Your money questions answered: Should I withdraw my KiwiSaver money?

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It can be difficult to watch your KiwiSaver balance go down.

John Kirk-Anderson / Stuff

It can be difficult to watch your KiwiSaver balance go down.

Susan Edmunds is Stuff’s business editor. Each week, she will answer your money and personal finance questions. You can send yours to susan.[email protected] This information is not intended to be personal financial advice and should not replace professional advice.

Do I need to withdraw funds from our KiwiSaver fund to pay off an overdraft we have in our home loan account or continue to pay the monthly interest charged to us for the overdraft? Many people have advised not to panic and withdraw funds when the markets go down. We are both 69 years old, in fairly good health. We have an overdraft in our home loan account of $60,000, used for home renovations. We have $323,000 in KiwiSaver and monthly expenses of $2,700 above pension.

I asked financial advisor Liz Koh, who said whatever you decide to do, you’ll have to think about what will give you the best return in the future.

READ MORE:
* Covid taught us to love KiwiSaver, but also revealed some of its flaws
* Monday Thoughts: KiwiSaver is your money, but do you know where it is?
* First-time homebuyer plans put on hold as KiwiSaver sales drop

“Repaying a debt gives a tax-paid return regardless of your interest rate. An overdraft has a floating interest rate and floating rates are likely to rise sharply over the next year,” she says.

“As a general rule, it’s better to pay off personal debt than to invest. There will likely be continued volatility in investment markets over the next year and returns may be lower than what could be “earned” by paying down debt. From a long-term perspective, a balanced or growth fund may earn more than the overdraft interest rate, but there would be significant uncertainty about this. A guaranteed after-tax return from the overdraft interest rate may be better than an uncertain return in a balanced or growth fund.

Things

David Boyle offers tips for getting started.

I will be 64 in September and I will continue to work until at least 70 years old. My KiwiSaver balance went from $63,000 to $58,000 in a targeted growth fund. I’m not afraid of risk and I don’t panic, I keep buying units at a much lower price, so I know the unit price will eventually correct and rise. I’m happy with that. I also have $9500 which I will be receiving from another super fund in the next few days. I think I deposit a lump sum, say $8,000, into KiwiSaver and enjoy a good buy at a low unit price because I have options in another 15 months if I need funds. I need to look at another used car by then and decide if the costs have come down on EV, or hybrid or gas only, I’m not keen on paying over $30,000 for an EV. I’m just not 100% sure and maybe I need more thought on when I do this.

Do you plan to withdraw the $8,000 in 15 months to buy a car?

If so, Koh says that’s too short a period to invest in a growth fund.

“It would be pure speculation with a high degree of risk to put money into a growth fund now in the hope that there will be a high return over the next 15 months. The market could go down further. C Now is a good time to practice “dollar averaging”, i.e. investing a small amount each month to spread the risk of the price paid for the units. the low point of the market cycle until it is well and truly over, so it is better to be cautious and invest little by little.

David Boyle, who is the former head of investor education at Sorted, says it’s a good thing you’re not too concerned about what the markets are doing right now.

“I suspect the markets are going to be more choppy over the next few weeks, months and even a year, but who knows. There are so many variables right now.

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