Should you withdraw KiwiSaver funds to pay for your first home?

Should you withdraw KiwiSaver funds to pay for your first home?

The number of New Zealanders withdrawing money from their KiwiSaver account to help purchase a first home is increasing year on year, and we expect the trend to continue into the future.

You’ve worked hard and saved even harder to get your KiwiSaver balance looking healthy, so it’s not always an easy decision to dip into it when you find your dream home. Will you have enough to retire on tomorrow if you withdraw a lump sum today? What if the housing market crashes? How will you afford to keep contributing to KiwiSaver if you have a mortgage to pay?

There’s a lot to think about, so before you decide to access your KiwiSaver savings to fund your first home purchase, here are some things to consider.

Times are changing

New Zealand’s superannuation system was originally based on the principle that people would own their own homes by the time they reached retirement. However, home ownership can be difficult to reach, and some Kiwis may never own their own home. This means many of us need to save a lot more than initially forecast to take rent payments into account during retirement.

It’s important to note that if you decide not to withdraw funds to buy a home, it doesn’t mean retirement will be easy. The savings you’re currently putting aside may not cover the rising cost of rent in our major cities and so you may need to consider increasing your contributions to give yourself a more comfortable retirement.

Saving with KiwiSaver is still a great option

By putting your savings into a KiwiSaver account in the first place you benefit from your own contributions, those of your employer, the annual Government contribution and potential investment returns. In contrast, a standard term deposit or savings account only pays interest on your contributions. KiwiSaver is however, a managed fund, which means you invest in a diverse range of investments such as company shares and bonds. Because of this, your savings are exposed to market volatility and positive returns are not always guaranteed, whereas bank savings accounts will generally return the agreed interest rate.

How a withdrawal could affect your retirement

By taking funds out of your KiwiSaver account, you are reducing the savings you had set aside for retirement. But owning a home is still seen as a critical step in being financially secure in retirement, so if withdrawing your funds helps you achieve that goal, is that necessarily a bad thing?

Rather than thinking about your decision as either owning a home or having a comfortable retirement, consider it this way, would you rather invest your money in property, or in a managed fund? Whichever you choose, we’d always recommend you talk to a Financial Adviser so you fully understand both options.

Don’t stop contributing once you’ve bought a house

The most important thing to remember is to keep contributing to your KiwiSaver account once you’ve bought your first home. It’s true that owning a home gives you some financial security, but you can’t eat your house so whilst you should focus on paying down your mortgage it’s just as important to keep up with your KiwiSaver contributions.

You’ve got some great savings habits already, that’s how you’ve accumulated such a good KiwiSaver balance in the first place - don’t let those habits slip. You may have to reduce your contribution percentage in the first few years, while you pay down your mortgage, but just don’t stop them altogether.

Extra financial support from the Government

You may also be entitled to an additional $5000 or $10,000 as part of the government First Home grant. To qualify you must meet strict income and house price caps, and you must have been actively contributing to your KiwiSaver account for at least three years.