There are no set options for New Zealanders to regularly draw down the money they have saved in their KiwiSaver funds, once they hit 65 and become eligible to access it.
Unlike other countries, where retirees might opt to turn a pension savings nest egg into an annuity, in New Zealand this is not common.
That leaves many people trying to manage the drawdown of their retirement savings themselves, or with the help of an adviser.
Why does it matter?
As KiwiSaver balances grow, people will arrive at retirement with larger amounts of money.
If managed well, this has the potential to make a big difference to their quality of life, in addition to receiving NZ Super if eligible.
But without many regular payment drawdown options, such as annuities, managing it might be harder to do. Retirees are left having to decide how much to withdraw and when.
This requires investors - and their financial adviser, if they have one – to make assumptions about their likely longevity and spending needs throughout retirement.
As Ralph Stewart wrote in The Post recently, that can be easier said than done. “Primarily because no one knows how long they’ll need their money to last. That’s why financial guru and Nobel Prize winner William Sharpe has called retirement income planning ‘the nastiest, hardest problem in finance’, he wrote.
“Yet, we expect people to try to solve this puzzle for themselves, leading many to either overspend in the early days or fret and spend too little. Either way, it adds up to a stressful retirement. And it’s only going to become more pressing as our population ages.”
What strategies are available?
When you reach 65, you can withdraw your money from your KiwiSaver fund in a lump sum, or by taking a series of smaller withdrawals over a period of time. Most KiwiSaver providers will allow you to set up a regular payment weekly, fortnightly or monthly.
Those who opt for regular payments need to first determine how long they want the payments to last, and then calculate how much they can afford to withdraw on a regular basis. It’s also a good idea to consider how the funds you choose to leave in KiwiSaver are invested.
While it may make sense to have some of the money you want to access soon, invested conservatively, any investment you don’t plan to withdraw for a while – perhaps five years or more - could be in higher-risk assets, depending on your risk tolerance and objectives.
Funds with more exposure to growth assets generally deliver better returns over the long term but are usually more volatile than lower risk funds.
Another option can be to withdraw the money and invest it in different funds.
Advice helps
Managing your money in retirement, or as you get near to it, can be complex.
Having a financial adviser can make a significant difference. We can help you identify clear goals and put a plan in place to achieve them, which can dramatically improve your chance of financial success.
An adviser will help you identify what’s most important to you when it comes to your retirement investments and savings, and the investment strategies available to you to help make your money last through your post-work years.
Like to chat?
At Pension Transfers, we also provide advice on KiwiSaver. If you’d like some personalised advice about reaching your retirement investment and savings goals, or making your money last when you’ve stopped working, get in touch. Our expert team will be happy to help you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.