This article was published on 28 July 2012. Some information may be out of date.

KiwiSaver graduates face some choices

It’s decision time for the first KiwiSavers “graduates” — those over 65 who have been in the scheme for five years. But there’s no rush.

These people face two changes: you will no longer receive a tax credit, and you can withdraw money whenever you want to.

Your maximum final tax credit will be proportionate to how much of the July-June KiwiSaver year falls before your 65th birthday or your fifth anniversary of joining, whichever comes later.

For example, if you are over 65 and you joined on August 1 2007, that’s 32 days from July 1. Multiply 32 by the maximum credit of $521.43, and divide by 365, which comes to a maximum credit of $45.71.

Don’t forget that the tax credit is now 50c for every $1 you contribute, so you need to contribute twice as much to get the maximum.

If you’re not sure of your anniversary date, ask your provider. Or just err on the “generous” side, knowing you can withdraw your contribution soon anyway.

There are two other issues you need to decide about: what to do with your KiwiSaver money, and whether you should keep contributing.

The answer to the first question is easy if you have credit card or other high-interest debt. Withdraw all or most of your KiwiSaver money and pay off your debts. Paying high interest is a huge drain on your financial wellbeing.

I say “all or most” because it may be best to hold enough money in the account to cover fees and keep it open. Ask your provider for guidance on how much. Once the account is closed, anyone over 65 can’t open another KiwiSaver account. And you may want to use the account for longer-term retirement savings. More on that in a minute.

If you’ve paid off high-interest debt, or if you have none, it’s probably best to use KiwiSaver money to pay down a mortgage. Nobody knows whether your KiwiSaver account might, in future, earn higher returns than your mortgage interest rate. But it’s good to go into retirement without a mortgage.

Still got some KiwiSaver money? Another good use for it might be to pay for repairs to your home or a better car or similar. Many people like to enter retirement with their property and other assets ship shape.

Beyond that, the big question is whether you have non-KiwiSaver savings to supplement NZ Super for, say, the next 12 years or more.

If not, you could move your KiwiSaver savings into a fairly conservative fund — in or out of KiwiSaver — and plan to draw it down gradually to spend.

But if you have other savings, you might keep your KiwiSaver money in a medium to higher-risk fund, to be spent later in retirement. Higher-risk investments usually bring in higher returns over longer periods. As you get within about 10 years of spending the money, transfer it to a lower-risk fund.

If this seems too complicated, you might seek help from an authorized financial adviser. See the Info on Advisers page on www.maryholm.com for help in choosing an adviser.

On our second question — whether you should keep contributing — the answer is “yes” if you are still employed and your employer will continue its contributions. It would be a pity to miss out.

If that’s not the case, the decision depends on whether you want to use your KiwiSaver account as an investment during retirement. Without tax credits, it’s lost some of its gloss. But if the type of investments held by the fund suit you, and the fees are lower than alternatives, why not?

Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it.