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Spend Like Goldilocks

When you retire, how do you spend like Goldilocks – not too little, not too much, but just right? Brenda Ward talks to the experts about some easy ways to figure out how much to spend each year.

19 October 2021

Spring 2020

How can you stop work and know your money will last a lifetime?

All of us hope to have some money in the bank when we give up work. It might be a lump sum in your KiwiSaver account. Or you might have sold an investment property, or a business.

Saving that money is hard, but strangely, the experts say spending it can be trickier.

Get it wrong and two things could happen:

1. You could die the ‘richest person in the graveyard’, says independent financial adviser Rob Glasgow. If you’re too cautious, you’ll die without spending it all and your kids will be flying first-class, he says.

2. Or you might run out of cash early and need to reuse tea bags and turn down the heating, says financial adviser Lisa Dudson of Acumen. Your kids could end up supporting you.

So, what’s the answer?

The experts call it ‘decumulation’, and it’s the opposite of accumulating money. Instead of saving, you’re turning your lump sum into a regular income – and living on it.

Rules of Thumb

One of the first systems, which many financial advisers still use, dates back to the 1990s. It’s called the Four Per Cent Rule, says Dr Claire Matthews of Massey University’s Business School.

“That rule of thumb suggests it’s safe to withdraw 4 per cent of your retirement portfolio to live on every year of your retirement.”

At that time, your money was shown to last over a 30-year retirement. Here’s how it works:

Year 1: Withdraw $4,000, leaving $96,000.

Year 2: Withdraw $3,840, which is 4% of $96,000, leaving $91,160. And so on, until you run out of money 30 years later.

However, people realised that this method always work. It didn’t account for inflation and new rules were devised.

Last year, the New Zealand Society of Actuaries recommended four rules to the government that worked better than the Four Per Cent Rule.

1. The Six Per Cent Rule

Each year take six per cent of the starting value of your retirement savings.

2. The Inflated Four Per Cent Rule

Take 4 per cent of the starting value of your retirement savings, then increase that amount each year in line with inflation.

Take a portfolio worth $100,000 and add inflation, currently at 2 per cent.

Year 1: Withdraw $4,000.

Year 2: Withdraw $4,080 ($4,000 plus $80)

And so on. Each year adjust your figure according to inflation that year.

3. The Fixed Date Rule

Run your retirement savings down over a period to a set fixed date – each year, take out the current value of your retirement savings divided by the number of years left to that date.

4. The Life Expectancy Rule
Each year, take out the current value of your retirement savings divided by the average remaining life expectancy at that time.


You could take a chunk of your lump sum and invest it in an annuity, where it will earn an investment return and pay you out a regular sum, say each fortnight, guaranteed for the rest of your life.

It’s a way to turn your savings into an income in retirement, which could take some of the guesswork out of the decumulation puzzle.

Lifetime Retirement Income is the only provider of annuities currently in the market in New Zealand.

In Australia, there’s an incentive for investing in an annuity. Sixty per cent of a retiree’s funds in a ‘qualifying longevity product’ won’t be counted as part of your assets for the Australian government’s asset test.

In New Zealand, a report prepared for the Commission for Financial Capability has suggested a state-backed annuities scheme as an add-on to KiwiSaver: ‘KiwiSpend’.

Use your home

After paying a mortgage most of their life, many people end up with a lot of equity locked in their homes. They’re asset-rich but cash-poor.

You could rent out part of your house on Airbnb or take in a flatmate or a student.

Some people plan to downsize to a cheaper house at retirement to free up some money.

Reverse mortgages

Dudson says if you spend your retirement savings too early, a ‘home-equity release’ or reverse mortgage is a great back-up plan.

It’s like redrawing the money invested in your own home and you can live in the house as long as you like.

Heartland Bank’s Andrew Ford says: “A reverse mortgage is just like a regular mortgage, but you have no regular payments, you get greater protection and more flexibility.

“Interest is added monthly and repaid when the property is sold, or the last owner passes away.”

Everyone is different

In their paper to the government, the actuaries say that each retiree’s circumstances are different. One person may opt for one of the rules, but someone else might find another better suits their needs.

“For example, some people may not want to risk their savings running out, but others may be happy to spend down their savings by taking a higher income at the start of retirement.

“Some people want a quick and easy rule; others will be happy carrying out some calculations. These four Rules of Thumb cater for these variables.

Daniel Mussett, of the society’s Retirement Income Interest Group, says: “Just thinking through a simple plan for providing for your retirement is better than not planning at all.

“There’s plenty of information on websites such as www.sorted.org.nz and books, such as Mary Holm’s.

“We also encourage people to take professional advice for help planning their own financial needs in retirement.

“Whatever your plan, our message is give some thought to the range of possibilities for how long you might live post-retirement – don’t just focus on one number.”

Dr Matthews agrees: “Fundamentally, you’ve got to keep reviewing your spending.

“On an annual basis, you should do some sort of a review – and every five years. Ask: ‘How am I living now? What are my needs? What do I want to do in the next few years?’

“You can’t just cruise through retirement. If you want a good retirement and few money worries over retirement, you need to continue to assess your position.”

Both the actuaries society and Dr Matthews recommend getting professional advice as you near retirement, something Kiwis aren’t that good at doing.

Says Dr Matthews: “That’s one of the problems we’ve got across this country – our unwillingness to pay for good financial advice.

“We pay for lots of other things, but I’d even say we don’t value financial advice.

“It’s just something about the way we feel about money, a reluctance to pay someone to help us with our money.”

To find financial advice in your area from a member of the professional body Financial Advice NZ go to https://financialadvice.nz/find-an-adviser/


Decumulation: Spending or using money you accumulated earlier.

Actuary: An actuary is a business professional who deals with measuring and managing risk and uncertainty.

JUNO’s content comes from sources that JUNO magazine considers accurate, but we do not guarantee its accuracy. Charts in JUNO are visually indicative, not exact. The content of JUNO is intended as general information only, and you use it at your own risk.

Informed Investor's content comes from sources that Informed Investor magazine considers accurate, but we do not guarantee its accuracy. Charts in Informed Investor are visually indicative, not exact. The content of Informed Investor is intended as general information only, and you use it at your own risk.


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