The Answer Room, 16 April 2012
We all know that KiwiSaver is a retirement savings scheme, but what happens to your account when you turn 65? This Answer Room video sets out the options available from 1 July for members aged 65 plus, who will also have been in KiwiSaver for five years.
I know KiwiSaver is a retirement savings scheme, so what happens once you retire?
There is no retirement age in New Zealand, but 65 is the current age of eligibility for NZ Super, the government pension. 65 is also the age you become eligible to access the money in your KiwiSaver account, if you have been in a KiwiSaver scheme for at least 5 years. So if you joined when you were 64, you won’t become eligible until age 69.
As KiwiSaver was started in July 2007, the earliest anyone over 65 will be eligible to withdraw will be July 2012.
Will I be able to take out all my money when I’m eligible to withdraw ?
Yes, you will be eligible to take out all the money that is in your KiwiSaver account. That’s all your contributions, your employer contributions, the government kick start and member tax credits, plus or minus any returns on your investments. The whole kit and caboodle.
What’s more, any withdrawals you make from KiwiSaver won’t be taxed - because you have already paid tax on your investment returns.
But you don’t have to take your money out. You can leave some or all of your money in your KiwiSaver account.
If you do take out all your money, your KiwiSaver account will be closed and you won’t be able to re-join the scheme at any stage.
Why would I leave my money in my KiwiSaver account?
Many KiwiSaver providers will let you remain in their KiwiSaver Scheme and continue to manage your money for you even if you are eligible to withdraw – so although you won’t receive any member tax credits, you can continue to save.
If you leave your KiwiSaver account open, you may be able to make withdrawals and make voluntary contributions to your KiwiSaver account. You may also be able to consolidate any other retirement savings into the same account. In this way, your KiwiSaver becomes a convenient, relatively low cost and well-regulated retirement savings management account.
What happens when I become eligible to withdraw and I am still working?
You need to talk to your employer about whether you want to continue contributing through your payroll, or if you want your payroll deductions to stop (you will still be able to make voluntary contributions if you stop your salary deductions).
Once you become eligible to withdraw, your employer is not required by law to continue paying KiwiSaver contributions, although some may continue to do so.
When you are over 65 and have been in KiwiSaver for 5 years, you are no longer entitled to receive the Member Tax Credits (that is, the annual government contribution), even if you are still paying PAYE tax through your employer.
If I do leave my money in, what do I need to think about?
It‘s a good idea to check that you are in the right type of investment portfolio for your needs.
For example, if you will be dependent on the KiwiSaver money for regular income, a portfolio with a high proportion of cash and fixed interest investments represents less risk and therefore may give you more certainty of investment returns than one with a lot of shares which may go up and down in value more often.
How can KiwiSaver help me in retirement?
New Zealand Super is around $698 for singles and around $1,074 for couples fortnightly after tax. So, many people appreciate a little bit extra to top that up, or to have some for a rainy day.
If you had $20,000 in your KiwiSaver account and you became eligible to withdraw, you could take it all out and buy a new car or fix your roof. But if you left your money in KiwiSaver, your account could keep making money for you.
[These are estimates only, actual returns may vary]
Let’s say you were 65, and had a balance of $20,000. If you left your money in your KiwiSaver account, and it earned a real rate of return of 2% a year, you could withdraw $40 a fortnight for around 19 years.
And of course if you continue to add to your KiwiSaver account with voluntary contributions, it can keep on growing through your retirement years.
Check with your KiwiSaver provider about the specific options they offer to members aged 65+
The information provided here is stated accurately to the best of our knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.
Read more on our KiwiSaver in Retirement Page.