For your whole working life the task is to build savings. In retirement the task flips: you have to turn that pile of money into a reliable income that lasts as long as you do. This stage is called drawdown, or decumulation, and it brings its own questions. How much can you safely take each year? What if markets fall early on? How do you avoid both running out and being needlessly frugal?
| Risk | What It Means |
|---|---|
| Running out too soon | Spending too fast, or poor early returns, drains savings |
| Living too frugally | Being so cautious you miss the retirement you saved for |
Good drawdown sits between these two. NZ Super, which keeps coming regardless, makes the balance easier because your essentials are partly covered no matter what your savings do.
| Method | How It Works | Trade-off |
|---|---|---|
| Fixed percentage | Take a set percentage of the balance each year | Income rises and falls with the balance |
| Fixed dollar amount | Take the same dollar income each year, often inflation-adjusted | Steady income but can drain savings if returns are poor |
| Bucket approach | Hold cash for near-term spending and growth assets for later | More to manage, but smooths the ride |
A widely quoted guide is to withdraw about 4% of the starting balance in the first year, then adjust for inflation. On a $500,000 balance that is roughly $20,000 in year one, on top of NZ Super.
Many retirees split savings into a short-term bucket of cash and steady assets for the next few years of spending, and a long-term bucket of growth assets for later. You spend from cash, and refill it from the growth bucket over time, so you are not forced to sell growth assets in a downturn.
The order of returns matters enormously once you are withdrawing. A run of poor returns early in retirement, while you are taking money out, can do lasting damage, because you sell more units to fund spending and there is less left to recover. The same average return with bad years later hurts far less.
Retirement can last 25 to 30 years or more. Prices roughly double over a few decades at modest inflation, so an income that feels fine at 65 can feel tight at 85. Keeping some growth assets helps your income keep pace.
It is tempting to go fully conservative at 65, but a long retirement is still a long timeframe for part of your money. Many retirees keep a portion in growth assets for the later years while holding cash and steadier assets for near-term spending. Match the mix to when you will spend each part.
Use the Retirement Calculator and Pension Calculator to test how different withdrawal rates and NZ Super interact over time.
The single most powerful tool is flexibility. Trimming withdrawals a little in poor years, and spending a bit more after good years, makes savings last far longer than a rigid fixed amount. You do not have to decide your spending for the next 30 years on day one.
With decades of retirement ahead, holding everything in cash can mean your income fails to keep up with inflation. Some growth usually still belongs in the plan.
Without a cash buffer, a market fall forces you to sell low. A buffer of near-term spending avoids this.
The first few years of retirement are the most sensitive. Be a little more cautious with withdrawals then, especially if markets are weak.
Many retirees underspend out of fear and miss the active early years. A plan you trust lets you enjoy what you saved.
Final word: Drawdown turns a lifetime of saving into a lifetime of income. Lean on NZ Super as your base, start with a sensible withdrawal rate, hold a cash buffer, keep some growth for the long years, and stay flexible. That combination guards against both running out and living smaller than you need to. This is general information, not personalised advice; many people get tailored advice for this stage.
Quiz on Retirement Drawdown (20 Questions)
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