The Decumulation Conundrum: Solving for Income in Retirement


In this paper, we look at a range of potential retirement income solutions available to plan sponsors and participants, including a discussion of investment-based and insurance-based solutions. It follows our earlier paper, Increasing Need for Retirement Income Solutions, which lays out the challenges facing investors in retirement.

As we discussed in our previous paper, the transition from defined benefit (DB) to defined contribution (DC) plans is occurring at a time when life expectancies have increased and the population is graying. This means a growing number of retirees no longer have guaranteed income at the same time their planning horizons have become longer and uncertain. Said differently, longevity risk is rising and entirely borne by plan participants. Spending decisions are difficult, and neither underspending nor overspending is an ideal outcome.

The good news is that retirement plan sponsors and the investment community have made significant progress addressing investment and behavioral challenges in the lead-up to retirement—the accumulation phase. But significant work remains to be done in the decumulation phase. Data show that plan participants want income solutions but don’t know how to manage their assets in retirement to achieve this goal. Fortunately, plan sponsors, investment providers and record keepers are addressing the issue. Regulators, too, have weighed in with much-needed changes.

The Decumulation Conundrum: Solving for Income in Retirement

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.