Choosing the right KiwiSaver fund can earn you an extra $1.4m in savings

Imagine four colleagues who sit next to each other for 30 years in the same job. They live in the same size houses of the same value and have very similar lives.

Each diligently squirrels away $5000 a year into a KiwiSaver fund. Would you assume they'd have similar retirements?

The answer will shock you.

Calculations based on the performance of the average fund over the past 10 years reveal a massive divergence in returns.

Let's say you put your money into a default fund (a very low-risk fund category which has sucked up almost a fifth of all KiwiSaver money). Using the 10-year average annual return of 5.5 per cent, your fund's projected value in 30 years would be $382,000.

Bear in mind, you've put in $150,000 from your wages and the remainder is the return the fund manager generated for you.

Next up, your workmate invests in a fund with moderate risk and growth of 6.2 per cent a year. Their fund grows to $435,000. That's $53,000 more than your default fund.

Oh well, a new car will pull into the driveway as they retire.

Then there's the colleague who uses a balanced fund to save. Their $150,000 becomes $515,000 in 30 years, using an annual return of 7.1 per cent. That's $133,000 more than the projection for a default fund.

One of those fancy big motorhomes will be parked outside their garage.

Finally, we have the colleague who invested in a growth fund. Their retirement pot grows to $661,000 using a projected return of 8.4 per cent. They've got $279,000 more to play with in retirement.

That's going to cover at least 10 big European holidays.

Keeping up with the Joneses

If your colleagues happen to strike it lucky and invest with the funds producing the best returns, the results deviate even more widely.

Growth funds have the potential to cause a chasm in the standard of living of retirees.

The best fund has returned more than 13 per cent a year in the past 10 years. If that type of performance continued, $150,000 from your wages would balloon to almost $1.8 million.

That would be a tough pill to swallow.

Two colleagues earning the same money, saving the same amount all their lives and one having a KiwiSaver balance of $382,000 while the other sits on $1.7 million. It's a wealth gap of $1.4 million.

Cars, motorhomes and European holidays galore.

Robin Hood doesn't exist in the world of funds management. No one takes from the rich and gives to the poor. Little John isn't jumping funds and dodging fees and trying to fill your family's coffers.

You're on your own when it comes to making money work for you. Unless, of course, you're one of the clever few who takes advice from an Authorised Financial Adviser.

"Comparison is the thief of joy," said United States president Theodore Roosevelt. It's a lovely quote but it makes most of us in the investment industry bang our heads in frustration.

Fees are the thieves of joy. Low returns over the long term are the thieves of joy. Comparison is the only creator of joy.

Unless you actively compare your KiwiSaver returns to others', take advice and get out of a default fund, you'll be the only one to blame for a future that doesn't stack up well against other retirees'.

Janine Starks is a financial commentator with expertise in banking, personal finance and funds management. Opinions in this column represent her personal views. They are general in nature and are not a recommendation, opinion or guidance to any individuals in relation to acquiring or disposing of a financial product. Readers should not rely on these opinions and should always seek specific independent financial advice appropriate to their own individual circumstances.