How to Invest So You Never Run Out of Money in Retirement
Our guide explains the "bucket" approach to retirement investing - a simple, proven way to organise your KiwiSaver, NZ Super and savings so your money lasts as long as you do. We cover how the three buckets work, where to put each bucket, which tax applies, and the mistakes that quietly cost retirees the most.
Updated 26 June 2026
Summary
Our guide covers:
To work out your own numbers, use our Retirement Calculator and read our popular guide How Much Do You Need to Retire Comfortably in New Zealand.
Important: This guide is general information and journalistic in nature - it is not personalised financial advice. Drawdown, tax and property decisions are specific to your situation, so we suggest you consider talking to a financial adviser before acting.
Disclaimer: MoneyHub provides this guide for general information and journalistic purposes only. It does not constitute personalised financial advice, investment advice, tax advice, or a recommendation to buy, sell or hold any financial product, including KiwiSaver funds, investment funds, term deposits or any other investment. The information reflects our understanding of the rules and products as they are now - tax rules, NZ Super settings and product features change over time, and you should confirm the current position before acting.
- Retirement flips the whole job of investing on its head. For your working life, the goal was to build up your savings. The moment you stop working, the goal becomes making these savings and investments last - without running out, and without being so cautious you leave most of it behind.
- The "bucket" approach is one of the most practical ways to do that. Instead of treating your savings as one big number and hoping it stretches, you split them into three pools, each with its own job and its own time horizon.
- NZ Super is the foundation of every retirement plan. It's a guaranteed, inflation-linked income for life that you don't have to buy, manage or worry about outliving - and your KiwiSaver and other savings sit on top of it. See our guide to NZ Super Rates for the current payments.
Our guide covers:
- Understand the Foundation of Retirement Income - NZ Super
- Understanding Why Three Buckets Are Designed to Beat One Nest Egg
- Does Leaving Money to Your Kids Change Your Plan?
- What Considerations Are Relevant to Your House?
- A Typical Example Explained with Numbers
- Frequently Asked Questions
To work out your own numbers, use our Retirement Calculator and read our popular guide How Much Do You Need to Retire Comfortably in New Zealand.
Important: This guide is general information and journalistic in nature - it is not personalised financial advice. Drawdown, tax and property decisions are specific to your situation, so we suggest you consider talking to a financial adviser before acting.
Disclaimer: MoneyHub provides this guide for general information and journalistic purposes only. It does not constitute personalised financial advice, investment advice, tax advice, or a recommendation to buy, sell or hold any financial product, including KiwiSaver funds, investment funds, term deposits or any other investment. The information reflects our understanding of the rules and products as they are now - tax rules, NZ Super settings and product features change over time, and you should confirm the current position before acting.
Understand the Foundation of Retirement Income - NZ Super
Before you build a single bucket, know what you already have. NZ Super is universal and not means-tested - if you're 65 or over and meet the residency rules, you receive it regardless of your other income or assets. It's paid fortnightly, for life, and it rises over time to keep pace with wages.
That makes it the bedrock of every retirement plan - it's a guaranteed income for life that you don't have to buy or manage. Everything else you've saved sits on top of it. For the current rates, see our NZ Super Rates table.
Warning: NZ Super alone rarely funds the lifestyle people picture
That makes it the bedrock of every retirement plan - it's a guaranteed income for life that you don't have to buy or manage. Everything else you've saved sits on top of it. For the current rates, see our NZ Super Rates table.
Warning: NZ Super alone rarely funds the lifestyle people picture
- NZ Super covers the basics - especially if your home is mortgage-free - but most retirees spend more than it pays.
- Massey University's annual Retirement Expenditure Guidelines (downloads the PDF report) track what retirees actually spend. The pattern is the same every year: people spend above NZ Super, and the gap you have to fund yourself runs from a small top-up for a modest provincial lifestyle to a sum well into seven figures for a comfortable life in a main city. For the latest figures, see our guide to How Much Do You Need to Retire Comfortably.
- That gap - between what Super pays and the life you actually want - is the whole reason you've been saving. The three buckets are simply a sensible way to organise the savings that bridge it.
Understanding Why Three Buckets Are Designed to Beat One Nest Egg
Most people look at one number - their KiwiSaver balance plus any savings - and try to make it stretch. The problem is this treats a retirement that might last 25 or 30 years as a single block, even though your spending and risk appetite will look completely different at 66 than, for example, at 83.
