Advice matters
Tips on creating and managing your ‘nest egg’

According to Te Ara Ahunga Ora Retirement Commission, “many people are ‘sleep walking’ into retirement and not getting appropriate guidance for how to best manage their nest egg, if they have managed to accumulate one.”

The Commission recently published a comprehensive report looking at how people spend their savings in retirement – a process known as ‘decumulation’. And there were some interesting takeaways for future retirees.

NZ Super offers a ‘longevity safety net’

When managing your nest egg, ‘longevity risk’ is a key parameter to consider, as it refers to the risk of outliving your savings.

As the Retirement Commission noted in their report, New Zealand Superannuation helps mitigate this risk by currently providing a guaranteed income for life, giving Kiwis more flexibility and choice. But as the latest New Zealand Retirement Spending Guidelines confirmed, NZ Super alone is not enough to cover retirees’ needs in full. That’s why it’s important to have a plan in place – to avoid burning through your retirement funds too quickly.

How Kiwis are funding their retirement lifestyles

At the moment, insights gathered by the Retirement Commission reveal a strong reliance on NZ Super to meet expenses. Some retirees supplement this by postponing their retirement or tapping into their savings, with KiwiSaver starting to feature.

Interestingly, the Commission has also found that many retirees are reluctant to access home equity through reverse mortgage options, and limited options to downsize pose a challenge for asset (house)-rich, cash-poor households (we’ll expand on this shortly).

KiwiSaver is increasingly relevant

Now in its 15th year, the KiwiSaver tool is maturing and participation amongst older New Zealanders continues to increase.

The report highlights that almost 77% of Kiwis aged 55-64 now have a KiwiSaver account. Of course, pre-retirees had less time to grow their KiwiSaver savings before turning 65 after KiwiSaver was introduced, which explains why balances of those over 60 are relatively low (yet higher on average than younger members’). Almost one-fifth of those aged 60-65 have less than $10,000 in KiwiSaver, and 60% of females aged 60-65 have less than $40,000.

But this is just the beginning. With three million people already being part of the scheme, KiwiSaver is set to become a lot more relevant in the years to come. And it can be a great tool in your financial toolbox. The farther off retirement is, the more opportunities you have to grow your KiwiSaver ‘nest egg’ and make it a prime part of your retirement savings strategy.

How people are accessing their KiwiSaver funds after 65

KiwiSaver is shaping up to be a helpful ‘decumulation’ tool, as a growing percentage of over-65s now belong to the scheme (from 33% in 2018 to over 50% in 2021, according to the report). But there are concerns around how retirement withdrawals are managed.

As always, it’s a reminder of the importance of having a plan. Come retirement, liquidating all KiwiSaver savings at once may protect them from future investment market volatility, but it can also make them vulnerable to inflation if they are held in cash or term deposits. So, a more nuanced approach can be crucial. For example, you may withdraw some of the money and have part in cash (for immediate needs) and part in term deposits. Then, you can leave the rest of your savings invested in KiwiSaver, to give them an opportunity to grow further.

This is just an example; other strategies may be more appropriate for you, depending on your circumstances. Like to discuss your needs? Please don’t hesitate to contact us.

Why Kiwis are reluctant to use home equity

Lastly, the Retirement Commission found that Kiwi retirees are seemingly reluctant to use home equity to fund their retirement lifestyle. There can be many different reasons for this, but here are those that the Retirement Commission put on their radar:

  • Limited options for downsizing – The report points out that it’s challenging for people to find a smaller and more affordable home in the New Zealand property market;
  • Low uptake for options like reverse mortgages – Very few people are comfortable using these options to access equity, due to perceptions of poor value-for-money and a lack of understanding of how it works.

On top of this, we might add, people often realise that they don’t actually want to sell their home as they like where they live. To avoid having to sell, the important thing is to have other sources of income you can tap into – including KiwiSaver.

The bottom line? Having options is key

Having options means not putting ‘all your eggs in one basket’. The more retirement income sources you can create during your work life, the more choice you’ll have the day your work income stops. Like to talk about your needs? Get in touch, we’re here to help.

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.