KiwiSaver contributions and retirement: Do you know your balance?

Plenty of women don’t have a financial plan, and don’t know what their KiwiSaver will be worth when they retire. Perhaps they’re purposely in denial, because those career breaks (a.k.a. a KiwiSaver holiday) are the real killer for women’s retirement savings. According to ANZ, only 41% of women are confident they will reach their retirement goal – compared to 55% for men.

It’s up to women to ensure that their financial future is secure. The Commission for Financial Capability NZ worked out that a 25-year-old woman earning $45,000 would have $302,000 if she worked all the way through to retirement, assuming 2% inflation, 5.6% nominal rate of return, 17.5% PIR, 3.5% annual salary increase and 3% matched employee contributions. If she took a break…

  • A 1 year break for maternity leave would reduce her end balance to $291,000.
  • A 3 year break would reduce her balance to $271,000.
  • A 5 year break makes it $253,000.
  • A 10 year break gives her a retirement balance of just $210,000.

It’s very difficult to compensate for those lost KiwiSaver contributions. The total of a KiwiSaver fund isn’t just governed by the amount saved, it’s also a factor of the time the money spends being invested. In other words, compounding interest. So to get back to the same financial position, someone would need to contribute higher amounts to the fund on their return to work.

That’s all the more reason to keep contributing to KiwiSaver while you’re on maternity leave. If a woman contributes a minimum of $1,040 per year she’ll get the government tax credit of $521, which is an instant 50% return on your contribution.

If that 10 year career break was from the age of 30 to 40 years of age and someone had continued investing $1,561 every year (being $1,040 plus $521), they’d have approximately $39,025, which will be worth around $18,639 in today’s spending power.

There is an argument that this isn’t enough and the family’s budget should be adjusted so that the woman’s KiwiSaver contributions are the same as her partner’s, or at least the same as they were if she’d stayed in the workforce.

Finally, it’s also worth being aware that women are more risk averse than men. That means that they’re more likely to choose lower risk KiwiSaver funds, which have lower returns, and result in a smaller KiwiSaver pot at retirement.

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