Pros and Cons of Using KiwiSaver To Buy Your First Home

Buying your first home is a significant milestone, and like any major financial decision, it comes with its own set of challenges.

If you have been an active KiwiSaver member for at least three years, you might be considering using your KiwiSaver savings to help fund your first home purchase.

However, before you make any decisions, it's important to weigh up the pros and cons carefully.

kiwisaver for first home

Using your retirement fund for your first home could significantly impact your financial future, for better or worse. But your decision should depend on your age, your goals and your lifestyle.

We look at the potential advantages and drawbacks of withdrawing your KiwiSaver for your first home.

What is KiwiSaver?

KiwiSaver is a voluntary, long-term savings scheme designed to help Kiwis save for their retirement. It operates through a combination of member contributions, employer contributions, and government contributions.

Members can choose from various KiwiSaver funds based on their risk tolerance and financial goals. The savings are either locked in until retirement or can be withdrawn for first-home purchases. In certain cases, funds can also be withdrawn due to significant financial hardship.

Using KiwiSaver For Your First Home

One of the options available to KiwiSaver members is using the funds as a deposit for their first home. To qualify for this, you must meet certain conditions, including a minimum membership period of three years.

You do need to maintain a minimum balance of $1000 in your KiwiSaver account, but the rest can be used towards your first home purchase. Alongside your KiwiSaver savings, you may be eligible for the HomeStart Grant, a government initiative that provides additional financial support for first-home buyers.

Pros of Using KiwiSaver for a First Home

1. Faster Path to Homeownership

Using your KiwiSaver funds can accelerate your journey to homeownership. This, in turn, allows you to focus on other financial goals and investments as you progress through life.

2. Financial Security

Owning a home provides a sense of financial security, particularly in the face of rising rents. With mortgage payments often comparable to, or even lower than, rental costs, homeownership can shield you from the impact of increasing rents as you approach retirement.

3. Building Equity

Purchasing a home is essentially an investment in your future. As you make mortgage payments, you’re gradually building equity in your property. This equity can be a valuable asset during retirement, offering the potential for downsizing or accessing additional financial resources.

Pros of Saving KiwiSaver Funds For Retirement

While using your KiwiSaver savings for your first home can be an appealing option, it’s equally important to consider the advantages of preserving these funds for your retirement.

1. Maximising Retirement Savings

By not withdrawing your KiwiSaver funds for your first home, you allow your savings to grow uninterrupted. Compound interest can significantly boost your retirement nest egg, potentially leading to a more comfortable and financially secure future.

2. Reduced Stress in Retirement

Having a healthy KiwiSaver balance in retirement can alleviate financial stress. You’ll have peace of mind knowing you can cover unexpected expenses or enjoy a higher quality of life in your post-working years.

3. Future Financial Flexibility

Leaving your KiwiSaver savings untouched gives you flexibility and financial security in retirement. You won’t need to rely solely on NZ Superannuation, and you can make choices that align with your lifestyle, such as pursuing hobbies and travel.

Case Study: 30-Year-Old Withdraws Funds

Meet James, a 30-year-old tradie earning a living wage with a salary of $54,000 per year. James is eager to become a homeowner and decides to withdraw the $20,000 he has in his KiwiSaver to put towards his first home deposit.

By the time James reaches 65 – assuming he continues contributing 3% to his KiwiSaver in a Growth Fund and only gains a 4% pay rise per year – he’s projected to have close to $184,700 in his retirement fund.

While James may not have a mortgage in his retirement years, he has sacrificed a portion of his retirement savings to achieve this.

Now, let’s look at where he would have been if he had not withdrawn his KiwiSaver funds.

Case Study: 30-Year-Old Saves Funds

Imagine James, our 30-year-old full-time worker on $54,000 per year, didn’t withdraw any funds to purchase his first home.

Under a similar scenario, he would have about $266,000 in his KiwiSaver at age 65, which is roughly $80,000 more than if he withdrew $20k for his first home purchase.

However, this still wouldn’t match the potential equity growth he could have gained by being a homeowner for more than 30 years.

The Verdict

Using your KiwiSaver funds to buy your first home can be a wise financial move, depending on your age, lifestyle, and goals. In James’ case, if his goal is to get onto the property ladder to set himself up for a rent-free and mortgage-free retirement, withdrawing his KiwiSaver funds at age 30 could be a good choice.

Weighing the pros and cons is crucial to ensure you’re making the right decision for your financial future.

If you’re considering using your KiwiSaver for a first home, contact our team for personalised guidance and explore the best options for your unique situation.

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