Your KiwiSaver is probably worth tens of thousands of dollars, maybe hundreds of thousands of dollars.

And for many of us, it's the key to getting into a first home or just feeling financially secure for the future.

So no pressure then when you hear all of the KiwiSaver rules are changing

and you might need to do something different to make the most of it.

The amount you, your boss and the government put into it all changing, as well as some of the age restrictions or how the rules apply depending on how much you earn.

Which is exactly what today's letter writer is worried about.

And fair enough to a few little tweaks in how you handle your kiwisaver can genuinely be a difference of hundreds of thousands of dollars.

So time to figure this out.

Get it all running smoothly in the background so that you can go back to living your life while your money is working hard without you worrying about it.

So welcome to Ask the Experts where each week people working in the money world answer your questions.

To get you the answers you need.

Right now, Making Sense has partnered up with Enable Me to get you the strategies for reaching financial freedom faster.

Head to their website to learn more, visit Enable Me today.

All right, in the hot seat, Kristen Sutherland, financial advisor from Enable Me.

Ready for the letter?

Ready.

Here we go.

All right.

Hi Frances, I'm hoping you might be able to untangle something for me because I'm feeling lost with all the kiwisaver changes being talked about.

I keep seeing headlines about contribution rates going up, changes to the government contribution, and new rules around opting down.

I'm just confused.

On paper, higher contributions sound like a good thing.

I get that the goal is to help people save more for retirement, but but in real life, with the cost of living already feeling tight, I'm not sure what this actually means for my take home pay, or whether I should be doing something proactive before these changes kick in.

I'm also unsure how the changes affect people on different incomes.

I've read that higher earners won't get the government contribution anymore and that for some people the employer increase might just come out of their total pay anyway, which makes it hard to tell whether it's actually a boost or just a reshuffle.

Basically, I don't know whether I should just let the default changes happen, actively opt down when the rates increase, or be changing my KiwiSaver strategy entirely to make the most of what's coming.

I don't want to accidentally make a bad decision through an action, but I also don't Want to overthink it and make changes that don't really help in the long run.

Thanks so much for all the work you do.

It really does make this stuff feel more manageable.

Okay.

A lot of stress in this letter.

Yes.

A little bit of panic, a little

panicky, but I get it right, because Kiwisaver is so important to people.

So let's start by laying out the changes.

What's actually changing this year?

So we've already had some changes come in.

So the changes that we've had already are the government contribution.

So that's the amount the government gives us per year.

If we're contributing to Kiwisaver, it has reduced.

So it's gone from 520 to 260.

Been a lot of talk around that.

Let's just park that for the moment.

We already know I don't like that.

But it's happening, so it's happened.

We just had to accept that it's happened and not make too big a deal because it is a change.

But there's other changes that are happening that also counterbalance that to a point as well.

The other change is that high income owners, Those owning over 180,000 gross, so from all our income sources they're losing the government contribution.

So sort of in my mind it's unfortunate, but it is, you know, a government trying to control spending.

So the other change is that 16 and 17 year olds are now eligible for the government contribution.

Now I love this.

Yes, love this because we've talked a lot in the past about, you know, making sure we start early.

So the earlier we start saving the better.

So it might seem like a little amount of money, but $260 compounded over, you know, we might be 40 years till we retire is going to make a difference.

So I really love that one.

So from the first of February, so we're already past that, people have got the option to what's called opt down.

So I'll come back to that because we'll talk about what that is.

But from the 1st of April this year, the minimum contribution to Kiwisaver, so that default rate is changing from 3 to 3.5%.

So I like that.

I know it's hard for some people in terms of cash flow, but I like that it's trying to increase our enforced savings and there is some options to opt out.

Then on the 1st of April, 2028 we're going to get that default rate increase again from 3.5% to 4%.

So that's the sort of changes summarized so we can break down what they look like.

But what I want people to really take away is don't panic.

You know, they are for a lot of people going to be quite beneficial changes.

And there is some options.

If we really can't handle the cash flow change for people, there's some options to opt out of them for a period of time.

But what I want people to know is don't panic, come up with a plan.

Instead of panicking, we're going to plan, we're going to look at understanding what our current Kiwi Saver is, if we're contributing and how it's assessed.

So the big one on this one is how is your kiwisaver paid?

Is it included in your income?

So do you have an overall package of income?

Were your kiwisavers included in that or do you, is it on top of.

So that's going to make a difference how you're going to plan for this.

So really knowing what you're currently doing, have a plan for going forward and then we can really look at what these changes mean for you?

Yeah, yeah, 100%.

Because we were just having a wee chat before we started recording.

I looked it up.

So fresh set with what they call total remuneration, which is all of your pay is one way that employers will pay some people.

So if they're talking total remuneration package, then when they say, oh you're paid 60,000, that includes everything we're putting into kiwisaver.

