Most young people joining KiwiSaver are likely to amass balances of more than $1 million within their working lives.
The average balance in KiwiSaver at the moment is about $30,000.
But someone who is 18 and joining the scheme earning $65,000 a year and contributing 3%, plus 3% from their employer, will have $1m by their mid-50s in an aggressive fund, according to Sorted’s calculator.
Even someone who is 30 with no KiwiSaver balance could get there by 62 on the same income if they contributed 8% of their earnings.
Rupert Carlyon, founder of Koura Wealth, said someone who was earning $100,000 a year and contributing 4% would also end up with $1m in an aggressive fund.
“KiwiSaver will be the largest investment most Kiwis ever have, which shows it needs the care and attention of an investment account rather than a simple savings account.”
Mike Taylor, founder of Pie Funds, said the key with building any lump sum was time.
“The more time you have, the better the outcome.”
Taking inflation into account makes the path to $1m a bit more difficult, but not impossible.
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The 18-year-old could save $1m in inflation-adjusted terms by their early 60s if they contributed 8%, with a 3% employer match.
Employer matches will increase over time as the setting is pulled up by changes announced in this year’s Budget, which will lift the default rate to 4%.
The calculations all assume pay increases at a rate of 3.5% a year.
Kernel founder Dean Anderson agreed the majority of New Zealanders who were in their 20s would become “KiwiSaver millionaires”.
David Boyle, general manager of KiwiSaver at Fisher Funds, said it was an exciting opportunity for young people to be the first generation to set themselves up with KiwiSaver.
“And build that retirement nest egg using the power of the eighth wonder of the world, being compound interest.
“The key for this to work is contributing regularly over their working career. So yes, it’s genuinely achievable if they start early enough, on the basis they are in the right fund and getting their employer contributions and if eligible the government contributions.
“The one consideration that needs to be taken into account is the use of their KiwiSaver for their first home.”
Taylor said that raised questions about whether young people would need NZ Super when they reached 65.
“That would require KiwiSaver to be compulsory and ideally for the contributions to be higher, like 10%. Perhaps also risk categories could be set to depending on age… These are solutions the government should be looking at.”
Earlier, RNZ reported that a number of schemes say their members have balances of more than $2 million.
How to get there
- Check your fund type: The longer you have until retirement the more risk you can probably afford to take. Riskier funds should deliver better returns in the long-term.
- Set your contribution rate: If you can afford to make higher contributions, you’ll end up with a better outcome.
- Take time: Time is a big asset for investing and the more time on your side, the more space you have for returns to compound.
rnz.co.nz
