Tamsyn Parker: Should you take your money out of KiwiSaver at 65?

Should you cash up your KiwiSaver savings at 65? Photo/ Martin Sykes.

I haven't really thought about what I will do with my KiwiSaver money when I finally get my hands on it - 65 seems too far away when you are in your 30s and who knows if that will still be the age you can take it out by then!

But the topic has come up of late because my dad is turning 65 this year and for a number of friends their parents will also be in that age-group.

Weekend Herald columnist Mary Holm has also had a number of readers requesting advice on taking their money out of KiwiSaver.

See her responses here.

You can apply to get your money out of KiwiSaver once you turn 65 as long as you have been a member for five years.

Once you are eligible to get hold of your nest egg it's no longer compulsory for your employer to contribute money to your savings and the government will also stop giving you its annual contribution.

But just because you can take the money out - should you?

For many people the balances in their KiwiSaver accounts will still be small at this stage.
Jordi Garcia, a financial adviser on Auckland's North Shore, says for many of his clients their KiwiSaver savings are just a nice addition to their investment portfolios.

He suspects many will just use the money to go on holiday or buy a new car.

But Garcia says the decision to cash up the money is up to the individual and what kind of lifestyle they want in retirement however those who retire at 65 need to remember they could still have another 20 to 25 years to live.

"You could still be a reasonably long term investor."

Taking the money out of KiwiSaver also means you have to decide where to put it instead.

For those with high interest debt such as credit card debt or loans it makes sense to pay that off.

The money could also be used to help reduce mortgage debt.

But if you're debt free and don't need the money straight away it could be an option to leave it in KiwiSaver.

Garcia says KiwiSaver is relatively low cost compared to other managed fund type investments and your money is spread across a range of investments unlike buying shares in one or two companies.

Sorted's KiwiSaver fund finder shows fees range from 0.76 per cent to 1.89 per cent for conservative KiwiSaver funds.

Comparing other managed funds on rating agency Morningstar's website shows even a conservative fund run by the same company was likely to cost more than their KiwiSaver fund.

Garcia says conservative KiwiSaver funds should also produce a higher return than a bank term deposit over time because they have some exposure to growth assets like shares and property.

According to Sorted the average annual return for a conservative KiwiSaver fund between April 2009 and March 2014 was 5.57 per cent after fees and taxes.

Reserve Bank figures show average interest rates on six month term deposits over the same time period ranged between 3.76 per cent and 4.82 per cent before tax was taken off.

Garcia says those who park their money in a term deposit also need to remember they have to wait until the end of the term before they can get access to it.

Accessing KiwiSaver savings can also be a challenge the first time round with applicants having to provide detailed information about themselves.

The wait can be around six weeks depending on the provider.

But Garcia says if you don't take all the money out accessing it after that should be much quicker.

Those who don't want to access the money for a long time frame such as more than 10 years could also consider taking on more risk than that involved with leaving it in a conservative portfolio.

But Waikato-based financial adviser Nigel Tate says it's really important people are comfortable with the level of risk they are taking with their money.

"The capacity to carry risk might be there but the attitude might not be."

Tate says getting the balance right is an art rather than a science.

Savers should ask themselves how would they cope if something went wrong like falling sick and how they would feel if the value of their investments went down.