How to Take Out KiwiSaver and Make It Last Retirement

When you hit 65, the vault doors open on your KiwiSaver investments. If you want, you can withdraw all your funds and blow them on fast cars, round-the-world cruises or too-good-to-be-true investment opportunities you were alerted to by unsolicited emails.

Of course, if you plan to celebrate your 66th birthday, none of these options are a good idea. And there’s nothing stopping you continuing working, leaving your investments where they are, or even adding to them. Although, do note, once you qualify for NZ Super, you’ll stop receiving government KiwiSaver contributions.) NB: Unless you joined KiwiSaver before July 1, 2019, were aged between 60-64 and were locked into KiwiSaver for five years. More details here.)

But if and when you do plan to tap into your KiwiSaver, what are the best withdrawal strategies to ensure you can maintain a long, comfortable retirement?

To answer that question, the NZSA has gotten busy with its slide rulers and come up with four draw-down plans for different retirement scenarios.

How to Take Out KiwiSaver: Four Drawdown Scenarios

When it comes to retirement, there is no one-size-fits-all plan. How long your KiwiSaver investments last, and the type of lifestyle they will help fund, depends on an individual’s, or a couple’s, personal financial circumstances.

However, the NZSA’s four drawdown scenarios listed below, do give a good overview of potential strategies you could use to make the most of your KiwiSaver and your golden years:

KiwiSaver Withdrawal Method 1: 6% Rule

This is a pretty simple method and involves taking out 6% of the starting value (at retirement point) of your KiwiSaver funds each year.

Most suitable for

This method gives greater returns early in the draw-down, so is best suited to those who want to be able to spend more during the first years of their retirement, and are less concerned about leaving a lot of their KiwiSaver as an inheritance.

Pros

• Very simple. Known, regular income
• Income will probably last to age 94

Cons

• Income does not rise with inflation
• Risk of KiwiSaver funds running out during retirement

KiwiSaver Withdrawal Method 2: Inflated 4% Rule

Like the first method, this involves withdrawing a set amount each year, in this case 4% of the fund’s starting value. However it’s adjusted annually to take inflation into account.

Most suitable for

The lower sum withdrawn annual means your funds are likely to last longer, so it’s a good method for retirees who are worried about running out of money in retirement, or those who want to leave their whānau some inheritance.

Pros

• Your income will rise with inflation and is likely to last until death
• Allows option to leave family members a small inheritance

Cons

• Likely to deliver a lower income each year than other methods, and leave some of your KiwiSaver unspent at the time of your death

KiwiSaver Withdrawal Method 3: Fixed Date Rule

How long do you want your funds to last? Planning to live until 85 or 90? Simply set a date in the future and then, each year, take out the current value of your retirement fund divided by the number of years left to that date.

Most suitable for

If you’re happy having a set date in the future when you’ll no longer be able to rely on your KiwiSaver to fund your lifestyle, and want to spend all your funds, this is a good option.

Pros

• Income set for fixed period
• Get to spend and enjoy all your KiwiSaver money

Cons

• Money runs out at fixed point
• Variable income, dependent on the annual returns on your investment

KiwiSaver Withdrawal Method 4: Life Expectancy Rule

How long do you expect to last? Planning on receiving a 100th birthday card from King William V? This is a bit like the fixed date rule except, each year, you take out the current value of your retirement fund divided by your average remaining life expectancy at that time.

Most suitable for

Retirees who want to maximise their income during their golden years and are not concerned about leaving an inheritance

Pros

• Get to use every bit of your KiwiSaver money
• Income will probably increase slightly in early years of retirement

Cons

• Amount of income varies from year to year, declining in later years
• If you live past your set life expectancy, you can run out of money
• Impossible to determine exact life expectancy

KiwiSaver: How Much do you Need?

As the NZSA points out in its report, the returns offered by KiwiSaver are dependent on a number of factors. These include:

• How much you manage to save into your KiwiSaver
• The age at which you start drawing down your KiwiSaver funds
• How your KiwiSaver remains invested during your retirement, for example in a conservative fund, or a growth fund, that provides more opportunity for profit or loss

And, you don’t need to have the number skills of an NZ-registered actuary to figure out that the more you manage to squirrel away during your working life, the bigger your nest egg. Or that if you want to live a luxury lifestyle, you’ll need to save more. But how much more?

