The government is trumpeting the news that there is a record number of Kiwisaver members withdrawing money to take advantage of the incentives offered around buying your first home.

The price of something is what you give up to get it. Economists call this concept opportunity cost.

When you use your Kiwisaver contributions and the first home subsidy, you give up an enormous amount of future returns in your Kiwisaver account.

When you buy your first home – you are giving up a higher Kiwisaver account balance at 65. This simple model is a look at how much that can cost you.

Let’s start with a basic scenario of a single person aged 25 earning $50,000 who contributes to Kiwisaver for 5 years and takes advantage of the first home subsidy at the age of 30.

Putting aside all discussion over the pros and cons of buying a house, how much does this actually cost you in future Kiwisaver returns?


Simple Assumptions:
Income = $50,000 from age 25 to 65
Contributions = 3% Employee, 3% Employer
Member Tax Credit = $521.43
Return = 5%, fees and taxes not taken into consideration for simplicity
Withdrawal after 5 Years = Balance less kickstart of $1,000 + 5 x member tax credit payments = $3,607.13 left in account at start of year 6.

You’re only taking out $22,882.87 at the end of Year 5.

How much does that affect your account balance at age 65?

balanceifyoutakemoneyoutIn this model you give up over $104,000 in your closing balance at 65. 

At a 5% return that’s $100 a week in income in retirement that has to be recovered from somewhere.

You can have a look at my working using the Google Spreadsheet I used.

There is a reason why this is something to think about carefully – in this model I’ve assumed you keep contributing to Kiwisaver at the same rate that you were before.

Most people will start diverting some of their Kiwisaver contributions towards their mortgage or stop contributing at all. Which means they will have even less liquid assets with which to cover the costs of their paid off home at retirement.

Kiwisaver is a retirement savings scheme. When you hit 65, you will need liquid assets to cover your living expenses. Why? Because NZ Super is at risk of being reduced or the age of eligibility increased. That’s why having a retirement savings scheme is essential no matter what your current situation is.

Before copying everyone else in New Zealand and jumping on the home buying bandwagon, think about what you are giving up in exchange for your first home. There are a lot of downsides to buying a home that the property industry likes to ignore. At the end of the day, there won’t be any bailouts for people who haven’t saved enough for retirement.

Disclaimer: This post is of a general nature and does not constitute investment advice tailored to the specifics of your situation. I advise consulting an Authorised Financial Advisor, your accountant or your solicitor when it comes to Kiwisaver and anything investment related.

There are no guarantees in life and taking responsibility for your investments and educating yourself even if it seems boring is the best way of protecting your financial future. You owe it to yourself, your partner and your children to learn as much as you can about finance and investment – nothing else matters in our user pays society where we all have to take responsibility for our financial security.

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