Q. I recently received the annual report from my KiwiSaver provider and was very pleased with the return of 5.95 per cent for my Conservative Fund. For the first time, they have also revealed how they will handle withdrawal amounts for those at 65 who require access to their funds but do not wish to withdraw their entire amount. This includes withdrawals of $1000 at any time and a range of other options. Because of low bank interest rates and the pleasing return my provider has managed to sustain in difficult circumstances across a wide range of investments, I am contemplating adding most of my savings - approximately $200,000 - to my KiwiSaver account when I turn 65. I will be able to keep a close eye on any changes to the economic environment and will be able to withdraw all of my funds at any time, should the markets deteriorate. I have a freehold home and no debt. What are your thoughts on this?
A. There is some merit in your idea, and KiwiSaver fund managers will be hoping that more and more investors will choose this option for their retirement nest egg. Advantages include the regular reporting, relatively low fees and wide spread of investments you are likely to get from a typical diversified KiwiSaver fund.
I must, however, take issue with your view that if you keep a close eye on the economic environment you will be able to withdraw your KiwiSaver funds in the event of a deteriorating market.
I do appreciate that this is motivated by a desire to protect your hard-earned retirement nest egg but this sort of behaviour has contributed to the rapid deterioration of many investors' wealth as they often end up "buying high and selling low". Contrast this behaviour against the outcome from your KiwiSaver experience to date. You have been invested during the most volatile time in decades. Because you couldn't withdraw from KiwiSaver you weathered the volatility over this period and you are now pleased with the result. In many ways the success in KiwiSaver lies in its locked-in status protecting investors from acting on their emotions.
This should not be a quick decision - do your homework. Anyone heading into retirement needs to look at the big picture. That means not just looking for good returns but analysing what your goals in retirement are, how to meet those goals with the resources that you have, and estimating how long you think you may live. You may also want to review your budget to see if you can make any savings.
Consider reviewing your situation with an Authorised Financial Adviser, or AFA. Only an AFA is qualified to give advice on KiwiSaver. Most fund managers have AFAs on their staff, so you can contact your fund manager directly.
No matter who they work for, AFAs are required by law to put the interests of their clients first, so don't be reluctant to seek advice.
Shelley Hanna is an Authorised Financial Adviser FSP12241. Her disclosure statement is available on request and free by calling 870 3838. The information in this article is of a general nature and is not intended to provide personalised advice. If readers have any KiwiSaver questions please go to www.peak.net.nz or email email@example.com.