The Fundamental Differences in Accumulation and Decumulation
5 Pages Posted: 14 Oct 2010
Date Written: 2008
Abstract
The trend for individuals to assume more of the burden for funding their own retirements has fostered the development of lifecycle-based investment strategies for the pre-retirement accumulation phase. An individual investing for retirement contributes money periodically during his or her working years to a retirement account, which is invested for the purpose of accumulating enough assets to provide cash flow to fund retirement at some desired age. Target-date funds, for example, are designed for this specific purpose.
When clients move from the retirement-saving (accumulation) phase to the retirement-spending (decumulation) phase of their lives, however, their investment objectives may change significantly. Once retired, the individual continues to invest the assets while also drawing on them to fund living expenses.
Keywords: Retirement Saving, Accumulation, Decumulation
JEL Classification: E21, G11
Suggested Citation: Suggested Citation