Separate to the NZSA’s research, Massey University publishes annual studies into retirement costs in NZ. Its report breaks retirement lifestyles into two tiers, and reveals how much you need to pay for each, once you take NZ super payments into consideration.

However, at this point, it’s worth noting that all the figures below assume that retirees own a mortgage-free home – which for an increasing number of retirees, isn’t the case, and can lead to severe financial stress.

The two tiers cover a basic, no-frills lifestyle, and one that allows for a diet of slightly more than baked beans, tap water and sawdust:

• No Frills: a basic standard of living that includes few, if any, luxuries
• Choices: a more comfortable standard of living, including some luxuries and treats

Currently, to fund these lifestyles, either as a single or as part of a couple, requires income of, roughly:

Annual retirement income needed

What about government super?

Fortunately, you don’t have to cover all these costs yourself. Once you hit 65, you are entitled to claim NZ Super. The current superannuation rates are:

NZ Super Rates (after tax at M*)

*Income-tested benefit tax code

Shortfall: Annual retirement income needed – NZ Super

As you can see below, based on the above estimations, NZ Super alone isn’t enough to cover retirement costs, no matter where a person lives or how frugal they are. KiwiSaver and/or other investments/savings are required to make up the shortfall.

Lump sums required

Massey’s researchers have calculated the savings/investment sums required, assuming a life-expectancy of 90 and that the money is invested in a balanced fund:

As you can see, the figures involved are no chicken feed, especially since, currently, the average KiwiSaver balance is around $45,000 for a woman and $60,000 for a man at 65.

But if you do managed to amass the above lump sums, how much income are they likely to produce under the NZSA’s four drawdown rules?

KiwiSaver 6% Rule Income

Withdrawing 6% of the initial value (at time of retirement) of your KiwiSaver fund each year, would give you an annual income of:

These figures compare favourably with those from Massey University’s report above.

KiwiSaver 4% Rule Income

Withdrawing 4% of the initial value (at time of retirement) of your KiwiSaver fund each year, adjusted for inflation, which, for argument’s sake, we’ll set at 3%, gives the following annual incomes, which more than double during 25 years of retirement:

KiwiSaver Fixed Date Rule/Life Expectancy Income

These two drawdown plans are similar: if you’re planning to live until 90, and want your KiwiSaver funds to last until that point, then you need to plan for a fixed date/life expectancy of 25 years. And, for simplicity’s sake, because the amount withdrawn is based on the KiwiSaver’s annual total, we’ll set an average Balanced Fund return of 5%.

Using this drawdown rule, while the income in your later years is greater than the 4% Rule, because you’re setting an expiry date on your KiwiSaver, once you hit that date, your KiwiSaver will be exhausted.

Maximising Your Income During Retirement

As we mention above, there are simple ways to increase retirement income, these include saving more during your working life, retiring later, or working a part-time job to supplement your retirement income.

However, one of the options for more retirement income highlighted by the NZSA is being proactive and regularly reviewing the profile of your investments. While you might stop the mahi in your 60s, your KiwiSaver should continue to work for you right through your retirement.

While leaving all of your KiwiSaver in a conservative or balanced fund might provide less risk, increasing the proportion of the funds you have invested in growth assets could lead to higher returns, thus generating more income.

To this end, it’s a good idea to regularly check and revise your investment strategy, to ensure you’re earning the best returns.

For example, the comparison table below displays some of the products currently available on Canstar’s database for a KiwiSaver member with a balance of $30,000 in a Growth fund, sorted by past 5-year return (highest to lowest), followed by company name (alphabetical) – some may have links to providers’ websites. Use Canstar’s superannuation comparison selector to view a wider range of super funds. Canstar may earn a fee for referrals.

To read more about our latest KiwiSaver Awards click this link or to compare KiwiSaver providers, click on the button below.

Compare KiwiSaver providers for free with Canstar!

About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.