Most New Zealanders check their KiwiSaver balance in isolation – celebrating growth or worrying about market dips without considering the bigger picture. But what if this tunnel vision is actually holding back your retirement wealth?
The key to optimising your KiwiSaver isn't just about picking the right fund; it's about understanding how it fits within your complete financial ecosystem.
The Whole-of-Wealth Approach
Your KiwiSaver is just one piece of your financial puzzle. Let’s put that in context:
Consider Sarah, a 35-year-old professional with:
$45,000 in KiwiSaver
A $120,000 mortgage on her $580,000 home
$25,000 in term deposits
$15,000 in everyday savings
If Sarah only looks at her KiwiSaver balanced fund (typically 50% growth assets, 50% defensive assets), she's missing the complete story. If we examine the bigger picture, Sarah's defensive assets extend far beyond her KiwiSaver's bond allocation.
Her cash savings and term deposits already provide significant conservative exposure across her total portfolio. This means her KiwiSaver could theoretically afford to be more growth-focused, as the defensive components are already well-represented elsewhere in her wealth structure.
This becomes even more pronounced when considering homeownership. While your family home isn't a liquid investment, it represents a substantial asset that will likely appreciate over time and will eventually be mortgage-free. You then have an additional layer of wealth stability, which should influence how aggressively you can afford to invest your KiwiSaver.
The 30-Year Retirement Challenge
Here's the sobering reality that every KiwiSaver member needs to confront: if you retire at 65, your savings could need to stretch three decades (or more).
According to Statistics New Zealand's mortality data, a 65-year-old today has a significant chance of living into their 90s¹ - much longer than previous generations.
This extended timeframe fundamentally changes the retirement investment equation. Even at retirement age, money that may not be needed for decades can potentially weather market volatility in pursuit of higher long-term returns. Yet many retirees shift to overly conservative approaches, which may struggle to maintain purchasing power across such extended retirement periods.
Consider the numbers. If inflation averages 2.5% annually, the purchasing power of money halves every 28 years². A conservative investment approach barely keeping pace with inflation could leave retirees significantly worse off by their 80s and 90s.
Asset Allocation Across Your Complete Portfolio
The sophisticated investor doesn't ask "What should my KiwiSaver fund allocation be?" but rather "What should my total asset allocation be, and how can I use different investment vehicles to achieve it most effectively?"
This approach might lead to counterintuitive decisions. Someone with substantial cash savings and term deposits might benefit from a growth-focused KiwiSaver strategy. Conversely, someone heavily invested in shares outside KiwiSaver might choose a more balanced KiwiSaver approach to avoid over-concentration in equities.
The tax efficiency of different investment vehicles plays a crucial role too. KiwiSaver's favourable tax treatment on contributions and fund earnings makes it an ideal vehicle for growth investments, particularly for higher-income earners³. Meanwhile, other investment structures might be more suitable for defensive allocations.
The Danger of Set-and-Forget Thinking
KiwiSaver's success in automatically enrolling New Zealanders into retirement savings has created an unintended consequence – the belief that retirement planning is now "sorted."
This set-and-forget mentality ignores the dynamic nature of both personal circumstances and investment markets. Your optimal KiwiSaver strategy should evolve as your life changes:
Early in your career, with decades until retirement and potentially limited other assets, an aggressive growth approach often makes sense.
As you accumulate property, build emergency funds, and approach retirement, the optimal allocation across your complete portfolio will shift.
Regular portfolio reviews are essential - not just of your KiwiSaver, but of how all your financial assets work together. This might reveal opportunities to rebalance between different investment vehicles or adjust your KiwiSaver strategy to better complement your evolving financial situation.
Beyond Silos: The Need for Holistic Financial Guidance
This whole-of-wealth approach reveals a critical flaw in how many New Zealanders currently receive financial advice. Too often, advice is delivered in silos: KiwiSaver advice from one provider, mortgage advice from another, investment advice from a third. You end up with a fragmented approach, which may not all fit together into a favourable picture.
Holistic financial advice considers your complete financial ecosystem. A truly comprehensive adviser doesn't just ask "What KiwiSaver fund should you be in?" but rather "How should all your financial assets work together to achieve your goals most efficiently?"
This integrated approach can reveal sound strategies that siloed advice skates past. When the circumstances are right, some might find benefit in:
Salary sacrificing additional amounts into KiwiSaver whilst reducing term deposit holdings, effectively shifting defensive assets into a more tax-efficient structure
Paying down your mortgage faster could be more beneficial than increasing other investments, depending on your complete tax and financial situation.
Professional financial advisers who take this holistic view can help model different scenarios across your entire portfolio. They consider not just your KiwiSaver options – but how changes to your mortgage repayments, investment allocations, ownership structures and even insurance strategies could work together to improve your financial position
The complexity of optimising across multiple asset classes, tax structures, and time horizons is where professional expertise becomes invaluable. A qualified adviser can navigate the interplay between KiwiSaver's tax advantages, property investment considerations, portfolio diversification needs, and your evolving life circumstances.
Moreover, this comprehensive approach requires ongoing attention. Your optimal strategy today won't necessarily be optimal in five years. Regular reviews of your complete financial picture ensure your strategy remains aligned with your goals.
Taking Action
Start by conducting a complete financial stocktake. List all your assets, including:
KiwiSaver balance
Property equity
Other investments
Cash holdings
Then consider your current overall asset allocation across everything you own. Does this allocation make sense for someone who needs their money to last potentially 30 years in retirement? Or are you being overly conservative, because you're only looking at each investment in isolation?
The Case for Wise Counsel
The path to a comfortable retirement isn't found in any single investment fund. It's constructed through the thoughtful integration of all your financial resources, with KiwiSaver playing its optimal role within your wealth ecosystem. This level of sophisticated planning requires experienced professionals who understand how to orchestrate asset and cash flow integration across your entire financial life.
The cost of this holistic professional advice is often far outweighed by the potential long-term benefits. Even modest improvements in your overall investment efficiency compound dramatically over 30-40 years, potentially adding tens of thousands of dollars to your retirement wealth.
KiwiSaver is a powerful tool, but it's most effective as part of a complete financial strategy. Your 95-year-old self will thank you for taking a thoughtful, comprehensive approach to retirement planning today.
Nick Stewart
(Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha)
Financial Adviser and CEO at Stewart Group
Stewart Group is a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm providing personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
Article no. 427
References
¹ Statistics New Zealand. (2024). New Zealand Life Tables 2020-22. Wellington: Statistics New Zealand.
² Reserve Bank of New Zealand. (2024). Inflation Calculator. Available at: rbnz.govt.nz
³ Inland Revenue. (2024). KiwiSaver Tax Treatment Guidelines. Wellington: Inland Revenue Department.
⁴ Financial Markets Authority. (2024). KiwiSaver Annual Report. Wellington: FMA.