Planning For Retirement: the Decumulation Phase

 
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Are you dreaming about retirement?

It’s what we save for over all of our working years — being able to give up working, relax with the family and spend more time doing exactly what we love. However, actually starting to spend the wealth we’ve built up over all those years is incredibly difficult. 

One of the best ways to manage the decumulation phase is to work with a financial planner. Research shows that replacing your regular paycheck is one of the largest dilemmas for people approaching retirement, but financial planning can help eliminate the issues caused by this. 

Today, we’re discussing the decumulation phase of retirement and how to make sure you get it right.

What is Decumulation?

We spend years accumulating money as we work and save towards goals in order to build wealth and “retire.”. Whether we invest in property, 401(k)s or something else, many of us build up a pool of money to be used once we no longer have a paycheck coming in. The savings that have been compiled for the last 20, 30 or 40 years are now being used to subsidize our lifestyle.

Reluctance About Spending

Unfortunately, one of the largest issues around decumulation is that there tends to be a lack of guidance for individuals reaching this phase. Many retirees plan to use Social Security but it rarely covers all expenses. 

Many people experience loss aversion meaning that instead of focusing on the fact that you saved during your working career to be able to retire, you are now focused on what is being “lost” or spent from your portfolio. It is hard to transition from the accumulation mindset to actually spending down your accounts.

Importance of Planning

Did you know that over 80% of individuals without an advisor lack a retirement income plan? 

The trick during the decumulation phase is being able to liquidate your investments and turn your portfolio of assets and investments into cash flow to replace the paycheck. Once you are able to manage this, it’s time to think about your typical monthly output and how sustainable this is compared to the value of your investments. 

There are many characteristics that impact how fast you should be spending your retirement fund, such as:

  • Life expectancy

  • Amount saved

  • Lifestyle

  • Legacy planning

  • Significant purchases

  • Healthcare

Furthermore, financial planners can advise you on how to reduce risk, generate income, and help determine how long your money will last based on your income needs. 

To get started talking things through with a certified financial planner, book an intro call with me today.

 
RetirementLauren Estes