Sunday, March 3, 2024

Cracking open the nest egg

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Many people are “sleep walking” into retirement and not getting appropriate guidance for how to best manage their nest egg, if they have managed to accumulate one.

Many New Zealanders are hitting retirement with little knowledge of how to make the right decisions about making sure their nest eggs last the distance – for what can be 30 years for some.

A comprehensive report released by Te Ara Ahunga Ora Retirement Commission considers how people draw down on their retirement savings and has suggested a series of recommendations to better support the process.

As part of the 2022 Review of Retirement Income Policies, the Government has asked Te Ara Ahunga Ora to gain a better understanding of ‘decumulation’.

Decumulation means drawing down savings and investments that have been built up over an individual’s working life to provide income in retirement.

Insights gathered for the report reveal many people are “sleep walking” into retirement and not getting appropriate guidance for how to best manage their nest egg, if they have managed to accumulate one.

Report author, and Policy Lead at Te Ara Ahunga Ora, Dr Michelle Reyers, says a strong theme that emerged from the research is the need for better guidance on how to best spend savings in retirement.

“Advice delivered in a consistent manner in a simple system creates an environment that supports individual decision making,” says Reyers.

“It is really important that the financial services sector works together to use consistent terminology and supply consistent information and guidance for the drawdown phase of retirement.”

The need for guidance to manage the drawdown phase increases as KiwiSaver balances grow. In 2022, research showed 61 – 65-year-olds had an average balance of $53,579. As more New Zealanders approach retirement having spent longer in KiwiSaver, average balances will increase. This highlights the importance for all KiwiSaver providers to reach out to pre-retirees at key milestones, such as 55 and 60 years old to provide guidance regarding their options.

The research also found that an increasing number of Kiwis are choosing to keep their KiwiSaver accounts open after 65. This presents an opportunity for providers to consider how to make their products more accessible for those who want to use their KiwiSaver account as a managed drawdown account in retirement.

Reyers has made the following recommendations:

  • KiwiSaver providers should use consistent terminology and supply consistent information and guidance to KiwiSaver members regarding drawdown.
  • KiwiSaver providers should contact members at milestones approaching retirement to provide information and guidance on options. Calculators and tools need to be developed so that people can understand their choices about withdrawing savings and compare options.
  • KiwiSaver products should be user-friendly for those who are using them as a managed drawdown account after age 65.
  • New Zealand Super must continue to be a key pillar of the New Zealand retirement income landscape as it provides protection against longevity risk (running out of money) and provides more equitable retirement outcomes as it is universal and gender-neutral.

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