KiwiSaver is a great tool to kickstart your long-term investment plan. You can use it to help fund your retirement or a first home. In some circumstances, you can also withdraw some of your KiwiSaver investment for hardship reasons.
Going through financial hardship can be overwhelming and difficult to navigate. It can be hard to see your options clearly at a time of such high stress. However, withdrawing your KiwiSaver investment for hardship reasons comes with long-term risks and should only be considered as a last resort.
In this article, we address what these long-term risks are and some options you can look at first before deciding to eat into your life savings.
More About Financial Hardship
Before we delve in, let’s address what financial hardship is. Financial hardship may occur as a result of:
- Job loss
- A relationship breakdown
- Illness or injury that affects your ability to work
- A natural disaster affecting your income or household
- An unforeseen event that has negatively impacted your finances.
You may be concerned about how you will meet your rent or mortgage payments or cover essential costs such as food and utilities. You may have experienced a loved one passing and face an unforeseen bill to cover the funeral expenses. Whatever your situation may be, we acknowledge that this can be a difficult time for anyone to navigate. But know this time will not last forever and you have options to help you through.
The risks of withdrawing KiwiSaver for hardship reasons
KiwiSaver is a long-term investment scheme with built-in benefits that reward consistency and patience. The real magic of KiwiSaver lies in two powerful principles: dollar cost averaging and compounding returns.
By making regular contributions (through dollar cost averaging) over many years, you are able watch your investment grow in value through your contributions and compounding returns. Dollar cost averaging is the set amount you contribute at regular times, regardless of whether the markets are up or down. This helps to reduce the risk of making emotional decisions around trying to time the market and creates a smoother long-term growth plan.
Compounding returns are the cumulative gains (and losses) on your original investment and contributions – it’s not just the original investment that accumulates returns, but the returns generating returns as well. Einstein called compounding returns the 8th wonder of the world. Because it’s money that is growing in value without you having to do much work.
To benefit from compounding returns and dollar cost averaging, you need to have time on your hands, which is why withdrawing KiwiSaver prematurely can be detrimental to your long-term financial wellbeing. You essentially miss out on this growth over time. Markets also go up and down, so the more time you have to grow wealth, the more time you have to weather these ups and downs.
But what if you’re struggling financially?
Financial Hardship withdrawals are on the rise. Inland Revenue reported more than $389 million was taken out of KiwiSaver between July 2024 and April 2025 for hardship reasons*. This is up from $300 million the year prior which suggests more Kiwis are struggling financially. So, if you want to avoid touching your KiwiSaver investment, what can you do instead? Here are some options:
- Seek expert advice. You can discuss your situation with a trusted financial adviser or contact support organisations like Citizens Advice Bureau. You might also be eligible for government benefits, especially in cases of job loss or illness.
- Review your spending plan. Find some non-essential costs you could afford to go without. If there is no give, look for ways you could increase your income during this time through a side hustle. We know this is easier said than done and finding extra income may not be an option if you are caregiving for loved ones or taking time out of work due to injury or illness. This leads us into the next option below.
- Review your insurances. If you have a personal insurance plan, check if you are eligible for any benefits. An insurance adviser can help decipher what you may be eligible for and, if you are, they can support you through the claims process.
Worried about meeting your obligations? Here’s what you can do.
- Talk to your utility providers. Many offer flexible payment plans if you’re struggling. However, it’s best they hear from you as soon as possible if you are at risk of missing a payment. Communication is key.
- For short-term debt or home loans, reach out to your lender. Banks are very willing to work with you to ensure you can meet your repayment obligations. But they prefer early conversations. They may be able to help you restructure your loan or offer a short-term repayment holiday.
- Avoid adding to your debt. More debt can only hurt your situation further. It might be tempting take out a short-term loan to help cover immediate costs, but the repayments accrue interest, making it harder to pay back down the line. Avoid credit cards where possible and try switching to cash – this can help you be more mindful of your spending.
- Embrace second-hand and DIY. From clothing to furniture – there are lots of ways to cut costs without sacrificing too much comfort.
- Put KiwiSaver contributions on hold. You can take a break from your KiwiSaver contributions while you get back on your feet. It’s better to pause than to withdraw.
If you still feel you have no other option…
You may be able to apply for a KiwiSaver withdrawal under financial hardship, but there are strict rules. The funds can only be used for essential living costs such as food, medical bills, rent or mortgage payments. You can’t use it to pay off credit card debt, take a holiday, or cover non-essential hire purchases. Lastly, you can only access the money you’ve contributed (along with your employer’s contributions and any investment growth) – not any government contributions you have received.
This is why KiwiSaver withdrawals for hardship are really designed as a last resort, not a financial first-aid kit.
In summary:
- KiwiSaver is designed to support you in the long run for your retirement or first home. Protect it if you can.
- If you’re facing hardship, get advice first.
- Only look to withdraw from your KiwiSaver investment once all other options have been exhausted.
If you’re in a tight spot and unsure of your next move, talk to an enable.me Financial Coach. A quick conversation could help you make a more informed decision – and protect your long-term financial wellbeing.
Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice.
*Statistic Sourced from Inland Revenue
