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Should you change your KiwiSaver contributions?

May 8, 2020

Should you ride out the falling value of your KiwiSaver account or cut your contributions? Consider these tips before you decide.

balance bills and piggy bank image

There was a time when watching your KiwiSaver balance head steadily upwards was one of the satisfying moments in life. 

Now, not so much. 

Just as it’s hard to read the news headlines at the moment, it can be gruelling to see KiwiSaver balances going down after putting in so much money for so long. 

But it’s more important than ever to have all the information you need before making money decisions that could have a big impact on your long-term future. 

Here are three things to consider if you’re thinking of taking a break from KiwiSaver or reducing your contributions rate. 

1. You may lose more than you think
If you take a break from paying into your KiwiSaver account, you won’t get any employer contributions. You may also miss out on your entitlement to the annual Government contribution, which is worth up to $521 each year. You’ll also lose the investment returns any of those employer contributions or Government contributions would have earned you over time.  And if you’re planning to buy your first house, you could be putting your KiwiSaver First Home Grant on the line. 

2. You could be locking in your losses
Another factor to consider is that you won’t be able to make up for any losses in your KiwiSaver account when the market bounces back. Your KiwiSaver contributions are now buying shares that have fallen in value during the pandemic, giving you the opportunity to benefit from their rise in value as the markets recover.

3. It may be much harder to reach your goals 
Now’s a great time to review the type of KiwiSaver fund you have and the amount you contribute. It’s also important not to contribute more than you can afford. But the risk of pulling out early is having to spend years getting back on track with your life goals, whether that’s buying a first home or having a comfortable retirement.  If you’re able to ride out the downturn, and if you still have time to make up any losses before you need the money from your KiwiSaver account, it may make more sense to stick to your current contribution level.

Tags: KiwiSaver

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