KiwiSaver — When a holiday isn't really a holiday
By Mark Brighouse, Chief Investment Officer
07 February, 2017
As Kiwis come back to work after summer holidays there are always a number of adjustments to make. Jandals are swapped for shoes or workboots, t-shirts are replaced with ties or hi-viz vests and we exchange novels for alarm clocks.
Being the start of a new year, it's a good time to be thinking about all things financial. If you're one of the tens of thousands of Kiwis on a contribution holiday, maybe it's time to reassess whether being on a break is still the right thing for you.
While a contribution holiday provides flexibility if your circumstances change, the cost of such a holiday can be high in the long term and may significantly impact your retirement lifestyle.
It's not just because you need to make up for the gap in contributions with higher payments in the future; it's because you miss out on the powerful effect of compounding returns. Even if you make higher contributions later on in your working life, those contributions don't get the time to compound up like your early ones do.
Not only that, but you will miss out on employer contributions and on the annual government KiwiSaver Member Tax Credit contribution of up to $521.43 — effectively free money from the government.
For example, a 25 year old in a growth portfolio will miss out on as much as $18 at retirement for every $1 that they decide not to contribute today. That's compelling right? The beauty of KiwiSaver is that it is working while you are working and returns are compounding over a long time period.