Most people spend their careers saving and accumulating funds so that one day they can retire. But when retirement finally arrives, a whole new process begins.
Economists call it, “the decumulation phase.”
This is the process of turning saved or invested assets into regular income.
Decumulation is an entirely different animal than accumulation. Paying regular bills by slowly liquidating investment shares can be an extremely complicated task to undertake.
- Which stock (or fund shares) should you sell first?
- Should you sell shares of a stock that is up or a stock that is down?
- Should you sell an average of all the stocks you own?
- Should you be selling shares of some other investment such as a bond fund?
I often think of the challenges of decumulation when I am at the grocery store and see very senior people doing their shopping.
(OK…if that makes me some kind of economics/financial nerd, so be it. There is a serious human side to this story.)
I think to myself,
“Does this person now have to go home, log in to his or her online brokerage account, and sell shares to pay for those groceries?”
I also often wonder,
“What if this person is alone and has lost his or her spouse?”
What if the spouse who is now gone was the one who “took care” of the money?
What’s left is someone at a very delicate and vulnerable senior age – who is likely intimidated or even downright afraid – forced by necessity to manage an extremely complicated and difficult task, just to pay for basic things like groceries.
There is a better way.
There are products designed to generate and distribute income more smoothly. These products generally “pool” funds in order to distribute income steadily and predictably over time.
- Funds of this general type date back to the Roman Empire when individuals were paid an annual stipend called an “annua.”
- Roman soldiers received such stipends in exchange for military service.
- Participants would make a single payment to the fund and receive payments each year until they died.
- Other funds of this type – called tontines – were used during the middle ages by kings and lords to finance the cost of frequent military campaigns.
- The first annuity used in America was established in Pennsylvania as a retirement fund for pastors in 1759.
- Lotteries today use similar mechanisms to distribute prize money to winners. After an initial lump sum is contributed, funds are paid out evenly over a number of years.
Converting savings into income can be a very complicated process, but it doesn’t have to be.
After a certain age, for mercy’s sake, it really shouldn’t be.
Don’t leave your spouse trying to manage a “do-it-yourself” decumulation plan.
Learn how annuities can help convert savings into guaranteed, worry-free income and make the decumulation process a whole lot easier.
If you would like to contact me to discuss whether annuities may be suitable in your situation, I can be reached by email or through my Cincinnati, OH insurance agency, McCarthy Stevenot Agency, Inc., at 513-891-9888.