We all go through difficult financial times, when bills and commitments increase, and we wish there was a way to relieve some of that financial pressure.

Luckily with KiwiSaver, there is an opportunity to pause your contributions for a while, depending on how long you have been in KiwiSaver.

What do you need to know about a Savings Suspension and what are the risks? In this blog, we give you a brief overview of the main points and risks, to help you navigate your decision.

• What is a Savings Suspension?
  A Savings Suspension is when you stop your employee contributions to KiwiSaver for a period.
• How long do I have to be in KiwiSaver, before I can take a break?
  If you have been in KiwiSaver for a year or more, you can ask for a suspension through your employer. If you have been in for less than a year, you will need to apply for a suspension from IR and prove financial hardship.
• How long can I take the Savings Suspension for?
  You can suspend your contributions for three months to a year, but you can take more than one break, and they can be back-to-back.
• Will my employer keep contributing?
  No, if you suspend your contributions your employer will too, unless your employment agreement covers this situation.
• Can I still make contributions to my KiwiSaver scheme even though I am on a Savings Suspension?
  Yes, you can still make direct contributions to your KiwiSaver scheme even if you are on a Savings Suspension. If you cannot afford to make the minimum contribution required by the KiwiSaver Act, then making some smaller contributions voluntarily during the Savings Suspension period is a way to still save for your retirement, just at a lower amount.
• Will I receive the Government Contribution?
  Yes, you will receive the annual Government Contribution if you contribute at least $1,042.86 between 1 July and 30 June each year.

What should I consider before I take a Savings Suspension?
Before you decide to take a break, there are a few points you will want to consider:

1. Investigate whether you can reduce, not stop your savings. If you are currently contributing 4% to KiwiSaver, try dropping to 3%.
2. Save something if you can. While you might stop your employee contributions, set up a voluntary, automatic payment instead, for a smaller amount. By keeping your savings going, you can rest a little easier, as you are still ‘chipping away’ at your goals.
3. Make a commitment to start again. If you stop altogether, set up an automatic payment 6 months from now. Make this $100 or $200 per month, to begin with, and increase this 6 months later. Then start up your employer contributions again.
4. Do some homework and know the long-term consequences of stopping. Try putting this scenario into the Sorted KiwiSaver Retirement Calculator. KiwiSaver calculator » Sorted

   Example
   A person aged 45, retiring at age 65, with a balance of $70,000 today. Their pay is $50,000 a year before tax, and they contribute 3% to KiwiSaver and so does their employer. They are in the Growth Fund.

   If they don’t stop saving over the next 20 years, they may have just over $200,000 saved by age 65.

   If they pause for one year, their balance would be around $196,000 by age 65.

   If they pause for two years, their balance would be around $191,000 by age 65. *

   *Please note, these numbers are not guaranteed and do not constitute financial advice. Your situation will be different, and we recommend you seek independent advice from a licensed financial advice provider.

While we don’t want to stop our savings, sometimes we need to focus on paying our bills, or clearing some high-cost debts. At those times, taking a Savings Suspension for a short time can give the ‘breathing space’ we need financially and mentally.

Just remember, there will always be an excuse to ‘start again tomorrow’, and before you know it, tomorrow is two years from now.

The Savings Suspension is a nice KiwiSaver feature to have and can relieve some pressure when we need this most. We should have a plan to start again, even before we decide to stop, and we need to understand the impact stopping can have on our savings if we delay restarting contributions.

Do you like to skydive, but you freak out if you see a decrease of $1,000 in your KiwiSaver value? Do you fear the money is gone for good?

Do you like to stay firmly on the ground, but it doesn’t bother you to see your KiwiSaver balance drop by $10,000? Are you confident that it will bounce back up when the markets recover, even if that might take a while?

The risks you are happy to take in life don’t always equal the risks you can cope with for your savings. Everyone has their own level of comfort, or what is known as their ‘risk tolerance’, when choosing the KiwiSaver investment choice that is right for them.

In our latest blog, we delve a little deeper into the risks we face when we invest our money.

When we think about risk and investing, there are a few fundamental truths.

• We only ‘lose’ money when we take money out of our investments – Like owning a home, we only gain money when we sell the house for more than we paid, and we lose money if that value is lower. The same applies to our investments. The fall in value is not ‘real’ until we withdraw our money from that investment.

We hope that in the long term, the value of our house and investments go up. In the meantime, changes in those values are simply numbers on a page.

• Volatility is the risk we care about – Volatility is the measure of how much our investment rises and falls in value over a period of time. For example, an investment that rises and falls by 5%, has a much lower volatility than one that moves up and down by 40%. The second one carries a higher degree of risk—especially if we need to start withdrawing funds from the investment in the near future.

If our investment is worth $100,000 and drops to $95,000 we might be comfortable, because this only needs to rise by just over 5.25%, to recover. However, if this falls by 40% to $60,000, that could be a lot scarier. We would have to see a rise of over 66%, just to get back to the $100,000 again. Can the investment do that, and can our nerves handle the ride?

