Find out what your choices are
For some people turning 65 is a huge relief, and others keep working, maybe doing fewer hours. But for everyone, age 65 is the big Super day (if you registered in time), and a red-letter day for KiwiSaver too. If you joined when the scheme was first established, and you’re nearly 65, you probably have a tidy sum saved – so what are you going to do with it?
You’ll stop getting member tax credits from the government at 65, but your Kiwisaver account is still active – so there are decisions to be made there, too. As Michael Cave of Cave Financial explains, there are a number of options.
“You can take out all your money and close the account, take out part of it and leave the rest working for you. Or keep paying into it and keep saving up for when you finally stop.”
Not a KiwiSaver member?
If you didn’t join a KiwiSaver scheme when it started, it may not be too late. Any time before age 65 you can sign up to a scheme. Whatever you put in is invested, until your 65th birthday or for five years. Put in at least $20 a week and you’ll get the member tax credit – a boost of up to $10 a week. That $521 a year keeps going for five years, even if you turn 65 before then. Bonus!
“Plenty of people keep working after 65,” says Michael. “A lot of them keep up their payments into KiwiSaver – it’s a better way to increase your capital than just putting it into a savings account.”
Choose your fund
Generally, there are three types of funds to invest in: conservative, growth and balanced. Depending on your circumstances, you can choose the type of fund you’re most comfortable with, or that will ensure you have the funds you need.
Conservative – slow but safe
This will yield returns only slightly higher than a savings account, but your capital is safe. And if you have a plan for using the lot when you turn 65, setting your fund option to conservative a year or two ahead of time is probably a good idea. That way you can be sure of getting the money you’re counting on.
Growth – high returns, but risky
Over the long term, this fund option is where you’ll make the most gains. That’s because although riskier investments sometimes show a loss, over time they pay such good dividends that you can easily make up the occasional loss and eventually show a great return. The key is to leave the money where it is for at least ten years, and let it work for you.
Balanced – hedging your bets
You can have the best of both worlds when it comes to investing. Put a portion of your savings into a conservative fund, so you know at least that much will make it through to your 65th birthday. Risk the rest on a growth fund and ride the waves – even in the short term you could be on a win. You can even split your cash into three lots – some to access immediately, some to keep safe for later, and some to grow into a nice bonus for the kids when you’re gone.
“Not everyone is sure about what kind of investment is best,” says Michael. “A financial advisor can help people make those decisions, by offering expert knowledge and experience.”
Getting your money out
The thing about KiwiSaver is once you put money in, you can’t usually touch it until you turn 65. There are some rules that also apply:
- Your KiwiSaver account has to be at least five years old, and making IRD contributions all that time.
- You have to continuously be a KiwiSaver member for the entire five years, OR
- You became a KiwiSaver member with money from a complying superannuation scheme you’ve belonged to for at least five years.
Follow the rules, and you can get your money out when you’re age 65.
You’ve turned 65. Now what?
You have a few choices, depending on how you’re fixed money-wise and what your plans are for the future.
Take all your money out
You might need that money – to pay off debt, or finish renovations, for instance – and if you stop working you won’t have any other way to finance these demands. You can withdraw all your savings and close your KiwiSaver account – it’s your choice. Just be aware that once it’s closed, you can’t open it again.
Manage money with your KiwiSaver account
You can take out most of your money, but keep your KiwiSaver account active. Regulations keep what you put in there safe, and you’ll earn more than you would from a savings account. If you’re still working, payments will keep going in until you ask your boss to stop them. Your employer might keep contributing to your account too (bonus!), although the government tax credit will stop.
Buy an annuity with your KiwiSaver funds
You can top up your Super by putting your money into an annuity. There are two sorts: a fixed annuity or a variable one.
A fixed annuity, offered by some insurance companies, guarantees a regular payment right up to your death. Some companies keep any money left over, while others take their fees out and pay what’s left into your estate. Read the fine print!
A variable annuity invests your money and pays you the interest, or a fixed amount, whichever you choose. Paying interest is the variable part, as your investment earnings go up and down. On the other hand, a fixed payment could wipe out your capital way too soon if you aren’t careful. Again, read the fine print, particularly about annual fees and withdrawal procedures.
KiwiSaver money goes to your estate
Unless you have less than $15,000 in your KiwiSaver account, it goes into your estate when you die. So be sure your will is up to date, and if you don’t have one – make one!
If you want particular people to inherit your KiwiSaver money, specify that in your will. If the amount is less than $15,000, let those beneficiaries know who your KiwiSaver provider is, so they can make contact directly.
Michael from Cave Financial says, “Don’t get stressed out if all the options are too many to make sense of. Give us a call, and one of our advisors can talk them over with you, so you can make decisions you’re happy with.”
Plan for your future
You have plenty of choices about your KiwiSaver – spend it, save some, keep investing in a still-open account, set up an annuity – and be sure to specify in your will who you’d like to pass on your KiwiSaver money to. All those choices depend on what your financial picture is when you retire.
Whatever position you’re in, it’s a good idea to plan ahead so you can retire in as much comfort as possible. A well-considered plan may allow you to do the things you’ve always wanted to do once you stopped working.