Cashing up your KiwiSaver - it's what you do with your squillions when you reach 65, isn't it?

One of the biggest traps of KiwiSaver comes at age 65. While the Government has poured money into getting us to save for retirement, a lot less effort is directed at what to do with the money when we get there. In fact we're more or less dumped in the deep end with the biggest lump sum of money many will have in our lives.

The Commission for Financial Capability sees many worried retirees at its seminars who simply don't know what to do with their money.

"There is a misconception that you have to take out your money from your KiwiSaver account when you turn 65," says David Boyle, the commission's investor education manager. "Of course you don't. Many providers allow the option to draw down an income or regular payments ... when you decide to stop work."

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There are plenty of traps awaiting KiwiSavers on their 65th birthday. If you fall into one when you hit the magical 65, pass Go, and get your Gold Card, then you might be kissing goodbye to a comfortable retirement.

Fail to plan. Many Kiwis withdraw their retirement savings without a proper plan for what to do with the money. If you haven't already, when you retire is the time to start a budget, says financial adviser Deborah Carlyon.

You also need a financial plan to ensure the money lasts. Some retirees are capable of producing a DIY financial "decumulation" plan that's just as good as a professional one.

Others delude themselves. Just look at the thousands who plunged all their money into finance company "investments" not realising that they'd chosen one of the most dangerous places to deposit their life savings. Most of us don't even understand how long we're likely to last on this Earth and how our spending needs will change.

Take a lump sum. Taking a lump sum can be wise in some instances if you have a plan.

The reality is that people handle lump sums badly, says Jeremy Cooper, an Australian retirement guru in New Zealand last week for a conference about decumulation.

He says the financial services industry sells us a "pup" by encouraging us to build up savings, but by leaving us on the cliff edge of retirement with no really suitable products to buy. Suddenly, responsibility for our finances is left to us, he says.

Some KiwiSavers are encouraged to take the lot out by commission-based advisers. Sometimes it's best to pay up front for truly independent advice from a fee-only adviser.

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Be a know-it-all. Many Kiwis think they can get a better return than the experts. This might work for a year or two, but beginner's luck rarely lasts. Taking the lot out without a good plan is likely to result in hare-like behaviour in the Tortoise and the Hare style.

A steady-as-she-goes KiwiSaver fund might not be sexy, but it's the tortoise of retirement. Fortunately, according to the commission, about 62 per cent of KiwiSavers entitled to withdraw their money are leaving it where it is. Many still have a day job and are leaving their retirement money for when they really need it.

The commission, however, does expect that as balances grow bigger more people will choose to withdraw their funds when they turn 65.

Put it all in the bank. One step worse than taking the lot is putting it all in the bank. Whether it's safer or not depends on how you view risk.

The problem with putting the money in the bank or a term deposit is that it will be eroded by inflation. Keeping it in some kind of fund that has investments such as shares that are likely to grow makes sense.

Annuities, which pay a regular fixed sum no matter how long you live, are a good idea as well. However, few KiwiSavers wake up and think, "I'm going to get an annuity today," says Boyle. And the only real annuity option so far in NZ is the Retirement Income Group's variable annuity.

Buy the boat, the bach, and the round-the-world trip. These are all admirable aims for your retirement. If, however, you are using up most of your retirement savings to do so, you could be making a mistake.

"This is not a Lotto win," says Boyle. "It's your money that you have saved to help provide an income, among other things, depending on how much you have saved and of course what lifestyle you want to enjoy. It is there to help maintain the lifestyle you want in those years you have decided to stop paid income."

Retirement is expensive, say the commission's clever $Show Me The Money ads for Money Week 2016. On average you'll need to have the cash to pay for $6328 of baked beans, $9432 for jam on toast and $2920 for eggs, let alone all the other stuff you'll consume in 20 to 30 years of retirement. But it can also be a mistake to hoard your KiwiSaver money and not spend enough. This comes out of a deep-seated fear of outliving retirement savings, says Ralph Stewart, chief executive of the Retirement Income Group.

Buy an investment property. Rental properties can be great investments. Buying your first rental property at 65 isn't necessarily a great idea. First-time investors often focus on the capital gain, not the ongoing income (yield) of the property. Unrealised capital gain won't put baked beans on the table.

Give it to the kids. Many children think they can dip into their parents' new-found liquidity, says Carlyon. When they see Mum and or Dad getting their KiwiSaver payout, there's an obvious pool of money some offspring expect to be used on them. But parents and grandparents need to remember their KiwiSaver fund needs to last a long time.

Spend it before you get it. Many a 50-something is starting to spend their savings well before they hit 65. Some don't even realise they're doing it, viewing a new car or kitchen as an "investment", not spending.

Pushpa Wood, director of Massey University's financial education and research centre, has seen a trend in the past four to five years of doing just this. The 50-somethings, she says, believe they've worked hard and deserve to spend on things they want.

In Australia, mortgage applications ask how much Super borrowers have - knowing that it can be used to pay off the mortgage, says Cooper. The proportion of Australians entering retirement with a mortgage has increased from 20 per cent to 30 per cent over 20 years.

That's a huge behavioural change and Australians are spending their Super in advance by viewing it as capital that can be borrowed against.

There are probably the same type of people on this side of the Ditch. According to AMP's director of advice and sales, Blair Vernon, they want the financial services industry to "sprinkle pixie dust" on them to conjure up a retirement fund.

Whatever you do with your KiwiSaver, make sure you understand the consequences, not just think you know what's best.

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