I have been retired for one year now and am thinking of using my KiwiSaver balanced fund to provide an income.
We have a paid-up house and a rental property on one title.
We want to move to a smaller house and will sell both houses.
It seems to me that it may be a good idea to put the residual money into my KiwiSaver fund and arrange regular payments to give us an income to match our rental.
I have looked at the returns over the past three years (I did ignore the bad years previous to the three years!) and it looks as if we would have earned an average 6 per cent over this time.
We have other savings on term deposit but 6 per cent is better than we have seen from this money.
Am I kidding myself that the chances are, over the years I hope we have left, we will be better off?
I hope I'm not seeing only the good side. Could you comment, please?
First we'll sort out a bit of KiwiSaver jargon - just what it is you're invested in when you talk about a "balanced fund".
The Sorted website defines a balanced fund as one that has half of its money invested in "growth" assets. It says growth assets include investments such as shares or property "that have the potential for higher returns over the long-term, but also have the potential for changes in value".
How risky a fund is depends on what percentage is invested in these growth assets - lower risk schemes may have only 20 per cent or less devoted to growth assets, whereas a higher risk, aggressive fund will have around 90 per cent invested in shares.
Sorted says "that a higher proportion of growth assets typically means greater volatility, with the investments more likely to produce a negative return in any year".
The online KiwiSaver fundfinder tool can help KiwiSavers work out what type of fund matches their personal circumstances and appetite for risk.
I asked Liz Koh, a Kapiti-based financial adviser, for some general advice for someone in your position.
Here's what she had to say: "As always there is an 'it depends' answer to this question," Koh says.
"That is, it depends on what your income needs are and whether you need occasional lump sums and it also depends on how much you would have in KiwiSaver vs term deposits etc.
"The problem with a balanced portfolio is the short-term volatility that occurs - as usual, you don't get higher returns without the trade-off of volatility.
"This means that if you are taking regular withdrawals, you may be selling up units when the prices are falling.
"That is less of a problem if the withdrawals are relatively small amounts.
"Taking large regular withdrawals may impact on the portfolio's ability to bounce back from a fall in share prices.
"An alternative approach is to divide the total portfolio into two components - a conservatively invested component to cover income and capital needs in the short and medium term, and a balanced portfolio which can be set aside untouched for the longer term to provide growth that will keep up with inflation and be more tax effective.
"The idea is to use both income and capital from the conservative portfolio (which can be term deposits, bonds etc) so that the portfolio is run down over a period of time, after which the balanced portfolio can be accessed.
"In the meantime, the balanced fund should have been growing nicely to help offset the drawdown of capital from the conservative portfolio.
"The advantage of using KiwiSaver to retain funds for the long term is that the fees are low, however the downsides are that it does not offer the functionality, flexibility and performance of other alternatives that may be more appropriate for larger amounts. "You would also need to consider the value of obtaining personalised financial advice as opposed to a DIY approach.
"Finally, there is the consideration of ease of access to funds.
"This will depend on the provider - and not all may allow regular or partial withdrawals. The provider may ask for certified documentation to set up a regular withdrawal or every time a lump sum withdrawal is made and you may find this rather cumbersome," Koh says.
If you want help working out what's best for your retirement take a look at the Financial Markets Authority (FMA) guide to getting financial advice.
Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.
To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose, email@example.com. Sorry, but Helen cannot answer all questions, correspond directly with readers, or give financial advice.