KiwiSaver: Four reasons you could withdraw before retirement

This story was first published in July 2019.

KiwiSaver has been helping us save for retirement since 2007, but a nice nest egg isn't the only thing it can be used for.

The retirement scheme, which has 2.8 million members, has four very specific options for if people want to withdraw before they turn 65.

Newshub looked into why you may want or need to take your money out of KiwiSaver.  

Purchasing your first home


Perhaps the most well-known option, KiwiSavers can be drained of everything up to the last $1000 to purchase a first home.

Prospective buyers must have been in the scheme for at least three years before making any withdrawals.

You may even get a bit of a top-up from the Government too with the KiwiSaver HomeStart grant, which can contribute up to $10,000 to a deposit on a new home - depending on how long you've been contributing and whether the home you're buying is a new build or an existing property.

Eligibility for the grant does depend on income, location and the house you're purchasing though. No grants for you if you're a high-income earner and want to buy a mansion worth millions.

If you're using KiwiSaver funds to buy your first home you will need to live in it - it can't be an investment property.  

You may be eligible to use your KiwiSaver to get back into the property market if you have owned in the past and meet certain criteria. Housing New Zealand will need to determine if you're in the same financial position as a first-home buyer.

A piggy bank on its side.
There's only a few situations where you can crack open the KiwiSaver piggy bank. Photo credit: Getty

Fleeing the country


Permanent migration to anywhere but Australia allows people to withdraw from their savings account.

If you're moving to Australia, you can either leave their savings in New Zealand or transfer them to an Australian superannuation scheme.

But if you have lived in literally any other country for a year you're able to withdraw your contributions, employer contributions and the $1000 kick-start. You won't be able to take out any member tax credits earned while in the scheme.

Anyone who wants to withdraw after emigrating must include a statutory declaration that you have moved away from New Zealand as well as evidence you have departed and lived at an overseas address since departure.

Financial crisis


You can withdraw from your account if you're in big financial trouble, but only your and your employers' contributions. Government contributions must stay in there, as well as the $1000 kick-start. 

There are strict rules for what counts as a financial crisis - being unable to pay for gas this week isn't a good enough reason, but defaulting on the mortgage is.

The IRD lists the following as a legitimate reason to withdraw for financial hardship:

  • unable to meet minimum living expenses
  • unable to meet mortgage repayments on the home you live in, resulting in your mortgage provider enforcing the mortgage on your property
  • modifying your home to meet special needs because of you or a dependent family member having a disability
  • paying for medical treatment if you or a dependent family member becomes ill, has an injury, or requires palliative care
  • incurring funeral costs if a dependent family member dies.

You can stop contributing to KiwiSaver before you're in serious financial trouble if need be though - anyone who has made a contribution and been a member for 12 months or more can take a savings suspension of between three months and one year.

A man looking at budgets.
It can be hard to balance the books. Photo credit: Getty

Serious illness


KiwiSaver members can drain their account in totality if they're facing a serious illness that could threaten their life or ability to work.

Personal contributions, employer contributions, Government contributions and even the $1000 kick-start can be pulled out, but the KiwiSaver website says you'll likely have to provide medical evidence to support the application.

Controlling your savings


KiwiSaver's structure isn't that flexible, and aside from the reasons above there's not much you can do with it until you're 65, aside from keeping your nest egg growing.

But that's not to say you shouldn't be watching it and making sure it's behaving in the way you need it to, especially if you've just made a big withdrawal.

Simplicity's Amanda Morrell told Newshub the way people respond to a big withdrawal from their KiwiSaver depends on what they withdrew their money for.

"If it was hardship, then you'll need to be in a position where you're able to make contributions again. If you made a withdrawal to buy your first home, then KiwiSaver becomes your retirement savings plan. If you're employed, then your employee and employer contributions will automatically rebuild your account."

Contributions to KiwiSaver must be at a minimum of at least 3 percent, but can go up to 10 percent of your income plus any lump sums you add to it.

If you've recently made a withdrawal the focus could be on rebuilding what you've lost as soon as possible, but Morrell said for some it may be more about ensuring they can cope with costs recently incurred.

An empty wallet.
Make sure what you're putting into your KiwiSaver is sustainable to avoid causing problems for yourself. Photo credit: Getty

"Most first time home buyers who use their KiwiSaver funds for a deposit will be focussed on paying off their mortgages and therefore making the minimum 3 percent, but it really depends on your personal circumstances and available income."

It's also important to ensure that you're in the right fund. What fund is right for a person depends entirely on personal circumstances, as they all have different risks, benefits, fees and investment goals.

For example, a young person who withdrew for a home may want to find a KiwiSaver fund that could generate a higher reward, but also comes with more risk. If they're young the KiwiSaver will have plenty of time to ride out any bumps in the market and will make more money in the long-term.

But somebody who may need to retire soon would probably want a fund with lower risk and reward, as they won't have as much time to recoup any losses.

Morrell said it's important to keep an eye on what you're paying the people who manage your KiwiSaver fund as well.

"You won't have any control over your returns but you can control how much you pay in fees.

"It's very important to understand the true cost of what you're paying in fees because they can gobble up to 20 percent of your nest egg by age 65."