The level income a lump sum can provide.
Annual income
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Monthly income
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Total paid out
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Turning a lump sum into a paycheque
New Zealand barely has a market for traditional lifetime annuities, the products where you hand an insurer a lump sum and they promise a fixed income until you die. Most retirees here do it themselves: they leave the money invested, draw a steady amount each year, and let the rest keep earning. This tool models exactly that. You give it a lump sum, the number of years you want the income to last, and a return assumption, and it solves for the level annual payment that drains the balance to zero on the final year. It is the present-value-of-an-annuity formula doing the work, the same maths a bank uses to size a loan repayment, run in reverse.
The key word is level. The payment stays flat in dollar terms across every year, which keeps the example simple but means you should think of the return figure as a real return, after inflation, if you want the income to hold its buying power. A 4 percent input is a sensible, slightly conservative real assumption for a balanced portfolio.
Drawing $500,000 down over 25 years
Picture someone retiring at 65 with $500,000 outside their home, wanting an income from it to age 90. They expect a 4 percent return on the balance that stays invested. The tool returns the level annual payment, the monthly equivalent, and the total paid out across the whole period.
| Input or result | Value |
|---|---|
| Starting lump sum | $500,000 |
| Years of income | 25 |
| Assumed return a year | 4% |
| Level annual income | $32,006 |
| Monthly income | $2,667 |
| Total paid out over 25 years | $800,150 |
Notice that $500,000 produces $800,150 of income. The extra $300,150 is the growth earned on the slice of capital that has not yet been drawn. That is the whole advantage of self-managed drawdown over stuffing the money under the mattress: the balance keeps working while you spend it down. The curve below traces the balance falling to zero by year 25.
Why the order of returns matters
The formula assumes a steady return every year, but real markets do not behave. A run of poor returns in your first few years of drawing income, while the balance is still large, does far more damage than the same poor years later on. This is sequence-of-returns risk, and it is the single biggest reason a self-made annuity can run dry before the plan says it should. The practical tip: keep a buffer of one to two years of spending in cash so you are not forced to sell growth assets in a downturn to fund the income. Treat the tool’s output as a planning midpoint, not a guarantee.
Tax on the income you draw
Good news for the drawdown itself: New Zealand has no general capital gains tax, so selling units of a fund to fund your income is not, by itself, a taxable event the way it would be in many countries. What is taxed is the return the money earns along the way. If your savings sit in a PIE fund, earnings are taxed at your prescribed investor rate, capped at 28 percent, which is often lower than the top 39 percent marginal rate. Interest from a term deposit instead has resident withholding tax deducted at your marginal rate, and overseas shares above the $50,000 cost threshold fall under the foreign investment fund rules. None of that changes the payment this calculator shows, which is a gross drawdown figure, but it shapes how much of each payment you actually keep, and it is why many retirees favour PIE funds for the income-producing part of their portfolio.
Does this include NZ Super?
No. The figure is purely what your own lump sum can pay. NZ Superannuation is paid on top for life from age 65 and does not run out, which is exactly why a fixed-term self-made annuity is a reasonable strategy here: you are bridging and topping up a guaranteed government base, not relying solely on a pot that can be exhausted.
What return figure should I use?
For a balanced fund, a real return of 3 to 4 percent after inflation is a defensible planning number; for a more conservative, bond-heavy mix, drop toward 2 to 3 percent. Resist the urge to plug in a punchy 7 or 8 percent because the income it produces looks better. A higher assumed return inflates the payment and brings forward the day the balance hits zero if the market does not deliver. Conservative inputs here are a feature, not a flaw.