So that's not what you're getting in the hand before even thinking about tax and things as well.

And 45% roughly of new Zealanders are on that total remuneration for their Kiwi Saver.

So that's actually a really big deal when we're changing how much you put in and also how much your employer puts in, this could end up having a, well for some people a significant impact on their take home pay.

Right.

How do you, how do you balance that?

Doing the calculation is important.

So again this comes down to us knowing what we need to live and what impact this is going to have and can we afford it.

So what I don't want people to automatically do is I talked around this opt down option.

So from the 1st of February you can go and do it now actually you can go onto the IR website.

I tried it last night just to see, oh, is it easy to do?

And it actually is quite easy.

So you go in and you can say, I'm going to opt down.

So I'm not going to increase my Compulsory contribution from 3 to 3.5.

I'm gonna stay at 3.

You can choose to do for 3 to 12 months and you can actually renew that option as often as you need to.

I like to say need to as opposed to want to because I don't want people doing this if they don't have to.

Because the knock on effect is you're not putting that extra 0.5% in, nor is your employer because your employer then has the option to opt down as well.

So we're losing that benefit that could be coming and that benefit's offsetting our loss of government contribution.

So on a minimum wage we're losing the 260 government contribution, but if we do the 0.5 increase, we're actually getting that back in terms of the contribution we get from our employer, it's $244 as opposed to 260.

So it's very close.

But that's only if we say yes, we're going to do that.

So we need to do something, you know, we need to let that.

And that, you know, the listener was talking about the default.

We need to let that default happen.

So, so that we get to that increase the difference for a minimum wage earner for this if they've got an inclusive salary.

So you know, if it's all inclusive is $4.70 a week.

So it's $4.70 a week difference.

Having a look, can we afford that?

I'm not saying that's insignificant for some people, you know, that is some groceries.

So you know, it's not an insignificant.

But if we can do it long term, those long term benefits far outweigh the $4.70 a week.

Because if we extract that out to say if we did it like if we did the $4.70 a week and we did it for 20 years, it makes a $16,000 difference to where our kiwisaver ends up.

So again, weighing up $4.70 weekly, it's a sacrifice.

As opposed to 16,000 in retirement or for my first home or in situations of financial hardship when I can use my kiwisaver.

That's significant.

So please just don't panic, have a plan, know what the difference is going to be and make the change consciously.

Not so.

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Where do we end up on that?

Is that just kind of a reshuffle of where the money's coming from?

But it is asking a bit more from you to be a bit more active in it?

Yeah.

And I think that is the thing is you being engaged with it.

So if you haven't taken the opportunity previously to engage with your KiwiSaver, see, this is an opportunity of.

Right, the government's made me have a look at this.

I'm going to have a look and see what, firstly what I get, how my fund's performing.

So the default fund types in New Zealand that you go into, if you make no decision on it and just say I'm going to enter it is a balanced fund.

So that's good in some circumstances, but not for everyone.

So if you're young and you've got more than a 10 year time frame to when we're going to be using the money from KiwiSaver, I want you to be looking at as high a growth as you can sleep with at night.

So, you know, you, you have to consider you do want to sleep at night, not be worried about it.

So that's your risk profile of, you know, how you handle risk.

But I want you to be as aggressive as you can because that over the long term, and we're talking long term here, makes such a difference to where you end up.

Say you're contributing 10,000 a year to KiwiSaver and we're getting a 5% return on that as opposed to if we put, and that's a balanced fund average, as opposed if we put it in a growth fund at 7%.

So 10,000 over 20 years, 2% difference.

So going from this default fund of balance to growth, you know, $80,000 difference in the end.

So it's time and return.

So looking at your fund type, so thank the government for the opportunity to reassess, look at what fund type you're in, where the money's coming from.

So is it just a bonus?

Because if your kiwisave is on top of your income, this is a pay rise, you know, we're getting a 0.5% pay rise.

So, you know, some of us will be happy about that and now they won't because it's coming.

I never say no to it.

Yeah, that's right.

I never say no to a pay rise.

Either.

So you know, that could be that and then how it's performing.

So not only about the type of fund but the fund provider, are they doing well?

You know, there are multiple sites you can look at, you know, Sorted, which is a government one, compares the funds for us.

So if you've never looked at it, go on there and have a look.

How's my fund, be it a growth, a balanced, a conservative, how's my fund comparing and then fees.

So again, thank the government for making you look at it and go and have a look at the fees.

So how's your provider compared?

There is a huge difference.

I did this comparison for a client the other day.

The comparison between this was the same fund type, so it was actually a growth fund for the life of the time.

They were going to have their money in KiwiSaver and if I remember correctly, it was for a 45 year old.

So they still had 20 years to go.

The fees ranged from three and a half thousand to 25,000 over the lifetime of the fund.

Wow.

So industry average for that group is actually 15,000.

