Near 65? Get savings advice
If you are approaching retirement with a KiwiSaver balance that has started to look shaky, you may be a little worried. But experts say there are a few things you can do to make sure you are still on track.
First: Find out what sort of fund you are in
Generally, if you are hoping to access the money within the next couple of years, you should be in a conservative fund.
Gillian Boyes, the Financial Markets Authority’s investor capability manager, said some people might only realise they were in the ‘‘wrong fund’’ when their risk appetite was tested.
Others might not have considered moving out of growth funds because they had been performing so well until recently.
She said people should also remember that they did not have to cash out all their money the minute they turned 65. You may be able to cope with more risk than you expect, if you can leave the money in your KiwiSaver account for a bit longer.
‘‘Some people may feel comfortable riding this out but if you do need the cash soon, then this is the correct moment to seek professional advice and, at the very least, talk to your provider before switching funds. There is no opportunity for recovering your losses if you switch from a growth to a conservative fund, or move to a cash fund, as you will be crystallising your losses.
‘‘For some people, they will simply want to stem the losses at all costs but that will not necessarily lead to the best outcome in the end.
‘‘If you do need your money soon or you think you are in the wrong fund, we urge you to seek professional advice before switching funds. Now is generally not a good time to switch funds because you risk crystallising your losses and missing out on financial gains when the market begins to recover.’’
Adviser Liz Koh said that when volatility hit, it was usually too late to make a decision about changing funds.
Another adviser, Martin Hawes, agreed: ‘‘There is nothing they can do if they are in the wrong fund. It is difficult to say you are in the wrong fund and the time to do something about this was six months or a year ago not now. Most people simply need to ride it out and put up with six months of poor returns. We just do not know when markets are going to bounce.
‘‘Generally the advice is to wait it out. If someone is in a very aggressive KiwiSaver fund that is entirely inappropriate, you might say to sell down to move to a balanced one but it is not a time to panic and make big changes.’’
Second: Have some money in cash and carry on investing the rest
Koh recommends people have enough money to cover them for the next five years in cash in the bank and keep the rest invested.
‘‘Retirees are still caught up in the idea of living off the return on capital, not the capital itself.’’
Once they had the short-term funds set aside, they could forget about the invested chunk.
‘‘That return can be left to go up or down or sideways ... people do not often understand the difference between loss and a drop in value.
‘‘Imagine you have got a basket of oranges: The price of the oranges might drop but you do not want to get rid of any of them because the minute you do, you lose the value. Keep your oranges and wait for the price of oranges to go back up again.’’ Many people started to put more money into retirement savings as they got closer to 65, she said, but some of that could be channelled to a bank account to build up cash reserves if necessary.
Boyes said that split could be achieved within KiwiSaver – moving some money into a lowerrisk fund for short-term needs and leaving the rest in a balanced fund.
Third: Get some advice
Milford Asset Management head of KiwiSaver Murray Harris and Boyes said people needed to think not only about the right KiwiSaver fund but what they would do with their money when they hit 65.
‘‘Many members today over the age of 65 remain invested in their KiwiSaver accounts and draw small amounts of money from their account, as and when they need it to supplement their NZ Super,’’ Boyes said.
‘‘So talk to your KiwiSaver provider about how you could manage your account to receive one-off or regular draw-downs,’’ Boyes said.
Harris said providers were ‘‘always looking at ways to help educate their members’’.
But he said that relied on them engaging with their fund manager. ‘‘It is times like now that some realise they have left that too late.’’