Rachel Clayton
It’s easy to overlook living in the now when save-forretirement messages are all-pervasive. reports.
When you hit your 20s, retirement is not usually a priority. You are more concerned with moving up the corporate ladder than jumping off altogether.
But there would be few people who don’t feel pressured to funnel every last cent they can muster into a retirement fund.
If you’ve been fretting about your KiwiSaver balance, there might be some good news.
We asked the experts how much retirement saving should really matter for young people.
Starting a retirement fund when you are young has its benefits.
Fisher Funds chief executive Bruce McLachlan says KiwiSaver is one of the best ways to save because of the member tax credit taxpayer subsidy of $521.43 a year.
The Government contribution is available to people who contribute at least $1042 to their accounts in the financial year.
‘‘I think KiwiSaver provides a benefit that young people should not ignore and the benefit is that Government assistance,’’ he says.
The biggest benefit from starting young is the effect of compound interest, McLachlan says.
When you start putting money into KiwiSaver it accrues interest, and that interest accrues interest. Your wealth starts to snowball and the snowball is a lot bigger if it starts rolling early.
‘‘You can hold off until later in life, but if you wait too long the physical dollars you have to save are so much greater,’’ McLachlan says.
But McLachlan doesn’t want young people to think it is the end of the world if their KiwiSaver is not busting at the seams.
‘‘No one should be living their life deprived today to make themselves comfortable at 65, that makes no sense.’’
BNZ chief economist Tony Alexander says KiwiSaver is not the be-all and end-all of living a good life.
Saving for when you punch out for the last time is important, but you also need to live along the way, he says.
‘‘Many people want young people to fear retirement, to fear not having any money and to act on that fear by aggressively saving as early as possible.
‘‘There are far greater priorities including enjoying yourself doing things, which become more and more difficult the older you get,’’ Alexander says.
New Zealanders are living longer and working longer than ever before, with at least 24 per cent of people aged 65 and over still in the workforce.
And Prime Minister Bill English has announced the age for national superannuation will gradually rise to 67 by 2040.
‘‘People have more time on their side these days because come the age of 65 they’re still going to be working and won’t be solely dependent, necessarily, on superannuation,’’ Alexander says.
Having fun while you are young and having more options available is also important, he says.
‘‘As you get older your options tend to claw in on you and people tend to look back fondly at their youth and missed opportunities. The return from spending $10,000 enjoying yourself when you’re young could well be greater than putting that money aside and using it in retirement.’’
That’s a personal choice of course, but Alexander wants people to make that choice without the fear of reaching old age with just a few pennies in the bank.
‘‘There are people who have a vested interest in having you save as much as humanly possible for retirement in four or five decades’ time,’’ he says.
Moneymax financial adviser Liz Koh says there’s no point putting any more money into KiwiSaver than necessary.
‘‘When you are young you need to have a good time, travel the world if you want, then buy a house somewhere,’’ she says.
‘‘But you should put enough into KiwiSaver to get the maximum benefits, which is usually 3 per cent of your pay.
‘‘It will be really useful when it comes to buying a first home.
‘‘You should also make sure you have balance in your life – having an enjoyable life both now and in the future.’’
‘‘The return from spending $10,000 enjoying yourself when you’re young could well be greater than putting that money aside and using it in retirement.’’ BNZ chief economist Tony Alexander