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The Best Retirement Income Products in New Zealand - Funds, Term Deposits and Bonds

Our definitive guide outlines the most popular retirement income products in New Zealand, including funds, term deposits, and bonds, to help supplement your NZ Super and secure your financial future.
Updated 17 April 2023
Summary:​
  • With financial markets experiencing sharp declines in the last few years, many investors are looking for alternative options that offer higher returns whilst reducing downside risk.
  • Additionally, with an increasing number of Kiwis getting close to retirement age, many will be reviewing their finances and figuring out whether they’ll have enough expected income to support themselves in retirement.
  • We receive many emails every week asking,"Should I invest in a fund or go with a term deposit - I can't afford to lose any capital but don't want to miss out on returns". As the cost of living crisis filters through all ages, retirees have few income-earning options.
  • While NZ Super payments help to contribute to the cost of living in retirement for many Kiwis, NZ Super alone usually isn’t enough income to meet all needs.
  • As a result, retirement income products (which we define as specialist funds and term deposits or similar) have become popular for those retirees looking to generate additional income. However, there are risks, pros and cons to each.

Our guide is designed to help you learn about trusted options  to make informed decisions for a comfortable retirement. We cover:

MoneyHub Founder Christopher Walsh shares his views on income funds and other related options:

"Income-focused products such as retirement income funds, term deposits, and bonds are popular among retirees, risk-averse investors, and those with dependants. However, too many older New Zealanders lack certainty around retirement income - the products discussed in this guide aim to offer a stable income stream while being designed to preserve capital best".  

"However, there are many risks out there. Because generating an income from your investment is essential, please ensure you understand the risks and how you'll get your money back in any investment you make. In the past few years, many retirees have been lured into investments that sound like term deposits but are very different. Some advertising for property finance investments has led to action from the FMA".

"Please proceed carefully, and avoid making mistakes that are near-impossible to recover from. Always know exactly who you are investing with - legitimate investing companies don't chase you to send them money. In early 2023 there was a term investment scam heavily promoted over New Zealand - the results lost investors millions per this Fair Go story".
Christopher Walsh
MoneyHub Founder

What are Retirement Income Products, and How Do They Work?

Retirement income products are financial vehicles designed to provide a steady income during retirement. They're intended to supplement other retirement income sources such as NZ Super, rental income or personal savings you're comfortable spending. Retirement income products can either be invested in a single asset (such as cash) or in multiple different assets that generate income (such as a mix of equities, bonds and term deposits). Generally, a retirement income product pays income to investors based on the assets it holds.

What are the main types of retirement income products in New Zealand?

Because of the broad definition of retirement income products, many different investment vehicles are covered. However, if we assume that retirement income products are predominantly focused on generating income in retirement, these are the most common retirement income products in New Zealand:
  • Retirement Income Funds (also known as Retirement Investment Funds): These funds invest in a variety of assets that generate and distribute dividends, providing a regular income to supplement NZ Super etc. An example retirement income fund might look like this - 1) a small portion is invested in equities and properties, both domestically and internationally, whereas 2) a larger portion is invested in bonds and term deposits. Many different fund managers offer them - Fisher Funds, Mint and Milford Asset Management all being examples.
  • Term Deposits: These generate interest payments each month, quarter or whatever the agreement, paid into a nominated bank account or re-invested and compounded.
  • Bonds: Bonds generate a quarterly coupon payment e.g. a cash amount, although direct investing in bonds is less common among retirees.
  • Annuities: There aren’t many specific annuity programmes in New Zealand, and we don't expect to see any more established given a recent player (and New Zealand's largest provider) recently wound down their fund and replaced their guaranteed retirement income option with a simple service to calculate and monitor individual’s annuity factors.

Why do retirees prefer investing in income products?

Compared to other types of investments (like shares, ETFs or managed funds), retirement income products are specifically created to generate stable cash flow (in the form of either dividends, interest or income) for investors that need it.

Retirees are, arguably, most in need of stable income hence their general preference and desire to invest in income products in retirement. Retirees will generally be trading off higher potential returns than they would traditionally be getting if they invested in growth-oriented investments (like shares and growth funds) for stability and cash flow. Most retirees are happy to make this trade-off, given their essential need for income to supplement their ongoing costs.

Which Types of Kiwis Benefit the Most from Income Products?

Income products won't be ideal for all Kiwi investors, given there's generally less upside than long-term investments in growth funds. However, a few investor segments get the most benefit from income products: Retirees, risk-averse investors and Kiwis with dependants.

