If financial markets are in turmoil like they were this time last year, and you cash up, you could lock in losses.
If financial markets are in turmoil like they were this time last year, and you cash up, you could lock in losses.
OPINION:
Happy 65th birthday. Your KiwiSaver is now cleared for withdrawal. That’s worth a celebratory dance.
But you’ve got some planning to do so that you not only enjoy your 65th birthday, but also can hopefully dance the funky chicken on your 95th at a beach destination of your choice.
Choosing what to do with your KiwiSaver when you’re 65 is an important rite of passage.
At your 65th birthday retirement is either starting or coming soon. You are eligible to withdraw all or some of your contributions, your employers’ contributions, Government contributions and all your returns.
It’s crucial that you pay attention to where your money is at and don’t avoid a decision, but equally don’t be hasty as it’s not a requirement to move your funds immediately.
It’s also vital that you understand your options and preferably get some unbiased advice because your timeframes, cashflows and risk profile are likely to change during your retirement.
Kiwis are traditionally blasé about taking care of their finances.
But we all aim for our savings to last long into a comfortable retirement, so the planning we do at 65, or preferably well before, is fundamental to ensuring we make the most of the efforts of years of investment in KiwiSaver during our working lives.
It may be tempting to cash up and withdraw the lot – improving your everyday bank account balance in an instant.
That could be a real gamble if you get the timing wrong.
If financial markets are in turmoil like they were this time last year, and you cash up, you could lock in losses and possibly do irreparable damage to your future financial wellbeing.
$2 billion was withdrawn from KiwiSaver in 2022 right at the bottom of the market, mostly by retired members over 65.
Cash may be the most stable investment, but it can be risky for the longer term, especially in higher inflation periods.
In real terms, even with interest rates at 5 per cent and inflation at 7 per cent, your money is worth 2 per cent less in a year’s time. In 20 years’ time you would have lost a third of your spending capacity in real terms.
You still have long time ahead of you hopefully, so you need to have your retirement savings invested for the longer term.
You need a good amount of proper diversification and exposure to growth assets to keep you ahead of inflation.
Ideally you want your savings to be in something that might not race away with big market runs, but also won’t fall as much in downturns, so you have a better base to recover from.
This strategy can be tricky to understand and know without professional help.
KiwiSaver funds are designed for long-term savers who are adding to their funds over their working life, not for someone who is withdrawing lump sums or regular amounts to pay for their retirement.
So if you leave your KiwiSaver as is, it means that the investment strategy and risk don’t always align with what you are trying to achieve.
Again, it is about understanding what your goals are, what you need and making sure your savings and investments align and are capable of riding out the storms and lasting the distance.
The fees on most KiwiSaver funds are quite reasonable, but cost should not be the only factor you consider when deciding on whether to stay or shift out to another fund.
Every individual has different needs and goals. So, what you plan to do with your KiwiSaver when you turn 65 there has to be personally tailored for what you want in life.
You may have other savings and investments to consider, which is all the more reason to discuss your situation with an unbiased professional financial planner.
Craig Dealey, general manager of New Zealand Financial Planning. Photo / Supplied
Most KiwiSaver providers will give you basic information and they are obliged to help you, but remember they do have a vested interest in ensuring you stay in their funds, so chatting to a separate third party can help you better understand how things line up for you.
What retirees need is to be able to pay for the things they want and need now as well as in the future, without having to stress and worry.
So protecting your future cash flows and inflation-proofed spending capacity is important.
Don’t be complacent! Leaving your KiwiSaver funds as is means you are exposed to unneeded risk and put your financial goals in jeopardy.
It is important that you have a plan, know where you are at, where you want to be and what makes you happy.
Then you can make sure that your money is invested and managed in a way that aligns with what is important to you and that it can see you through until, and after, that funky chicken dance on the beach for your 95th birthday.
- Craig Dealey is general manager of New Zealand Financial Planning.
