Advice matters
How to make your KiwiSaver last through retirement

You’re at or nearing retirement with a nest egg saved in your KiwiSaver. Now comes your next challenge: How to make your money last.

With New Zealanders living increasingly longer lives, making sure we don’t outlive our finances is a growing concern for many of us.

Here are a few things you can do to help ensure your investments endure as long as you need them to.

How much to withdraw?

The first thing to consider is likely to be how much money you want to withdraw from KiwiSaver when you are first able to.

Once you’re 65, you can withdraw as much as you like: All of it, some of it, or even none of it.

There are benefits and drawbacks to all these strategies.

Full withdrawal: If you withdraw the full balance, you have the freedom to do whatever you like with it and invest it in whatever assets you feel are appropriate. That could be anything from a rental property to a share portfolio. The choice is yours. But it can be hard to get exposure to the same breadth of assets that you can access in KiwiSaver, unless you’re in another managed fund.

Partial withdrawal: Withdrawing a smaller amount, or bits at a time, can give you the benefit of continued exposure to the diversification opportunities and investments in your KiwiSaver fund, while giving you access to some capital for other purposes.

No withdrawal: If you don’t need the money immediately, leaving it invested may be the appropriate strategy. You won’t receive the Government member tax credit once you’re 65, and you may not receive an employer contribution, but you can otherwise continue largely as you did pre-65 if you wish.

How much is safe to spend?

The next question you might contend with is how much is appropriate to use from your investments each year.

The NZ Society of Actuaries offers rules of thumb that can be a guide, and suggests there are four main ways to safely manage withdrawal.

  • 6% rule: Each year, you take out 6% of the starting value of your fund. This works well for people who want to “front load” their spending and are not too worried about leaving an inheritance.  However, it says this does come with a risk of investment funds running out within a person’s lifetime.
  • Inflated 4% rule: Each year, you can take out 4% of the starting value of your retirement fund, and increase that with inflation. The actuaries said this would reduce the risk of running out but would offer lower income to be able to use for retirement spending needs.
  • Fixed date rule: If you decide you’re happy to run your fund out by a certain date, you can each year take out the current value of the fund divided by the number of years left to that date. The actuaries said this would work for people who were happy about the prospect of living on NZ Super if they outlived that timeframe.
  • Life expectancy rule: This requires you to assess how many years you have left according to average life expectancy, and divide your fund by that amount each year, to give you the sum you can withdraw. The actuaries said this was an efficient way to use the fund to provide income for a person’s whole life but it could be a relatively complicated calculation. And, of course, you could live longer that the average life expectancy, which would impact on your spending after that age, with no nest egg to fall back on.

Let us help you maintain a strategy that works for you

Retirement planning isn’t a one-size-fits-all solution.

To make the most of your investment funds through your retirement years, you may need a personalised retirement income strategy.

Your SHARE adviser can work with you to determine what will be most appropriate for your needs and the right settings to get you there.

If you’re ready to take that step to a more confident retirement, get in touch with us today on 0508 2 SHARE (0508 274 273).

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.