It’s entirely possible to save a million dollars in your KiwiSaver account if you start early and follow a few basic rules, writes Martin Hawes.

Over the coming years, we are going to have a new breed of millionaire: KiwiSaver millionaires. Who knows, you might be living next door to one.

Currently, there are a few people who have KiwiSaver accounts with over $1 million in it, although they are rare. Nevertheless, the number of KiwiSaver millionaires will grow, and I can confidentially predict that in the decades to come, they will become increasingly common.

This poses a question: how do you join this select group? And what do you have to do to get your KiwiSaver account to $1m or close to it? The answer is four-fold:

1. Contributions are king

First, remember that the savings rate usually beats the investment rate. By this, I mean that the amount you can tuck away into your account will usually be more important than the investment returns you get.

When it comes to KiwiSaver, contributions are king. Make sure you are contributing an amount that at least gets the maximum contributions from your employer and the government.

If you really want to be a KiwiSaver millionaire, maybe you should contribute even more than that. If you contribute 6%, 8% or 10% of your salary, or add lump sums, you are most likely to accelerate progress to KiwiSaver millionairedom.

However, KiwiSaver is not a liquid investment – you cannot draw the money back out at any time. Therefore, beware making contributions beyond those necessary to get the employer and government contributions unless you’re certain you won’t need the money before you retire.

2. Grow your career, grow your salary, grow your KiwiSaver

Secondly, remember that your contributions ought to increase with time. This will probably occur naturally (ie: as your salary increases, so too will your contributions). You should get pay rises to match inflation, and your earning ability will also increase as your career advances and you get better jobs.

Therefore, grow your career and you grow your salary. Better jobs do not just give you more to spend today – they should also look after your long-term future.

3. Right-size your fund

The third point is to make sure you’re in the right fund. This is a two-step process: decide the amount of risk you are willing to take, and then look for a well-performing fund in that risk category.

The first part of this is more important to get right, and there are some good online calculators that will tell you whether you should be in a conservative, balanced or growth fund. Remember, the type of fund that you are in will dictate your investment performance more than anything else.

The second part – picking the right fund in your category – is more difficult, and it’s important not to decide on fees alone. Instead, have a look at independent sources which set out how the various funds are doing.

4. Time is your friend

Someone who starts contributing to KiwiSaver at age 18 is likely to have more than someone who starts at 55 years. Much more.

Of course, there is nothing that the older person can do about this as no-one has yet invented a way to wind back the clock. However, there are plenty of things younger people can do, like signing up when they are young and taking a little time to manage their KiwiSaver fund well.

Younger people have a fine chance to become KiwiSaver millionaires. Good careers with good and growing contributions to good funds should see them well on the road to millionairedom.

Meanwhile, older people should not give up. They may not make millionaire status but they can, at least, secure a comfortable retirement. We should all remember that if you shoot for the stars and miss, you may still hit the moon (or a million dollars).

Martin Hawes is the chair of the investment committee for KiwiSaver provider Summer.