Making KiwiSaver work as a banking alternative

Q

My wife and I are both 71 and I still have a little amount left in my KiwiSaver account with Mercer’s Moderate fund. We have just sold our house and purchased a smaller place. We should end up with around $100k after the sale goes through and all current debts are repaid. We are looking to invest this to help us have a little more on hand when required — we try to live off the pension. We currently have no insurance for funeral cover if we die and would like to make sure something is put aside for that. Should we deposit this into our KiwiSaver account as the returns seem to be better than any bank? We are unsure if you can use KiwiSaver this way after 65.

A

First of all, congratulations on downsizing at this stage in life. It is a great way to free up capital in retirement, but it is not always easy to find a suitable smaller home. It sounds like you have succeeded and are now able to make plans for a more comfortable retirement with your extra funds.

KiwiSaver can be used as an alternative to bank deposits in retirement — as long as you know your risk profile, are prepared for some volatility, and can work around some of its limitations. The reason that returns “seem to be better than any bank” as you put it, is because the money is invested in shares and bonds. Shares in particular have done well until recently, but there are no guarantees. A lower risk fund may have 20 per cent invested in shares, while a balanced fund may have 50 per cent. The more shares you have, the longer your investment timeframe should be.

This is a good time to talk to your provider. KiwiSaver is well regulated by the Government and providers are expected to help members with their options. I asked Mercer to comment on your situation and Glenys Wilson from the Mercer KiwiSaver financial advice team replied: “It’s great that people are thinking about their retirement, what they should do with their money, and who they should reach out to. Everyone’s situation is different, which makes personalised advice so important. Specifically regarding KiwiSaver, we believe it is an excellent alternative to a bank deposit. Over 65s can target a return typically higher than bank interest rates and the money can be accessed at any time.”

While KiwiSaver is accessible to members over 65, the first withdrawal can take some time as the withdrawal form needs to be signed by a JP or similar, and your ID and bank account may need to be verified. It is wise to get one withdrawal under your belt before you need money urgently. Subsequent withdrawals can be made without this extra step. Most providers allow lump sum withdrawals from $500 or regular weekly, fortnightly or monthly payments from $100.

You can set money aside for funeral expenses in a bank account or use your KiwiSaver, as long as you can access the funds. A KiwiSaver account can only be in one person’s name, so you need to think about what will happen if one of you passes away. If there is $15,000 or more in your KiwiSaver (or any other financial institution) your will has to go to Probate and the funds in your name will not be accessible to your spouse until the estate is settled. You could each set up a KiwiSaver account, or you can keep sufficient funds in a joint account. Alternately, you can ask your provider about an investment similar to KiwiSaver but able to be jointly owned. This may be the best option. You can also find out about other investment options via a website such as MoneyHub or by talking to a financial adviser.

Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451 issued by the Financial Markets Authority to provide financial advice. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send KiwiSaver questions to shelley. hanna@peak.net.nz