Retirement planning is often seen as a long-term goal, with many Americans dedicating decades to saving for their golden years. However, the process of managing and spending that money once retirement begins is frequently overlooked. This phase, known as "decumulation," involves strategically withdrawing from retirement savings to maintain a comfortable lifestyle while ensuring financial security throughout retirement.
According to research by Corebridge Financial, only 31% of Americans are familiar with the term "decumulation." This lack of awareness can lead to a paradox where retirees, fearing they might outlive their savings, end up underspending and missing out on the enjoyment of their hard-earned money. A report from the Employee Benefit Research Institute found that one-third of retirees still had 100% or more of their initial retirement assets by their mid-80s, suggesting that some may be unnecessarily limiting their spending.
Planning to Spend
The importance of having a plan for decumulation cannot be overstated. Only 29% of workers aged 55 and older have a strategy for withdrawing money from their retirement accounts, according to Corebridge. Jean Chatzky, a personal finance expert and co-founder of HerMoney, emphasized that just as important as saving for retirement is creating a plan for how to spend it.
"Most people do not have a plan for spending down. But if you can get yourself to the point where you do have a plan, you're going to find the whole experience in retirement of actually using this money that you've worked so hard to save much more pleasurable and empowering," she said.
The survey, which included 2,210 adults aged 45 to 79 with over $100,000 in investable assets, revealed that only 6% of respondents would regret dying with money left behind. However, 56% expressed concern about running out of money before they die. Bryan Pinsky, president of individual retirement and life insurance at Corebridge, noted that while doing nothing can prevent running out of money, taking action is essential to living the retirement one dreams of.
Retirement Pitfalls
Retirees face several real financial risks, with health care costs and inflation being the top concerns. More than 70% of retirees reported that these factors caused them to spend less than they would like. One common strategy for managing withdrawals is the "4% rule," which suggests retirees can spend 4% of their savings in the first year of retirement and adjust that amount annually for inflation.
However, experts increasingly view the 4% rule as a starting point rather than a universal solution. It does not account for market volatility, taxes, investment fees, or unusually long retirements, according to Charles Schwab. As younger Americans, particularly Gen X and millennials, face a future without traditional pensions, the need for reliable income streams becomes even more critical.
Many retirees rely on self-directed plans such as 401(k)s, but those with pension income tend to report greater financial stability. Some experts now recommend building guaranteed income streams through products like annuities to supplement Social Security. In the Corebridge survey, nearly half of respondents preferred a guaranteed $60,000 annual income for life over a $1 million lump sum at age 65.
"We all need money in the markets, we all need to be able to keep pace with inflation and we all need that kind of growth," Pinsky said. "But guaranteed-income products can help retirees cover essential expenses and reduce the fear of outliving their savings."
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