A specialist group of retirement experts has produced updated guidelines for people to manage their KiwiSaver accounts.
They are the Retirement Income Interest Group (RIIG) and are members of the New Zealand Society of Actuaries.
The new publication updates the Rules of Thumb for drawing down KiwiSaver funds and turning it into income.
This research was last done in 2020, and the updated version reflects current investment conditions as well as human longevity.
The publication lists four rules of thumb for using KiwiSaver to augment NZ Superanuuation.
One is to spend 6% of the starting value of a retirement fund each year. The RIIG group say this is most suitable for those who want to spend most money early in their retirement by way of a regular, fixed income. They are not concerned with leaving an inheritance or with the risk of the retirement fund running out within their lifetime.
A second option is based on spending 4% each year but increasing it for inflation. This is most suitable for people who are worried about money running out in retirement or who want to leave an inheritance. They don’t mind a lower income initially than other options, and like the idea of income keeping up with inflation.
A third alternative is to run down the fund up to a fixed date. This is best suited to people who want to know when their fund will run out, perhaps because they are happy to rely on New Zealand Super after then. They don’t mind calculating their income each year, which will vary depending on the fund’s investment performance.
A fourth version would assess the value of a fund each year and divide it by the average life expectancy at that time. The RIIG group say this is most suitable for people who don’t mind doing complicated calculations each year in order to make the most efficient use of money over their lifetime, although the level of income will vary.
In producing this paper, the RIIG group say there is more volatility, higher investment returns and more inflation than when they last issued this advice in 2020. However, mortality has not changed much since then.
The RIIG publication produces charts based on a retirement fund of $100,000. It assumes this fund will be drawn down from age 65. And the income shown is real, which means it is adjusted for inflation. This means some charts show a falling income over time.
The charts also give a clue as to what sort of income is certain in retirement, what is probable, and what is possible but unlikely. The charts show income is likely to be around $4000 to $6000 a year, and this is on top of NZ Super. But they list a variety of circumstances that vary this number, such as starting to draw down money at a later date.
In their advice, the RIIG members urge constant attention to finance.
"The idea is not to ‘set and forget’ one rule to use for the rest of life," they say.
"Instead, people should think through their own priorities and appreciate how much income is possible, with what risks and uncertainties."
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