One of the quirks about planning for—and living in—retirement is that people spend years preparing for it by saving money. Yet when they actually retire, some people are afraid to spend the money they worked hard to save.

Indeed, the decumulation phase of a person’s financial life can be a funny thing. One financial services executive who follows the retirement space said that’s partly because the financial services industry has invested a lot of intellectual capital to help people keep on track with saving for retirement, while perhaps neglecting the matter of how people spend their nest egg during retirement. 

“There have been a lot of guardrails put in place over the past 50 years or so for savers, but there’s not nearly so much guidance for spenders,” said Avi Sharon, executive vice president and product strategist at Pimco. “The likelihood of people’s misbehavior only rises in the decumulation phase, yet there’s a lack of guidance or guardrails for it.”

Sharon and a Pimco colleague spoke during a presentation Wednesday on investor behaviors in retirement during the “Next Chapter—ReThinking Retirement” virtual conference hosted by Financial Advisor.

Pimco is an asset manager best known for its fixed-income expertise, but Sharon noted that more than half of the company’s $2 trillion-plus in assets under management is dedicated to retirement accounts, particularly on its institutional platform for defined benefit and defined contribution plans.

He said retirement is one of Pimco’s top three strategic initiatives, and that focus led to a new study it did called “The Well-Tempered Retiree: Fine-Tuning Investor Behaviors in Retirement.” He and his colleague discussed the survey’s results during their conference presentation.

“We think the greatest opportunity for advisors—and the most interesting question for researchers—centers on that odd word of ‘decumulation,’” Sharon said. “Decumulation is about how to most effectively convert a traditional savings-oriented portfolio into what’s essentially a cash-flow machine. The transition from saving to spending obliges one to reconceive a portfolio not as a means to drive the greatest wealth, but rather to provide predictable income each year over the full retirement journey. Essentially, it’s paycheck replacement.”

He posited that the decumulation phase is fraught with potential pitfalls. “One thing we say with high confidence is getting investor behavior [right] in the decumulation phase is the sine qua non of success.”

In comparing accumulation to decumulation, Sharon said the financial services industry has borrowed from behavioral finance research to develop effective nudges to help keep folks on track with their retirement saving. Many of those come straight from individuals’ paychecks in the form of employer-sponsored retirement plans, default investment options and auto-enrollment, along with accelerated contribution options for older savers.

“That’s not to say saving is an easy matter,” he said, before he rattled off the various hazards on the decumulation side. They include mistiming when a person retires, setting an inappropriate spending level, mistiming the Social Security claiming strategy, and sequence risks dealing with the timing of withdrawals from a retirement account. There are also risks that retirees will get panicky during market downturns, sell assets and lock in losses, which can knock a retirement plan off course.

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