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."
26 Comments
Yep. 20 years away from retirement you should plan to have 1-2 million in assets set aside plus a freehold house. That will give you 3-5 million in retirement depending on how determined you are. Not many will be determined enough. But, it is possible. Most people’s KiwiSaver balances are too insignificant to make much difference at all.
That's probably excessive for most people.
Say you're retiring as a couple, work back from what income level that you want in retirement. Say you want to have a combined income of 100k per year. You get around 45k from super (assuming it's still around), so you need 55k from your investments.
Then based on a 4% withdrawal rate you'll need around 1.4 million in today's dollars, the actual number you'll need at retirement will be around $2 million if inflation averages 2% over that period. That's across the investments for both partners, Kiwisavers included.
But with a paid off house many would be comfortable on say 80k per year, where you'd only need 900k in today's money based on that same withdrawal rate.
It's all based on the life style that you want to lead in retirement.
You forgot to factor in future (inevitable?) means testing. A good investment I think it to set yourself up so that you can comfortably live on a reduced income. Low maintenance house and grounds, low utility bills, low maintenance vehicles, vege garden and nearby fishing, relatively inexpensive hobbies. That way if your investments don't pan out as you hoped, you aren't screwed.
You hit the nail on the head. I read this all time, fixated on income in retirement. It is actually the complete opposite it is all about your expenses. If expenses are $40k per year then using the 4% rule means you need $1m. The 4% rule is not what these muppets are talking about it is the safe withdrawal rate based on long term returns on investments. Using this means you will never run out of money in fact your $1m remains essentially unspent, market ups and downs granted. And BTW in retirement all your tax rates and PIEs will be 10.5% no need to worry about inaction on tax brackets.
My point was really about changing the perception of required income. Do not think in terms of income rather in terms of expenses to determine $$$ needed and what is going to generate those $$$ Whatever your income is now and you are not spending it all then why on earth would you need that level of income when in retirement? Simply does not compute. Of course some capital will be spent on big ticket items as needed but this will be a planned considered drawdown maintaining sufficient funds to generate current expenses.
For the record we are already planning a legacy for our child by setting up KS and a sidecar fund and have been paying in every month since birth. Why leave $$$ in a will when they might be 50+yo pointless. She will have $$$ for education, house deposit, and has financial learning and discipline, she has all but taken over contributions from after school work 50% invest (note NOT saving in some lame bank account) leaving 50% to do as she wishes.
A lot of people don't have much trust in Kiwisaver due to the changes the governments keep making to it. The fact that the withdrawal age is likely to increase to 67 if National win, due to it being tied to Super eligibily is not good IMO. It means more people will miss out on being able to withdraw it if they die before 67, and people will have 2 less years to use it. Likewise being able to withdraw it for rent bond or first home were terrible ideas. Personally I just put in the minimum to get any benefits they can get from it, and have a seperate retirement scheme that doesn't have the same high fees of kiwisaver, for essentially the same investment product. The main benefit is I can withdraw it at any age that I want. But some people don't have any self control, so they maybe better with Kiwisaver where that money is locked from them accessing it. People should get good paid financial advice which they actually pay for IMO.
Bonds have performed pretty poorly as interest rates rise - essentially because the older bonds that your fund holds paying 2-4% interest or so are now worth less than they were, as they are competing with today's ~5-7% bonds. The capital fall in value isn't fully compensate for by the slowly increasing yield.
If interest rates fall again, the opposite will happen - todays high yields will coexist with increasing capital values. Good times.
At the moment , if you put $ 1000 in a kids fund at birth, It will not be worth $ 1000 by the time they are 18 , because of the management fees.
There needs to be a low management fee option for those with low balances, simply putting the money in the banks best term deposit would yield more.
I think that’s why KiwiSaver is pushed so much, the fees from investment portfolios are obscene. It doesn’t sound like much when you look at it as a percentage of balance but I’ve seen amounts of 40k per year deducted. Personally I have no confidence that KiwiSaver will keep up with inflation, be safe from govt interference or provide anyone with a retirement living (that they couldn’t achieve themselves through personal saving). More then likely the savers will be means tested, wealth taxed etc so you are better off doing it yourself and having the flexibility to respond to changes in policy.
I never joined Kiwisaver. I worked to 67 and built up my savings/assets carefully, never had a new car for example. Single income since our 4 kids were born somewhat later in life but good job and income. My current expenses are twice what my net income is. I draw down from my investments as needed and track the draw down to predict when it will run out. It runs out 14 April 2036 at the current draw down rate. I will be 82 at that point which is about the life expectancy of most of my male ancestors. We work on reducing our expenses, I do all house maintenance, car repairs, rarely eat out and grow veggies.The kids still live with us, one working and the other three studying and when they are gone our expenses will closer match our income. The plan I put in place some 30 years ago is working well.
Private sector savings or 'net financial assets' can only be created from government budget deficits. Banks create assets and liabilities in equal measure and so there are no net savings created there and NZ runs current account deficits and these are a loss of net savings for us.
https://theconversation.com/how-government-deficits-fund-private-saving…
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