Retirement spend down

At retirement, individuals stop working and no longer get employment earnings, and enter a phase of their lives, where they rely on the assets they have accumulated, to supply money for their spending needs for the rest of their lives. Retirement spend-down, or withdrawal rate, is the strategy a retiree follows to spend, decumulate or withdraw assets during retirement.

Retirement planning aims to prepare individuals for retirement spend-down, because the different spend-down approaches available to retirees depend on the decisions they make during their working years. Actuaries and financial planners are experts on this topic.

More than 10,000 Post-World War II baby boomers will retire in the United States every day between now and 2027. This represents the majority of the more than 78 million Americans born between 1946 and 1964. 74% of these people are expected to be alive in 2030, which highlights that most of them will live for many years beyond retirement. By the year 2000, 1 in every 14 people was age 65 or older. By the year 2050, more than 1 in 6 people are projected to be at least 65 years old. The following statistics emphasize the importance of a well-planned retirement spend-down strategy for these people:

Individuals each have their own retirement aspirations, but all retirees face longevity risk – the risk of outliving their assets. This can spell financial disaster. Avoiding this risk is therefore a baseline goal that any successful retirement spend-down strategy addresses. Generally, longevity risk is greatest for low and middle income individuals.

The probabilities of a 65-year-old living to various ages are:

Longevity risk is largely underestimated. Most retirees do not expect to live beyond age 85, let alone into their 90s. A study of recently retired individuals asked them to rank the following risks in order of the level of concern they present:

Longevity risk was ranked as the least concerning of these risks.

A portion of retirement income often comes from savings; colloquially, "tapping into the ". These present a number of variables:

Often, investments will change through retirement, becoming more conservative as one ages, but often continuing to hold risky investments, in the hope of investment gains. A number of approaches exist in target date funds, for instance.

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