How To Optimise Your Kiwisaver

This is not financial advice. The writer is not your financial advisor. Investing contains risk and you can lose money. Consult your own professionals before making investment decisions. This article may contain affiliate links. 

A lot of people ask me if they should be in Kiwisaver.

My short answer is always: Yes. It's worth it.

If you set it up right, it can be a very useful and profitable part of your investment portfolio.

I've been in Kiwisaver since Day 1.

In this guide, I'll break down how to get the most out of Kiwisaver on your journey to becoming a millionaire.

What Is Kiwisaver?

Kiwisaver is the retirement savings scheme set up by the NZ government.

You contribute 3% to 10% of your salary each year and the government and your employer will also contribute a percentage of that.

When you turn 65, you get to take all the money out to enjoy your retirement.

Here's why it's a good deal (for most people):

  • The government will match every dollar you contribute with 50 cents, up to a maximum of $521. This means if you contribute $1,042 to your Kiwisaver, the government will add an additional $521. This is an instant and guaranteed 50% return on your money for that year.
  • Your employer also has to contribute 3% of your pre-tax salary, giving you another guaranteed 3% return for the year.
  • Your Kiwisaver manager (who you can choose) will invest your savings on your behalf, usually in stocks and bonds.
  • You can withdraw your Kiwisaver early to buy your first home, plus if you've been contributing to Kiwisaver for 3 years, you can qualify for a $10,000 first home subsidy.

The only real downsides are:

  • You can only withdraw your savings after you turn 65 (or leave the country, or have a serious illness).
  • You have limited (but not zero) control over how your savings are invested.

Maximum Return For Minimal Risk

Optimising your Kiwisaver is based on a few assumptions:

  • You want as much control over your money as possible.
  • You want to contribute as little to Kiwisaver as possible (because it locks your money until age 65) BUT you still want to get the maximum government and employer contributions.
  • You will buy a first home at some stage.
  • You want maximum return on your money.

Here is how to best achieve that:

  • Make sure you contribute at least $1,042 to Kiwisaver each year to get the maximum $521 government match (but try not to contribute any more than you need).
  • Choose the lowest fee Kiwisaver provider.
  • Choose an index fund investing option.
  • Definitely take everything you can to buy your first home.
  • Definitely apply for the first home grant.

Let's break those steps down:

Step 1:

Contribute as little as possible, but at least $1,042

There is some nuance here so pay attention.

The reason you don't want to contribute more than you need is once your money is in Kiwisaver it's hard to get out.

It's generally locked until you turn 65.

As we said, you want to retain as much control over your money as possible.

Therefore, you want to contribute at least $1,042 to get the full $521 government top-up, but as little as possible after that.

How to do this in practice?

One way would be to opt out of regular contributions altogether, and just make one lump sum voluntary contribution of $1,042 at the end of the year.

The downside of this is you won't qualify for the 3% employer contributions (but it's a good option for self employed people).

Your other option is to simply choose the lowest contribution threshold, which is 3%.

Even if you're on minimum wage, you should still hit $1,042 in contributions if you're working full-time, meaning you'll get the full $521 government match. And, your employer will make their 3% contribution as well.

If you're working part-time and don't hit $1,042, you can always make a voluntary contribution at year-end to make up the difference.

One issue with this approach is, especially if you're a high earner, you will likely be contributing much more than $1,042, even at 3%.

For example, if you're on $150k per year, that's $4,500 per year in contributions. The government will only match you up to $1,042, so you've over-contributed about $3k which you could have kept in your personal portfolio, invested freely, and had access to at any time.

There's nothing super bad about this - you're not losing money. Your money is still getting invested and saved and it's still yours. But, it's not optimal.

The last option is to let your regular contributions run until you hit $1,042, then pause your contributions with a "savings suspension".

This means you'll keep your contribution to exactly $1,042, and you'll get the full $521 government top-up, BUT as soon as you suspend your contributions, your employer stops making contributions too.

Therefore if you stop at $1,042, your employer also stops at $1,042. If you're a high earner, you'll end up losing several thousand dollars in employer contributions.

In my opinion, the best option of the three is to elect for a 3% contribution rate and simply let it ride. You will probably contribute more than you need to, but you will max out your employer and government contributions, which is the main benefit of being in Kiwisaver.

If you're self-employed:

Things are really simple - just make a voluntary contribution at the end of the year for $1,042.

You'll get the full $521 government top up, and don't need to make any contributions during the year.

Step 2: 

Choose the lowest fee provider

There are lots of Kiwisaver providers who claim "superior returns" and charge you fees of 1% or 2% to actively manage your money and beat the market.

It's nonsense.

Let me remind you of Warren Buffett's famous bet with Wall Street.

Buffett famously claimed most money managers charge super high fees and cannot even beat the market.

Wall Street disagreed.

To prove it, he offered a $1 million bet with a hedge funder that the S&P500 index would beat a basket of 100 different hedge funds.

The bet started in 2008 and ended in 2017.

Guess who won?


That's right - a basket of top hedge funds on Wall Street couldn't even beat the stock market average.

