A how-to guide to spending your life savings in retirement

The transition from accumulation to draw-down brings its own set of puzzles.

Some of them might be ‘champagne problems’ such as choosing your next holiday destination, while other challenges may be a little grittier. Not least of the challenges is how you’ll turn your life savings into a steady stream of income to fund your lifestyle.

A big fear for many is whether they have enough money to retire on at all.

Whether you have a KiwiSaver Scheme account, cash in the bank, term deposits, another superannuation fund, shares held on investing platforms, real estate, managed investment funds, or even a substantial one-off sum from an inheritance or sale of a business, there are no end of ways to go about the “Retirement Drawdown”, which can might seem increasingly complex with more funds and assets to manage.

Even if you are retired already and have an in-place retirement drawdown plan, you might wonder if you’re “doing it right” and struggle to track your progress over what is hopefully a happy, healthy, and long retirement.

Let’s explore a few key aspects of this complex area, with a focus on practical tips for your retirement drawdown.

What is a Retirement Drawdown Plan? Why Do I Need One?

​A retirement drawdown plan explains:

• What: Your retirement expenditure needs are. This might include major goals such as overseas travel, gifting, and possibly assisting adult children financially
• Where: You will find the cash flow to supplement the lifestyle you want
• When: You should spend your money, for instance should you wait to give your children an inheritance, or could that be more beneficial for them now, perhaps as a partial first home deposit?
• How: You will invest and organise your assets to optimise your financial portfolio while in retirement

Most New Zealanders might think they'll be able to sort out retirement planning during retirement, however you’ll have greater peace of mind if you have a plan before you hit retirement age. The more you plan out your retirement drawdown, the safer and more enjoyable your retirement will be.

How Useful Are Retirement Planning Rules of Thumb?

Nearly every financial services news piece has someone waving a rule of thumb: “take four percent of your portfolio each year,” “use six percent if you want more spending up front,” and so on.

These rules of thumb might be a logical starting point, and they make for a great clickbait headline, but if you follow one rigidly without reference to your own circumstances, you may find yourself either under-spending or worse, outliving your savings. Here are just a few ways in which rules of thumb for retirement don’t usually work out:

1. We don’t all retire at the same age.
2. We don’t all live to the same age. None of us know when the grim reaper will come for us, though when it comes to retirement planning, we’ll need to make a realistic assessment of how long we’ll personally live, plus a buffer of course! A life expectancy estimation will vary wildly based on factors including family history, occupation(s) through life, health history, pastimes, lifestyle including diet and exercise, gender, life events, and even our ethnicity.
3. Age gaps between spouses. In New Zealand, age gaps are reportedly getting wider. Different life expectancies between men and women already complicate retirement planning equations, and age gaps between couples can, and will, amplify differences.
4. Lifestyle spending. Some of us would rather have our spending needs drive the retirement plan, rather than a drawdown rate! This shifts the focus from an abstract financial metric (the drawdown rate) to the tangible reality of our desired life. This approach might be referred to as goals-based or lifestyle driven retirement planning. The core idea is to reverse the planning equation: you tell your money what you want, not the other way around.
5. Not much in life is a straight line. Retirement might last three decades or more. A plan for such a timeframe isn’t something you can just calculate once and never look at again.
6. Other income sources. New Zealand has a simple and universal pension system called New Zealand superannuation. Some retirees have additional pensions from overseas, including military or public service. Further income sources might include from passive sources such as a rental property, dividends from shares held in a private business, and so on. Some retirees take a more active approach and still perform some part-time work or obtain income from sources such as AirBnB income from renting out a bach or spare room. These sums all add up and should be included in the retirement equations. 
7. Changing spending needs. Retirement expenditure is not a straight line: a 65-year-old will not have the same spending needs as a 90-year-old! Keep reading and we’ll expand on this point in a moment.

Plan Retirement Properly and Spend With Confidence

Repeated studies in countries like the United States and Australia have shown plenty of retirees don’t spend enough early in retirement, for fear of running out of cash. One Australian study found that four in five working-age Australians believe they have a forty percent or greater likelihood of outliving their savings in retirement. New Zealand data is harder to come by, though conclusions would surely be much the same.

It could be the guideline drawdown rates are too generic, and too cautious to enable people to confidently spend their own life savings.

Learn more:

• Can you trust a retirement calculator?
• Why retiring early beats retiring wealthy
• Retirement fears and how to overcome them

Phase Your Retirement. Spend More When You’re Active

Imagine retirement as at least three distinct phases:

Go-Go Phase, Ages 65-74

This period will involve spending more as you tick items off the ‘bucket list’ such as travel, hobbies, new skills, and outdoor activities. This phase could still include paid or unpaid work, including occasional consulting or charitable work. Some retirees are busier during this phase than they were before retirement! Careful financial planning means you’re more likely to enjoy everything you want in this phase of early retirement while also safeguarding your future income.

Go-Slow Phase, Ages 75-84

Typically, this is when spending will drop as you settle into a simple lifestyle. Travel might be more of a hassle, and less exciting, and your focus will likely be on more simple things in life. Getting the family to come and visit you becomes more appealing and downsizing the house to move to something smaller with less maintenance also appeals to many. Sometimes, your body is telling you to slow down. That said, maintaining regular activity is also important, though you might just need to slow it down a little by now! The slower pace of life at this phase usually means reduced costs. Ideally, health-care costs have been pre-funded as sometimes health issues prompt unexpected healthcare spending.