When thinking about our risk tolerance, we consider how much volatility or uncertainty we can bear, before we start having sleepless nights.

• Diversification matters – Putting all our money on one stock is what we term ‘putting all of our eggs in one basket’ and is a risky strategy with our life savings. That is why we want to spread this around, to investments that move differently over different market cycles. Good diversification reduces the risk of losing our money.
• Perception is not always reality – You may know the saying ‘this too shall pass’.

Markets will always move up and down and our investment balances will follow. The trick is to understand that what we see happening in our investments today is only a snapshot in time. What matters more is how our investments behave over the long term, i.e., over more than seven years. Our perception is not always the reality and while we may have short-term uncertainty, we can still have a good long-term investment.

So, the next time you are looking at your investment options, remember the four fundamentals:

1. Your risk tolerance is what you are comfortable with over the long term.
2. What is happening in the markets today, might not represent the future.
3. Diversification matters.
4. The highest return is not always the best, if this comes at the cost of too much risk.

Focus instead on the goals you wish to achieve and choose the investment that can achieve those goals.

*Nothing in this blog constitutes personal financial advice nor a guarantee of success when investing. We recommend you seek independent professional advice, prior to investing your money.

The global economic outlook is uncertain. While some major markets are optimistic (possibly overly so), predicting inflation control, lower interest rates, and stable corporate earnings, others are more cautious. Here in Aotearoa New Zealand, persistent domestic inflation including council rates and energy costs, remains a concern. There are doubts about how quickly interest rates will fall, and questions around the stability of corporate earnings. Recent weak growth statistics and geopolitical uncertainties, such as Middle East conflicts, US-China tensions, and the upcoming US election, also contribute to market volatility. In light of these uncertainties, we believe that focusing on effective retirement saving is more important than ever.

Here are five tips to help you navigate your savings strategy during these challenging economic times:

  1. ESTABLISH AN EMERGENCY SAVINGS ACCOUNT

Everyone should have a separate savings account specifically for emergencies. Economic hardships can increase the impact of unexpected expenses, making it vital to have a financial safety net. Setting up a regular automatic payment from your main account to an emergency fund can ensure consistent savings. Even small amounts add up over time.

Consider using an account that discourages withdrawals, through fees or reduced interest when money is withdrawn, which can help you resist the temptation to dip into your savings except in real emergencies.

There are even call account and other deposit account options in a Christian savings environment, at Christian Savings.

  2. MAINTAIN YOUR KIWISAVER CONTRIBUTIONS

Despite economic pressures, it’s essential to stay disciplined with your KiwiSaver contributions. Your future self will thank you! The power of compound interest means that your savings can grow significantly over time, making early and consistent contributions very helpful.

The Sorted website gives an example where if you invest $2000 annually into a fund that invests mainly in shares and that averages 5.5% returns annually (after fees and tax), starting at age 18, you could see your investment grow to approximately $362,562 by age 65. However, starting later reduces the benefits of compounding. Even if you start at age 42, your savings will grow, but to a lesser extent. To learn more about the power of compound interest, see the Sorted article here.

The key is time, so keep up your contributions regardless of your age. Remember Proverbs 13:11, … whoever gathers money little by little makes it grow.

  3. REVIEW AND REDUCE DISCRETIONARY SPENDING

Before ever considering reducing your KiwiSaver contributions, we recommend you evaluate your discretionary spending. Identifying and cutting back on non-essential costs can help you maintain your retirement savings without compromising your future financial security. Let the power of compound interest work for you by prioritising your KiwiSaver contributions over and above less critical spending.

  4. AUTOMATE YOUR SAVINGS

Automation can be a powerful tool in ensuring consistent saving habits. Setting up automatic transfers to your emergency account, and, when you can, automating regular additional contributions to your KiwiSaver, can help you stay on track without having to think about it every payday. This method can also help you avoid the temptation to spend money that should be saved.

We even found a Scripture that is applicable to regular, automated savings, in Proverbs 6:7-8, The ant has no commander, no overseer or ruler, yet it stores its provisions in summer and gathers its food at harvest.

  5. SEEK GUIDANCE AND STAY INFORMED

Staying informed about economic conditions and seeking guidance can help you to make sound investment decisions. To ensure that your KiwiSaver fund matches your unique financial situation, it’s important to periodically review your fund to make sure it fits your risk tolerance, investment timeline, and ethical principles. The Christian KiwiSaver Scheme website can direct you to resources to help you work out your risk profile and therefore whether you are in the right fund for you. The Christian KiwiSaver Scheme can support you in aligning your Christian values with your investment goals.

In 2024, staying focused on your retirement savings is more important than ever. By taking these steps, you can navigate economic challenges and save for a comfortable retirement while staying true to your faith.

You can read more about the Christian KiwiSaver Scheme and our Ethical Investment Policy here: https://christiankiwisaver.nz/ethical-investing/