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What to Do with KiwiSaver Proceeds in Retirement

One of the challenges for KiwiSaver scheme members when they reach the age of sixty five is: should they continue to contribute to the fund, and or stay invested in the fund. Provided one is still in paid employment and can afford to save, then there is nothing lost by continuing to contribute to the fund. A generous employer may even continue to make employer contributions. What you will miss out on is the government’s ongoing contribution.

When KiwiSaver was first mooted, there seemed to be an expectation that there would be a market for annuities. So the KiwiSaver investor once reaching the age of sixty five, would then reinvest some or all of their KiwiSaver savings into an annuity. The annuity would then provide a regular income to supplement national superannuation.

Annuities are a means of converting a lump sum investment into a regular income stream.  You pay a lump sum to an insurance company and in return, the insurance company will make regular, usually monthly, payments to you.  These payments are a fixed amount.  They will continue for a set number of years, or until you die, depending on the type of annuity. 

Annuity providers take into account the investors age and sex.  They cannot make any individual allowances based on ethnicity.  Annuities with payments guaranteed for life, therefore, are a better investment choice for those people who have an above average life expectancy than those with below average life expectancies. 

A number of years ago we researched annuities in New Zealand. At that time there was only one provider. The demand was so low that they only issued a handful each year. Our conclusions were that they were a very expensive means of converting a lump sum into a de facto regular income source. This is not surprising, as the annuity provider wants to take minimal business risk. They do this by choosing what level of investment returns will be passed through to the investor.

Currently we do not know of any annuity providers in New Zealand, although there is one company that is close to launching a product that in some ways will be similar although probably more efficient. We have not fully assessed its merits yet.

We have structured a number of our clients’ investment portfolios in order to provide a regular level of drawing. This is a very cost effective and efficient way of supplementing national super.

We work through with the investor to determine how much regular “income” they require, and then provide projections for them. In some cases they decide to lower their income expectations, and in others it provides them with the ability to spend more than they had expected to be able to.

Most importantly their investments are managed in a manner that they are extremely unlikely to run out of resources to fund their retirement.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.