It also forces an impossible question. You want the once-in-a-lifetime experiences while you're fit enough to enjoy them, you might want to redo the kitchen in a few years, and you may want to help your children - all out of the same pool, at the same time.
A popular solution is to split your money by when you'll spend it:
It also forces an impossible question. You want the once-in-a-lifetime experiences while you're fit enough to enjoy them, you might want to redo the kitchen in a few years, and you may want to help your children - all out of the same pool, at the same time.
A popular solution is to split your money by when you'll spend it:
Bucket |
Timeframe |
Its job |
Where it goes |
Bucket 1 |
0-3 years |
Money you'll spend soon and to provide for an emergency fund |
Cash, term deposits, cash funds |
Bucket 2 |
3-10 years |
Income engine - tops up NZ Super |
Income / diversified funds, or a managed income product |
Bucket 3 |
10+ years |
Long-term growth and legacy |
Growth assets - shares and multi-asset funds |
Know This: Because each pool has a clear job, decisions get easier - and you're far less likely to be forced to sell shares at a bad moment to cover a short-term bill.
Our view - the truth about the bucket method:
Our view - the truth about the bucket method:
- Bucketing is, first and foremost, a behavioural tool. The maths doesn't prove it beats holding one well-diversified portfolio and drawing from it. However, what it does well is keep you invested.
- When markets fall - and over a 30-year retirement, they will, repeatedly - a retiree who can see three years of spending sitting safely in cash is far less likely to panic and sell their growth assets at the bottom. Avoiding that single mistake is usually worth more than any clever optimisation.
Bucket 1 Explained: Cash you'll spend in the next 0-3 years
This is the money you'll spend first, so it can't be anywhere near the sharemarket. Bucket 1 holds your emergency fund, the day-to-day spending NZ Super doesn't cover, and high near-term costs - an overseas trip, a new car, a kitchen renovation.
Where most investors keep it:
Why no shares? Over one to three years, the market can fall and stay down. If your short-term money is in shares when that happens, you're forced to sell at a loss to pay the bills - holding cash eliminates this risk.
Common Question: How much should Bucket 1 hold?
Two things to know about KiwiSaver and tax:
Where most investors keep it:
- On-call savings accounts for anything you might need at short notice
- Term deposits with different maturity dates so cash frees up in stages
- Cash funds (cash PIE funds), which can pay a better after-tax return than a bank account with very little risk
Why no shares? Over one to three years, the market can fall and stay down. If your short-term money is in shares when that happens, you're forced to sell at a loss to pay the bills - holding cash eliminates this risk.
Common Question: How much should Bucket 1 hold?
- The answer is to work out what you spend on top of NZ Super each month, then multiply by 24 to 36 months. That's your target.
- Much more than that is its own risk - inflation slowly eats the value of cash, so this bucket is for safety, not growth.
Two things to know about KiwiSaver and tax:
- KiwiSaver is tax-free when you withdraw at 65: It's taxed on its earnings along the way (through your PIR), so there's no tax bill on the way out - and no need to pull it all into cash at once. You can take some, all, or none, as you need it.
- Check your PIR: Income from PIE funds is taxed at your Prescribed Investor Rate, which is capped below the top personal income tax rate - so a PIE can be more tax-efficient than a bank account paying interest. See our Tax on Investments and Savings guide.
Bucket 2 Explained: Your income engine (3-10 years)
Bucket 2 does the heavy lifting through your mid-to-late 60s and into your 70s. Its job is to top up NZ Super to the level you actually want to live on, while still growing enough to keep pace with - ideally outpace - inflation. You have two realistic ways to run it:
Option 1: Drawdown (do it yourself)
Option 2: A managed income product
Option 1: Drawdown (do it yourself)
- Your money stays invested - usually in income or diversified funds held through an investment platform - and you take out small amounts as you need them. A long-standing rule of thumb says you can withdraw about 4% of the balance a year (per our dedicated guide) without running it down too quickly. Our guide on How to Take Income from Investments has more details.
- Important: Treat the 4% figure as a guide, not a law. It was built on historical market data, it's been argued over for decades, and - most importantly - because NZ Super already covers your baseline, you're usually only drawing down to top Super up, not to fund everything. That often means you can be less conservative than a strict 4% suggests. We suggest you model your own numbers using our Retirement Calculator.
Option 2: A managed income product
- If you'd rather hand the calculation to someone else, a small number of providers run a managed retirement income product.
