When you turn 65, you don't have to do anything with your KiwiSaver straight away. You can leave it exactly where it is, keep contributing in some cases, or start drawing on it, and none of those choices happen automatically on your birthday. A lot of people assume turning 65 means they have to cash everything up, and that's simply not the case.
You Don't Have to Cash It Up
Plenty of people think that once they hit 65, their KiwiSaver gets sold up and paid out whether they like it or not. You can actually leave it invested for as long as you want past 65, and plenty of people do exactly that. What matters more is what you do with it once you're able to access it.
You Might Still Be Able to Contribute
Contributions from your employer can continue past 65. It depends on your employer, since they're not obligated to keep contributing, but if you're planning to keep working beyond 65 and your employer agrees, you can keep receiving contributions from both yourself and them. That's a real benefit worth checking on if you're planning to stay in the workforce a bit longer.
Why Staying in a Standard KiwiSaver Fund Can Work Against You
KiwiSaver funds are built so you can invest in just one fund, and that fund can hold a mix of everything, including global equities, Australasian equities, property, infrastructure, fixed interest, and cash.
When you start drawing an income from that fund, say $2,000 or $3,000 a month, that money comes out proportionally across all of those asset classes. So, you could be selling down equities at exactly the wrong time, right when the market's volatile and everything's down 5% to 10%. Once you've sold at that point, you've locked in that loss, and it affects your long-term growth from there.
A better approach may be moving away from a single multi-asset class fund altogether and into a diversified structure, using a bucket approach. The first bucket holds several years of your spending/income needs in cash or cash equivalents. The second bucket has a mix of more growth-oriented assets such as property, infrastructure, and equities.
The idea is that if there's a downturn and it takes a while, sometimes even a couple of years, for the market to recover, you've still got enough set aside in your first bucket (cash and stable assets) to cover your day-to-day living costs without needing to touch growth assets while they're down. The rest of your portfolio can stay invested for growth, since you're not relying on it for income in the short term.
The Problem With "Life Steps" Funds
Some KiwiSaver funds use what's called a Life Steps or Life Stages structure. When you're young, you're placed in an aggressive, mostly-shares fund, and as you get closer to retirement, the fund automatically steps you down into balanced, then moderate, then conservative settings. By the time you hit 65, you might have 80% sitting in fixed interest and cash.
The trouble is it doesn't account for the fact that you could be in retirement for another 30 years. That's a long investment horizon, and being almost entirely in low-growth assets from day one of retirement means missing out on decades of potential growth you might need.
A better approach is to proactively choose the asset allocation settings that are right for you at each stage, rather than letting the algorithm decide for you. Getting the balance right, and not stepping down the risk too early or too late, is exactly the kind of thing worth talking through with an adviser.
The Takeaway
Turning 65 doesn't force your hand with KiwiSaver, but it's a good point to sit down and actually look at how your fund is structured. Are your settings still built for someone in their thirties, or do they reflect the fact that you might be relying on this money for the next 20 or 30 years? That's the conversation worth having with an adviser at this stage, and it can make a real difference to how far your money goes.
If you're nearing retirement and want to talk through your KiwiSaver settings, get in touch with Dave for a free, no-obligation hour-long consultation at dave.gosper@decisionmakers.co.nz.
Frequently Asked Questions
Do I have to take all my money out of KiwiSaver when I turn 65?
No. You can leave your KiwiSaver invested for as long as you like after turning 65. There's no requirement to cash it up on your birthday or at any set point afterwards.
Do I pay tax when I withdraw money from my KiwiSaver?
No. KiwiSaver is taxed within the fund itself through PIE (portfolio investment entity) tax, so the balance you see is what you actually get. You're not taxed again on the way out.
Can I keep contributing to KiwiSaver after I turn 65?
Yes, and if your employer agrees to keep contributing, you get the benefit of them matching your contributions.
What's wrong with staying in a Life Steps or Life Stages KiwiSaver fund at 65?
These funds are designed to get more conservative automatically as you get older, which sounds like a safe idea but can leave you overly cautious right when you still need decades of growth. It's worth checking your actual settings rather than assuming the automatic step-down has left you in the right place.
How do I actually withdraw money from my KiwiSaver?
There's some paperwork involved, including ID verification and documents signed by a Justice of the Peace, which can feel like a hassle the first time. Once it's done, though, you don't need to repeat the process. You can withdraw a portion now and come back for more later without redoing the paperwork.
