28 November 2023

    How to withdraw like a pro

    Nefe Teare

    Senior Client Adviser

    Email Nefe
    Nefe Teare

    Senior Client Adviser

    Email Nefe

    In my earlier article I looked at why KiwiSaver can be a better option than a term deposit to keep your money working for you throughout your retirement. Let’s dive a little bit more into the benefits of using regular withdrawals from your KiwiSaver to support your retirement income.

    We all know the benefits of having KiwiSaver. Over the course of your working life, you have diligently sacrificed a percentage of your salary or income to invest into a diversified portfolio to generate a nice nest egg for when you turn 65. Your future self can pat you on the back and say, "Good job."

    But I bet that voice inside your head is also saying, "Okay, that's a nice chunk of change, let's withdraw all of it because that's going to look quite nice sitting in my bank account." Which, of course, you could very well do, after all, it's your money. Some of you might have a mortgage you could pay off or a shiny new boat whispering, "buy me". But many of us are relying on KiwiSaver to support our income over our whole retirement.

    NZ Super is nowhere near enough money to live a comfortable lifestyle. That $24,000 a year might cover your bills and breakfast, but it really is a no-frills lifestyle. That means you need something to supplement it to make things more comfortable, and that's where your KiwiSaver account comes in.

    The magic of dollar-cost averaging when investing

    Ever heard of dollar-cost averaging? Most of us haven't, and that's okay! Because the good news is that, without realising it, if you’ve been making regular contributions to your KiwiSaver account, either through your pay, or as voluntary contributions, you have been doing it this whole time. Dollar-cost averaging when investing is the method of contributing a little and often to an investment.

    The reason that this is so popular is that over the long term, you are buying units in your fund at different times — sometimes when the market is up (when the units are valued higher and cost more), and sometimes when the market is down (when they’re cheaper, and you’ll buy more units for your dollar). In the long term, the price you pay for each unit averages out.

    The magic of dollar-cost averaging when withdrawing

    In the same way that dollar-cost averaging benefits you when you’re investing, when it comes to retirement and withdrawing your money it’s also a bonus. Forget trying to time the market and figuring out the best time to withdraw your money.

    Incrementally withdrawing from your investment is a strategy known as decumulation and it’s like dollar cost averaging when investing, but in reverse.

    Here are some of the benefits of making regular withdrawals from your KiwiSaver:

    • Allows for the ups and downs of the markets: Rather than trying to time the market and risk withdrawing a large lump sum at an inopportune time and crystalising losses, you can make smaller, regular withdrawals to support your retirement income. This spreads out your risk and helps support your retirement income and stretch out that nest egg a little further.

    • Flexible withdrawal options to suit you: You can opt to withdraw a regular amount at a time that suits you – weekly, fortnightly, monthly, quarterly or annually.

    • Keeps your money working for you: Investing throughout your retirement, means that all your funds are not just sitting in a bank account earning a small amount of interest. It’s important to keep that money working hard for you and aim to outpace inflation.

    • A stress-free approach: You will know exactly what your income looks like every week, fortnight or month, making it easier to plan.

    When planning for retirement, it pays to speak to an expert

    Here’s a hypothetical case study to show how a chat with an adviser can help you plan the best use of your KiwiSaver right through your retirement.

    Sarah is 35 years old and earns $80,000 per year. She currently contributes 4% to her KiwiSaver account which has a balance of $100,000. Sarah requested some financial advice on what investment strategy would be most appropriate for her and what her retirement lifestyle could look like when she turns 65. Sarah is currently single and living on her own. She has a mortgage and is on track to have this paid off by the time she turns 60.

    Sarah would like to know how much she could withdraw from her KiwiSaver every year to support her retirement income alongside NZ Super. Ideally, she’d like a retirement income of $44,000 a year between the ages of 65 – 90. Sarah agreed she’d like to maximise her potential return between now and the age of 65 (30 years), and upon completing our investor profile questionnaire, we determined that a Growth Strategy would be appropriate for her.

    After a chat with Sarah, here's what we calculated her retirement income could look like.

    * Using the FMA’s rate of return for a growth fund of 4.5% and adjusted for inflation. NZ Super rates are based on rates at 1 April 2022.

    Please note that this is a projection and is intended to offer you a general understanding. It's important to emphasise that these figures should not be mistaken for precise or personalised financial advice. As always, it's worth bearing in mind that past performance is not a guarantee of future performance.

    Need some help planning for your retirement?

    One final note, at Fisher Funds, our financial advice is available at no extra cost. We believe everyone should have access to advice so that you can make informed decisions and make the most out of your investments.

    Our friendly financial advisers can help you evaluate your retirement goals and whether you’re on track to achieve them. If you’re not quite there yet, we can help you put a plan in place.

    If you feel like you could benefit from having a chat to an adviser, please contact us – we’re always happy to help.