Will a Recession Put Your Life Savings at Risk?

A 66-year-old part-time worker in New Zealand is concerned about the potential impact of a recession on their life savings, particularly their KiwiSaver balance and small mortgage, prompting a question to RNZ’s money correspondent about whether to withdraw funds ahead of an economic downturn.

The individual, who cannot afford to lose their savings and continues working due to financial obligations, sought advice from Susan Edmunds on whether to adjust their KiwiSaver settings in anticipation of a possible recession.

Edmunds advised against making changes to KiwiSaver investments solely based on the prospect of economic problems, stating that such decisions should not be driven by short-term market fears.

She suggested that if the person truly cannot afford to see their balance drop, it may be prudent to consider moving to a conservative or cash fund, provided they are not already in such an option.

However, for those who do not expect to need the money for another decade or more, taking on more investment risk could be appropriate, as long-term horizons allow time to recover from market downturns.

Edmunds emphasized that if the individual’s KiwiSaver is already in a fund suited to their risk tolerance and time horizon, the best course may be to simply wait out any volatility without altering their strategy.

She referenced a recent story in which Pie Funds chief executive Ana-Marie Lockyer noted that despite current uncertainty, sharemarkets have been holding up well — though this could change.

For those unsure about their current fund or investment alignment, Edmunds recommended consulting with their KiwiSaver provider or a financial adviser to review their situation.

Although the individual did not ask about their mortgage, Edmunds noted that using KiwiSaver funds to pay off home loan debt could be worth considering, given that many funds have recently returned more than typical mortgage interest rates.

She cautioned, however, that this advantage might not persist if interest rates rise again, as expected, since the relative returns from investments versus borrowing costs could shift.

The broader context highlights ongoing public concern about economic stability, with research indicating that a significant portion of workers and retirees share worries about how recessions could affect long-term financial security.

Financial experts consistently advise that preparing for economic downturns involves a long-term perspective, diversification, and a clear understanding of personal risk tolerance rather than reactive decisions based on short-term forecasts.