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.