1. Retirees

​Because retirees have likely stopped working full-time, coupled with the earlier fact that NZ Super alone is likely not enough to meet most Kiwis' living costs, investing in income products that generate stable cash flow/income (through dividends or interest) on a monthly or quarterly basis are crucial to pay down essential expenses in retirement (such as food or utilities).

2. Risk-averse investors

Risk-averse investors are the type of investors that would prefer slow, steady, reliable gains compared to higher gains that are more uncertain. Due to this characteristic, many risk-averse investors are attracted to the stability of income products that usually invest more defensively (e.g. bonds, term deposits, cash or dividend shares). This stability, coupled with the high certainty of regular income payments, means income products are popular with more risk-averse Kiwis. 

3. Kiwis with dependants

Kiwis with dependants have obligations that go beyond just paying for themselves, e.g. providing for others who don't have an inherent ability to support themselves (think children or Kiwis with disabilities). With this responsibility to provide for someone else, Kiwis with dependants naturally invest more defensively. Additionally, not receiving an income or stable cash flow could be the difference between being able to afford life-saving treatments, medicine or other health needs. With this in mind, income products are an extremely attractive investment option for Kiwis with dependants that need to support their family's needs.

Understanding the Most Common Retirement Income Products in New Zealand

The three most common income products retired Kiwis choose to invest in are income investment funds, bonds, term deposits and specialist retirement income funds that consider your mortality to calculate an income to last a lifetime.

1. Income Investment Funds

Income investment funds are designed for those looking for a diversified income-focused investment option, offering a blend of fixed-income and equity investments. Income investment funds in New Zealand are generally closed-end mutual funds that focus on generating a steady income stream for investors. Income investment funds typically invest in multiple asset classes, including bonds, cash, and other fixed-income securities (although they sometimes include individual companies).

The goal of an income investment fund is to provide regular income payments to investors, such as dividends or interest payments, while also preserving capital. They may also offer exposure to equities, real estate, and other assets to help diversify the portfolio and provide the potential for long-term growth.

Income investment funds will typically not appreciate as much as other ETFs with a higher weighting to equities but will usually be far more defensive than individual stocks. Some of the most popular income funds in New Zealand include:

Retirement Income Funds in Detail:

​Fund
​Minimum Investment
​Distribution Options
​Total Fees
Fisher Income Fund
$100 per month
No regular distribution options
However, regular withdrawals are available (minimum $100 each time). 
0.93% per annum
Devon Funds Diversified Income Fund
$10,000
Paid out quarterly (and can be reinvested)
Three fee types: 
  1. Management Fee (0.65% per annum + GST). 
  2. Trustee, custody and administration fee (Capped at 0.25% per annum plus GST). 
  3. Other Fund expenses - Abnormal or one-off costs, brokerage, all taxes that may be incurred by the Fund. 
No Entry, Exit, Switch or Performance Fees. 
Superlife Income Fund
No minimum
N/A
Total management and fund administration charges of 0.46% per annum of the fund’s Net Asset Value. 
Which are made up of:
  1. Manager’s basic fee (0.44% per annum). 
  2. Other management  And administration charges (0.02% per annum).
  3. Administration fee ($12 per annum). 
Milford Diversified Income Fund
$1,000
1.45 cents per unit (Quarterly)
Total Fund Fees of 0.85% per annum (includes an estimated performance fee). 
Total Fund Fees are broken down into: 
  1. Base Fund Fee  of 0.65% per annum. 
  2. Performance Fee Of 10% of the Fund's returns above the Benchmark, subject to the high watermark. 
Squirrel Monthly Income Fund
$100
Once per month. These distributions can be either reinvested or paid into your bank account
Total Management Fees of 1.70% per annum (including GST). 
This includes the service margin deducted by Squirrel at the platform level.
Mint Diversified Income Fund
$250 per month or a lump sum amount of $5,000
Distribution varies (no fixed distribution schedule)
Total Fund Fees of 0.92% per annum (Inclusive of GST).
Harbour Income Fund
Direct investment minimum for individual investors is $100,000
Monthly. Estimated distribution rate of 4% per annum
Estimated Fund Fees of 0.63% per annum (excluding GST).
Nikko Asset Management Income Fund
Minimum initial investment of $250
Quarterly. Distributions in four equal instalments (March, June, September and December). 
Defined distribution rate is set each year (2023 is currently set at 5.5% per annum)
Estimated Fund Charges of 0.80% per annum (including GST).
Lifetime Retirement Income Fund
Minimum initial investment amount is $25,000
Every fortnight or monthly (the same as NZ Super)
​Annual Management Fee of 1.35% per annum. This fee includes personalised annual income reviews.
*All figures included are in New Zealand Dollars unless stated otherwise.
**While every effort has been taken to ensure these fund fees and statistics are up to date, fund fees may change without notice. 

