Why decumulation is different

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Why decumulation is different


01 Apr, 2020

Decumulation investing, for the purpose of funding retirement income, is more complex than that required for accumulating assets. The need to provide a regular stream of payments impacts the investment choices that can be made for the assets supporting that income stream.
The investment goal of an accumulation portfolio is straight forward – return maximisation. Investing in a decumulation environment or investing in retirement is different. Decumulation investing, for the purpose of funding retirement income, is more complex than that required for accumulating assets. The need to provide a regular stream of payments impacts the investment choices that can be made for the assets supporting that income stream. Unlike the accumulation phase, when regular contributions support the ongoing purchase of assets, a decumulating fund needs to have a clear strategy around which assets it needs to sell to fund the benefit payments. This paper highlights the philosophical and practical challenges of managing a decumulating investment strategy. It also explores how a decumulation investment strategy is different from the approach typically applied in the accumulation phase.