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Why you shouldn’t ignore your investments outside KiwiSaver

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“If you’re young, you should be in a growth fund. If you’re old, you should be in a conservative fund.” Sounds like familiar advice to you?

This is advice that many people receive in various forms. However, it is overly simplistic and may result in people joining the wrong KiwiSaver fund.

In this blog post, we will show you why you need to consider your investments outside of KiwiSaver when choosing what to invest in.

Your plan for retirement is like a jigsaw puzzle...

You can view your plan for retirement as a jigsaw puzzle where KiwiSaver is one part of your financial puzzle. If you only look at this one piece, it’s hard to see what your financial situation will look like. After all, it’s just one piece.

However, when you put all the pieces of the puzzle together, you will be able to see the role that KiwiSaver has in your retirement. Because of this, you can invest your KiwiSaver money more appropriately and in accordance with your financial goals.

KiwiSaver should not be analysed by itself, but as part of your whole financial plan. This is because you need to have all your assets working towards a common goal, whatever your goal is. Without doing this, your assets may not end up working together as well as they should.

Ignoring your investments outside KiwiSaver can result in lost returns

Other investments outside of KiwiSaver will impact your KiwiSaver strategy. This is especially true for people nearing retirement, or for those that have already retired.

There are many reasons why you shouldn't choose to ignore these investments. And to illustrate why this is the case, let’s take a hypothetical example of a 64-year-old man named Jeff. 

Jeff is nearing retirement and wants to know how to best allocate his assets in order to prepare for his life after work. Therefore, Jeff comes to National Capital for advice.

Generally, personal finance wisdom could suggest that his $250,000 in KiwiSaver investments might be best placed in a less volatile fund (e.g. conservative fund, cash fund). This is so he can have more certainty of how much money he will have for retirement. 

However, Jeff’s financial situation means that this piece of financial advice does not apply to his situation. This is because when he filled out our free KiwiSaver HealthCheck, he disclosed that he has $300,000 in term deposits on top of superannuation that he could use to fund his first years of his retirement. 

Jeff only intends to spend $50,000 a year, which means that it will be a number of years before he starts withdrawing his KiwiSaver investments. As a result, it would be a wasted opportunity if he didn’t try to take advantage of this by putting some of his money into a higher returning fund (e.g. a growth fund). 

National Capital’s solution for Jeff’s situation

Because Jeff is nearing retirement, the National Capital team will use a different approach to analyse his financial situation. This approach is called the bucketing strategy and means a person will not put all their money into one fund. 

In Jeff’s case, he will put some of his money into low volatile, low return funds, and some money in more volatile, higher return funds (e.g. a balanced or growth fund). This will allow him to still grow his money, while having enough for short-term expenses.   

The team at National Capital have seen that Jeff already has $300,000 he can use for his first years of retirement along with his future superannuation income. As a result, they advise Jeff to put his KiwiSaver money into a growth fund, to allow this money to grow while he doesn’t need it.

Furthermore, National Capital has done the math and realised that Jeff doesn’t actually need $300,000 in term deposits. As a result, they advise him to put most of his term deposit money into more volatile funds like a growth fund, or a balanced fund. This allows Jeff to earn more money that he can either use for retirement or pass onto his kids, which is an awesome result for Jeff.

So what does this mean for you?

We understand at National Capital that each person is unique. Therefore, we come up with a unique financial plan for each individual’s retirement.

When someone goes through our KiwiSaver HealthCheck, we make sure to ask them about the other assets they have outside KiwiSaver. Just like it was for Jeff, it is important that you take into account your whole financial situation. 

At National Capital, we understand that this information is needed to give you an appropriate recommendation. Without it, we cannot give you the accurate, personalised financial advice you have been looking for.

After giving this important information through our KiwiSaver HealthCheck, we will offer you the privilege of a free personalised call with one of our advisers. This call is a one-on-one conversation, where we can give suggestions to help you become more financially secure. 

Once you’ve received the advice from us, you can choose whether to implement it or not. If you want to execute this strategy, we can help with that. And if not, no problem.

And let’s not forget: this service is free.

So take the time out to fill our KiwiSaver HealthCheck and get some free financial advice. Your future self will thank you for it.

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Keeping into account your other investments outside of KiwiSaver, are you still with the right KiwiSaver fund provider? Take our free KiwiSaver HealthCheck and find out!
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