Understanding Lifetime Retirement Income

MoneyHub users have written to us to better understand Lifetime Retirement Income and the fund it operates, given its transformation from an annuity to an income fund. We answer the most common questions below:
  1. My understanding is that it just runs as a retirement income fund without an annuity or with any insurance provisions.
  2. What kind of fees are paid on Lifetime Income?
  3. My understanding is that I need to spend my own money. How much does it cost to do so?

To answer these questions:
  1. Lifetime Retirement Income offers a decumulation product, which is the natural next stage in an investor’s life cycle after they’ve spent their working life accumulating savings for retirement. Decumulation simply means the drawing down of savings over a calculated time horizon (generally the investor’s expected life span). In this way, Lifetime Retirement Income combines investment returns with a portion of the investor’s original capital to provide a stable retirement income. This requires careful management and regular oversight of an investor’s expected investment horizon. Lifetime calculates a unique annuity factor for each of its investors and then revisits it annually to make sure it remains accurate. The annuity factor is made up of the investor’s age, gender, tax rate and expected mortality. By applying the factor to the investor’s capital Lifetime Retirement Income can calculate how much capital and investment earnings can be drawn down each fortnight or 4-weekly to last a retiree (or couple) into their nineties.
  2. The fees on Lifetime Retirement Income are 1.35% per annum, and are made up of 1.00% for investment management and 0.35% for ongoing annual income monitoring. Lifetime Retirement Income’s fund is a Portfolio Investment Entity (PIE) investment so Lifetime pays PIE tax on the investor’s behalf at their Prescribed Investor Rate (PIR).
  3. Any money invested in Lifetime Retirement Income remains the investor’s. Lifetime does not penalise investors for withdrawing their money; they can make both partial and full withdrawals at any time, with no limit on the number of partial withdrawals allowed. However, there is a minimum balance that needs to be maintained to remain invested in the Lifetime Income fund (unless agreed otherwise). Withdrawals are generally paid within 30 days of submitting a withdrawal request.

Similar to other income funds, Lifetime Retirement Income focuses on downside risk as opposed to growth, targeting medium to long term gross return of 5.50% per annum and risk as measured by volatility of 7.50% per annum.

The Lifetime Retirement Income team has created an Income Calculator to model various scenarios that can impact potential income, including investment horizon and approach, age, gender and starting capital.. This can give you a good feel for how things might work if you choose to invest with Lifetime Retirement Income.

For more information, check out some relevant links here:

2. Term Deposits

Many retirees invest in term deposits. It's a popular option and provides certainty in both the return and the time your money is locked away. More details on term deposits can be found in our guides:
Warning: Term deposits vs 'fixed return' investments
  • Many 'investment opportunities' have come to market in the past few years promising fixed returns well above what term deposits offer. These investments are not term deposits and you may lose your money.
  • Between 2006 and 2012, 60+ finance companies collapsed, taking retiree savings (and other investor money) with them. In recent years, there has been many firms offering 'wholesale investment' opportunities in property, promising high returns and then, in one case, being unable to pay the money back at the agreed time. This is after a series of FMA warnings about advertising the investments.
  • Anyone can promise high returns - knowing your money is safe and secure and will be returned is what matters. Any non-bank can promise "10% p.a, paid quarterly" or a "secured investment"; but they're not without risks. Too often, pensioners are caught out more than any other investor when a property finance company or something similar goes bust.

3. Bonds and Savings Accounts

More details on bonds, savings accounts and interest rates:

Know This: How are retirement income products compared and benchmarked?

Similar to how actively managed ETFs benchmark to an index like the S&P 500 or NASDAQ, fund managers that create retirement income products will usually set a performance goal, usually either to beat a benchmark or, in some cases, a target such as the Consumer Price Index (CPI) plus 3%.

Fund managers will develop a target asset allocation for retirement income products that determine where the money will be invested, including income assets (cash and fixed interest) and growth assets (property and shares). Generally, these investments are diversified both domestically and internationally. Once the benchmark and asset allocation are set, any income received from investments is usually distributed to investors quarterly or monthly. Then, if desired, the income can be reinvested into the fund to improve the overall return.

