We had savings, a plan, and a defined timeframe – we were fine. Still, I felt uneasy. It was like walking on a glass floor, hanging out way over a cliff. Would our plan actually hold weight? It was a glimpse into what “proper” retirement might feel like.
For many retirees, the hardest transition is psychological — learning to spend money after decades spent accumulating it. Photo / 123rf
Accumulating wealth makes us more confident over time. Decumulation? Not so much. Year by year, you’re depleting a finite resource that you’ve nurtured your entire life, and you’ll find it harder to bounce back from mistakes and market downturns.
It’s no wonder that even well-prepared retirees are nervous about “putting weight” on their strategy. Retirement should be a great experience, but if you’re worried about money, it often isn’t. You might know that “someone has to spend this money, so it may as well be me”, but becoming comfortable with that reality takes time.
Weathering post-65 psychological shifts would also be simpler if the system gave us a clearer structure. This is where New Zealand falls short.
NZ Super gives us a type of “universal basic income” from age 65, but, on its own, it doesn’t offer much choice. To bridge the gap, some people downsize their home, cash in their KiwiSaver, sell the business, or wait for an inheritance.
However you get it, a lump sum at 65 is just the start. If that money needs to cover the gap between NZ Super and the life you want to live, decumulation means you spend a little bit now while the bulk remains sensibly invested for later. Broadly speaking, you have choices around how to make this work. Here are some ideas.
Many retirees struggle with spending due to a lack of financial advice and structured decumulation plans. Photo / Getty Images
The simplest option is to park your money in a savings account or term deposits, then spend a set amount of it each fortnight. It’s safe, but interest rates are often low, sometimes barely covering inflation.
If you want to keep pace with inflation, you’ll need to invest your nest-egg. You could invest into managed funds, then follow a rule of thumb like the 4% withdrawal rate. Here, you spend 4% of your portfolio each year, adjusted for inflation, and, if it goes well, it should last around 30 years. There are no guarantees with returns, of course, so be flexible, and review your strategy regularly. If this sounds too technical, there are options closer to home, literally.
Home equity facilities, reverse mortgages, or “set and forget” retirement income products can help you decumulate with more structure, and less of your own thinking. Sitting alongside these, one of the most straightforward decumulation options is KiwiSaver: it’s already a managed fund, so from age 65 you can keep it invested and simply turn on a regular fortnightly withdrawal to top up NZ Super.
Going a step further, and with the obligatory “this is not financial advice” disclaimer, you can get quite strategic with KiwiSaver, even after 65. Some providers offer the flexibility to create “sub-portfolios”, each with different risk levels and growth goals based on when you need the money. Use lower-risk options for money you need to spend in the next few years, and higher-risk investment funds for money to be spent later. This can give you a cushion during bad markets while giving the rest of your money a better chance to grow.
There are plenty of ways to approach decumulation, but they sit on a spectrum.
Options include savings accounts, managed funds, and KiwiSaver, with strategies tailored to individual needs. Photo / NZME
At one end, the lowest-cost options are DIY, where you learn the rules, set up a plan, and have the discipline to stick to it. In the middle are off-the-shelf investment products with decumulation “smarts” built in – this adds structure, but without much customisation. At the higher-value end, using a portfolio of investments (including KiwiSaver) can, with the help of an investment adviser, allow you to build a strategy around your actual life, not just a generic template.
Like anything to do with money, there are no guarantees. But with a mindset shift and some structure around your retirement capital, you can turn a lump sum into a sustainable income, manage risk more deliberately, and spend with no regrets. If you have retirement savings, you have choices. The only truly bad option is leaving one of life’s biggest financial decisions to guesswork.
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