Op-Ed: The D word

What goes up, must pay out. Just last week a friend was impressed how, after hopping onto the KiwiSaver bandwagon back when it started in 2007, he is now seeing his balance edge past $70,000. With many more years of contributing ahead, he and his family are on track to accumulate more than a modest bit of dosh for their future.

But what happens when they become eligible to withdraw it all? How will they manage hundreds of thousands of dollars in a way that will provide them with regular payments without running out of money? What happens if they want to spend on some big things like a car or trip overseas – does that mean they won’t eat as well in their 80s? It’s complicated.

Converting retirement savings to income is being called “decumulation”, but the word hasn’t quite arrived yet; there are no matches on Oxford online, for instance. When it comes to spending the retirement fund, perhaps it could have been “draw-down” or “decrease” – but hopefully not “dispose” or “destroy”!


“Decumulate” really only makes sense if you couple it with its partner, “accumulate” – heaping up funds by investing in schemes like KiwiSaver and then managing those funds in a way to get a steady income in retirement. So not the prettiest of terms, “decumulation”, but fundamentally important to understand when you’re forward thinking.

The stakes are high. When I think about the newly retired, what comes to mind are high-earning sports figures or lottery winners, and many of us will have heard their hard-luck stories of money lost. Just like them, retirees have incredibly important choices to make for their money saved, with slim chance of becoming rich all over again if they make a poor one. There’s no real practice for this, so planning, studying options and getting quality advice become all the more essential.

Sorted’s retirement planner estimates how much of a regular income we can expect when we build up a certain amount. It’s not the nest egg that matters, but what the chicks look like, after all. But the tool does not show anyone how to actually generate income from a lump sum. It takes some savvy investing to do this and not run out of money.

An online poll on these issues is part of this year’s review of retirement income policies. At the time of writing it shows:

  • 84% are concerned about living longer than their savings.

  • 64% have a financial plan for funding their retirement.

  • 95% think the Government should provide more incentives for saving for retirement.

  • 92% would like to see more investment options that provide a regular retirement income.

Happily, there are some solutions for spinning off a regular income in retirement. For instance, you could arrange with your KiwiSaver provider to draw down your funds gradually, leaving the rest still invested until you need it. For some, releasing the equity of their home through a reverse mortgage may be useful. Also, financial planners can design investment strategies for your nest egg that keep those “chicks” coming regularly.

There is also a new “variable annuity” in the market: the Lifetime Income Fund – a product which combines a balanced index fund with longevity insurance. For an investment of at least $100,000, you can spin off a regular income in retirement of, depending on the age you start, anywhere from 5% to 6.5%. If and when your funds run out, the insurance kicks in so you are guaranteed that same steady income for as long as you live.

So these are some ways to tackle the D-word: “decumulation” – which is worth thinking about as we’re “accumulating” savings for retirement. What will be your solution? 


By Tom Hartmann