Top of Mind

Decumulation Confusion

Just as the accumulation of sufficient assets is vital to retirement, proper decumulation - or the spending of those assets during retirement - is equally critical. We talk a lot about the former, but not so much about the latter; however as more Baby Boomers age into retirement, this will likely become a more frequent topic of conversation.

And indeed, within a few days of one another, I read two interesting pieces on decumulation. The first, from MarketWatch, was about how retirees should not fear a bear market, since recovery times from bear markets are generally shorter than people think - an opinion with which I concur. Also in the article, a rather astonishing figure from an Allianz Life retiree survey was cited: Baby Boomers stated that their greatest fear in retirement was not death (39%), but outliving their money (61%)! Think about that for a second - death only ranked first as a fear for less than 40% of retirees. It’s almost as if people preferred being rich and dead to being poor and alive! Clearly, these individuals need a better understanding of how decumulation works to protect oneself from running out of money.

The second article, from Forbes, was on a theme related to the first: worrying about investment performance (e.g., a bear market) should not be a top priority for retirees who are decumulating. It was an excellent case study on an individual who was a decade into retirement, what he wished he knew back when he retired, and what he knows now – namely, not to focus on investment performance at the expense of proper risk management. Proper risk management means reducing the risk of losing your standard of living as you age. Note that that I didn’t say “outliving your money,” since that generally doesn’t happen; if retirees have less money as they get older, they typically decrease the amount of money they spend accordingly and perhaps even derive an additional income stream - rather than pull an MC Hammer and spend their money as fast as humanly possible. This is part of the reason why I can’t understand why Boomers would fear running out of money more than death, itself!

As the article discusses proper risk management in retirement, it includes actions such as managing healthcare/healthcare insurance expenses, possible financial needs of adult children, long-term care insurance, unexpected expenses, and unexpected negative impacts to income (of which a prolonged bear market would be just one example). The author, by his own admission, ignored most of these issues, instead focusing on optimizing the investment performance of his retirement plan portfolio, which proved to be a misguided effort, since there were clearly bigger fish to fry.

So we have two different articles with intriguing perspectives on the same issue - one citing a survey of a seemingly irrational fear among those about to retire, and another stating that while a healthy concern for maintaining one’s standard of living is quite valid, obsessing about a bear market - or investment performance in general - is the wrong approach to maintaining that standard, and should take a back seat to proper risk management.

Do you have any decumulation tips that you would like to share with me for a possible future Top of Mind? Let me know on Twitter or at

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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