The $500 a week reason KiwiSaver is better than Lotto

Lotto might be fun, but you're more likely to have a decent retirement if you do the boring thing and save.

New analysis by researchers Canstar shows for the price of a Lotto triple-dip ticket each week, a 25-year-old on the average salary could increase their post-retirement income by almost $500 a week.

"It's understandable that in our increasingly hectic and expensive lives we lose sight of future financial returns as we prioritise more immediate satisfaction from maximising disposable income," says Canstar NZ general manager of Jose George.

"But it pays to assess the considerable returns by retirement age from relatively modest changes in our income after changing our contribution rate."

It's as simple as this: a 25-year-old on $50,000 a year who contributes 6 percent of their income to KiwiSaver will end up with $234,552 more than the equivalent person who only pays in 3 percent ($807,958 vs $573,406). And it will only cost them $29 a week - the same as a Lotto triple-dip ticket.

And that's if they stick to a balanced fund. By putting 6 percent into a growth fund they would likely end up with twice as much, based on how well growth funds have performed in the past ($1,106,455).

Growth funds are invested in riskier industries, so fluctuate a lot - but in the long-term, they tend to outperform balanced and conservative funds.

"Growth funds have a higher potential for growth over the long term, so are suited to members who are in KiwiSaver for the long run," said George.

There are a lot of variables at play - inflation, wage growth and life expectancy for example - but Canstar's calculations show 25-year-olds who invest 3 percent into a balanced fund until retirement will end up with barely half what they'd get if they put 6 percent into a growth fund ($1,024 vs $1,976).

If you're keen to go all-in, putting 10 percent of your income into a KiwiSaver growth fund, a 25-year-old on the average income stands to end up with a weekly pay almost three times larger ($2715).

"When choosing between KiwiSaver fund types, you have to take into account your appetite for risk," said George.

If you still wanted to try Lotto instead, the chances are you're wasting your time. Each triple-dip ticket with 10 lines has a one-in-383,847 chance of hitting the first division jackpot of $1 million. Buying a ticket once a week for 40 years - from 25 to retirement age - gives you a one-in-185 chance of winning, and a 184-in-185 chance of being left worse off.

Canstar's analysis assumes an average 2.16 percent yearly growth in salary; growth of 4.67 percent for conservative funds, 6.59 percent for balanced funds and 8.34 percent for growth funds, as recorded since KiwiSaver's introduction by the Financial Markets Authority; employer contributions of 3 percent; PIR tax rate of 28 percent; and a yearly Government contribution of $541.23. 

The life expectancy for males is assumed to be 80 and for females, 84, even though life expectancies at age 25 would be higher.