While people pay attention to savings and investments, they often ignore decumulation or a withdrawal plan for the post-retirement phase, which is as important as the accumulation stage. The decumulation strategy is a withdrawal plan from your retirement corpus to ensure you don’t run out of funds and live the life of your dreams until death.

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What Is A Decumulation Strategy?

Decumulation involves creating a plan for spending and reinvesting your retirement savings that guarantees that you use the funds efficiently while the investments provide regular cash flows. It is easier said than done, as it requires careful planning and a good lifespan assessment. So, the key to a happy life is drawing the line between overspending and underspending.

Challenges

Behavioural Biases: Research indicates that long-standing habits, including those related to finances, are hard to break. For some people, switching from a savings to a spending mindset could be difficult. This is why many retirees struggle to formulate a proper decumulation plan despite having adequate funds and cash flows, fearing the depletion of their savings.

Financial Preparedness: Inadequate planning, insufficient retirement corpus, and unexpected financial troubles, such as deteriorating health, can threaten a decumulation strategy. Hence, this will require you to spend judiciously, like cutting unnecessary expenses wherever possible.

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Here are three points to keep in mind when planning decumulation.

Plan With Reasonable Expectations: When planning decumulation, be reasonable in your expectations of returns, and don’t forget to consider inflation. Inflation erodes the value of investments significantly in the long run and thus should be accounted for carefully. Also, consider higher longevity and invest in assets that can generate stable returns in the long term.

Continue Investing: Decumulation doesn’t mean only spending. One can keep earning, saving, and investing as long as possible. For this, seniors will need a plan for everything, including health coverage and other risks, so there is no undue pressure on spending that will compromise your lifestyle.

Seek Advice From Experts: There are different decumulation rules, like the bucket strategy, where one saves for short, medium, and long-term returns, and the 4-percent rule, a withdrawal plan that can sustain a corpus longer. With experts’ help, evaluate what works better for you.

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Pay attention to the decumulation strategy as you save for retirement. With a smart accumulation and decumulation plan, you will be able to enjoy your retirement without any financial troubles.