Parental leave? Keep on top of your savings.

Taking a career break to care for children is a decision that parents tend to make gladly, but it comes with a financial price. Luckily it’s one that’s fairly easy to address.

When you take a career break, whether it’s to care for family, to study or travel it comes with a loss of income, and the loss of KiwiSaver contributions that go with it. If you’re a woman, this situation is particularly important to act on as we also tend to live longer [than men] so our savings need to last. As a result, we need to be smart about managing our KiwiSaver savings – both when we are working and when we’re not.

543226081 Super Woman With Child Drawing

What are you really missing out on?

If you’re planning a career break, or if you’ve already taken one, think about how many KiwiSaver contributions you’ll miss out on as a result of that time away from work.

Every year that you’re not getting paid means missed employee and employer KiwiSaver contributions. Plus, if you’re not making voluntary top ups during this time, it also means you’ll be missing out on the annual member tax credit of up to $521.43 a year.

Let’s compare Jane and Linda. Both earn $50,000 a year (before tax) and at the age of 30 have a KiwiSaver account balance of $50,000.

Jane takes a three-year career break at 30, while Linda takes no career break. They both retire at 65. Assuming Jane makes no additional contributions during her career break and using the ANZ KiwiSaver account calculator, Jane will retire with $18,000 less than Linda.

528351183 Super Pregnant Woman With Child

How can you bridge the gap?

While you’re working

Increasing your contribution rate, or making additional voluntary top ups, while you’re working is one of the best ways to boost your KiwiSaver savings.

Let’s look again at Jane and Linda.

This time both Jane and Linda have taken a three-year gap at the age of 30.

They both:

  • earn $50,000 a year
  • have $10,000 in their KiwiSaver accounts at age 30.

To make up for her savings gap, on returning to work at age 33, Jane starts making voluntary top ups of $20 per week ($1,040 a year) into her KiwiSaver account, while Linda does not.

Using the ANZ KiwiSaver account calculator by the age of 65, Jane has been able to accumulate an extra $45,000 compared to Linda.

While you’re not working

While you are not working there is still an opportunity to boost your KiwiSaver savings. If you, or your partner, are able to contribute at least $20 per week to your KiwiSaver account you can take advantage of the annual member tax credit of up to $521.43 a year.

Flexible work

If you choose to work part time for a period post parental leave it’s important to consider the impact this will make to your KiwiSaver savings.

If you’re earning less than $35,000 a year and contributing 3% of your salary to KiwiSaver, consider making additional voluntary top ups to qualify for the maximum annual member tax credit.

Plan ahead

It’s clear that it pays to plan ahead if you’re thinking about taking a career break. It’s also not too late to start making up for time you’ve already taken away from the workforce.

Use the ANZ KiwiSaver account calculator to find out:

  • the projected amount you will have;
  • the amount you might need; and
  • whether you will have a contribution gap or a surplus, in retirement.

It also provides some actions you can take to help you achieve your retirement savings goals.

If you need additional help, a financial adviser can take into account your personal situation and goals to build a financial plan that recognises your retirement, career and family plans.

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The figures used are for illustration only and may not reflect actual returns. For background information and numbers used in this case study, see About our case studies.

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