Retirement Decumulation

Retirement Decumulation

September 25, 2013 – From the time a person enters the workforce until one’s last day on the job, nearly all the emphasis on retirement planning centers around what a person should do to amass as much money as possible.

For essentially one’s entire work life, the goal is the same:

Save as much money as possible and, along the way, find a way to make it grow as large as possible.

Unless your company offers a Defined Benefit plan that will pay you a monthly retirement income based on years of service, you probably spend your career trying to ACCUMULATE retirement wealth.

Read any financial text or listen to any financial talk show and most of the time the conversation revolves around some variation of this general theme:

How to turn some money into MORE money.

Changing Speeds, Gears and Directions

DangerBut a strange thing happens on the way to the rocking chair making it wise not to get too comfortable with this pattern of behavior. As Jerry Garcia once sang, “When life looks like Easy Street, there is danger at your door.”

When you hit retirement, the need to AC-cumulate wealth shifts to the need to DE-cumulate what you’ve saved.

In other words, you’ve earned it. Now, spend it.

And . . . (oh, by the way) . . . make it last a lifetime.

But achieving success in this area requires a philosophical and behavioral shift that many find exceptionally difficult to make.

Unfortunately, the financial community has generally done a poor job helping the public understand the concept of decumulation.

Fortunately, there is a solution.

Annuities Work!

While not the only solution, annuities offer perhaps the best solution to addressing the decumulation challenge everybody will face eventually.

According to one excellent research paper, Rational Decumulation, lifetime annuities are the most cost-effective and least risky asset class for generating retirement income for life.

But old habits die hard as evidenced by the fact that too many people still prefer clinging to the seemingly sensible notion that “what got me here will serve me well going forward.”

Such dangerous thinking can backfire, though, as traditional investing carries the risk of loss since financial markets always fluctuate.

Annuities, on the other hand, overcome this risk and can provide steady guaranteed payments ensuring you’ll have money to spend when you need it. Life annuities keep paying for as long as you live – a claim no other financial option can make.

Granted, retirement planning isn’t a whole lot of fun and many allow the fear of making the wrong decision prevent them from making any decision.

But investing a few minutes to see why annuities are such an attractive option can go a long way toward helping you secure your financial future.


Finn Financial Group