Definition
Using one’s assets to finance one’s retirement.
Retirement wealth decumulation includes the spend-down of assets owned during retirement. This includes:
- Savings in retirement accounts such as IRAs, qualified plan accounts, 403(b) accounts and 457 plans
- Regular savings (non-tax-favored retirement accounts)
- Land
- Home and
- Other property
Referring Cite
N/A
Additional Helpful Information
Wealth decumulation should be strategically managed 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 with designing a wealth decumulation plan 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