No-Go Phase, Age 85 Onward

At this phase of retirement, chances are you’ve done what you have wanted and are now spending more time taking it easy. There is often a transition to managing your own personal circumstances, which can be dominated by managing your health and well-being. Over this phase, medical and care expenses can increase. Cognitive decline is likely in some form, and health care planning is needed, along with support to manage any assets and investments you may have to help meet these costs. Being aware that costs can increase in this late stage of life means holding some of your resources back for use during these years.

Spending during this phase is subdued aside from:

• Private healthcare expenses,
• Passing down inheritances early, or
• Charitable contributions.

Retirement Drawdown Strategies

There are no shortage of retirement drawdown strategies, beyond the fixed percentage rule (like the Four Percent Rule), flexible withdrawal methods can better align your spending with market performance and personal needs.

Sometimes these are called decumulation plans. Here are just a few examples:

1. Guardrail Strategy

The Guardrail Strategy is a dynamic withdrawal method that sets upper and lower limits on your annual withdrawal rate.

• How it works: You establish a baseline withdrawal (e.g., 4% of the portfolio). In good market years, you can increase spending (e.g., up to 5%); in poor market years, you are required to cut back spending (e.g., down to 3%).
• Benefit: This method offers a balance of spending and saving, protecting your portfolio from Sequence of Returns Risk (SORR) by reducing withdrawals during market downturns. It is more flexible than fixed-rate strategies.
• Drawback: This requires significant behavioural discipline and emotional fortitude from the retiree, as it necessitates mandatory cuts in spending during market downturns.

2. Semi-Regular Withdrawal of Living Expenses

This strategy focuses on maximizing invested capital by minimising the amount sitting idle in cash.

• The Problem: Keeping too much wealth in low-return assets (like everyday savings accounts) harms your long-term returns and portfolio longevity.
• The Solution: Withdraw only the cash you need for short-term living expenses on a set schedule (e.g., annually or quarterly). For example, on January 1st, cash out one year's worth of expenses to your everyday account, leaving the rest of your portfolio invested to generate growth.
• Benefit: This keeps the maximum amount of your capital "working" in the market until it is explicitly needed for consumption.

3. Buckets Strategy

The Buckets Strategy is an asset allocation and cash flow method that matches different asset classes to specific time horizons of spending.

• How it works: The retirement portfolio is divided into "buckets" of assets based on risk and liquidity:
  
  • Bucket 1 (Short-Term: 1-3 years): Cash, High-Yield Savings, or Term Deposits (to cover immediate essential spending).
  • Bucket 2 (Mid-Term: 3-10 years): Bonds and Conservative Investments (for stability and future cash needs).
  • Bucket 3 (Long-Term: 10+ years): Growth Assets like Stocks/Equities (to combat inflation and ensure long-term portfolio growth).
• Benefit: Provides psychological comfort by guaranteeing a few years of expenses are safe from market volatility, while allowing the growth assets to remain invested for the long run.
• Drawback: It can lead to a suboptimal asset allocation. By keeping a large portion of the portfolio (e.g., 5-10 years of expenses) in low-growth buckets, you sacrifice long-term returns and might struggle to keep pace with inflation over a multi-decade retirement.

Learn more:

• Early retirement pitfalls, and how to avoid them
• Learn to spend in retirement
• Your adult kids who return home could ruin your retirement

Diversify Your Retirement Toolkit

Diversification in retirement can have a broad meaning, unconstrained by pure financial terminology:

This might apply to your draw-down approach, mindset, health, and of course, financial portfolio.

• Mindset: Through the full duration of retirement there will be things which are in your complete control, things which are partially in your control and things which are not in your control at all. To make the most of retirement planning, focusing on making the most of the things you can control and understanding the things that are somewhat or completely out of your control, will lead you to the most successful retirement. You can control your spending, your lifestyle choices, your planning. You cannot control investment markets, politics, disasters, wars, economic calamities, or even how long you live. Focus on what you can control.
• Tools: A mix of retirement income sources might be the best outcome for some people. This could be from a blend of the pension, investment portfolio drawdown, rental property income and part-time work, if you wish.
• Planning: Get someone else to review and plan with you. Yes, this might include a professional such as the team here at Become Wealth. Why? As you shift from saving to living-off-savings, you face several new issues and risks, including sequencing risk, and need to know the risks you are taking, and possibly the opportunities you are missing. Sometimes, these risks and opportunities are best identified by an external pair of eyes.
• Investment portfolio. Based on our experience, financial diversification is most important as we retire. Nobody wants the retirement they’ve longed for to be ruined by over-concentration in one investment area, which takes an untimely plunge in value just as it's time to retire, or soon after. (Think, a New Zealand outbreak of mad cow disease just before you sell the family dairy farm).

The Bottom Line: Retirement Drawdown Planning and Strategies

You’re about to embark on (or are already in) the draw-down phase. It’s exciting, perhaps a little scary, and most certainly full of decisions. But here's the empowering bit: you control a lot more than you might realise. You control any number of areas including your income needs, your draw-down approach, your overall allocation of assets, and your preparedness for the unknown. Of course, you don’t control the markets, economic shocks, or how long you live. Focus your energy on the former, prepare for the latter.

In short, your draw-down plan isn’t about hitting a fixed percentage and never looking again. It’s about adaptation, purpose, phases, and knowing you’re making choices you can live with and enjoy. Yes, you should spend some money early, you earned it but set those guardrails so your later years aren’t full of regret.

If you’d like to speak with someone from our team about your plans for retirement or draw down, please get in touch for a no-obligation initial discussion. Your financial freedom might depend on it.