KiwiSaver Tips 
Comparing returns
The following table shows the difference in performance over a 30 year period.This would apply to someone starting KiwiSaver at 35 years of age. (For simplicity the calculation assumes a minimum yearly payment of $1040 which is matched by the government tax credit, that the payments are made yearly and at the beginning of the year, and an ongoing recurring contributions holiday is taken.)
|
Fund return (annualised) |
Value after 30 years |
|
6% |
$180,050.98 |
|
8% |
$264,542.06 |
|
10% |
$393,811.73 |
|
12% |
$592,168.54 |
|
14% |
$896,963.13 |
Impact of the free goodies
The net effect of using the tax credit and kick-start government contribution adds approximately 3% to the return you would otherwise get on your capital.As an example, if the fund returns 6% per annum, you are in effect getting just over 9% return on your contribution.
(This assumes an ongoing re-occurring contributions holiday is taken).
Inflation
You may have noticed that the cost of living is increasing at a much higher rate than reported inflation. (As a side note, when looking at personal expenses, I’ve calculated that inflation has run at about 6% for the last 8 years, a lot higher than this CPI bollocks).If you agree that true inflation is running at 6%, then if your fund returns 6%, all you are doing is maintaining your purchasing power. Hardly an investment!
As an example, if you invested $100 at 6% return, after 1 year it would be worth $106. With inflation at 6% you are no better off.
