Lump sums and inheritances: how they change your retirement pay

A lump sum, whether an inheritance, a redundancy payment or money from downsizing, raises your retirement pay less than people expect, because it has to be spread across the rest of your life. For our example couple, $100,000 adds about $57 a week to their retirement pay from 65 to 95 if it arrives at 65, in 9 of 10 simulated markets. If it arrives earlier it has longer to grow; if later, it supports more each week from then on. The biggest risk with an inheritance is spending it before it arrives. NZ Super is not affected by any lump sum. Rules checked 12 November 2026.

How much a lump sum adds a week

A useful rule of thumb from our engine: spread from 65 to 95, each $100,000 pays about $69 a week with steady returns of 2.5% after fees and tax, and about $53 a week in 9 of 10 markets, all in today's dollars. The shorter the time left, the more it supports each week:

These use the official assumptions behind KiwiSaver statements (2.5% after 65, 2% inflation, from Schedule 7A of the Financial Markets Conduct Regulations 2014), our 6% yearly swing in returns, and our planning age of 95. Our life expectancy guide explains why we plan that far.

Does timing matter? A worked example

Our example couple are both 55. She earns $80,000 and has $150,000 in KiwiSaver; he earns $60,000 and has $100,000; they have $50,000 of other savings. They plan to retire at 65 and plan to 95. Without any lump sum, their retirement pay (NZ Super plus savings, the same each week in today's dollars) is $1,052 a week in 9 of 10 markets, and $1,154 in a typical market.

Now add $100,000 at different ages:

Two things are going on:

• In a typical market, earlier is better. Money that arrives at 56 has nine years to grow in a balanced fund before retirement, so it adds $78 a week against $64 if it arrives at 85.
• In a poor market, later looks better. Money that arrives late spends fewer years exposed to market swings, so in the worst runs of markets it is worth a little more.

Read the later rows with care. They assume the couple spend more from 65 because they know $100,000 is coming at 80 or 85. With an inheritance you rarely know the amount or the date, and it may never come: the person may need the money for their own care, or live longer than expected. Counting on it early is the single biggest mistake with inheritances.

Planning for an expected inheritance

Our suggestion is simple: plan without it, and treat it as a bonus when it arrives. Run your plan on the retirement pay calculator without the inheritance. Then add it under "Spending by age, one-off costs and lump sums" at a cautious age and amount, to see what it would add. If your plan only works with it, that is a warning sign.

When it does arrive, rerun your figures from that point. The table above shows that money arriving at 80 adds about $65 a week to the level pay; spent only from 80 to 95, $100,000 supports about $110 a week in 9 of 10 markets ($133 with steady returns), because there are fewer years left.

A family conversation can help, if it is welcome. Knowing whether parents have enough for their own care, and whether they plan gifts during their lifetime, removes a lot of guesswork.

Spend it as time instead of money

A lump sum before retirement does not have to raise your weekly pay. You can take it as time instead. For our example couple, $100,000 arriving at 56 lets them retire at 63 and 9 months, 15 months earlier than planned, on the same $1,052 a week in 9 of 10 markets.

That is a common choice: the extra pay is about $49 a week for life, while the extra time is more than a year of not working at the start of retirement, when health and energy are usually best. Retiring before 65 means bridging the years until NZ Super and KiwiSaver both start at 65, so savings outside KiwiSaver have to carry the gap. Our retiring before 65 guide covers the bridge years, and when can I retire? finds your own date to the month.

Lump sums you control

Not every lump sum is a surprise. Selling a rental, downsizing your home or taking a redundancy payment are lump sums you can often time. A few points help:

• Before or after retirement? If you can choose, compare both on the calculator. Money in hand at retirement gives the most flexibility; money later is fine if it is certain.
• Do not count the whole sale price. Downsizing releases the difference between the two homes, less agent, legal and moving costs. Our downsizing calculator works it through.
• Think about the income you give up. Selling a rental swaps rent for a lump sum. The lump sum may pay less a week than the rent did, or more, once tax and costs are counted.

What to do with a lump sum

There is no single right answer, but these are the usual options, roughly in the order many people consider them:

1. Pay off debt. Clearing a mortgage removes a fixed cost, which can be worth more than investing the money. Our retiring with a mortgage guide works through it.
2. Build a buffer. A year or two of withdrawals in cash or a defensive fund protects you from selling after a market fall. See sequence of returns risk.
3. Invest for income. Add it to your retirement savings and draw it down with the rest. Before 65, money put into KiwiSaver is locked until 65; a managed fund or term deposit keeps it available.
4. Delay retirement or work less. A lump sum can bridge the years before NZ Super. Try when can I retire? with and without it.
5. Help family. There has been no gift duty on gifts made on or after 1 October 2011, according to Inland Revenue. Just make sure your own retirement is covered first.

One-off costs work the other way

A large cost early in retirement has the opposite effect. For our example couple, a $30,000 cost at 66 (a new car, a roof, travel) lowers their retirement pay from $1,052 to $1,035 a week, about $18 a week for life. That is a useful way to weigh a big purchase: is it worth $18 a week every week from now on?

NZ Super, tax and other payments

• NZ Super is unaffected. It is not income or asset tested for you personally, so an inheritance does not reduce it.
• Other help can be affected. Some supplementary payments, such as the Accommodation Supplement, look at income or assets. Work and Income can tell you how a lump sum affects them.
• The returns are taxed as usual. Interest, PIE income and rent from the money are taxed in the normal way. Our tax on retirement savings guide explains PIR and RWT.
• Overseas inheritances can raise tax questions in both countries. Get advice before moving or investing money from overseas.

This is general information, not financial advice. A licensed financial adviser, and a lawyer for estate matters, can help you plan for a lump sum.

Questions

How much retirement income does $100,000 buy?

Spread from 65 to 95, about $69 a week with steady 2.5% returns, or about $53 a week in 9 of 10 markets, in today's dollars. If you start spending it at 75, about $81 a week in 9 of 10 markets.

Does an inheritance affect NZ Super?

No. NZ Super is not income or asset tested for you personally. Some other payments, such as the Accommodation Supplement, can be affected.

Should I count an expected inheritance in my retirement plan?

We suggest not. Plan without it and treat it as a bonus. The amount and timing are uncertain, and it may be needed for the person's own care.

Is it better to get a lump sum earlier or later?

In a typical market, earlier, because it has longer to grow: in our example, $100,000 at 56 added $78 a week against $64 at 85. In poor markets the difference narrows, and later money looks slightly better, but only if you could count on it.