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Retirement Decumulation

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A Little Background on Retirement “Decumulation”

For the last two decades, retirement has been all about accumulation. Prospective retirees needed to make investments that would make money for them so they had enough to live off of for their remaining years. Since the collapse of the housing market, the resulting global financial crisis, and the loss of value in scores of retirement portfolios, the simple strategy of building up a sturdy hoard on which to feed off of for your retirement years is quickly becoming defunct. These days it’s all about “decumulation”, or rather, how to ensure you have the minimum it will take to afford basic living expenses and lead a modest and productive life. In order to do so, however, many people have to abandon expectations that retirement planning can lead to more money than they know what to do with.

Changes in retirement planning involve more than just the recent loss of value in retirement investments. It’s long-term indicators like increasing life expectancy and rising costs of medical care for those over the age of 65 that are driving many analysts and experts to recommend that those willing to commit to retirement planning consider abandoning traditional combination of investments and social security pensions in favor of annuities. That doesn’t sit very well with the majority of those planning retirement who are not used to the idea of forking over huge sums of money to a company to receive a steady paycheck when they could be using the money to maximize their income through investments.

This is understandable when you consider that annuities are weakened when spouses are brought under the umbrella. In addition, the way in which annuities are dispersed is in complete contrast to the way spending in retirement actually works. Money is dispersed in higher doses later on, when most retirees are no longer spending money leisurely, and dispersed sparingly when seniors will want to use it the most. No matter how you look at it, annuities are a tough pill to swallow.

Decumulation is not a euphemism for destitution. Fear not, a future where you and your spouse are relying on food drives to stay fed. Responsible retirement planning still demands the same level of patience and devotion to research that it always has. The game has just changed a little. We can no longer afford to think that retirement investments are surefire ways to secure safe and sound senior living. We have to accept that modest expectations are the new norm.

This post brought to you by retirementcalculator.com

retirebyforty> It’s all about the burn rate! The ultimate goal is to keep your retirement fund steady while living only on the income generated from those investments. The real truth is we all will probably have to work at least part time to help generate the income needed for retirement. That’s why we need to get started on the passive income now and also figure out a way to make money in our spare time.


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{ 11 comments… add one }
  • SB (One Cent At A Time) July 12, 2011, 7:57 am

    This is a nice twist, every one talks about saving for retirement, no one does about how to spend during retirement..May be because the current generation in retirement is not internet savvy.

    Good thought in deed to post this

  • Jeff @ Sustainable life blog July 12, 2011, 9:24 am

    I’d have to agree – it’s all about the burn rate. The less cash you burn, the less you’ll need. Most retirees dont need a 4k sqft house or 3 minivans. Their lives have changed (significantly) and they should adapt.

  • Krantcents July 12, 2011, 2:47 pm

    I do not expect to spend more in retirement, but I do expect to spend it differently. I will have no mortgage nor will I save which frees up a lot of money.

    • retirebyforty July 13, 2011, 10:17 am

      That sounds great! I think you’re the closest one to real retirement so I’m looking forward to reading your transition.

  • First Gen American July 12, 2011, 4:50 pm

    I agree completely. In theory a retired couple should need a lot less than when they have a house chock full of kids, careers, etc. You can simplify your housing situation, your wardrobe, heck even the type of car you need.

  • cashflowmantra July 12, 2011, 6:49 pm

    I fully intend to be able to live off less than the passive income from my retirement savings and pass along a decent inheritance along with the knowledge to keep it growing.

    • retirebyforty July 13, 2011, 10:20 am

      That’s a great plan. I hope your kids can all learn from you, but you know there is always one black sheep. 😉

  • Broke Professionals July 13, 2011, 11:40 am

    Looks like I will be in the minority with this 😉 I expect our expenses to go up in retirement. We have a lot of big plans for that time (we will do that sooner, not waiting for the “target date” but it will be full fledged in retirement, so we need more money than now).

  • Miss T July 14, 2011, 6:09 pm

    I don’t think I will ever stop saving because there will always be something that I will want to do. Yes when you are debt free you have more money to spend but I would always want to have a reserve just in case. I think I would stop at number 9.

  • technical school July 18, 2011, 11:07 pm

    Yeah this is really nice twist to know how to spent money retirement pay. This is great article for those people having there retirement. This is really valuable and informative blog to all…Thanks a lot!!!

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