The Lifetime Retirement Income Fund is different in that its asset allocation and performance are based on achieving the greatest probability of an investor’s income level lasting their lifetime. At the current settings Lifetime has in place, there is an 80% probability the income levels calculated on their website will remain unchanged for 30 years.

The Pros and Cons of Investing in Retirement Income Products?

Pros

  • Provide a steady stream of income.
    Retirement income products are generally filled with bonds and other blue chip dividend-paying stocks that provide a steady income stream. This income can help retirees meet their daily expenses in addition to NZ Super without worrying about market volatility.
  • Less likely to experience substantial drawdowns (lower risk).
    Retirement income products can provide diversification to an investment portfolio, which can help reduce risk. A well-diversified portfolio can help retirees weather market fluctuations and ensure they have a stable income source. Additionally, compared to growth investments like stocks, retirement income products are generally considered lower risk than single-share investments. While returns may be lower, the risk of losing money is also lower, making income products a more stable investment choice for retirees.
  • Returns are likely to be more predictable and stable.
    ​Due to the types of investments that income products invest in, many income products offer predictable returns, which can help Kiwi retirees plan their budget and income needs accordingly. This predictability makes it easier for them to manage their expenses and maintain a comfortable lifestyle in retirement.

Cons

While there are some great benefits to investing in retirement income products, they also have their fair share of downsides:
  • Lower returns versus growth stocks.
    Retirement income products tend to provide lower returns compared to growth investments. However, because income products are designed to provide a steady income stream to retirees, this typically means that the investments themselves are more conservative and lower risk. While this  may be attractive for risk-averse people, it may not be ideal for those looking for higher returns to meet their retirement goals. The exception is Lifetime Retirement Income who calculate the maximum level of income which can be drawn down over a long period of time (25 - 30 years) using both capital and investment income.
  • Potentially high fees.
    Fees associated with retirement income products can be relatively high, which can eat into the returns. These fees include management fees, administration fees, and other charges, which may add up over time and impact the overall value of the investment.
  • Higher risk of negative real returns (return after factoring in inflation).
    ​    Retirement income products may not provide as much growth as other investments, such as equities or property. This means that the investments may not keep pace with inflation, which can erode the purchasing power of the income generated. As a result, it’s important to balance the need for a steady income with the need for growth to ensure that the investment portfolio provides enough income to last through retirement. The Lifetime Retirement Income Fund includes an option to inflation adjust income levels. Income levels are lower in the early years of retirement then increase each years in line with a predetermined and monitored long term inflation factor.

Must-Know Facts about Income Products

1. Income funds aren't the same as bank term deposits but have a similar purpose.

It's important to understand that income funds are not similar to bank term deposits (or government bonds). However, while income funds are more complex and sophisticated in their structure, they do fulfil the same need. Over the past few years, income funds have performed well, partly due to investments in shares.

Know This: Investing in income funds also involves some risk, as the value of your capital may fluctuate and even decrease during negative market conditions, which is not the case with traditional bank deposits. But if you have a long-term investment horizon and can tolerate some volatility, then an income fund may be a good option.

2. Just because an income fund targets a certain return doesn’t mean it will always pay that amount out.

The final return from an income fund is not guaranteed, and the value of the investment may change as market conditions vary. Despite this, with careful evaluation of your finances, investing in an income fund may offer the potential to outperform low-interest rates.

3. Buying in and selling out of income funds may take longer than investing in ETFs through share trading platforms.

Because income funds are generally actively managed and packaged as products rather than traded as ETFs, they generally have less liquidity than funds traded on public stock exchanges. This lack of liquidity can mean that there’s a lag between when you want to buy/sell out of an income fund and when you receive your funds. 

Frequently Asked Questions

I've invested in individual shares and have just hit retirement age. I'm far more comfortable investing in shares - is it mandatory to invest in a retirement income product in New Zealand?

No, investing in a retirement income product in New Zealand is not mandatory. The decision to invest in a retirement income product is personal and should be based on your circumstances and retirement goals.

Can I withdraw my money from a retirement income product?

​The ability to withdraw money from a retirement income product will depend on the specific product and the terms of the investment. For example, some products, such as annuities, have penalties for early withdrawals, while others may have more flexible withdrawal options. 

Can I change my retirement income product?

​The ability to change a retirement income product will depend on the specific product and the terms of the investment. For example, some products may restrict changes or transfers, while others may be more flexible.