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March 6, 2009

Wealth Decumulation / Asset Decumulation (Retirement)

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Definition

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

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

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

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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