contribute at least $1,042.86 in a year, the government will give you $521.43 (we’re not sure why the numbers are so specific, but for today’s purposes it doesn’t really matter).

The point is, this is more free money for you. You’ll get this automatically if you sign up to KiwiSaver and earn at least $37,000 a year, make sure you top your yearly contribution to $1,042.86. This is super-easy to do from your online banking.

What’s the catch?

Okay, you got us. Nothing is completely free, and KiwiSaver is no exception. In exchange for your “free” money, you do need to give something up, and in this case, it's flexibility.

Unlike a bank account, or your money in Sharesies, or some cash under your mattress (not recommended), you can’t withdrawal from KiwiSaver whenever you want.

There are two main situations when you can get the money in your KiwiSaver:

  1. If and when you buy your first house

  2. When you turn 65.

This means that it’s probably going to be quite some time until you see that money again, especially if you’ve already bought a house, or you’ve decided not to buy a house.

Is it worth it?

It’s your money, but our view is: yes! We think this tradeoff is definitely worth it. Your KiwiSaver money doesn’t just sit in a vault, waiting for you to get your hands on it when you get older. It gets invested in a fund that’s designed to grow over time. This will be a combination of shares, bonds and other products similar to what you buy through Sharesies. This means your contribution today should be worth more once you crack it open.

What about Sharesies?

This doesn’t mean you should only use KiwiSaver, though. At Sharesies, we’re all about diversification. This means diversification across lots of different investments, but it also means diversification across other things, such as when you can access your money. KiwiSaver is not very liquid (a fancy investor word for when you can cash in your investments), while a $2 deposit in your bank is very liquid—you could spend it right now if you wanted.

An investment through Sharesies, on the other hand, gives you flexibility. We encourage you to stay in the market for a long time, but you may want to invest with a view to getting your returns in ten, fifteen or twenty years….and perhaps not thirty-five years or more.  

Have it both ways

So get the best of both worlds. Sign up for KiwiSaver so you contribute at least 3%, and set up an automatic payment for a small investment into Sharesies each pay period as well. This gives you the long-term payoff and free money from KiwiSaver, and the flexibility of Sharesies. This is diversifying your maturity. Not only are you buying lots of different eggs, you’re also buying eggs that hatch at different times.

Lots of investments have tradeoffs—but combining KiwiSaver and Sharesies gets you pretty close to having it all.

Ok, now for the legal bit

Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.

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