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February 15, 2009

Retirement Wealth Decumulation / Retirement Asset Decumulation



Using one’s assets to finance one’s retirement.

Retirement wealth decumulation includes the spend-down of assets owned during retirement. This includes:

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Additional Helpful Information

Wealth decumulation should be strategically managed, so as to ensure that the retiree does not outlive his accumulated financial wealth. Practical methods of doing so include consulting with a competent financial/retirement planner, who can assist the retiree with designing a wealth decumulation plan that is suitable for the retiree’s financial and retirement profile.    The financial/retirement planner may explore methods such as :

  • Periodically rebalancing the retiree’s portfolio to provide for sufficient growth and income during retirement
  • Determining the types of investments that should be included in the retiree’s portfolio
  • Determining if (and if, then when) a reverse mortgage should be incorporated into the retiree’s asset decumulation strategy.  According to a 2006 report by The Center for Retirement Research at Boston College “the average household would be as much as 33 percent better off taking a reverse mortgage as a lifetime income relative to what appears to be the most common strategy of delaying until financial wealth is exhausted and then taking a line of credit. It would be as much as 62 percent better off relative to not taking a reverse mortgage at all”. For more of incorporating housing wealth into a retiree’s decumulation strategy, see the paper Optimal Retirement Asset Decumulation Strategies: The Impact of Housing Wealth

When designing the retiree’s decumulation strategy, the following are some of the factors that should be considered:

  • The retiree’s risk tolerance
  • The retiree’s risk aversion
  • The retiree’s desired standard of living
  • The retiree’s retirement horizon
  • The retiree’s projected lifetime

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