So here's my question - if 100 of the best hedge funds on Wall Street weren't able to beat the stock market average, do you think the average Kiwisaver fund manager can?

Sure, there might be a Kiwisaver provider somewhere that might beat the index over a 3 or 5 or even a 10-year period.

But if you join Kiwisaver at 25 and you're locked in until 65, that's forty years.

I can only think of one investor in history that has beaten the index over forty years, and it's not a Kiwisaver manager. It's Warren Buffett.

Therefore, my opinion when it comes to Kiwisaver providers is none of them are likely to beat the market over an extended time frame. The calibre of investor that is able to do that is not often found in New Zealand, and definitely isn't managing a Kiwisaver fund.

So the age-old advice in investing applies also to Kiwisaver - if you want exposure to stocks, invest in the index.

And if you're invested in the index, the only variable that's going to affect your returns is fees.

So the answer is simple - just choose the provider with the lowest fees.

Who has the lowest fees?

Of course this landscape is always changing but these are the lowest fee providers I currently know:

NZ Funds (0%)

NZ Funds has a "Balanced Fund" option for Kiwisaver that has a 0% management fee.

The only fee is an admin fee of $30 annually.

The issue I have with the fund is even though it's passive, it's not an index fund.

It holds a "balanced" mix of investments, of which 45% are fixed-interest investments:

As Peter Lynch says - stocks always outperform bonds over the long term.

If I'm going to lock away money for forty years, and I'm indexing, I want it to be 100% stocks.

Based on every investing book I've read, this is the highest probability strategy for maximum returns.

Simplicity (0.31%)

Simplicity has a Growth fund that charges 0.31% per annum all inclusive.

The fund is weighted heavily towards equities, but is not invested in a major index:

The exposure to stocks comes mostly through "ethically conscious" index funds, which I'm not a big fan of, because selection into these indexes is arbitrary, rather than based on standard metrics like market cap.

You can also see the fund picks individual stocks, which I don't like.

It also has a 20% allocation to cash/fixed interest.

Superlife (0.2%)

Superlife has a "default fund" that only charges 0.2% per annum, plus a $30 admin fee.

However, I have the same issue with this fund as I do with the NZ Funds Balanced fund - they invest too heavily in fixed interest, and have barely 50% of their holdings in equities:

Kernel (0.25%)

Kernel is a "mix-and-match" provider that allows you to choose your own portfolio of index funds.

The annual fee is 0.25%.

The reason I like Kernel is it's the only low-cost fund I know of that allows you to invest purely in the index.

For this reason, I personally have my Kiwisaver with Kernel.

Step 3:

Invest In The Index:

With Kernel you have the option to invest your full Kiwisaver into indexes like the S&P500:

One thing to note is Kernel actually invests in ETFs on your behalf, for example, their S&P 500 fund holds 98% VOO:

As you probably know, VOO also charges a management fee as an ETF, however the advantage with Vanguard funds is the fee is so low it's practically free.

In the case of VOO, the fee is 0.03%:

Therefore, if you're holding the fund through Kernel, your total fees will be the Kernel fee of 0.25% plus the VOO fee of 0.03%, for a total of 0.28%.

The cool thing about Kernel is you can actually choose multiple funds to spread your Kiwisaver over. If you're not an experienced investor I would probably just leave it 100% in a broad index like the S&P 500 or Global 100.

I personally have my Kiwisaver spread equally over three broad-based funds:

How Kiwisaver Can Make You A Millionaire

Say you're on a $45k salary.

Every year you will contribute $1,350 (3%).

Your employer will also contribute $1,350 (3%) BUT this gets taxed at 17.5% so the final contribution will be $1,114.

The government will contribute $521.

In total that's $1,350 + $1,114 + $521 = $2,985 per year.

Let's say you start contributing at 25 and to keep things simple, your salary never changes.

Assuming the market returns 8% p.a. on average, here's how much you'll have at age 65 (forty years later):

Keep in mind, half that money you didn't even contribute. More than half came from your employer and the government.

In total, you only contributed $1,350 per year for forty years, which is $54,000.

Growing your $54,000 into $773,284 over forty years is a return on your money of 1,332%.

And here's the thing - most of you will not stay on a $45,000 salary your entire life. As you get older you will inevitably get better jobs and hit higher incomes, meaning most people should very easily become millionaires through Kiwisaver if they start early enough and play the game right.

This is what I meant when I said earlier - Kiwisaver can become an important part of your investment portfolio.

If you've set up your Kiwisaver in the manner I've outlined above, you already have a system to become a millionaire by 65 in place.

This means you can be more risk-tolerant with your other investments - whether you want to get into real estate, crypto, picking individual stocks etc, just knowing that you have a portfolio of index funds in your Kiwisaver compounding in the background on autopilot is a huge advantage.


  1. Choose the 3% contribution rate.
  2. Make sure you contribute at least $1,042 per year, if you fall short, make a voluntary contribution at year-end to top up.
  3. Choose the lowest-fee provider (I use Kernel).
  4. Invest in the index.
  5. Leave it alone and don't touch it until you're 65! (or to buy your first home).