Make your money last as long as you

By Retirement Commissioner Diane Maxwell 

There's something we've been working on at the Commission* called 'decumulation'.

It's not a pretty word (and it’s not in any dictionary), but it's a way of looking at how we can make our money last as long as we do.  

We spend our early lives accumulating, then we retire, or reduce our income and working hours, and we start to decumulate, which means the amount we have gets smaller over time as we draw on it, maybe for house maintenance, holidays, cars, medical care or grandchildren.

No matter how big or small your savings are, the key is to make decisions that maintain and protect them across your retirement years, which may be 25 years or more. 

Risky decisions

Retirement Commissioner Diane Maxwell

When interest rates are low, like they are at the moment, people who need an income from their savings sometimes make rash decisions that do the opposite.

So a word of caution here: don't 'chase yield' - that means dont' buy riskier products to get bigger returns - unless you've really done your homework and you go in with your eyes open.

Remember the returns are high for a reason, they reflect the risk you're taking and while having a lower return is bad, losing your retirement savings is worse.

When you're worrying about money you can persuade yourself that a scheme (or a scam) is ok, but you should stop and investigate before handing over your hard-earned savings.

Don’t be afraid to ask questions or seek advice from a professional adviser.

Part of the issue is that we don't have enough choices in New Zealand today for people wanting to turn their savings into a lifetime income, in other words, an annuity.

New Zealand does have a newly-launched product called the Lifetime Income Fund, which takes your lump sum and turns it into a fixed income until you die.

Annuities provide some constancy and predictability around income.

They also mean you don’t need to keep reviewing things through your 70s 80s and 90s, but the key message remains the same: don’t put all your eggs in one basket because any investment carries an element of risk.

The key is to understand how much and to spread your risk across what we call different ‘asset classes’. Diversification is king.

*Commission for Financial Capability

Editor's note: Views expressed by contributors are not necessarily those of the Office for Seniors