How to Approach Decumulation When You Retire

You've been saving for years, but have you started to plan for decumulation yet?

Having a retirement decumulation strategy can be vital if you want to live comfortably in your golden years without worrying about the money have have set aside for retirement. For most of your career, you probably spent time saving money, but now you will most likely need to focus on how much you can spend each month, and where that retirement income will come from. You likely have savings from many different sources, as well as different methods of distribution to choose from. Here are few tips on how to successfully implement a retirement draw-down strategy:

Determine How to Withdraw Money and How Much

In order to make a decumulation plan, you have to know how much money you’ll need. Your spending in retirement can be different than how you spend money today. You may not have a mortgage payment, children to support or costs to commute to work, but you may have new expenses like prescriptions and medical costs. As you get older you may not be able to do all the things you could when you were young. That can mean hiring folks to rake leaves, shovel snow or fix something in the house. You may wish to travel more, or take up new hobbies. In other words, your life will change. To make sure you are financially prepared, start by taking a look at the lifestyle you want and the expenses required to support it. Be conscious not to withdraw any more money than you need.

  • Create a budget – Go through all of your expenses, including debt (credit card, car payments, loans, mortgage, relocation, travel) to map out how much money you’ll likely spend each month in retirement.
  • Figure out where you want to live – The taxes and expenses you’ll pay in retirement will be determined by location. Spend time researching lower cost/higher quality of life places in the U.S. or abroad.  
  • Factor in part-time work – Part-time work is a part of many people’s retirement for extra income, or just to stay active. If you plan to work part-time, make sure to factor in that money and how it might affect your assets and regular money withdrawals from your nest egg. The more income you have in retirement the less you may need to draw down.
  • Research health care and insurance costsOut of pocket healthcare costs for a 65-year-old couple are estimated to exceed $260,000. And given the trend towards longer life expectancies those costs could be higher. Make sure you examine your health, as well as your family health histories, and the potential health effects of your location. It’s also a good idea to get familiar with how Medicare and Medicare Supplemental Insurance work.
  • Consider an installment plan – If you are looking to structure your retirement savings, an installment payment program can help you stay on track long-term. Installment payments will give you the ability to create a flexible payment cycle that allows you to use your savings, pension and other income sources in a way that works best for you.

Consider Annuities

Annuities are a great option to plan for longevity risk, and therefore a solid option for combating decumulation.

Annuities are a good way to manage longevity risk (the risk of outliving your money). Annuities may provide financial stability, offer key tax advantages and can help you to make long-range plans without worrying about spending all your retirement income. In exchange for a portion of your retirement savings, they can deliver a guaranteed monthly income for as long as you live. There are various types of annuities available to you through annuity distributors, but they are dependent on different factors. Figuring out the best kind of annuity for you requires an examination of your retirement income. You also have to assess your health.

Get Help from a Financial Professional

Afraid to plan alone? Don't be! A financial professional is a great option while planning for retirement and decumulation.

Meeting with a qualified financial professional who specializes in retirement planning is recommended. Make an appointment well before you retire to find a professional who can help you navigate all the financial options available to you, and offer strategies for long-term planning.  

Insurance products issued by Midland National® Life Insurance Company, West Des Moines, Iowa. The term financial professional is not intended to imply engagement in an advisory business in which compensation is not related to sales. Financial professionals that are insurance licensed will be paid a commission on the sale of an insurance product.

Neither the company, nor any financial professionals acting on its behalf, should be viewed as providing legal, tax or investment advice.


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