Decumulation would have to be the most boring name for what should be the most exciting stage of your retirement income journey – that time when you get your money out! But it has become a turn off term because the rules seem so complex that many people go into denial rather than trying to work their way through how they might create a sustainable retirement income stream. So here’s a short definition and explanation of decumulation to help you to move ahead with confidence.
Decumulation, according to Retirement Essentials Chairman, Jeremy Duffield, is the jargon for spending down your nest-egg (super and savings) to provide the money you’ll live on during retirement. You were “accumulating” your nest egg during your working years; and in retirement you’re “decumulating” it, spending it down to supplement your Age Pension or any other sources of income.
Put another way, decumulation is the retirement phase of your superannuation which starts when you have reached preservation age (the age at which you can access your super savings, currently 58, but increasing to 60 by 2024).
Super savings can be converted into income streams (usually account based pensions), annuities, or lump sum withdrawals.
According to the recent Treasury Retirement Income Review, the median superannuation balances of men and women approaching retirement in 2019 were around $179,000 and $137,000 respectively. This is projected to increase to over $450,000 for a median earner by 2060.
There is a lot of money at stake here. But there are two important reasons why the decisions of how much to withdraw, and in what way, often prove to be difficult. And this is largely due to complex rules and competing demands. Put simply, the legislation attached to assets and Age Pension eligibility can be very confusing. Many people also struggle with the choice between using a lump sum withdrawal to pay down their mortgage or drawing the same amount down as income and continuing to pay interest, particularly in the current low interest environment.
Few people are 100% up to date with all superannuation, Age Pension and taxation legislation, with many changes coming through on January 1 or July 1 every year, so planning your decumulation – your retirement ‘pay day’ – may be much more effective with the assistance of a qualified financial planner.
The good news is that Retirement Essentials now offers an introductory financial planning discussion.
And if you believe, as is the case for two thirds of all Australians, that you will qualify for a full or part Age Pension assistance, then checking your current entitlements might be your best first step.