Shelley Hanna: What to do when I'm 65

QUESTION: I will be 65 in July this year. I've been in KiwiSaver since it started. Do I get a payout when I turn 65?

ANSWER: If you "do nothing" then your money will stay in your KiwiSaver account. But once you have turned 65 and have been in the scheme for five years it will no longer be locked in. It's a bit like a term deposit that matures - if you don't instruct the bank to roll it over it will usually go "on call" until you decide what to do.

July 2012 is a big milestone for the KiwiSaver scheme.

From July 1 onwards the first wave of investors who are 65 or over and have been in the scheme for five years will be able to access their savings.

KiwiSaver is popular with those nearing retirement - anyone under the age of 65 is able to join whether they are working or not.

As at March 31, 2011 there were 153,088 investors in KiwiSaver aged over 60. Of these 35,204 were already over 65 (FMA Report dated June 30, 2011).

There are currently 33 companies or organisations offering KiwiSaver schemes.

Fund managers will generally encourage their clients to keep their funds invested with them.

You will still be able to switch from one KiwiSaver fund to another after you turn 65.

I spoke with Steve Wiggins from Gareth Morgan Investments to find out what they planned to do.

He said that they have been writing to all of those eligible investors one year out from their 65 year/five-year maturity date to alert them to the event.

They will follow up with a series of communications closer to the time, so customers are fully aware of their options.

He did not expect large fund outflows, as in his view: "For many investors their KiwiSaver provides a really good, low-cost flexible and transparent savings vehicle to help manage their spending needs over their retirement years."

The ASB bank has the largest KiwiSaver Scheme in the country.

According to John Smith, general manager investments: "ASB will be communicating with each of our KiwiSaver investors ahead of their becoming eligible to access their funds, and we will be offering guidance about the things they should be thinking about as they enter this next phase of their life. Investors may choose not to draw out all of their funds, and they don't have to."

 

For many KiwiSaver investors, the amount available from July 2012 will be between $10,000 and $20,000.  It would make sense to repay any outstanding debts first, and then work out how your KiwiSaver can help you over the next 20+ years of retirement.  Consulting an Authorised Financial Adviser at this time of your life might be a good idea. Retirees need to think about generating income, protecting their capital, and making sure that neither inflation nor sharemarket volatility erodes the value of your investment.  Those investors in the 'lifestages' type KiwiSaver schemes will automatically have their exposure to higher risk assets reduced as they approach age 65 while others should review their risk profile and asset mix.

 

For many investors, the 'maturity date' will come and go without them taking any immediate action.  If they are still working, their employer will no longer be obliged to pay the 2% employer contribution.  And they will no longer receive the annual tax credits of up to $521 from the Government.  But they can continue contributing to their KiwiSaver scheme themselves for as long as they like.

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 specific or personalised advice. If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.