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Decumulation Harder Than Accumulation, Study Finds

Practice Management

Retirement plan participants spend many years — perhaps an entire career — accumulating savings to support themselves after they retire. But decumulation — actually spending it — can prove to be even harder.

In an April 30 session at the Plan Sponsor Council of America’s (PSCA) 2019 annual conference in Tampa, Suzanne Shu, Associate Professor at UCLA’s Anderson School of Management, presented findings concerning research into decumulation during retirement.

“The decumulation phase is even harder” than the accumulation phase, Shu said, telling attendees that retirees sometimes are not sure what to do with the money they’ve saved for retirement.

Shu said that in their research concerning decumulation, UCLA researchers asked study participants for their views on annuity preferences. Shu said that they found that people in their study “just don’t like annuities,” despite their projected performance. And one-fifth — 20% — always said that they would not pursue an annuity option.

But the researchers found that the mentality toward Social Security was the polar opposite, Shu reported. Since for many people, the Social  Security full retirement age is 66 or 67, one might expect that those they studied would want to wait to claim their Social Security benefits. But they found that there was a far greater number who wanted to claim them at age 62. “Most people really want it now,” she said.

Why? Shu said that the attitude is, “It’s my money that the government has, and I want it back.” There are strong feelings of ownership of Social Security benefits, Shu said, adding that individuals “don’t want to miss out and run the risk of not getting their full money’s worth.”

Messaging

Shu said that UCLA research found that different messages have different effects on different people. They found that:

  • a focus on future benefits increases the intended claiming age to a greater extent for people who are less patient;
  • information on regret increases the intended claiming age to a greater extent for people who are less averse to losses; and
  • thinking about one’s future self increases the intended claiming age for people who are not “connected” to the future.

Take-aways

Shu shared two points to keep in mind:

  • Individual differences matter; retirement income solutions require more customization than retirement savings.
  • Behavioral interventions are highly specific to the task  and to the individual. For example, cumulative payout tables increase interest in and comfort with annuities; also, claiming interventions have small effects, but focused self-reflection is most encouraging.

Customized intervention, and understanding the emotional content of decumulation decisions are next steps, Shu said. “You can’t have a one-size-fits-all solution,” she said; solutions need to be individualized. Decumulation is a problem that is “really hard to solve,” said Shu, adding, “we’re going to have to work together to solve it.”