So there are some fees involved.

But we, you know, we're hoping to get a good return on that as well.

But that makes a really big difference,

you know that 20k difference for myself.

Thank you so much.

Yes.

I'd like to have that compounding over all those years so you know, KiwiSaver isn't set and forget it's a.

Have a look at how is it performing now?

Is it continuing to perform well and then making conscious decisions?

So not panic.

It's a plan.

Yeah, I think that's super important.

And what you say there, that really quick litmus.

Litmus test of something like the sorted fund finder.

You literally just Google sorted fund finder, they have a little quiz to help you figure out your risk tolerance.

All that good stuff.

They rank things.

It's brilliant.

I think it's such an easy way to just get a feel for what's out there because there is a lot out there and you don't want to get the overwhelm.

So when someone is reassessing this and like you say thank you for the

opportunity to reassess this, we're reframing that.

It's an opportunity, positive mindset.

So you've mentioned things like fun type fees.

They're all really good things to check on.

Is there any other areas that we would check on first?

So one other area for people to think about.

And so we're getting out of the nitty gritty of just, you know, the fees and the returns.

And is Kiwisaver itself going to be enough?

So for some people and for some clients, because we do what's called a retirement gap test.

So do we have enough money to live the life we want to in retirement?

Now, first we have to know what life's gonna cost us.

So we have to work that out, get some good data.

However you do that, I say to people, I don't care how you work out what life costs.

You don't make that the barrier to figuring out if we're going to have enough.

Because a lot of clients sit with me like, I'm not doing that app.

I'm not.

I'm like, don't make that.

Don't make that the hill you're going to die on.

Like, at the bare minimum, if you're just going to do this, you know, on the back of a piece of paper after you've got the data on what life costs, Times that by 25 and get an idea of, could I live comfortably for 25 years?

So that gets us to 90, and that's how we work out a retirement gap.

Can we live till 90 in a comfortable lifestyle?

So do we have a gap then?

Is kiwisaver going to fill that gap?

Because actually, for a lot of people, it's not going to be enough.

So if we identify that early, it gives us more time to fill the gap.

And when you're working out what life costs, is that things like, you know, rent, mortgage, Especially if you're a homeowner, I guess you might be hoping to have the mortgage paid off, but you might be thinking, like, rates, insurance, how much you often spend on food, that sort of stuff, everything.

So when we're like, you know, when we're working with clients of what does life cost?

We track everything.

So we literally track your bank account.

We see some very interesting things, but you really get a good feel for where people's money goes.

And if you do this yourself, like, even if you're using the bank apps to track, so you'll know, is it food that I'm spending too much money?

Utilities, again, hard to control.

You know, we can try and minimize if, you know, we do analysis on, is this the best bang for buck that we're getting?

We can't really control them.

So it's more around that.

Discretionary food, doggy daycare, like, the things that people spend money on, like, for me as a financial advisor, blow my mind sometimes.

Doggy daycare, really expensive.

I don't Have a dog, but my neighbor does.

Really expensive.

I know clients who come and say, I'm getting a pet.

I'm like, don't.

How much do you love that animal?

Really?

How much?

From advisor's point of view, don't.

I love dogs, but, you know, you need to know how much they cost.

So do what I did get a neighbour with a dog.

Yes, that's it.

Share a dog.

Share a dog.

So it's everything like, and it's trying not to forget because people say to me, oh, I know how much it costs me.

And like, do you.

And when we really dig into that, you know, we're getting down to.

I know every cent you spend.

Now, most people are very unaware of what things are that they spend a lot of money on and things that don't make them happy.

I'm like, this isn't bringing us joy.

Why are we doing it?

Yeah.

And when we're thinking as well.

We've mentioned the fund types for KiwiSaver.

Now this is going to be by necessity a little bit of a broad generalization, but when we're thinking most common fund types for KiwiSaver, conservative, balanced growth.

Are there.

Are there simple rules of thumb for when each one might be a better fit for.

For you?

So if we're looking at not using the money for 10 years or more, so 10 years away, so that's.

We're not going to use it for first home or we're not 10 years from retirement, we would go growth.

If we're looking a shorter time frame of, you know, under 10 years, but not something that we need to use tomorrow, then balanced, you know, we're looking at that sort of two to five year sort of range for balanced.

If we are thinking we need to use that money anytime soon, like in the next one to three years, actively house hunting.

That's it.

Yeah, actively house hunting, then conservative.

So they're like broad, you know, advice on when we're doing it.

Brilliant.

Thank you so much.

Kristen Sutherland, financial advisor from Enable Me.

Really appreciate the KiwiSaver chat.

Hopefully we're all feeling a little less panicky now.

If you have questions about this, anything else to do with money, send them through.

I'll get an expert to answer all your questions.

It's askancescook.co nz until next time.

Have a great day.

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