Decumulation is the new and necessary step in retirement.

" You can be young without money, but you can't be old without it."

American playwright Tennessee Williams was not talking about retirement planning when he said these words, but he might as well have been.

The accumulation of savings is a familiar concept for many, but what do you do after you have amassed a large amount for your retirement?

Ever heard of decumulation?

A strategy for retirement

Decumulation refers to the drawing down of your financial capital, an often undermentioned but important aspect of managing your retirement funds. In short, it is the process of spending that hard-earned money you have set aside for retirement.

How does one maintain a good enough quality of life without overspending? That takes some delicate balancing.

Here’s the irony: It might actually be easier for some to save than spend hard-earned assets. After decades of slogging and forging a mindset of saving, it can be hard to shift to “spending mode”. But you deserve to enjoy the fruits of diligent saving and investing.

Also, spending comes easier when you are young, but you might think twice before shelling out S$8 on a coffee when you are retired.

First, you are no longer earning a salary. Second, your spending will increase not because you buy more expensive items, but because of inflation. For instance, based on Singapore’s compound average annual rate of inflation, a $20 restaurant meal in 1999 cost close to $30, or about 50 per cent more, in 2019. If you retire today and spend $6,000 a year on food, this could become $9,000 two decades later to maintain your quality of living - when you are deep into your retirement life.

Add in the increasing life expectancy in Singapore - one of the highest in the world at 81.4 years for men and 85.7 for women in 2019 - and the effects of inflation on your twilight years will be larger. There is a good chance your retirement years could number 20 or more, so how do you spend wisely during these golden years?


What affects decumulation?

Of course, macro factors like inflation, cost of living, property prices and market movements are beyond your control, even if they affect the way you decumulate.

But in a snapshot, here are some other factors very much dependent on you:

1. Desired quality of life: Lavish or austere?
2. Retirement age: Late or later?
3. Sources of retirement income: Working part-time? Sufficient Central Provident Fund payout? Or unlocking value from your flat through the government’s lease buyback scheme?
4. Healthcare costs: Insured or living on a prayer?
5. Leaving an inheritance: What will be your legacy?

Indeed, these decisions have to be well considered as they will determine your ability to decumulate well.


How do I decumulate?

First, be really stringent about having a monthly budget after retirement - and stick to it. But it goes beyond just discipline or having a monthly budget after retirement.

A decumulation strategy could involve continuing investing after you have retired. Just because you stop work does not mean your money stops work, even if it means less risky, more short-term investments.

An option is Maybank’s Global Retirement Solution, where one receives regular payouts from the investment dividends, capital gains, and part of their capital over time. This gives retirees the flexibility to enjoy the best of both worlds - receiving regular income for daily expenses while participating in the growth of markets. Make an appointment with us today to plan your decumulation strategy with us.

Just as accumulating resources for retirement can begin as soon as you start your career, you can also get a head start on decumulation. Have a good strategy in mind and your future retired self - greyer, but wiser - will thank you, perhaps while relaxing with a drink at the beach or on a flight to an exotic locale.

the bottom line:

You've made the long ascent uphill with your accumulation. Don't let it all spiral downhill by ignoring decumulation.

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