- The best known is the Lifetime Retirement Income Fund, which combines investment returns with a measured drawdown of your own capital - using factors such as your age, sex, tax rate and life expectancy (reviewed each year) to work out an income designed to last into your 90s.
- Our guide to popular retirement income products for the alternatives is a helpful read.
Bucket 3 Explained: Long-term growth and legacy (10+ years)
The instinct the day you retire is to de-risk everything. For your short-term money, that's arguably a popular decision. However, for Bucket 3, it's usually a mistake.
If you're 63 today, you may not touch this pool for 20 years. If part of it is for the grandchildren, the horizon is longer still. Over periods that long, shares have historically delivered returns that cash and bonds can't match, and being too cautious has quietly cost retirees a great deal of real, inflation-adjusted wealth.
Popular approaches include:
New Zealand has a simple tax structure:
Two things to watch:
If you're 63 today, you may not touch this pool for 20 years. If part of it is for the grandchildren, the horizon is longer still. Over periods that long, shares have historically delivered returns that cash and bonds can't match, and being too cautious has quietly cost retirees a great deal of real, inflation-adjusted wealth.
Popular approaches include:
- Meaningful exposure to growth assets: This includes shares, ETFs and simple multi-asset funds.
- You don't need to be a stock-picker: A single low-cost multi-asset (diversified) fund, reviewed once or twice a year, is enough for most people. See our guide to asset allocation.
- Growth focus: The longer your horizon, the more you can hold in shares, ETFs and funds
New Zealand has a simple tax structure:
- There is no inheritance tax and no estate duty.
- There is no gift duty - abolished in 2011, so you can gift during your lifetime without a duty bill.
- No general capital gains tax - the bright-line test on residential property is the main exception. See our Capital Gains Tax guide if you own rental properties.
- Overall, your long-term pool can stay invested for growth without a death tax shaping the decision which means you're free to let it compound.
Two things to watch:
- How you hold international shares: Holding overseas shares directly, above the Foreign Investment Fund (FIF) threshold, brings you into the FIF tax rules. Holding the same global exposure through a PIE fund sidesteps that complexity.
- Your property weighting: Most people carry far more of their wealth in their home than in financial assets - see the section below for more details.
Does Leaving Money to Your Kids Change Your Plan?
Yes - mostly in Bucket 3, and mostly in your favour. Money earmarked for children or grandchildren who won't need it for 15 or 20 years has a long horizon by definition, so it can be invested for growth like the rest of Bucket 3.
Further to this, we list a few practical points:
Further to this, we list a few practical points:
- Gifting is straightforward: With no gift duty since 2011, you can give money away during your lifetime without a duty bill. Two things worth being aware of: large gifts in the years before entering residential care can be assessed for the Residential Care Subsidy, and gifting can interact with relationship-property arrangements.
- Kids can invest too: A minor can hold managed funds or ETFs (in trust until they turn 18), and KiwiSaver can be opened from birth. See our guide to investing for grandchildren.
- Larger or more complex estates may warrant a trust. This is specialist advice territory and we suggest you see a lawyer and a financial adviser.
- If the money is for a near-certain cost - such as your own care fees - then certainty matters more than growth, and a managed income product or a conservative holding may suit better.
What Considerations Are Relevant to Your House?
For most New Zealanders, the family home is the largest asset by far - and many retirees are "asset-rich but cash-poor": comfortable on paper, tight on monthly income. Your home (and any rentals) sit alongside the three buckets, not inside them, and it changes the whole picture.
There are broadly two ways to turn home equity into retirement income:
There are broadly two ways to turn home equity into retirement income:
- Downsizing - selling and buying something smaller or cheaper, freeing up capital you can then split across your buckets. Often the cleanest option, but a big move, and not without its risks.
- Equity release - a reverse mortgage, or a product like Lifetime Home (aimed at those 70+), which lets you draw on your home's value without selling. These can work in the right circumstances but carry real trade-offs around compounding interest and the equity left to your estate. Our guide to Using Home Equity for Non-Essential Expenses has more details.
A Typical Example Explained with Numbers
Warning: This is a simplified illustration to show how the pieces fit together. It is not a recommendation, and the numbers are made up.
Sue and Mark, both 65, mortgage-free, with $400,000 in combined KiwiSaver and savings. They want more than the basics - a comfortable retirement with room for travel and a healthy buffer. NZ Super is their guaranteed baseline, and they plan to use their savings to lift it by around $20,000 a year.
