Investing regular amounts can make a big difference

George and Karen are both aged 47. They received an inheritance and invested a lump sum of $250,000. They want to continue building on that sum while they’re still working.

They’re considering investing a further $1,000 each month – on top of their lump sum – until they’re ready to retire, probably when they both turn 65. So they’re looking for an investment that offers both flexibility and moderate risk. They decide to invest in the Balanced Fund.

By the time they reach 65, their investment could have grown to $464,000 ($325,000 when adjusted for inflation). However, if they chose to make regular contributions of $1,000 each month on top of the lump sum, their total savings could have grown to $763,000 ($534,000 when adjusted for inflation).

Depending on their circumstances at retirement, George and Karen could continue to invest in the Balanced Fund or switch to a lower-risk fund, review their regular payment amount, perhaps start a regular withdrawal, or even think about a large withdrawal for a dream holiday.

The investment performance, tax and inflation assumptions used in our case studies are set by the Government for KiwiSaver schemes. We also use these assumptions for the funds in this case study.

This case study is an example to help you understand how an investment in a fund can help you achieve your investment goals. The figures and graph used are for illustration only and may not reflect actual returns.

The figures in this case study:

• Show projected savings, both:
  • Where they haven’t been adjusted for the effect of rising prices over time (that is, inflation), in which case the amount does not reflect the ‘real’ buying power in the future.
  • Where they have been adjusted for inflation of 2% per year to show the ‘real’ buying power of the savings in the future.
• Assume the Balanced Fund achieves a positive investment performance of 3.5% each year (after fees - the fees used are a KiwiSaver industry average and taxes using a prescribed investor rate of 28%).
• Generally round savings to the nearest $1,000.
• Account for tax when appropriate.
• Assume George and Karen don’t make any withdrawals during the term of the investment.