KiwiSaver in retirement: busting the misconception

KiwiSaver in retirement: busting the misconception

The government and product providers have done a tremendous job promoting KiwiSaver as a retirement savings product. However, there is a common misconception that once someone turns 65, they have to cease contributions and withdraw their funds.

Nothing could be further from the truth and withdrawing from KiwiSaver could potentially be a detrimental move for many.

Obviously, if the funds are tagged for some specific expenditure at aged 65, then by all means withdraw the money. However, if there is not a specific expenditure requirement, then consider using KiwiSaver just like any other managed fund investment and having it as one component of your overall investment portfolio. The benefits of not withdrawing from KiwiSaver are:

  • In many instances, KiwiSaver funds have a lower ‘total expense ratio’ than other managed funds so this should translate to slightly higher returns than a comparable managed fund in exactly the same investments.
  • You can continue to save into it and withdraw funds just like any other managed fund.
  • There are a wide range of funds to select from making it easy to include your KiwiSaver fund as part of a diversified investment portfolio.
  • Information on your investment is usually very accessible.

Another misconception is the applicability of the ‘Lifetimes Option’. This is where some KiwiSaver products offer the facility for investors to automatically transition through the various funds when they attain a specific age. In the case of SIL, ANZ and ANZ Investments, investors who select the Lifetime Option, will be moved as follows:

0-35 years: OneAnswer Growth Fund
36-45: OneAnswer Balanced Growth Fund
46-55: OneAnswer Balanced Fund
56-60: OneAnswer Conservative Balanced Fund
61-64: OneAnswer Conservative Fund
65+: OneAnswer Cash Fund.

The concept is helpful and ideal for those who want a ‘set and forget‘ investment strategy and do not have a financial adviser. However, if the money is not going to be used for a number of years after retirement then there is a risk the investment will underperform as it is automatically becoming too conservative too early. For example, if an investor statistically is going to live to 82 years, then there is little value in switching to cash at age 65 and suffering the lower cash returns for the next 17 years.

Milestone clients can consider integrating KiwiSaver with other investments so it is all part of an holistic risk profile and portfolio. If your Milestone adviser can access your KiwiSaver records (this can only be done with your approval) then this will potentially enable better long-term investment returns and better achievement of financial goals. Talk with your adviser now to clarify how your KiwiSaver is structured, to not only meet your risk profile but to also maximise the long-term growth potential.

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