Here's how they split the $400,000 across the three buckets:
How it behaves: When markets fall, Sue and Mark spend from Bucket 1 and leave Buckets 2 and 3 alone to recover, so they're never forced to sell shares at the bottom. In good years, they refill Bucket 1 from the others (by selling down the profits) and let the rest keep growing. A review once or twice a year keeps the buckets topped up in the right order.
Related resource: Check your numbers and plans with our Retirement Calculator
Sue and Mark, both 65, mortgage-free, with $400,000 in combined KiwiSaver and savings. They want more than the basics - a comfortable retirement with room for travel and a healthy buffer. NZ Super is their guaranteed baseline, and they plan to use their savings to lift it by around $20,000 a year.
Here's how they split the $400,000 across the three buckets:
- Bucket 1 - around $60,000 (years 0-3): about three years of their $20,000 top-up, held in on-call savings, a short-term deposit ladder, and a cash fund. This is the money they spend first, and it's protected from any market wobble.
- Bucket 2 - around $200,000 (years 3-10): their income engine, in a balanced/income fund. It's drawn down gradually over the medium term to refill Bucket 1 as it empties, while still generating a return along the way.
- Bucket 3 - around $140,000 (years 10+): left untouched in a growth-tilted multi-asset fund. Some is for the grandchildren, so it has a 15-to-20-year horizon and can stay in shares - quietly compounding until it's needed or passed on.
How it behaves: When markets fall, Sue and Mark spend from Bucket 1 and leave Buckets 2 and 3 alone to recover, so they're never forced to sell shares at the bottom. In good years, they refill Bucket 1 from the others (by selling down the profits) and let the rest keep growing. A review once or twice a year keeps the buckets topped up in the right order.
Related resource: Check your numbers and plans with our Retirement Calculator
Frequently Asked Questions
How much should I keep in cash?
Usually it's popular to have enough to cover the spending NZ Super won't, for roughly two to three years (that's Bucket 1). More than that, inflation erodes its value. However, having less means you risk being forced to sell growth-focused investments in a downturn.
Is the "4% rule" safe?
It's a useful rule of thumb, not a law. It was built on historical market data and has been debated for decades. Because NZ Super already covers your baseline, you're usually only drawing down to top up, which often means you can be less conservative than a strict 4% suggests. However, you need to model your own situation rather than relying on the headline number. Our guide to the four percent rule has more details.
Should I take all my KiwiSaver out at 65?
There's no automatic reason to. You can withdraw some, all or none, and leave the rest invested. For many people, drawing it down gradually (your Buckets 2 and 3) makes more sense than pulling it all into cash. Our guide to KiwiSaver withdrawals and mistakes explains more.
Do I pay tax when I withdraw my KiwiSaver? Will my children pay tax on what I leave them?
Both answers are no:
- KiwiSaver is taxed on its earnings along the way (through your PIR), so withdrawals at 65 are tax-free.
- New Zealand has no inheritance tax or estate duty, and gift duty was abolished in 2011, which is a big reason the legacy side of retirement planning is more straightforward than people expect.
Is the bucket method better than just having one investment account?
Mathematically, often not by much - a single well-managed, diversified portfolio can perform just as well. The bucket approach's real value is behavioural - it makes it far easier to stay invested and avoid panic-selling when markets fall.
That being said, the bucket approach isn't a full financial plan - it's a way to keep your money working hard for as long as possible while making sure your near-term needs are covered. We suggest you get a pen and paper and have a go at dividing your own savings into the three buckets. At the very least, it'll help you ask the right questions.
Be aware of the complexity: Drawdown rates, tax, property and estate planning are genuinely individual, and getting them wrong is costly. For anything beyond the general framework here, we suggest you consider speaking to a financial adviser who can look at your whole picture - Super, KiwiSaver, savings, property and goals - together.
That being said, the bucket approach isn't a full financial plan - it's a way to keep your money working hard for as long as possible while making sure your near-term needs are covered. We suggest you get a pen and paper and have a go at dividing your own savings into the three buckets. At the very least, it'll help you ask the right questions.
Be aware of the complexity: Drawdown rates, tax, property and estate planning are genuinely individual, and getting them wrong is costly. For anything beyond the general framework here, we suggest you consider speaking to a financial adviser who can look at your whole picture - Super, KiwiSaver, savings, property and goals - together.
