In the olden days, on retirement people cashed up everything. Whatever investments and other assets they had were converted to cash and put safely in the bank.
Very often these bank deposits stayed where they were: many people did nothing more than take out some term deposits which they dutifully rolled over on maturity as they got by on the interest payments. Interest rates were higher then and there seemed nothing better to do with the money.
Now, interest rates are lower and there are a lot of investment options: from variable annuities to a bespoke investment portfolio put together with the help of a financial adviser, the world is your oyster – you can quite easily invest in anything and everything.
There are still a lot of retirees trying to live on Term Deposits, but they are people who really have not considered the other options. With a bit of thought, some people planning their retirement could get better returns than bank deposits without a lot of additional risk.
One option for some people is KiwiSaver. The KiwiSaver scheme was designed as a long-term retirement savings plan.
KiwiSaver is a great saving option especially if you are young enough to get the employer and the Government contributions – these are effectively free money. However, even if you are over 65 it can still be a good option, so most people should be in no great hurry to close it.
Although designed for saving and growing wealth, it can also be used by people in retirement. You should know that at age 65 you do not have to withdraw and close the KiwiSaver account – and there may be good reason for you to stay with it.
Those who are still working after age 65 may continue to contribute although they may not get any subsidies: Government will not continue to pay the Member Tax Credit which gives those under age 65 fifty cents for every dollar you put in up to $520 p.a.
Employers are also not obligated to contribute to KiwiSaver accounts when the person is over 65. However, on a voluntary basis, some employers do continue to contribute because they are very happy that their older workers are still performing well and the employer wants to keep them.
Nevertheless, subsides or no subsidies, many people who are working beyond age 65 will continue to save and their KiwiSaver account is often the best vehicle for doing so.
Even those who are not working beyond age 65 and who are not saving may decide to continue with their KiwiSaver accounts or, at least, keep their KiwiSaver account going.
This is because the KiwiSaver fund can give a very convenient, ready-made fund that you can use for special purposes. I find that some people dedicate their KiwiSaver fund for a special purpose – say, overseas travel or car upgrades/repairs. Holding those funds in a KiwiSaver account means they are in a good and separate place which is not part of their day-to-day money.
Importantly, the KiwiSaver fund may have lower fees than other comparable funds or other investment management options. The KiwiSaver scheme is a very competitive market place and fees are generally quite reasonable – with a lot of money under management, some KiwiSaver funds have been able to reduce their fees or at least offer their funds with good fees.
In fact, there are people who continue with their KiwiSaver accounts into retirement as their main investment accounts – most KiwiSaver providers allow members over 65 to make regular withdrawals. In my view this will be quite sensible for some people provided they are sure that the fund is with a good provider and has the right investment mix.
Remember that if you are over 65 years, once you have closed your KiwiSaver account you cannot re-open it – although you can change provider, you cannot open a KiwiSaver account if you are 65 or older (regardless of whether you have had one previously).
Therefore, if you want your money from KiwiSaver, I would usually advise people to withdraw everything they need but to leave at least a small amount so that the account remains open. This will allow you to add money or use it for other purposes at a future date.
In any event, KiwiSaver is almost certainly better than relying completely on Term Deposits. The returns should be better in most cases and KiwiSaver may save the worry of having everything in just one (bank) basket.
Martin Hawes A.F.A.
Read more from Martin on GrownUps.
Martin is the Chair of the Summer KiwiSaver Investment Committee. The Summer KiwiSaver Scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information about the Scheme on our website at www.summer.co.nz.
Martin is an Authorised Financial Adviser and a Disclosure Statement is available from Martin Hawes on request and free of charge or at www.martinhawes.com.