Don't let buying your first house ruin your KiwiSaver retirement savings

Has your purchase emptied out your KiwiSaver account?
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Has your purchase emptied out your KiwiSaver account?

If you are planning to withdraw money from KiwiSaver to pay for a first home, the sooner you do it, the better.

Three thousand KiwiSaver members withdrew money from their accounts to buy a house in May, down from a spike of 6000 in March.

In the year to June 2016, the most recent full year for which data is available, more than 25,000 savers made use of the option.

People can withdraw all their savings, their employer's contributions and the Government's member tax credits to buy a house, provided they have been in the scheme at least three years and have not owned a house before, or are in the same financial position as a first-home buyer.

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But doing so makes a big difference to the amount you end up with in your account at retirement.

Blair Vernon, AMP New Zealand's managing director, says a first home can be part of a retirement plan.
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Blair Vernon, AMP New Zealand's managing director, says a first home can be part of a retirement plan.

"The first-home withdrawal component of KiwiSaver is being used more and more, which is reflective of the reality of the cost of home ownership, particularly in the Auckland market, and of how hard it is to save for a down payment on a house," said Blair Vernon, general manager of KiwiSaver provider AMP.

"The challenge we see when it comes to withdrawing funds for a deposit is more a question of timing. If you're in your 20s you still have time to recommence your KiwiSaver contributions and accumulate savings to fund your retirement.

"If you're late 30s or older, chances are you'll be withdrawing a higher amount of savings and you obviously have less time before retirement to recoup them," he said.

Research from Massey University recently showed that people need $486,000 in savings, on top of the pension, for a comfortable retirement. They need just over $100,000 for the most basic standard of living.

A 24-year-old woman who had been in KiwiSaver since the start of her working life, earning $60,000, would end up with about $290,117 in KiwiSaver at 65 if she did not touch it, according to the Sorted calculator.

If she withdrew all her savings at 28, she would end up with $243,259.

But if, at 34, she withdrew all her savings and started again, she would only end up with $182,643 at 65.

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Murray Harris, head of wealth management and advice at Milford Asset Management, said people should keep contributing after drawing down the money for their house deposit. "It will make all the difference at retirement."

Vernon said, for many people, owning a house was a key part of their overall retirement plan, so withdrawing money was not as at-odds with the intentions of the scheme as it first appeared.

"The reality is that it's always been challenging to save for a deposit, but because of KiwiSaver more New Zealanders already have a level of savings, that might not otherwise exist, which they can now use to get into the property market."

 - Stuff

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