Planning for Decumulation

21 September 2017

When thinking about retirement, most of our attention is concentrated on the accumulation phase – when saving for retirement we have our eye firmly on how much we need to save to get by. But what happens next, when we actually decide to retire from the work force? We enter the decumulation phase – in this phase we start to “spend down” our superannuation savings and other assets. How is that process managed? It’s an often repeated message that Australia’s future retirees face an uncertain future due to inadequate super savings, but how do we know the time frame we need to consider when planning our spending in retirement? And if we live longer than expected and our savings dwindle will the age pension be enough to live in comfort?

Australian retirees face an unusual mix of financial challenges – relatively high exposure to investment risk, high rates of home ownership and low exposure to health risks – therefore there is a high exposure to longevity risk (a clinical-sounding term that simply means outliving your financial resources). It’s vital then that this next phase of financial life, the decumulation phase, is planned for and strategically managed so that in retirement we minimise the risk of outliving our accumulated wealth. A carefully designed wealth decumulation plan will be vitally important in the lead-up to this phase – to generate income from savings and to manage risks. We naturally think about our superannuation savings first, but other (non-super) investments, whether they are in cash, securities or property, and maybe even the family home should also be part of our planning. Australian retiree households do not generally consider accessing their housing wealth in their decumulation plans, for several reasons including transaction costs, connection with the home and its location, precautionary savings motives (i.e. effectively self-insuring against long-term care expenses), bequest motives and inadequacy of rental allowances under the Age Pension, all of which are valid concerns to some degree.

As we noted in a previous article, the desire to age in place is also strong for many retirees but perhaps now, in the face of a range of uncertainties, more Australian households could be considering accessing some of the wealth locked up in the family home. Flexibility will also be important particularly for people later in retirement who cannot go back to work to recoup expenses. While there are some financial products available that can assist with accessing the wealth tied up in the family home, such as reverse mortgage and home reversion products, they are small in number and not well understood. It’s clear that the financial markets, policy makers and market regulators have not just a business opportunity but a social imperative to build safe, flexible financial products for Australian retirees.



Stuart Thomas and Sarah Sinclair

Placemaking Economics Group

RMIT University


Heartland has partnered with the RMIT University’s School of Economics, Finance and Marketing to develop a series of articles on aging in place. We are pleased to be able to provide their knowledge and research through our Reverse Mortgage News.


Information provided is accurate as at 21 September 2017 and may change from time to time