Many Kiwis are celebrating the recent drop in the Official Cash Rate (OCR), but for retirees relying on term deposits for income, the news isn’t so good. The downward trend in rates is a stark reminder that term deposits, once a go-to for conservative savers, are now outdated and unsustainable as a long-term strategy for retirement income.

Retirement isn’t a short-term phase—it’s a 20+ year journey. And yet, the longest term deposit typically locks in your money for only five years, leaving retirees exposed to ongoing interest rate fluctuations and eroded purchasing power.

Over the last two decades, term deposit rates have been wildly inconsistent, from highs of 8% in 2008 to an all-time low of 1% in 2021. While rates briefly peaked in the 6% range in 2023, they’re now on a downward trajectory again. This volatility makes it clear that term deposits are not fit for the long-term stability retirees need.

The problem with Term Deposits in today’s economy

As costs rise and term deposit rates fall, it’s a growing challenge for retirees to generate enough income to last throughout their retirement. Even during higher interest rate periods, term deposits come with several inherent limitations:

• Short-Term Horizon: Five years might seem like a long time, but in a retirement that could span over 20 years, it’s a relatively short window. Reinvesting every few years exposes retirees to uncertain future rates.
  
  
• Limited Flexibility: With term deposits, your money is locked away for the term’s duration, and accessing it early incurs penalties. This rigidity makes it difficult to adjust to unexpected financial needs.
  
  
• Eroded Purchasing Power: After accounting for taxes and inflation, the real returns on term deposits are often too low to preserve the value of your savings. This is especially risky as living costs continue to climb.
  
  
• No Structured Drawdown: Term deposits don’t offer a controlled way to draw down savings gradually. Any withdrawals reduce the principal, diminishing future returns and leaving retirees with less income to rely on later.

Calculate what you could draw in retirement.

Lifetime Retirement Income Fund: The modern solution to a complex problem

Retirement income planning has evolved, and today’s retirees need more than a short-term fix. They need a long-term, sustainable strategy that offers flexibility, stability, and peace of mind. This is where Lifetime Retirement Income Fund (Lifetime Income) comes in—a solution built specifically for the realities of today’s retirees.

Here’s why Lifetime Income is the superior option:

• Focused on Longevity, Not Short-Term Gains: Retirement isn’t just a five-year plan. It’s a 20-year or longer journey. While term deposits lock your money away for short bursts with unpredictable returns, Lifetime Income is designed for the long-term. It focuses on providing consistent income by actively managing market fluctuations to try to preserve capital (but this is not guaranteed).
  
  
• Reliable Income Stream: Lifetime Income delivers fortnightly payments on "Super Tuesday," ensuring you have reliable, predictable income that continues throughout your retirement. Unlike term deposits, where fortnightly payment options are not generally available.
  
  
• Flexibility & Security: Lifetime Income gives you the best of both worlds—flexibility to access your funds at any time and in the knowledge your income is being managed for the long term (but is not guaranteed).
  
  
• Built for Today’s Realities: Lifetime Income ensures that during market downturns, your income is being actively managed to preserve capital. Our approach balances growth with protection against market volatility to preserve your long-term income.