If you’re a Kiwi retiring in the next 20 or so years, your KiwiSaver cash could fund a large proportion of your retirement spending. But thinking about how to manage your lump sum can be difficult.

Research by the Financial Markets Authority (FMA) in 2016 showed providers were more focused on educating members how to accumulate KiwiSaver money, and less on how to handle their money when they’re retired.

But this part of KiwiSaver is the most important. This is your retirement income, which is the whole point of investing for when you are no longer working.

Don’t blow it all

Lisa Dudson, Acumen’s financial adviser, says it’s likely your KiwiSaver cash will be a significant amount of money – and might be the largest part of your retirement savings.

“You’ve got to be really smart about it; this is critical.

“You’ve saved and worked really hard for this money, so you want to be serious about what you do with it.”

Dudson says if you just blow it all, there’s nothing else to provide you an income, other than NZ Super, which “for most of us just covers the real basics”.

So, it’s crucial to work out how to manage your KiwiSaver ‘windfall’ when you retire.

How do you get your money when you turn 65?

Members have to fill in and sign a statutory declaration and other requirements before they receive their money. It can take 10 days for some providers to process this. You should talk to your KiwiSaver provider when you’re nearing 65.

You can withdraw it as a lump sum pay-out. However, some providers also give you other options, such as regular withdrawals, which might suit you better.

How often you can make withdrawals and minimum amounts vary from provider to provider.

The FMA says there are no requirements for providers on how they manage fund drawdowns, so check in with your own provider about your options.

So, you got a lump sum

If you decide to take all your KiwiSaver cash out in a lump sum, your first thought might be to move it into a bank account.

But Dudson says your returns from the bank won’t be as good as you were getting in KiwiSaver, though it’s probably a less risky option.

And, worse, you might get tempted to spend it all.

Another option is to get the money looked after by an investment manager. James Paterson, a wealth adviser at Pie Funds, says this might be an option for some.

You could also put your lump sum into an annuity-style product, where you hand over your money to a company which guarantees a regular weekly or fortnightly or annual payment to you.

The only variable annuity provider in the New Zealand marketplace is Lifetime Retirement Income, but it’s expected that as more and more Kiwis access their KiwiSaver cash, choices in this area could grow.

Should you still stay in KiwiSaver?

Paterson says, for most Kiwis, staying enrolled in KiwiSaver after you turn 65 is the right choice.

This is because many people are still working past the age of 65. You might find you keep working for many years past 65, because Kiwis are living longer.

“[KiwiSaver] funds generally have lower fees than standard managed funds and still provide sensible diversification, so remaining in KiwiSaver is a viable option,” Paterson says.

He says you’re not entitled to the government contributions once you turn 65 but, if you’re still working, your employer still might be willing to keep contributing their 3 per cent. It’s worth talking to them about it.

Feeling confused about what’s best for you?

The experts agree that getting financial advice is crucial.

Paterson says: “They can talk you through your options… share insights based on what other clients just like you might have experienced, and suggest solutions to address the financial implications of retirement.”

If you’re not a person who’s disciplined with money, Dudson says it’s essential your total balance is drip-fed to you, rather than withdrawing a lump sum you can easily access.

Talking to a financial adviser will help you work out the best way to manage the withdrawal, so the lump sum can be turned into a regular income through your retirement.

Published 29 February 2019

This article does not contain any financial advice and has not taken into account any particular person’s circumstances. Before relying on it, we recommend you speak with a financial adviser. This story reflects the views of the contributor only. Content comes from sources that we consider are accurate, but we do not guarantee that the content is accurate.

James Paterson is the Head of Wealth and an authorised financial adviser at Pie Funds. You can access his disclosure statement free of charge at www.piefunds.co.nz.