Turning a lump sum into a smooth income

1 September 2015

KiwiSaver and beyond – turning a lump sum into a smooth income

Survey highlights gap in information and investment options after 65

A survey of New Zealanders approaching retirement has found one in four people are unsure of how to manage the money in their KiwiSaver funds when they reach 65.

The Commission for Financial Capability (CFFC) and the Financial Markets Authority (FMA) chose Money Week to release the second wave of research into how well older New Zealanders are preparing for retirement.

The findings from the survey focus on KiwiSaver and highlight the need for more useful information about what to do with the lump sum people will have accumulated in their funds when they reach 65, so they can plan their futures.

Only around half of those approaching retirement felt the information available from their KiwiSaver provider was useful for making decisions about their retirement savings and for working out how much they will have when they are 65.

Less than half, 44%, said the information was useful for helping them work out what level of income their lump sum was likely to generate when they retire.

Simone Robbers, FMA, said: “The message from KiwiSaver members is that they want to get the right kind of information and resources, in a way that’s easy to understand, to help them make decisions about this stage in their retirement planning.”

“We’ll continue to work with providers to ensure there is quality information available and it is more accessible. It’s critical that people take some time to consider how best to preserve and use their hard-earned lump sum when they reach 65.”

A quarter of those approaching retirement planned to take out their lump sum when they reach 65, and 10 per cent of those said they’d spend it, rather than reinvest.

Almost half of those near retirement planned to leave their money in KiwiSaver and withdraw it as they needed it, but a quarter did not know what they were going to do.

David Boyle, CFFC Group Manager Investor Education, said: “It is pleasing to see half those members who have access to their funds today view KiwiSaver as an investment option not just for saving for retirement, but to generate some additional growth and income during the years they are in retirement.”

But KiwiSaver is not the only solution: a range of different income options will be needed in the future and three quarters of those interviewed who had savings or investments, including KiwiSaver, were interested in a product they could use to invest their lump sum and receive a guaranteed weekly or fortnightly income during their retirement.

David added: “There seems to be a genuine view from this survey that some certainty of income is important to people’s financial wellbeing during their retirement years.”

“One of the most important factors for KiwiSaver members today is for them to determine what income they are going to generate from their KiwiSaver balance tomorrow.”

The survey also showed that those who either had a financial plan, or had worked out what they needed as an income on top of NZ Superannuation, were more likely to choose more diversified investments with a higher allocation to growth assets.

And the survey found that more women than men had signed up to KiwiSaver in the over 50s age group. However women were less likely to choose higher risk options, with more growth assets, for their funds. CFFC, the FMA and providers need to ensure information and resources are accessible to this investing group to help them get the best out of their investments.

CFFC and FMA are encouraging people to understand what kind of investor they are and understand their risk profile, so they can make well-informed decisions about their investment options.

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