Reduce access to KiwiSaver funds on retirement says expert

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Reduce access to KiwiSaver funds on retirement says financial expert

Leading financial writer and adviser Martin Hawes has come up with a radical solution to the problem of retirees mismanaging their KiwiSaver funds. Simply reduce the amount that they can withdraw. This reduces the immediate risk of them losing money to ill-conceived investments or blowing the whole lot in the first six months of retirement.

Hawes believes that many New Zealanders do not invest well for their retirement. “They either take huge financial risks in the hope of realising high yield returns or become risk averse, settling for low-yield investments that barely keep pace with inflation. Both situations lead to financial challenges with lower than expected income”, says Hawes.

The global financial crash and misappropriation of funds by named financial institutions has compounded the problem, derailing the retirement plans of hundreds of New Zealanders. Once the money is gone they have little choice but to fall back on the state or their families for support.

But there is another way, says Hawes. “I would propose that people draw down a small lump sum on retirement, say 20% of the money that they have in the KiwiSaver account, and thereafter a set amount each year. This effectively drip feeds the money to them as a form of income, for the duration of their retirement.”

To make this work, Hawes says that some of the rules around KiwiSaver would have to change. “KiwiSaver would need to be made compulsory, not least so that everyone has some retirement income and does not rely on the state.” Hawes goes on to recommend that KiwiSaver accounts be converted to Conservative funds on retirement, to ensure that they were diversified and low risk.

At the moment, KiwiSaver balances are fairly small and insignificant, although in time that will change. Hawes believes that without some kind of national plan, New Zealand will have more retirees in extreme hardship as a result of making poor investment decisions.

Martin Hawes is a popular speaker at seminars and conferences and works as a financial adviser to individuals and families. He writes a popular financial column for the Sunday Star-Times each week and his book on family trusts, first published in 1995, has now sold more than 100,000 copies. His latest book is the New Zealand Retirement Guide, published by Penguin Group (NZ) in July 2013.

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