What does decumulation mean?

Decumulation, also referred to as de-accumulation, is the process of deploying your savings to fund your lifestyle in retirement. It’s essentially the opposite of accumulation, or the process of building wealth during your working years. How you decide to decumulate your assets is the most important decision you’ll make as you approach retirement.

Phases of accumulation and decumulation, or deaccumulation. Build wealth during your working years, and deploy it to cover your expenses in retirement.

When deciding how to decumulate your assets, consider the following:

How are your assets invested during retirement?

Safer investments mean lower expected returns but better principal protection. Riskier investments could produce higher returns, but puts your principal at risk. You’ll want to think about what portion of your money you need access to in the next few years versus what can remain invested for a long time.

How will you withdraw from your accounts?

With a systematic withdrawal plan, you could set up set dollar or percentage amount withdrawals from your portfolio. The government’s methodology, known as Required Minimum Distributions (RMDs), has you draw down your IRA based on life expectancies. Either way, you must consider which of your investments are being liquidated to fund the withdrawal and how market upturns and downturns could impact your plan.

What is your balance between guaranteed income sources and liquid assets?

For nearly everyone, an optimal retirement portfolio includes both. If your Social Security and any existing pension benefits do not cover your basic expenses, you could cover the gap by converting some of your assets into a steady retirement paycheck that continues for life (as with an income annuity). Consider the tradeoff between liquidity and the certainty of income you can’t outlive.

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Learn more about accumulation, decumulation, and your options for generating retirement income in our Retirement Planning Guide.