KiwiSaver Options at 65
Q. When you retire, how do you go about applying for your Kiwisaver funds? Do you get them paid out in one lump sum or is it drip fed?
A. As long as you’ve been a member for at least 5 years, your KiwiSaver account will be ‘unlocked’ when you turn 65. KiwiSaver started in July 2007, so the first members will reach their ‘eligibility date’ in July 2012.
Reaching your eligibility date does not mean you have to make a decision on what to do with your unlocked funds, and the money won’t automatically be paid out to your bank account.
Your fund manager will probably write to you before you turn 65, offering some suggestions for you. These may include leaving the savings where they are, setting up a regular monthly withdrawal, or cashing up the whole amount (to pay off debt, for example).
Of course many working people do not retire on the day they turn 65. For some people retirement at age 65 may be written into their employment contract, but many others choose to carry on working. The Ministry of Social Development conducted a ‘Turning 65’ survey and reported their findings in the 2009 report “To Work or Not to Work – Findings from a Survey of 65 Year Old New Zealanders”. They found that 56% of 65 year old respondents were working either part time or full time at the time of the survey.
Some people continue working well past 65 because they need the money while others work because they get positive benefits such as a sense of purpose, contributing to their community and keeping socially active. Knowing that you are nearing the end of your working life may change your attitude towards your job. A job that feels like a prison sentence at age 50 may feel like a lifeline at age 65.
For many, it is poor health that cuts short their working lives and that is always unfortunate. (If the illness is serious enough someone in this situation can apply to access their KiwiSaver funds early.)
If you continue working past 65, you can still contribute 2%, 4% or 8% of your salary to your KiwiSaver fund. However, your employer will no longer be obliged to make a contribution as well, and the Government MTC credits stop.
KiwiSaver may prove to be a flexible and low cost investment vehicle for those aged over 65. Fund managers will be happy to see many investors over 65 leaving their most of their money in their KiwiSaver accounts. Some fund managers may charge an administration fee for regular withdrawals, but most will not.
Each month after July 2012 more and more KiwiSavers will have access to their KiwiSaver accounts, and the amounts able to be withdrawn will get larger each year. Investment managers will have to increase liquidity to fund withdrawals, and hold a higher percentage in cash. Will this result in lower returns? Time will tell.
Investors will still be able to switch schemes after they have turned 65 so make sure you are in a scheme (and fund) that suits your risk profile and retirement plans.
As published in the Hawkes Bay Today 8 May 2012