“Decumulation” is a word that has now entered the lexicon of those individuals approaching retirement. The definition of which is the conversion of retirement plan assets accumulated during an employee’s working life into pension income to be spent during retired life.
It’s a new risk for the record number of those moving from the accumulation phase of their lives to the distribution phase. The actuaries call it “longevity risk”. But those of us in the financial service industry simply call it “running out of money”.
This new risk will require a major change in thinking. Away from concepts which have been discussed as part of most 401(k) providers investment education programs: asset allocation, dollar cost averaging, and the cost of waiting. Instead requiring them to think about having to make a new set of decisions such as:
- Whether to continue to work
- When to apply for Social Security benefits
- What to do, if anything, about housing
- What choices to make about insurance and health care
- How financial assets should be invested
- What distribution options to take from employer retirement plans and IRAs
You’ll be hearing more about decumulation as it becomes a major focus of future research, public policy, and financial services.
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