Most retirees don’t have a regular income in the same way that they did when they were younger and working. As such, you need to start planning for your retirement so that you can build savings and accumulate assets to fund your future.

Although it’s worth consulting financial advisers for a clearer idea of your options, you can start considering how you are going to fund your retirement through the decumulation of your assets.

In this guide, we’ll look at what decumulation is, how you can build a strategy, and the risks to consider when planning for your retirement accounts.

What is decumulation?

Decumulation is the rate at which you draw funds out of your savings to cover the cost of your retirement once you cease working. This is the point that you no longer receive a regular income from a job and therefore need to find other ways to pay for your bills, day-to-day life, and luxury spending.

At this stage of your life, you will no longer be accumulating assets or paying into your savings. Instead, you will liquidate your assets and use your savings as a source of your retirement income, along with your State and workplace pensions. The aim is to maintain the same or similar quality of life as you would have had whilst you were still working.

The decumulation process requires an in-depth and strategic analysis of the funds needed for healthcare, tax, and various other spending. Other factors that will impact your decumulation strategy include where you are drawing your funds from and the source’s lifespan, as well as their reliability and your various pension schemes.

The best time to think about creating a decumulation strategy is when you are still earning, saving, and investing. This is so that you can plan far enough in advance that you are able to properly plan for the type of lifestyle you want to lead in your retirement and the funds that you need to do so.

What is the difference between decumulation and accumulation?

There are different risk levels and objectives for decumulation investors and accumulation investors. Accumulation is the process of obtaining something, which could refer to building a financial asset portfolio. It could also mean building the position size of a particular asset. Stocks that are experiencing a price rise are considered to be under accumulation too.

You may accumulate assets in preparation for your retirement. Your retirement fund and investment portfolio may be used to buy additional stocks, assets, and commodities.

On the other hand, decumulation is when you reach your retirement and draw down your assets and income so that you can use the funds as a source of income. You will likely do this as a way to maintain your quality of life, so you must consider how much income you need when you are accumulating retirement assets.

Investors are usually able to cope with risk when the market value of assets drops. Any following contributions that you make can be invested when there are cheaper valuations, which will increase in value as and when the market recovers. This process works well for investors who are saving for their retirement.

However, during your retirement, you may have to draw an income when the markets fall, which will lead to a permanent loss of capital. For this reason, it is important that you are able to balance the risk of investments with your other retirement savings so that your capital is protected from what can be a very volatile market.

How can I calculate a decumulation withdrawal rate?

The aim of decumulation is to make sure that you have a good withdrawal rate so that you don’t deplete your savings too quickly. Generally, the 4% rule is a good strategy to follow. This means that you withdraw 4% of your savings within the first year of your retirement. In each following year, you will then adjust this amount based on the rate of inflation. For example, the amount you could comfortably survive on now may not be enough in 15 years time, so you would need to withdraw more per month.

If you adjust your spending accordingly to the return on your investments and inflation, this method could see your savings last for around 30 years. Based on the State Pension age, this could see your savings last from the age of 67 to 97.

However, living costs vary from person to person based on regular activities and unexpected spending. Pension pots also vary in size, which means you are likely to have a different amount of savings compared to your friends and family. Due to this combination, there is no fail-safe way to strategise your decumulation until you analyse your assets and savings and consider how much you think you will be spending on a weekly and monthly basis during your retirement.

The lower the withdrawal rate each year, the higher the chance that you will have enough money for the entirety of your retirement. You can lower the rate if you think that you are spending too much money, but you could also factor in a bit extra if you want to spend more on something, such as a holiday or a new car.

What are the risks to decumulation investors?

Investing involves risk, which you will need to consider when you become a decumulation investor. Below is a selection of potential risks that could affect your decumulation strategy:

Market risk

Market risk, otherwise known as systematic risk, is when adverse price movement risks the loss of financial investment. As market risk affects the whole financial market, you cannot protect your assets through the diversification of your portfolio. Market risk isn’t linked to a particular industry as it is based on market activities such as economic turmoil and natural disasters. Market volatility also means that it is difficult to predict future trends based on past performance.

Sequencing risk

The sequencing risk is a combination of the returns that are generated and the ongoing withdrawals from the portfolio. If the returns of investments are weak during the beginning of your retirement and you make unsustainably high withdrawals, the combination can have long-term ramifications on your portfolio. A higher investment return later on in your retirement may not even be able to repair your portfolio.

Sequence risk is usually at its highest when the decumulation stage begins. This is because you are starting to rely on your assets to fund your ongoing spending, and you have a potentially long period of time in front of you.

Longevity risk

People are living longer than ever before thanks to the advances in medicine and diet. There are many benefits to leading a healthy lifestyle with plenty of exercise and a balanced diet, but the prospect of a long life means that you could outlive your savings and pension.

Women live to an average age of 82.9 years, whilst the average life expectancy for men is 79 years. Depending on how old you are when you retire and how long you live, you could enjoy your retirement for around 30 years. Although not many people live to see their 100th Birthday, it’s still a possibility you face that is worth considering when calculating your expected spending.

Inflation risk

Inflation has been a hot topic lately, and it’s something that you need to factor in when considering your decumulation plan. If it’s high for a long period of time, there is a chance that inflation could have a significant impact on the value of your assets and savings.

For example, an annual inflation rate of 3% over the course of 10 years could see the real value of your money decreases by a third. The chances are that you will only become aware of the effects of inflation when you are retired and on a lower income. Whilst you are accumulating assets and commodities, the additional income that you receive will usually mask the real cost of inflation.

When the rate of inflation is higher than any return that is being generated by low-risk investments, the higher the chance that these prices will perpetuate.

What are the considerations for planning a decumulation strategy?

Retirement income is usually based on a combination of savings and investments. There are a number of things that you need to consider when forming a retirement planning and forming a decumulation strategy:

Ideal retirement plans

One of the most important things to consider is the kind of retirement that you would like to lead. You will need to consider whether you will continue working part-time or if you will have expensive hobbies to fund. Many people like to travel during their retirement, so you will need to think about the number of holidays you would like to have or whether you will relocate. You will also need to consider your retirement spending on general bills and day-to-day activities.

Your decumulation strategy will need to fund your retirement lifestyle for however long you live after retiring. It’s not a good idea to overspend early on in your retirement only to run out of money a few years down the line.

Sources of guaranteed income

You will need to have guaranteed streams of income so that you can ensure that your retirement is paid for, including housing costs, utilities, and food. Most people are guaranteed to get a State Pension when they reach their qualifying age. Many other people will get paid their workplace pension and potentially a private pension too.

Withdrawal options

There may be stipulations on how much you can withdraw from certain accounts, such as a personal pension account. Some of your pension is tax-free, although you will have to pay tax on other parts of it. Generally, the amount you are taxed will be based on your income. You can take a maximum of 25% of the money in your personal pension as a tax-free lump sum. Following this, you will usually have six months to take the remaining 75%, although you will have to pay tax on this.


Decumulation is the process and rate of drawing funds from your savings and investments to provide an income for your retirement. You will need to consider a decumulation strategy so that you know how large your investment portfolio needs to be and how much you can withdraw from your funds at a time.

There are several risk factors to consider when planning your decumulation strategy. This includes the number of years that you need to provide for and the risk of the financial market depressing. You must also allow for inflation, which could see the value of your money decreasing over a number of years.

Your decumulation strategy forms an important part of your retirement savings which act as your lifetime income to fund your retirement expenses. It’s important to consider what kind of lifestyle you would like to lead in your retirement so that the quality of your life isn’t negatively impacted by your withdrawal amount or rate.

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