Sounds Great, but Why Is My KiwiSaver Not Growing? The Inflation Trap Explained
Published on November 2, 2023 by Duck Bell
You’ve been contributing to your KiwiSaver for years, watching your balance grow steadily. But when you adjust for inflation, your purchasing power feels stagnant. Why?
The Inflation Reality
Between 2021 and 2025, the average KiwiSaver balance increased from approximately $26,000 to just under $35,000. However, after accounting for inflation, the real value of these balances has remained relatively flat.
Understanding the Impact
Inflation erodes the purchasing power of money over time. Even if your KiwiSaver balance grows in nominal terms, if inflation outpaces this growth, your ability to purchase goods and services diminishes.
"If your KiwiSaver returns are 4% but inflation is 5%, you've effectively lost 1% of your purchasing power."
Strategies to Combat Inflation Erosion
- Opt for Growth-Oriented Funds: Higher-risk funds have historically outpaced inflation over the long term. A well-diversified growth fund can provide the returns needed to stay ahead.
- Increase Your Contributions: Even a small increase in your contribution rate can significantly impact your final balance, helping to offset the effects of inflation over many years.
- Review Your Fund Regularly: Don't set and forget. Ensure your investment strategy aligns with your retirement goals and risk tolerance, and adjust as your circumstances change.
Conclusion
While KiwiSaver is a valuable tool for retirement savings, it's essential to consider inflation's impact. By making informed decisions and adjusting your strategy, you can ensure your savings grow not just in numbers, but in real-world value.