Your future wealth is at stake: How to make your retirement savings go the distance

Wednesday, 8 October 2025

Retirement savings are a bit like the forbidden fruit in the Garden of Eden. “Look, but don’t touch. Touch, but don’t eat,” you can almost hear a raspy, omniscient voice whispering in your ear.

After decades of hard work, getting access to that nest egg can feel like winning the lottery. But as any Lotto horror story shows, a windfall can disappear far faster than expected. And when that happens, there’s little left for the next generation.

New Zealanders may not be great at talking about money, but they need to set that aside to have an important conversation about how to make retirement money last and, more importantly, how to stop the insidious effect of inflation quietly devouring it.

Stuff reader Joanne*, now in her 60s, wrote in with a dilemma. She has about a $1 million in retirement savings, but she’s unsure of how to invest it now that she’s reached her retirement age.

She’ll need to start drawing down on the money, but she’s worried about burning through it too quickly, and she’d also like to leave a decent inheritance for her kids.

That said, she’d also like to enjoy her retirement and splash out on a few things that she had put off during her working life.

So what’s her best strategy? Should she cash out or continue investing into her 70s and 80s?

The trillion-dollar handover

Starting on the inheritance side, Joanne’s instinct to leave something to her kids could make a massive difference to their wealth.

Stats NZ recently published inheritance data for the first time. It showed households that had received an inheritance have a median net worth of $984,000, 86% higher than those that haven’t ($529,000).

The generational wealth shift now underway is enormous. According to Business and Economic Research Limited (BERL), New Zealanders born before 1966 hold 60% of the country’s $2.29 trillion in private wealth. Over the next two decades, they’re expected to transfer about $1.11 trillion to younger generations.

This will possibly be the biggest handover of wealth in our history, a flow of money from baby boomers to millennials, a generation battered by house prices, the GFC and Covid. How that money is managed in retirement will determine whether it grows or shrinks.

Get it wrong, and inflation and poor planning will chew through decades of saving.

Shrinking fortunes

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.”

That’s a quote often attributed (albeit disputed) to Albert Einstein about how powerful exponential growth can be over time.

Exponential growth and compounding mean your money grows faster over time because you start earning on what you’ve already earned.

This can be incredibly important when it comes to large sums, like your KiwiSaver or retirement savings.

“How you spend your KiwiSaver or retirement savings is just as important as how you save for it,” says Liam Robertson, senior KiwiSaver adviser at Milford Asset Management.

People are living longer, often into their 80s or 90s. That means up to 20 years of spending to plan for, and 20 years for inflation to erode the value of money.

Conventional wisdom says that once you retire, you should shift your funds into conservative or cash accounts to “lock in” your gains. But as Robertson points out, that can be a trap.

“A bank account is sometimes referred to as a guaranteed loss,” he says. The Reserve Bank tries to keep inflation between 1 and 3%. Even at the midpoint of 2%, the effect on your savings over time is brutal.

To illustrate, here’s what happens to $1 million sitting in cash if inflation stays at 2% a year:

• After 10 years: $817,072.81

• After 15 years: $738,569.10

• After 20 years: $667,607.97

Yes, banks do offer interest on a savings account, but this is often as low as 0.25-0.75% – and the impact will still be devastating over the course of a retirement.

Now, flip the equation. If that same $1 million earned 6% annually in a balanced investment fund while inflation stayed at 2% (a real return of 4%) the compounding effect works in your favour:

• After 10 years: $1,480,244.28

• After 15 years: $1,800,943.51

• After 20 years: $2,191,123.14

Previous performance is, of course, not indicative of what a fund might do in the future, but doing nothing will always leave the money vulnerable to inflation. As this example shows, the difference between these two choices could be as much as $1.5 million.

The maths underscores a simple truth: inaction is a risk strategy too. Leaving money idle in low-interest accounts guarantees slow, invisible loss.

The bucket approach

So how do you protect your capital while still being able to live off it?

Robertson suggests dividing savings into “buckets”, each with its own time horizon and level of risk.

“Every KiwiSaver fund has a minimum recommended investment timeframe,” he says. “A conservative fund might suit money you’ll need within three years, a balanced fund for five, and a growth fund for anything longer.”

This method allows retirees to draw short-term spending while keeping the long-term portion invested and compounding.

“The mistake people make is assuming retirement is the finish line,” says Robertson. “It’s actually the start of a 20- or 30-year investment period.”

The awkward money talk

This brings us back to that uncomfortable conversation families need to have. It’s not about who gets what, but about how the wealth is managed before it ever changes hands.

Many retirees grew up in an era of guaranteed term deposits and 10% interest rates. Today’s low-rate environment and rising life expectancy require a different playbook. Yet, few parents or children sit down to update their strategy.

Talking about it feels like meddling. Parents don’t want to be told what to do with “their” money. Kids don’t want to sound greedy. But at stake isn’t a holiday or an inheritance. It’s the family’s future financial stability.

Tom Hartmann, personal finance lead at the Retirement Commission, calls it one of the hardest but most necessary conversations to have.

“Most money conversations aren’t actually about money,” he says. “They’re about values or judgments about what the other person is doing.”

Hartmann’s advice: take the emotion out of it and keep the focus on numbers. Use tools like the Sorted Retirement Navigator to model different draw-down scenarios, which show how long savings will last under different spending rates, or how inflation changes the outcome.

It’s about empowering better decisions, not dictating them.

Why this matters now

The stakes have never been higher.

KiwiSaver has now been running for 18 years. Balances are growing, and for some New Zealanders, retirement savings could be as significant as the family home. Yet, the conversation about how to use that money is still catching up.

For decades, New Zealanders were told one thing: save for retirement. What we weren’t taught was what happens after you retire and how to turn that lump sum into sustainable income.

Those who treat retirement as a second investment phase, rather than a wind-down, tend to do better. They understand that even modest real growth over 20 years can mean hundreds of thousands of extra dollars.

Saving is simple. Spending wisely over 20 years is not. But with planning, clear goals and a bit of courage to talk openly about money, it’s possible to make that trillion-dollar handover strengthen, rather than weaken, New Zealand’s financial future.

*Name changed to protect the identity of the reader.