You often hear about Americans’ lack of preparedness for meeting the financial demands of retirement, but that isn’t the complete picture. For many retirees, the struggle isn’t having enough money socked away, the trouble is confidently spending the assets they’ve worked so hard to accumulate. This concept, called the “Decumulation Paradox,” is the subject of an award-winning white paper that discusses retirees’ reluctance to take money out their retirement portfolios even though they have sufficient funds to responsibly take withdrawals.
“The Decumulation Paradox: Why Are Retirees Not Spending More?” published in Investments and Wealth Monitor discusses retirees’ financial priorities and how they cope with managing personal finances in retirement. “The “decumulation paradox” research created an interesting window into the retiree mind-set. We saw behavioral psychology as a meaningful factor shaping how retirees cope with this life-stage from a personal finance perspective,” said Dylan Huang, head of Retail Annuities at New York Life Insurance Company and one of the authors of this paper. He continues, “With the right tools you can have the financial freedom and the confidence to live the retirement lifestyle you’ve been dreaming about for years.”
Research reveals that many retirees are spending only guaranteed sources of income, like Social Security and pensions, and/or the dividends and interest earned in their portfolios. Some even continue to save in retirement.1 More than half of retirees voluntarily live a simple, less expensive lifestyle. However, retirees with some form of insurance spend more freely, and guarantees help retirees spend more too.2,3 The white paper delves into retirees’ most important financial goals as well as ways to overcome obstacles and retirement risks.
The Decumulation Paradox white paper was this year's winner of the Investments and Wealth Institute's prestigous Investments & Wealth Monitor Writing Award.
Madamba and Utkus, 2015 – Save in retirement
2 Greenwald & Associates, Retiree Insights, 2018
3 Madamba and Utkus, 2015 - guarantees