As living costs rise, more New Zealanders are turning to KiwiSaver hardship withdrawals to cover essentials like rent and power. While this offers short-term relief, the long-term consequences can be significant.
Understanding the Growing Trend
As the cost of living continues to rise, many New Zealanders are turning to KiwiSaver hardship withdrawals to cover essentials such as rent, groceries, or medical bills. While these withdrawals can provide short-term relief, they often come at a steep long-term cost.
KiwiSaver was established to build financial security for retirement. Taking money out early reduces the balance available later in life and can undermine the compounding growth that makes the scheme effective. For example, an $8,000 withdrawal today could reduce retirement savings by $40,000–$50,000 once lost investment returns, employer contributions, and government contributions are taken into account.
The Legal and Financial Implications
Hardship withdrawals are only permitted in cases of genuine financial difficulty. Applicants must show that they are unable to meet basic living costs or are facing pressing expenses such as urgent medical treatment. Withdrawals are not available for general debt unless the debt is already in arrears.
While such a withdrawal does not directly affect your credit score, it may be viewed by lenders as a sign of financial instability. This, in turn, could impact borrowing capacity when applying for a mortgage or personal loan. The decision to apply for a hardship withdrawal should therefore be considered carefully, as it can influence both your retirement savings and your broader financial position.
Connecting KiwiSaver to Estate Planning
What is often overlooked is how KiwiSaver hardship withdrawals intersect with Estate Planning. For many people, KiwiSaver is one of their largest financial assets. Decisions made today can have downstream effects on retirement income, superannuation entitlements, and the assets available to pass on to family members.
By drawing down on KiwiSaver funds early, individuals may inadvertently alter the long-term financial position of their estate. This can affect how much wealth is available to provide for spouses, children, or other beneficiaries in the future. Integrating KiwiSaver into an estate plan ensures that financial choices made under pressure today do not create unintended complications later.
Estate Planning is not simply about drafting a will. It also involves structuring assets to provide for dependants, managing tax obligations, and ensuring that investments such as KiwiSaver are properly accounted for. A well-considered plan can protect your retirement lifestyle while also safeguarding your family’s future.
Alternatives to Consider
Before applying for a hardship withdrawal, it is worth exploring other options such as:
- Accessing Work & Income assistance.
- Seeking help from budgeting services.
- Pausing or reducing KiwiSaver contributions temporarily.
- Consulting financial advisers about debt restructuring or relief.
- These steps may protect both immediate needs and long-term security without eroding retirement savings.
How Wynyard Wood Can Help
KiwiSaver hardship withdrawals raise complex questions that go beyond finance alone—they touch on your future security and the legacy you leave behind. At Wynyard Wood, we help clients align financial decisions with broader Estate Planning goals, ensuring today’s challenges do not compromise tomorrow’s opportunities.
If you wish to protect your assets through Estate Planning, contact Wynyard Wood for practical legal guidance tailored to your situation.
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