Retiring? You've Got Options

Mon April 8th 2019

You might think that when you turn 65, everything changes. Some things do – for one thing, you're probably eligible for NZ Superannuation as long as you register before your birthday. But your KiwiSaver account doesn't stop working for you. What you do with your KiwiSaver savings is entirely up to you.

Nothing's set in stone when you turn 65

You might think that when you turn 65, everything changes. Some things do – for one thing, you're probably eligible for NZ Superannuation as long as you register before your birthday. But your KiwiSaver account doesn't stop working for you – though you may stop getting the member tax credits from the government. What you do with your KiwiSaver savings is entirely up to you.

You can withdraw all the money you've saved and close your account, but you don't have to. You might want to leave it there and keep saving until you need it, change your investment options (you can do that any time) or draw down some cash and leave some to keep growing. You've got options.

How old is too old to join?

You can still join a KiwiSaver scheme any time before you turn 65, whether you're retired from work already, out of work or receiving a benefit. Once you join, you can't withdraw your money from the scheme for a minimum of five years. If you contribute $20 or more a week, you'll be eligible for the member tax credit – up to $10 a week or $521 a year. That continues until you're able to withdraw – when you turn 65, or five years from joining, whichever comes first.

That means if you join KiwiSaver when you're 64, you'll get member tax credits until you're 69. You'll have saved $5200, received about $2600 from the government, and earned interest on top – a nice little bonus to your Super.

Plenty of people continue working past age 65. If that's you, and you can afford to keep contributing, it's a simple way to manage your savings and will probably earn you more than just putting your money in a bank savings account. Lots of employers continue their contributions too, even after their employees turn 65.

Which type of fund is best?

The safe conservative

A financial adviser will tell you that the longer your money is invested, the better it will ride the risks and make money for you. Therefore, if you intend to withdraw all your savings from KiwiSaver when you turn 65, you should change to a conservative option for a year or so ahead of time. That way, you'll be less likely to suffer any short-term financial losses, and your nest egg is secure.

The risky growth

If you can afford to leave your money where it is, depending on how long your investment continues, you may be able to take more risks by choosing a growth fund option. Then when you're ready to draw down your savings, your investment is more likely to have made a better return.

The mixed bag

You don't have to choose all or nothing – you can take a middle road. Put a percentage of your savings in a growth fund that can maximise returns, and the rest safely in conservative. Or you can do a three-way split – you might need some cash very soon, plus have plans for the medium term, and still keep growing part of your investment for use a few years down the track, or as an inheritance for your family.

If you aren't sure what to do next, a financial adviser can help you decide on your investment options.

The ins and outs of withdrawal

There are a few rules around withdrawing money from your KiwiSaver account. They are:

A KiwiSaver scheme must have made a contribution to Inland Revenue for you at least five years ago

You must have continued to be a member of KiwiSaver for at least five years

Or you must first have been a member of a complying superannuation scheme at least five years ago, and you became a member of KiwiSaver by transferring funds from that scheme

If you've qualified according to one or more of the above rules, you can withdraw all or part of your savings from your KiwiSaver account when you turn 65.

What's next? You have options:

How you're placed financially when you turn 65 will determine what you want to do next with your nest egg. Here are some options:

Keep your KiwiSaver open

If you can keep your KiwiSaver open, it's a good way to manage your money at fairly low cost. Your provider can give you a wide choice when it comes to investments, and although there are no absolute guarantees, strong regulations keep your money relatively safe.

Don't forget that unless you joined your scheme less than five years ago, the government's member tax credits stop when you turn 65. You can keep contributing, and if you're still working, your employer may be happy to continue their share too. Your KiwiSaver deductions from your pay packet will carry on, unless you ask your employer to stop them.

Take all your money out

Maybe you have immediate use for the money you've saved, and you don't think you'll have the spare income to continue saving in the future. In that case, once you turn 65, you can take all your money out and close your account. Be warned though – once you leave your KiwiSaver scheme, that's it – you can't open another one.

Use your KiwiSaver to top up your Super

If you're in good health and it looks like you'll live to be a ripe old age, an annuity could be the way to go with your KiwiSaver money.

Fixed annuity

Take your KiwiSaver funds to an insurance company that offers annuities. They'll guarantee you a regular payment until you die. Read the fine print and ask questions – some companies keep any money that's left when you die. Others pay the residue after fees into your estate, and even allow you to draw down extra sums from your investment.

Variable annuity [HS1]

You can arrange with your KiwiSaver provider (or another financial institution) to keep your money invested in a balanced fund, and pay you the income from interest, or a set amount regularly. Be wary though – too much each week or month and you could strip your capital in a few short years. Also take note of the annual fee and how easily capital can be withdrawn if you need it.

Where your KiwiSaver money goes when you die

Simply put, if you still have money accumulated in your KiwiSaver account when you die, it will be transferred to your estate. Your provider can't hand it over to your surviving spouse or partner unless the total is less than $15,000, in which case no probate is required (a will that's been proved legally sound).

Have you made a will? How long ago? Make your will today, or if you already have one, update it to your current financial position. An up-to-date will makes all the probate and admin easier for your heirs. You can also ensure that specific people benefit from your KiwiSaver funds by including their names and relevant instructions in your will.

Be sure to let those beneficiaries know what you intend, and who your KiwiSaver provider is. That way, when you die they can make contact directly and tackle the documentation to release the funds.

It's good to have a plan – and options

There's no single rule about how to manage your KiwiSaver when you retire. You can choose to spend it, keep saving for later, or a bit of both might suit you. Whatever you do, it's good to have a plan that takes realistic account of your financial position.

Find what your best retirement options are – talk to Cave Financial today.

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