Co-author Dhayana Sena
When you hit retirement age and are eligible to withdraw KiwiSaver, those savings are yours to do with what you like. However, we take a look at why you might want to consider a longer lasting spending strategy – rather than a lotto-style blowout.
KiwiSaver over 65: Saver vs Splurger
It’s a common misconception that you have to withdraw all your KiwiSaver money when you turn 65 – you don’t.
Many providers allow you to keep your KiwiSaver account open and to make regular withdrawals, even after you have retired. The beauty of still being in KiwiSaver over the age of 65 is that it’s your savings, so your choices for how to withdraw KiwiSaver can be adjusted to suit your individual needs as a retiree.
Of course, some will still think the best option for withdrawing their KiwiSaver is to use it all for overseas adventures, and others will put the money towards the bach or the boat they’ve always dreamed of.
Canstar takes a look at what to consider when deciding how to spend your nest egg.
How to withdraw KiwiSaver funds – or not – to boost your savings
Maximising your KiwiSaver funds, even after retiring, allows you to have your cake and eat it too.
Here are 5 ways you can maximise your retirement savings:
- Leave the money where it is in the KiwiSaver fund of your choice, and make small regular withdrawals to supplement your New Zealand Superannuation payments. This is what 62% of eligible retirees did in the Commission for Financial Capability’s 2016 survey of KiwiSaver providers.
- Invest the money in income-bearing investments such as bonds, shares, or units in managed funds. These are likely to pay a higher rate of income than investments aimed primarily at capital growth.
- Buy units in a “pension” or “income” fund. This would be a managed fund aimed at retirees that pays a regular income stream.
- Buy an annuity. An annuity is like an insurance policy that agrees to pay a certain amount each month until you die, no matter how long you live. These are very rare in New Zealand.
- Withdraw KiwiSaver and put it in the bank in your savings account or a term deposit.
Five mistakes to avoid for KiwiSaver over the age of 65
Cashing in on your hard-earned KiwiSaver savings can certainly make you feel like you’ve hit the jackpot. However, spending your entire savings in one go, without properly planning for the future, can result in financial difficulties later on.
Here are some common mistakes that retirees make, so you know what to watch out for.
Not doing a budget
It’s a completely natural human trait to want to spend your hard-earned money and buy luxury toys after a lifetime of saving. However, spending on extravagant items is often a fleeting impulse.
One way to ensure you’re able to enjoy a few luxuries, while also ensuring your money will last, is to make a budget that you can stick to and work out how to withdraw your KiwiSaver to split between a few luxuries and a long-term budget plan.
Giving into family and friends
It won’t be long before friends and family come to realise that being in KiwiSaver over 65 years of age means the saver is in line for a large lump-sum payment. Sadly, some families will put the pressure on their folks to use that money for everything from paying off their kids’ debts to investing in a sibling’s business. Remember, though, that it is your savings, so be wary of jumping to financial requests that you don’t feel comfortable with.
Paying off consumer debt
Ideally, anyone nearing retirement should have paid off their consumer and mortgage debt before they finish employment. This is to avoid falling into the trap of using KiwiSaver money to pay off debts after retiring, rather than using the money for your own enjoyment, as well as living costs.
Being too cautious
For example, you could invest two to three years’ worth of spending money in cash-like investments such as savings accounts. The following six to nine years’ money could be invested in bonds (also called debt securities), and the remainder in growth investments such as shares and property to make the capital last longer. Investing all your money in a conservatIve fund may be less risky, however, it won’t provide the most return long term. To make your KiwiSaver money last, one option to consider is investing in a mix of growth, balanced, and conservative funds.
To compare different providers and fund types, have a look at Canstar’s free KiwiSaver comparison tools, to help work out what could work for you and your retirement.
Of course, each retiree’s situation is different, so you should take into account your individual objectives, financial situation, or needs, before making any decisions. As Canstar is not a financial advisor, we can only give you general information and advice.
Not paying attention to the fine print
When you’re thinking about withdrawing your KiwiSaver, there is some fine print to be aware of. If you joined a KiwiSaver scheme on or after 1 July 2019, you can withdraw your savings when you qualify for NZ Superannuation – which is currently at the age of 65. But, if you joined KiwiSaver before 1 July 2019, then you can withdraw your savings either when you turn 65 OR after you have been a KiwiSaver member for five years, whichever is later.
If you could do with some help working out which KiwiSaver scheme will work for you and your retirement – or are thinking about switching – have a look at Canstar’s free KiwiSaver comparison tools.