KiwiSaver members who don’t actively choose an age-appropriate fund could miss out on as much as $341,000 by the time they turn 65.1
KiwiSaver is like a time capsule. The decisions people make now about fund choice will be judged by their 65-year-old selves in the future. So if you’re under 35 and belong to a KiwiSaver scheme you might want to think about your investment strategy.
Are you in the right funds?
Among KiwiSaver providers, there is a growing concern that many KiwiSaver members aged under 35 have their money in conservative default funds, purely because they haven’t actively made a fund choice. They could be better off choosing a riskier fund that’s more appropriate for their age. It’s commonly accepted that when you’re younger, you can accept more unpredictable investment returns, in exchange for the potential to earn greater returns over the long term.
Our AMP KiwiSaver Scheme data shows that a 25-year-old earning an average wage who stayed in a conservative fund for 40 years could save about $395,000 before age 65, compared to someone who invests in age-appropriate funds who could end up with $736,000.
What fund category is right for your age?
For most KiwiSaver members, a logical plan would be to start out in an aggressive fund and move through the six fund categories as age increases - aggressive - growth - balanced - moderate balanced - moderate - conservative. An easy way to do this is to choose AMP’s Lifesteps investment option. Being in the wrong type of fund for your age can lead to a much smaller nest egg over time.
KPMG’s 2015 ‘Investing in the future’ update says: “As at 30 June 2015, 32.3% of KiwiSaver money on the Morningstar database sat in conservative or cash funds. This high proportion is not representative of the demographics of KiwiSaver members. A key reason for this is the assignment of default members into conservative funds”.2
If you think you’re in a default conservative fund, the first step is to check your annual statement or, if you belong to the AMP KiwiSaver Scheme, log into My AMP to see your fund choices. Then it might be time to seek some professional financial advice.
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1Average figures based on AMP KiwiSaver Scheme data for a 25-year-old earning an average wage who stayed in a conservative fund for 40 years compared to someone investing according to their age, not taking into account fees, tax or inflation.
AMP Wealth Management New Zealand Limited is the issuer and manager of the AMP KiwiSaver Scheme (the 'Scheme'). The Supervisor of the Scheme is The New Zealand Guardian Trust Company Limited.