Is tapping KiwiSaver for a first home even a good idea?

It's easy to find details on using KiwiSaver for a first home, but they don't really say whether it's a good idea or not. It's a healthy question to ask.

There are a couple of KiwiSaver-connected programmes that help you use KiwiSaver to buy a home, like the KiwiSaver First Home Withdrawal. Using it for a first home has been a feature of KiwiSaver ever since it started.

What do you think?

Let’s run some numbers. Say someone aged 30 has a KiwiSaver balance of $35,000. Using Sorted’s KiwiSaver savings calculator, we can estimate that she could reach close to $321,000 in a balanced fund by age 65 (after fees, taxes and inflation). Here’s a KiwiSaver doughnut:

How would things look if she takes out $35,000 from KiwiSaver for a first home instead?

At age 65 her balance would be $227,000 instead of $321,000. (She’d likely have paid off her home by then.)

If she waited, at age 40 she might have closer to $86,000 tucked away in KiwiSaver. Using it for a house deposit then would mean she would still arrive at 65 with $149,000.

And if she decided at age 50 to make use of the KiwiSaver first home withdrawal option for a deposit, when she might have $157,000, she would still end up with $82,000 in KiwiSaver at age 65.

That doughnut’s getting a bit thin! Plugging these numbers into Sorted’s net worth calculator and including the value of a home helps us look into the future and make decisions now.

Why it can make sense

Looking at the current setup in New Zealand to fund people’s retirements, it’s not hard to see why using KiwiSaver towards a home can be useful.

There’s the simple matter of NZ Super, the government pension. Although NZ Super is generous by international standards, the amount it pays out means it would be hard to cover housing costs along with all the other everyday expenses in retirement.

Many people’s mortgage or rental payment is even more than the full amount of NZ Super (you can see the latest rates here). So it helps to be mortgage-free before hitting retirement, and using KiwiSaver for a first-home deposit can help us get there – especially early on, like our 30-year-old.

If we withdraw from KiwiSaver earlier as a first home buyer, we have less to put toward the purchase and a bigger mortgage. But if we withdraw at 50 and it’s not enough to buy a house outright, we may end up still having a mortgage at 65 and not so much in KiwiSaver.

Of course, fewer of us are jumping on the property ladder these days, but at least we’ll have more in KiwiSaver to rely on than those who tap theirs for a housing deposit. All that time to compound returns should help.